Valuation Study

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Economic Analysis of Dam Construction Projects

Attributes

Medium: Water

Country: Thailand

Analytical Framework(s): Economic Analysis

Study Date: 2000

Publication Date: 2001

Major Result(s)

Category Resource/Environmental Good THB, million currency units
(2000)
THB, million currency units
(2014)1
USD, million currency units
(2014)2
With a power plant Cropping system I3 -907.22 -1,243.41 -37.78
With a power plant Cropping system II 1,728.18 2,368.59 71.96
With a power plant Cropping system III 2,759.81 3,782.51 114.92
Without a power plant Cropping system I -880.66 -1,207.01 -36.67
Without a power plant Cropping system II 1,754.73 2,404.98 73.07
Without a power plant Cropping system III 2,786.37 3,818.92 116.03

About the Inflation Adjustment: Prices in Thailand (THB) changed by 37.06% from 2000 to 2014 (aggregated from annual CPI data), so the study values were multiplied by 1.37 to express them in 2014 prices. The study values could be expressed in any desired year (for example, to 2022) by following the same inflation calculation and being sensitive to directional (forward/backward) aggregations using your own CPI/inflation data.

Study Note: Thailand has constructed many storage dams in the last three decades and will continue to construct more in the future. Because the potential economic and environmental impacts of such projects are significant, decisions to construct dams need to be based on sound analysis. In particular, they require cost-benefit analyses that are clear, comprehensive and based on accepted economic and accounting principles. Many analyses to date have had serious shortcomings that adversely affect decision-making. The purpose of this paper is to provide guidelines for cost-benefit analysis users and policymakers who commission such studies. It is hoped that this paper will lead to project appraisals that are done in a consistent and transparent manner, facilitating the comparison of alternative project options and enabling informed decision-making. The Appendix to this paper describes a dam construction case study that might have benefited from the guidelines such as those presented in this report.

Study Details

Reference: Piyaluk Chutubtim. 2001. Guidelines for Conducting Extended Cost-benefit Analysis of Dam Projects in Thailand. EEPSEA Research Report, No. 2001-RR16.

Summary: Dam construction has long provided valuable economic benefits to Thailand in distributing low-priced electricity and supporting low-income farmers by providing them with free-flowing irrigation water; this promotes domestic consumption and investment. Even though many benefits are expected from dam construction, a dam project needs to be carefully evaluated using cost-benefit analysis (CBA) before approval. Decision-makers have to review the negative effects of the construction and operation of a dam. These effects are sometimes difficult to measure in monetary terms. Each impact requires the use of particular techniques to determine their monetary value; the choice depends on the characteristics of a particular impact and what relevant information is available. The primary data technique incorporates the market price approach, revealed preferences approach, and stated preferences approach. The secondary data technique is also called the benefits transfer method. An erroneously-conducted CBA can lead policy-makers to make a wrong decision on a project. Therefore, in order to provide policy-makers with accurate information and right recommendations on a project alternative, an analyst has to identify all potential project impacts, apply appropriate valuation methods and select the correct criteria. This report provides basic guidelines for analysts to conduct a proper CBA on dam projects and includes a case study of the Kwae Nai Dam in Thailand that will give useful insight into the practical applications of a CBA.

Site Characteristics: The Kwae Noi River has its origin in Amphur Charttrakan, Phitsanulok Province, and covers an area of approximately 32,000 hectares. Eighty per cent of the population in this area are low-income farmers who own small-sized farms. Agricultural production has been relatively low in this region due to the lack of water supply during the dry season. In addition, there is an average of twelve days of flood during the wet season every year in Amphur Watbot, Amphur Prompriram, Amphur Muang, and Amphur Wangtong, all located in the Phitsanulok Province, and this has further hindered agricultural development. Since it is expected that the problem of floods will grow even more serious over the next few years, the Kwae Noi Dam project is important as a potential solution to this.

Comments: The author noted that When dams are built solely to provide hydroelectric power, all other purposes of water usage become secondary, leading to a conflict among the water users and ultimately, to inefficiency of such projects. Multi-purpose dam projects in Thailand normally involve three government agencies: the Royal Irrigation Department (RID), the Electricity Generating Authority of Thailand (EGAT) and the National Energy Policy Office (NEPO). These agencies are respectively responsible for providing irrigation water, producing electric power and managing the country's energy resources. They need to be provided with sound economic analyses on dam projects in order to determine the net social welfare value of each.

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