AASTMT / Egis Bceom Int. / IAU-IDF / BRGM
Chapter 6 – Economic Analysis
1. What is the quantitative evolution of those physical flows (‘production’) over time? 2. How to value in cash a flow given in year i taking into consideration its relative value in the world as it will be that year i? 3. Once the flow quantified and valued at the year i, how can this value be converted in present value? 4. Is this current value the same everywhere?
All of these questions constitute an essential component of the ‘translation’ in current terms of a situation evolving through time; it is respectively question of quantity components, relative value, temporal value and spatial value of flows. The treatment of those components enables to converts those facial future flows in order to count them in net present value. The approach developed in 1.4.1 confines the discounting rate to the treatment of the temporal component of flows. The third question is then settled. The spatial component (question #4) takes into consideration the geographical position of the flow emission. It is then question of currency conversion. In the optic of project financing, this component conveys a risk (of exchange) it is important to value. The present approach is different and the consultant will only work in EGP, therefore without being concerned by this issue. Let us now imagine a simple project, like the production and sale of a good G. Knowing on the one hand which quantity of G will be sold each year and on the other hand the evolution of the value of one unit of G takes back to questions #1 and #2. Those two pertain to the flow issue. It is not uncommon though to encounter models in which flow profiling only account for volume variations (quantities). The unit selling price, when subject to a constant annual indexing, is transferred to the denominator’s position and it therefore integrated to the discounting perimeter. The discounting is then reduced from the growth rate value of one G unity. This common practice can, in some complex cases, induce mistakes. The proposed approach, based on existing best practices, has the capacity to deal with any case with clarity.
Question #1 – quantitative component – is about the variation of flows’ volume over time. It is in the present case rather simple to consider: for instance if the rainfalls increase with time, other things being equal, disaster damages will also increase. The application of the concept doesn’t represent any problem methodological wise, nevertheless there is a difficulty concerning the study: the level of effort and the ToR do not coincide with a methodological evaluation of the flows over different horizons. To go back to the previous example, it would be necessary and more rigorous to make an effort of projection in regular intervals all along the considered horizon, for example every 10, 20 or 30 years. The phase 1 has already identified and discussed this issue thoroughly. This study is actually making this exercise of projection only for the 2030 horizon. This issue is more about profits than costs. Indeed, the corrective actions do not vary much in quantity. It can be argued that in the case of infrastructures, the maintenance can be related to hazards frequency and intensity, both variables over time. Uncertainties are too high in this sector in order to assess them in a credible way. Costs volumes will be taken in the top of their respective range (conservative principle).
Climate Change Adaptation and Natural Disasters Preparedness in the Coastal Cities of North Africa
Page 126 Final Version