An Empirical Application of Probabilistic Cba: 3 Case Studies of Dams in Malaysia, Nepal and Turkey

Abstract

This paper empirically applies cost benefit analysis to hydroelectric projects in Malaysia, Nepal and Turkey. The main characteristics of each dam and the development stage of each country largely differ. The study attempts to bring all the major issues attached to each hydro project together and analyses quantitatively what would be happening if these dams were to be constructed. The cost benefit analysis model in this study takes account of premature decommissioning of dams and the correlation between the parameters of generation capacity, total construction cost and construction period. The mean cumulative net present value at the 100th year of the analysis with the 5% discount rate for Sharada-Babai dam in Nepal shows a positive figure, whereas the net present value for both Bakun dam in Malaysia and Ilisu dam in Turkey are negative. The mean value of the cumulative net present value for Sharada-Babai becomes negative when the pure rate of time preference is larger than 6%; for Bakun and Ilisu, it converges to zero as the pure rate of time preference becomes larger. The sensitivity analysis shows the dominant positive impact of the generation capacity parameter on net present value for Bakun; and the parameter expressing initial expected increase in economic output for Sharada-Babai and Ilisu.

Keywords: Cost benefit analysis, dams, hydroelectricity, Malaysia, Nepal, Turkey

JEL Classification: L94, Q01, Q20, Q42