FEASIBILITY STUDY

Economic and Social Aspect

By :

Group 1
Member :
Anak Agung Sagung Putra Pradnya Paramitha

(1306205005)

I Gusti Ngurah Friday Palaguna

(1306205006)

Ni Made Intan Agustina Ariani Darmayasa

(1306205008)

Ni Made Manik Indrayani

(1306205029)

Ni Komang Ayu Warnayamti

(1305205031)

Faculty of Economics And Business

Udayana University
2015

7.1 Economic Analysis And Financial Analysis

Costing of Entire Project and Phases
Cost estimates of the following items should be included:

Cost of infrastructure for the corridor based on unit costs as far as possible (Annex 11
provides a checklist of infrastructure cost items);

Cost of maintenance of the infrastructure (per annum)

Cost of facilities stations and terminals

Maintenance cost and operation of the facilities stations and terminals (per annum)

Fleet investment (public and private)

Cost to mitigate environmental impacts

Cost to cover possible social impacts and to generate appropriation of the work

Resettlement of housing, trade and facilities;

Complementary services, illumination, safety, special access etc.

Complementary works cultural, parks, historic buildings etc.

Consultancy

Fares Policy: This should be presented in terms of compatibility with other modes and ease
of use. It should cover at least: basic fare structure, use of contactless smartcards with
external card readers at major stations and terminals (impossible without pre-paid
loading) and demonstrate how this integrates with other Mass Transit modes.
Estimation of Revenues by Source
Revenues from each source should be estimated for each phase and for different fare structures.
The revenue items include:

Fare revenue

Advertising

Route bidding etc.

Property development etc.

FIRR and EIRR over 15 Years

Most systems will require a cost-benefit analysis, comparing in economic terms the
situation implementing the project with the do-nothing case.
The costs considered above should be evaluated against benefits, excluding items such as taxes,
and using market prices as far as possible.
The results would normally be expressed in terms of:

Internal rate of return

Net present value

Cost-benefit ratio

Sensitivity of project viability to cost overrun/revenue reduction

Details should be given of all assumptions made in the analysis.

Financial Structuring of the Project
The proposed financial structure should be given with reference to other options not
selected and to international best-practice. (The recommended working model for HCBRT, as
determined from best practice studies, involves the deregulation by area concession of the
operation of units to the private sector. The financial and risk analysis of operating the system
would thus be carried out by either the bidders or the concession holder.)
PPP Potential: Although of mixed outcome for HCBRT, high volumes at terminals are of
possible commercial interest. Certainly, the sites close to such terminals are highly valued. This
may permit a PPP approach to part of the funding, to improve project viability, in which case
details should be given.
Financial Support: During this stage, the city (or the state) may wish to procure financial
support from the national government or one of the major international lending agencies.
Negotiating a grant or loan-contract is a procedure that varies according to agency culture, but
will normally require final detailed engineering design of at least some of the major works (often
the works which will be built during the first year of the loan).
Sustainability Analysis of the System
For both infrastructure and vehicles, a detailed risk analysis at various stages of the
project with mitigation strategies.

7.2 Approach Used To Economic Analysis

The approach used to conduct economic analysis of a project essentially basing
themselves on the UNIDO approach Guide to Practical Project Appraisal. The method used here
to begin the analysis by using the financial profitability analysis based on the market price (in
other words used NPV analysis from the viewpoint of the company). After that made
adjustments to estimate the net benefits of the project in accordance with economic price.
Intended with economic price is the price if there is no distortion. Determining the economic
price (also known as shadow price or opportunity cost) need to be done for each input and output
of the project.
If an analysis of the costs and social benefits (SCBA), UNIDO continue the above steps with:
1
2
3

Making adjustments to the project's impact on savings and investment.

Making adjustments to the project's impact on income distribution, and
Making adjustments to the impact of the project in accordance with the considerations of
merit wants.

Shadow Prices For Resources

1

Inputs and outputs are traded (tradable). A product is said to be traded if we could get it
in the world market. For these types of products in international prices (or border price)

that is expressed in a monetary exchange market is the shadow price.

Input and output which not traded (non-tradable). A product is said to be traded if, (i) the
import price (CIF) is greater than domestic production cost, and (ii) the export price
(FOB price) less than the cost of domestic production cost. The value of non-traded
goods should be measured according to the marginal production cost (if any cause
additional production project or any project resulting in reduced production of other

companies). For output, we need to attented to consumers willingness to pay.

Labor. If the project employs a workforce, then there are three possibilities. The project
may attract workers from other sectors, or the project will reduce unemployment or to
import labor from abroad. If the employee exciting projects attract employees from other
sectors, the shadow price is how many other sectors are willing to pay for the work force.
If the project is to create jobs (employment), and employ those who were previously
unemployed, then it is likely once the shadow price of labor is much lower than the
salaries paid to their company. If the project to import labor, then the shadow price is the

wage they want plus a premium in the form of foreign exchange that is sent to their origin
4

country (wage remittances).

Capital. Sometimes a country adopted a policy to help develop a sector by providing
cheap credit. For companies which obtain the credit, cost of debt assumed of course in
accordance with the interest paid (cheaper than it should be). However, in the calculation
of the shadow price of capital we need to attented the opportunity cost of capital. This

opportunity cost (with respect to an element of risk) which is the shadow price of capital.
Foreign exchange. Maybe we find that there are two foreign exchange rates, is the official
exchange rate and the market rate. In many developing countries the official exchange
rate is much lower than the market rate, in the circumstances relevant of the shadow price
to the foreign exchange is the market rate.

Illustration Of Economic Analysis

1

An investment project is planned to produce 1,000,000 units of product per year. As a

result of the additional supply product prices are expected to drop from IDR 600 into

Rp.500 per unit.

The raw materials cost required in a year amounted to Rp.50 million. Forty percent of the

raw materials value, imported is 20%.

Trained labor is paid Rp.50 million per year. As in developing countries, it is estimated

that trained labor underpaid 50%.

Untrained labor also paid Rp.50 million per year. Opposite to trained labor, untrained
labor only have the opportunity cost was estimated at 62.5% of the wages they receive.

This is because they include not work full before any such project.
Fixed assets are depreciated 10% per year with no residual value. Depreciable fixed
assets (including the engine) was purchased at a price of Rp 500 million. Machine worth
Rp 200 million imported with 10% import duty. Land is not depreciable fixed assets,
purchased at price Rp.80 million. It is estimated that the land could be sold for Rp.140

million. Assessed the land in accordance with the market price.

The Company obtained a credit of Rp.250 million with interest rates prevailing, which is

20%.
Other costs amounted to Rp.60 million per year. This cost in accordance with the market

price.
8 The company pays income tax at the rate of 25%.
In accordance with the information estimated operational cash flow of the company (for financial
analysis) as follows:

Revenue

Rp.500,0 million

Costs
Raw Material

Rp.150,0 million

Labor
Trained
Untrained

Rp. 50,0 million

Rp. 50,0 million

Depreciation

Rp. 50,0 million

Other Cost

Rp. 50,0 million

Total Cost

Rp.360,0 million

Operational Earning

Rp.140,0 million

Interest

Rp. 50,0 million

Earning Before Tax

Rp. 90,0 million

Tax (=25%)

Rp. 22,5 million

Earning After Tax

Rp. 67,5 million

Operating Cash Flow

67,5 + 50 + 50 (1 0,25)

Rp.155 million

Adjustments which made for economic analysis are as follows (in millions rupiah):
Revenue

Rp.500,00

Consumers Surplus

Rp. 50,00

Rp.550,001)

Costs
Raw Material

Rp.150,00

Import Duties

Rp. 10,00

Rp.140,002)

Labor
Trained
Rp. 50,00
Underpaid 50%
Rp. 25,00
Untrained,
Opportunity Cost 62,5%

Rp. 75,003)
Rp. 31,254)

Depreciation

Rp. 48,205)

Others

Rp 60,00

Total Cost

Rp.354,45

Operasional Earning

Rp.195,55

Interest

Rp. 60,00

Earning Before Tax

Rp.135,55

Tax

-------------6)

Earning Before Tax

Rp.135,55

Operating Cash Flow Ekonominya

135,55 + 48,20 + 60

Rp.243,75 million

Description:
1 Consumer Surplus

= 135,55 + 48,20 + 60
= Rp.243,75 million
2 The price of imported raw materials is 40% x Rp.150 million = Rp.60 million. In this

3
4
5

price includes an import duty of 20%. Thus, the shadow price is

[60/(1 + 0,2)] x Rp.50 juta
Import Duties = Rp.60 Rp.50 = Rp.10 million
Trained labor paid very cheap 50%. Means the shadow price is Rp.50 + IDR 25 = Rp.75
million
Shadow price of untrained labor is
Rp.50 x 0,625 = Rp.31,25 million
Shadow price of imported fixed assets are
[500/(1 + 0,1)] = Rp.182 million
So, depreciation per year is
= (300 + 182) x 10%

= Rp.48,2 million
6 Taxes do not need to be considered because just a transfer from employers to the
government.

7.3 Economic And Social Benefit

Measurement of utility is harder than measurement of economic cost, because beside
utility of economic that accepted directly in the form of project output which is can be measure
by monetary unit, there are secondary utility and intangible utility.
Measurement of primary economic utility in the form of main output and measurement of
its utility done by revenue of foreign exchange, so we also need get adjustment with shadow
price.
Sometimes some secondary utilities of a project hard to measured in monetary unit are :
1
2
3
4
5
6

Increasing production level

Helping revenue equity process
Increasing economic growth
Decreasing dependency
Decreasing unemployement
Socio-cultural utility

From some utilities above if a project more concern in social and distributive affect, so the
utilities stated in clear measure, except if the project concern in financial effect. It does not mean
in economic analysis there is no cost report and its utility in clear way and from this report after
cost adjustment.
As a other example for economic utilities of transport are :
1
2
3
4

Decreasing exploitation cost for project user

Encourage development
Saving time for passenger and transport of goods
Increasing of comfort and happy feeling

From all explaination above we can see that measurement of economic utilizes are harder
than measurement of economic cost, cause by :

Although some utilities are directly hard to measured by money, because usually cant be

2
3
4

stated in market price, but shadow price

Utilities mostly needs long term estimate
There are many utilities that undirectly and in its implementation needs add project
There are utilities that enjoyed by stakeholder in uneven way

7.4 Shadow Pricing

The term "Shadow Price" or "Shadow Pricing" is used to refer to monetary values
assigned to currently unknowable or difficult to calculate costs. The origin of these costs is
typically due to an externalization of costs or an unwillingness to recalculate a system to account
for marginal production. For example consider a firm that already has a factory full of equipment
and staff. They might estimate the shadow price for a few more units of production as simply the
cost of the overtime. In this manner some goods and services have near zero shadow prices, for
example information goods.
Less formally, the cost of decisions made at the margin without consideration of the total
cost. For example consider a trip in your car. You might estimate the shadow price of that trip by
including the cost of gas; but you unlikely to include the wear on the tires or the cost of the
money you might have borrowed to purchase the car.
In constrained optimization in economics, the shadow price is the instantaneous change,
per unit of the constraint, in the objective value of the optimal solution of anoptimization
problem obtained by relaxing the constraint. In other words, it is the marginal utility of relaxing
the constraint, or, equivalently, the marginal cost of strengthening the constraint.
In a business application, a shadow price is the maximum price that management is
willing to pay for an extra unit of a given limited resource. [1] For example, if a production line is
already operating at its maximum 40-hour limit, the shadow price would be the maximum price
the manager would be willing to pay for operating it for an additional hour, based on the benefits
he would get from this change.

More formally, the shadow price is the value of the Lagrange multiplier at the optimal
solution, which means that it is the infinitesimal change in the objective function arising from an
infinitesimal change in the constraint. This follows from the fact that at the optimal solution the
gradient of the objective function is a linear combination of the constraint function gradients with
the weights equal to the Lagrange multipliers. Each constraint in an optimization problem has a
shadow price or dual variable.
The value of the shadow price can provide decision-makers with insights into problems.
For instance if a constraint limits the amount of labor available to you to 40 hours per week, the
shadow price will tell you how much you should be willing to pay for an additional hour of
labor. If your shadow price is $10 for the labor constraint, for instance, you should pay no more
than $10 an hour for additional labor. Labor costs of less than $10/hour will increase the
objective value; labor costs of more than $10/hour will decrease the objective value. Labor costs
of exactly $10 will cause the objective function value to remain the same.

7.5 Environment Impact Analysis

Definitions of EIA
Environmental Impact Assessment, which is often abbreviated as EIA, is a study about big
and important impact to environment that made in planning phase, and used to take a decision.
The thing that is studied in EIA process is the aspect of chemical-physical, ecology, social
economics, sociocultural, and the health of society as a complement for analysis study of a
business plan. The analysis about the environment, in one side is condition which must be
fulfilled to get permit to run a business. Based on this analysis we can clearly the big and
important impact of environment, whether that a negative impact or a positive impact that can be
occur from the business, so can be drawn up the step to overcome the negative impact and
develop the positive impact.
EIA came into effect in Indonesia in 1986 with the issuance of Government Regulation No.
29 of 1086. Due to the implementation of Government Regulation No. 29 1986 experienced

some bureaucratic obstacles and methodological, since the date of October 23, 1993 the
government revoked the Government Regulation No. 29 of 1986 and replace it with Government
Regulation No. 51 of 1993 on EIA in order of effectiveness and efficiency of the implementation
of the EIA. With the enactment of Law: No. 23 In 1997, the Government Regulation No. 51 of
1993 need to be adjusted. Therefore, on May 7, 1999, the government issued Government
Regulation No. 27, 1999. Through the Government Regulation No. 27, 1999 is expected to
environmental management can be optimized.
Development that does not sacrifice the environment and / or damage the environment is
the development that takes into account the effects that can be caused by the operation of the
development. To ensure that a building can operate or feasible in terms of the environment,
require analysis or feasibility study on the impact and consequences that would arise if an
activity plan/business will be conducted.
Criteria regarding large and significant impact of a business and / or activity on the
environment, among others:
1
2
3
4
5

The number of people affected.

The area of distribution of impacts.
The intensity and duration of the impact
Many other environmental components affected
The nature of the cumulative impact
6 Turned (reversible) or irreversibility (irreversible) impact.
The role of EIA
The issue of environmental damage caused by industry and households, especially in
developing countries such as Indonesia is very complex and it is worrying. Because of the need
for awareness of all parties to participated in addressing environmental pollution. Government
through policies and rules should be able to regulate the industry, in both liquid waste
processing, wood and air. Industrious parties must be aware of the role of pollution are very large
and should be willing to build sewage treatment. The community should have a very large role in
the processing of household waste and the environment so that environmental sustainability, air,
soil and water can be properly maintained.

EIA is done to ensure the objectives of development projects aimed at the welfare of
society without damaging the quality of the environment. EIA is not a stand-alone process, but it
is part of the EIA process larger and more important that the EIA is part of some of the following
rights:
1
2
3
4
5

Environmental management
Monitoring project
Project Management
Decision-making
Document important
EIA is not a stand-alone process, but part of the EIA process larger and important,

thorough and the whole of the company and its environment, so that the environment can be used
to manage and monitor the project and its environment with the use of proper documents.
Furthermore, some of the EIA's role is described as follows: The role of EIA in
environmental management. New environmental management activities can be carried out if the
environmental management plan has been prepared based on estimates of the environmental
impacts that would arise as a result of the project will be built. In fact later, when the
environmental impact has been estimated to be much different from the reality, this can only
happen because of errors in preparing the EIA or project owner does not execute the project in
accordance EIA so in order to avoid this failure, the monitoring should be done as early as
possible,

since

the

beginning

of

construction,

continuously

and

regularly.

EIA as an important document. EIA report is an important document detailed source of

information about the state of the environment at the time of the research project and an
overview of the state of the environment in the period after the project is built. This document is
also important for the evaluation, to build the project, which are located close together and can
be used as a legal tool.
EIA is intended as a tool for planning preventive measures against environmental damage
that may be caused by a development activity is being planned. Impact, is a change that occurs as
a result of an activity, which may be natural, fine chemical, physical or biological. In the context
of the EIA, the impact study conducted for the presence of human activity in the development
plan.
Purpose of EIA

Identify a business plan and or activities conducted primarily potentially large and

significant impact on the environment.

Identify the components of the environment that will be affected by a large and

important.
Forecasting and evaluate business plans and or activities that give rise to large and

significant impact on the environment.

Formulate Environmental Management Plan and Environmental Monitoring Plan.

Benefits of EIA
1 For the Government.
a Avoid the destruction of the environment such as the incidence of water pollution,
air pollution, noise, and so forth. So it does not interfere with the health, comfort,

and safety of the public.

Avoid conflicts that may arise, particularly with the community and other out

c
d

projects.
Prevent potential power dumber managed not damaged.
Prevents damage to other natural resources that are outside the project site,

whether treated other projects, community, or which have not been processed.
For the owners of capital.
a Determine the priority of borrowing in accordance with less mission.
b Make arrangements capital and promotion of various sources of capital.
c Avoid duplication of other projects that are not necessary.
d In order to ensure that the borrowed capital can be paid back by the appropriate
project on time, so that capital is not lost.
For the project owner.
a Looking at environmental issues that will be faced in the future.
b Protect the project in violation of laws or regulations.
c Prepare the ways of solving the problem to be faced in the future.
d Protect the project from the alleged breach or an actual negative impact is not
done.
For the community.
a Knowing the development plan in its region.
b Participate in the development in the area since the beginning.
c Knowing obligations in connection therewith.
d Understand the happenings of the project clearly will participate avoid

misunderstandings.
5 For researchers and scientists.
a Uses in research.
b Uses in the analysis of progress and science.
c The usefulness in improving skills in research and increase knowledge.