Mega Transport Projects: The challenge of embedding sustainability in financing Mega Urban Transport Projects

All authors:
Pretorius, F., Ng Mee Kam
Host organisation: CoE London, UK
Publication year: 2008
Published in:
Working Paper 2.5 from Working Paper Series 2: Sustainable Development Challenges for Mega Urban Transport Projects.
Research theme: Policy and Planning
maga transport projects, finance, cost-benefit analysis, CBA, discount rates
This paper is concerned with one of the mix of resource inputs into MUTPs, namely finance. We are concerned with embedding sustainability considerations into the appraisal of Mega Urban Transport Projects (MUTPs), but more so with particular aspects of MUTP appraisal that draw on finance theory for their underlying logic, namely the choice of project discount rates. More generally, appraisal errors in cost benefit analyses (CBA) are frequently blamed for sunk capital in underperforming projects, but often cost-benefit analysis methodology is also blamed for poor decisions. It is well-known that CBA is incapable of incorporating effectively positive or negative environmental and social externalities that are not fully commodified, or is incapable of allowing assessment of secondary or tertiary positive or negative impacts, or is considered incapable of allowing effective consideration of unintended impacts and systems dynamics. However, beyond criticisms of CBA methodology, we are concerned with the intuition surrounding the incorporation of finance considerations through choice of project discount rates in CBAs, and how this may influence project appraisals. In particular, we are concerned with problems that arise in project appraisals created by the cost of finance, rather than the raising of finance.
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