LAO: Northern Rural Infrastructure Development …. INTRODUCTION 1. The project is an additional financing for the ADB G0235-LAO: Northern Rural Infrastructure Development Sector Project

Detailed Economic and Financial Analysis

Project Number: 42203 15 April 2016

LAO: Northern Rural Infrastructure Development Sector Project – Due Diligence for Additional Financing

Additional Financing of Northern Rural Infrastructure Development Sector Project (RRP LA 42203)

CURRENCY EQUIVALENTS (as of 5 May 2016)

Currency unit – kip (KN)

KN1.00 = $0.000123 $1.00 = KN8,109.00

ABBREVIATIONS

ADB – Asian Development Bank EIRR – Economic internal rate of return ENPV – Economic net present value EOCC – Economic opportunity cost of capital ha – hectare NPV – Net present value O&M – Operation and Maintenance WUG – Water user group

NOTE

In this report, "$" refers to US dollars.

CONTENTS Page

I. INTRODUCTION 1

II. METHODOLOGY AND ASSUMPTIONS 1

III. NAM BENG IRRIGATION SUBPROJECT 2

A. Economic Benefits 2 B. Economic Costs 3 C. Agricultural Development Period 3 D. Evaluation Results and Sensitivity Analysis 4 E. Distribution and Poverty Impact Analysis 4 F. Household Financial Return 5

IV. NAM OUN IRRIGATION SUBPROJECT 5

A. Economic Benefits 5 B. Economic Costs 6 C. Agricultural Development Period 6 D. Evaluation Results and Sensitivity Analysis 6 E. Distribution and Poverty Impact Analysis 7 F. Household Financial Return 7

List of Tables

Table 1: Evaluation Results and Sensitivity Analysis – Nam Beng 4

Table 2: Distribution and Poverty Impact Analysis – Nam Beng 4

Table 3: Evaluation Results and Sensitivity Analysis – Nam Oun 6

Table 4: Distribution and Poverty Impact Analysis – Nam Oun 7

List of Annexes

Annex A: Nam Beng Irrigation Subproject

Annex A- 1: Price Structure for Rice, Yellow Corn and Soybean in Nam Beng 8

Annex A- 2: Price Structure for Urea, Triple Superphosphate and 9

Annex A- 3: Summary of Financial and Economical Prices 10

Annex A- 4: Crop Budget for Paddy Rice Per Hectare 11

Annex A- 5: Crop Budget for Yellow Corn, Soybean and Pumpkin 12

Annex A- 6: Crop Budget for Peanut, Watermelon & Green Bean 13

Annex A- 7: Crop Budget for Garlic 14

Annex A- 8: Derivation of Incremental Benefits (Economic) 15

Annex A- 9: Summary of Investment Cost (Financial and Economic) 15

Annex A- 10: Project Economic Costs, Benefits and EIRR 16

Additional Financing of Northern Rural Infrastructure Development Sector Project (RRP LA 42203)

Annex B: Nam Oun Irrigation Subproject

Annex B- 1: Price Structure for Rice, Yellow Corn and 0

Annex B- 2: Price Structure for Urea, Triple Superphosphate and 1

Annex B- 3: Summary of Financial and Economical Prices 2

Annex B- 4: Crop Budget for Paddy Rice Per Hectare 3

Annex B- 5: Crop Budget for Yellow Corn, Soybean and Peanut 4

Annex B- 6: Crop Budget for Green Bean, Watermelon & Cabbage 5

Annex B- 7: Crop Budget for Garlic 6

Annex B- 8: Derivation of Incremental Benefits (Economic) 7

Annex B- 9: Summary of Investment Cost (Financial and Economic) 7

Annex B- 10: Project Economic Costs, Benefits and EIRR 8

I. INTRODUCTION

1. The project is an additional financing for the ADB G0235-LAO: Northern Rural Infrastructure Development Sector Project. The additional financing, in the form of an investment sector loan, will be applied to pre-selected and screened subprojects. Pre-selection criteria were agreed with the government based on recent experiences with sector modality projects in the Lao People’s Democratic Republic (Lao PDR).

2. The Nam Beng and Nam Oun irrigation subprojects are two sample subprojects for the additional financing project. They are pre-selected subprojects in the province of Oudomxay, the only one of the four participating provinces 1 that did not receive infrastructure investment support under G0235-LAO: Northern Rural Infrastructure Development Sector Project.

II. METHODOLOGY AND ASSUMPTIONS

3. The economic and financial analysis of the proposed subproject was conducted in accordance with ADB’s Guidelines for the Economic Analysis of Projects and Financial Management and Analysis of Projects.2 All benefits and costs within the irrigation command area were examined in order to assess the viability of the subproject. The evaluation was conducted through a comparison of the without-project and with-project scenarios. Under the without-project scenario, present cultivation patterns and technology were assumed to continue for the life of the subproject. Village roads would not otherwise be rehabilitated. Under the with-project scenario, the full command area was projected to be adequately irrigated throughout the life of the subproject, allowing farmers to adopt appropriate cropping patterns and technology. Rehabilitated village roads provide better accessibility which reduces transportation costs of traded agricultural inputs and outputs.

4. The agro-economic data used in the evaluation were based on the farmers’ interview and data validation in the subproject area by the consultants. Supplementary data and information were gathered during the village consultation meeting with the stakeholders.

5. Seasonal crop budget per hectare (ha) for each crop grown in the command area was developed to derive the annual net financial income in both the without-project and with-project scenarios, taking into consideration changes in yield, cropping intensity, cropping pattern and local transportation cost. The difference between the with-project and without-project projections represents the incremental financial benefits brought about by the project.

6. In the economic analysis, the financial values of the agricultural inputs and outputs are then converted to their economic values using the appropriate conversion factors. The stream of the project’s economic costs are then subtracted from this stream of incremental benefit to compute the net benefit stream, the basis for computing the economic net present value (ENPV) and economic internal rate of return (EIRR).

7. The assumptions used in the evaluation were as follows:

(i) subproject construction is completed in Year 1;

1 Luangnamtha, Oudomxay, Bokeo and Phongsaly. 2 ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila; ADB. 2005. Financial Management and

Analysis of Projects. Manila.

2

(ii) full agricultural development of the subproject is attained in Year 6, i.e. 5 years after subproject construction. Full operation and maintenance (O&M) cost is reached in Year 6, the same year that full agricultural development is attained;

(iii) all prices were stated at constant 2015 level, and domestic price numeracies was adopted;

(iv) average exchange rate of Kip8,115 per $1.00 was applied;

(v) The without-project income projection was based on agro-economic data collected during farmers’ interview in the subproject areas. Supplementary data and information were gathered during village consultation meetings. Data for the with-project projections were collected from local model farms that practice System of Rice Intensification;

(vi) Attributable to rehabilitated village roads, the savings in the transportation costs of traded agricultural inputs and outputs are 10% of the existing costs;

(vii) transfer payments such as taxes, duties and subsidies were excluded in the economic analysis;

(viii) for tradable agricultural inputs and commodities such as rice, corn, soy beans and fertilizers, economic values were based on border parity price;

(ix) for non-tradable goods, market price in the project area was used and a standard conversion factor of 0.9 was applied to convert financial values to their economic values;

(x) shadow wage rate factor of 0.8 for rural unskilled labor was applied.3 Farming households’ own labor input was valued at the same rate as hired labor;

(xi) economic life of the subproject is assumed to reach 25 years with proper and adequate maintenance of the irrigation facilities;

(xii) some agricultural outputs might be consumed within the household but were valued as if sold;

(xiii) the economic opportunity cost of capital (EOCC) is taken to be 12%.

III. NAM BENG IRRIGATION SUBPROJECT

A. Economic Benefits

8. The proposed subproject will rehabilitate the irrigation system in the district area to improve water diversion, control, regulation, delivery and distribution to irrigated areas. It includes: (i) improvement of intake facilities for proper intake water management (rehabilitation or new construction of intake weir/s with control intake gate/s); (ii) concrete lining of main canals for avoiding/reducing excessive seepage; and (iii) construction of canal related structures for proper farm inlet water distribution. The rehabilitation will result to improved system

3 Standard conversion and shadow wage rate factors are consistent with the factors used in recently approved ADB-

financed projects in Lao PDR.

3

performance and will increase the wet season irrigated area from 200 ha to 386 ha and the dry season irrigated area from 77 ha to 199 ha, with the total cropping intensity increasing from 120% to 152%. The cropping system that will be introduced to maximize the use of irrigation water will be rice during the wet season and rice/other crops during the dry season.

9. Only direct and quantifiable incremental benefits attributable to the irrigation improvement were considered in the evaluation. The incremental benefits, i.e. the difference between the with-project and without-project scenarios, were due to (i) increased rice crop production; (ii) crop diversification; and (iii) reduced transportation cost between farm gate to local mills or markets.

10. In the valuation of costs and benefits, farm gate prices for both the outputs and inputs were used. Farm gate prices of major tradable commodities were derived from border parity pricing as shown in Annexes A-1 and A-2. Financial prices of non-tradable goods were based on the prevailing market price in the area. These prices were converted into economic terms as per assumptions outlined in para 6. Annex A-3 summarizes the financial and economic prices of the outputs and inputs. Annexes A-4 to A-7 show the crop budget per ha per cropping period for each crop grown in the command area. The calculation of incremental benefit is exhibited in Annex A-8, estimated at $398,000. The incremental benefits are assumed to start in Year 2 at 20% of full benefits and will increase evenly by 20% annually until the full benefits are attained in Year 6 and for the remaining economic life of the subproject.

B. Economic Costs

11. The subproject costs are based on the technical team’s financial estimates and converted into economic terms as per assumptions outlined in para 6. The subproject costs include: (i) civil works; (ii) survey, design and construction supervision; (iii) associated initiatives comprising land use planning, technical support services, marketing and other value added initiatives; (iv) vehicles and equipment; (v) capacity building and studies; (vi) consultant services; and (vii) physical contingency. The estimated total financial cost of the subproject is $1,424,152 and its economic equivalent is $1,381,722 as shown in Annex A-9.

12. The steel irrigation gates used are assumed to have an economic life of 15 years and will be replaced accordingly. Preventive maintenance cost of steel gates, assumed at 10% of acquisition cost, is allotted once every 4 years. The acquisition cost of steel gates in economic equivalent is estimated at $20,337, thus, $2,038 is allotted for preventive maintenance cost.

13. The project management will turn over the irrigation system to the water users group (WUG) when ready for operation. With training and education of the WUG on the proper operation of the system, it is expected that they will operate and maintain the physical facilities of the system properly. The cost for minor repairs and maintenance will be shouldered by them. However, costs for major repairs of the structures will be the responsibility of the government. Annual O&M cost is estimated at $38,264 in economic terms or 3% of the total direct capital cost.

C. Agricultural Development Period

14. Full agricultural development is assumed to be attained in Year 6, i.e. 5 years after the subproject construction and will remain constant until the end of its economic life. The gradual development takes into consideration the absorptive capacity and financial capability of the

4

farmer beneficiaries. Furthermore, farmer beneficiaries depend on the support from the project and other local institutions.

D. Evaluation Results and Sensitivity Analysis

15. The results of the economic and sensitivity analysis are shown below. Based on the results, it can be concluded that the proposed subproject is economically viable in the base case scenario and are robust against downside risks. The sensitivity analysis indicates that the subproject is sensitive to a reduction in yield in the with-project scenario, but the EIRR remains above the EOCC. Details of the EIRR and net present value (NPV) calculation are presented in Annex A-10.

Table 1: Evaluation Results and Sensitivity Analysis – Nam Beng

Scenario

Variable Change

NPV / 1 (US$)

EIRR / 2 (%)

SI / 3 SV / 4

Nam Beng a. Base Case 743 18.6% b. Increase in Capital Costs 10% 619 17.1% 1.66 60% c. Increase in O&M Costs 10% 722 18.4% 0.28 352% d. Dry-season Irrigated Area

(With-Project Scenario only)

-10% 464 16.3% 3.76 27%

e. Yield Reduction -10% 248 14.4% 6.66 15% f. Decrease in Economic Life 5 yr 609 18.0% - -

1/ NPV = Net Present Value discounted at EOCC (12%) 2/ EIRR = Economic Internal Rate of Return 3/ SI = Sensitivity Indicator (ratio of % change in ENPV to % change in a variable) 4/ SV = Switching Value (% change in a variable to reduce the ENPV to zero) Source: consultant’s estimates

E. Distribution and Poverty Impact Analysis

16. The benefits and costs of the subproject are shared among different groups. An assessment of the distribution of benefits and costs is presented in Table 2. The analysis indicates that the overall share of the poor to subproject net benefits is about 32%.

Table 2: Distribution and Poverty Impact Analysis – Nam Beng

Item Financial

NPV Economic

NPV Externality

NPV Government

Labor Farmers

Nam Beng

Project Benefits - 2,193 2,193 - - 2,193 Project Costs (includes O&M)

Traded 449 435 -14 435 - - Unskilled labor 180 174 -6 180 -6 - Non-traded 868 841 -27 841 - -

Subtotal 1,497 1,451 -46 1,456 -6 - Net benefits -1,497 743 2,240 -1,456 6 2,193

Proportion of poor (%)

29% 40% 30% Benefits of poor

238 -422 2 658

Share of poor to net benefits (%)

32% NPV = Net Present Value discounted at 12%

Source: Consultant’s estimates

5

F. Household Financial Return

17. The average annual net income of an average 1 ha farm in the subproject area is estimated at Kip1.9 million without the project and Kip6.9 million with the project. This represents an annual net incremental income of Kip5.0 million.

18. The average farm size per household in the subproject benefit area is 0.85 ha. If the average farm can be assumed to have representative proportions of sufficiently and insufficiently irrigated land without the project, the average farm will be able to generate Kip4.3 million in net incremental crop income due to the subproject. This net incremental crop income represents a 267% increase in average household’s existing income from agriculture source. The expected high financial return per household due to the subproject should provide ample incentive to farmers to adopt higher yielding crop technologies made possible by the improvements in irrigation. In addition, this level of incremental income demonstrates an ability to handle and provide O&M duties and costs falling to the individual households who are WUG members.

IV. NAM OUN IRRIGATION SUBPROJECT

A. Economic Benefits

19. The proposed subproject will rehabilitate the irrigation system in the district area to improve water diversion, control, regulation, delivery and distribution to irrigated areas. It includes: (i) a new weir construction; (ii) improvement of right main canal with related canal structures; and (iii) improvement of left main canal with related canal structures. The rehabilitation will result to improved system performance and will increase the wet season irrigated area from 250 ha to 420 ha and the dry season irrigated area from 65 ha to 150 ha, with the total cropping intensity increasing from 115% to 136%. The cropping system that will be introduced to maximize the use of irrigation water will be rice during the wet season and rice/other crops during the dry season.

20. Only direct and quantifiable incremental benefits attributable to the irrigation improvement were considered in the evaluation. The incremental benefits, i.e. the difference between the with-project and without-project scenarios, were due to (i) increased rice crop production; (ii) crop diversification; and (iii) reduced transportation cost between farm gate to local mills or markets.

21. In the valuation of costs and benefits, farm gate prices for both the outputs and inputs were used. Farm gate prices of major tradable commodities were based on border parity pricing as shown in Annexes B-1 and B-2. Financial prices of non-tradable goods were based on the prevailing market price in the area. These prices were converted into economic terms as per assumptions outlined in para 6. Annex B-3 summarizes the financial and economic prices of the outputs and inputs. Annexes B-4 to B-7 show the crop budget per hectare per cropping period for each crop grown in the command area. The calculation of incremental benefit is exhibited in Annex B-8, estimated at $370,000. The incremental benefits are assumed to start in Year 2 at 20% of full benefits and will increase evenly by 20% annually until the full benefits are attained in Year 6 and for the remaining economic life of the subproject.

6

B. Economic Costs

22. The subproject costs are based on the technical team’s financial estimates and converted into economic terms as per assumptions outlined in para 6. The subproject costs include: (i) civil works; (ii) survey, design and construction supervision; (iii) associated initiatives comprising land use planning, technical support services, marketing and other value added initiatives; (iv) vehicles and equipment; (v) capacity building and studies; (vi) consultant services; and (vii) physical contingency. The estimated total financial cost of the subproject is $1,422,607 and its economic equivalent is $1,380,216 as shown in Annex B-9.

23. The steel gates used are assumed to have an economic life of 15 years and will be replaced accordingly. Preventive maintenance cost of steel gates, assumed at 10% of acquisition cost, is allotted once every 4 years. The acquisition cost of steel gates in economic equivalent is estimated at $7,410, thus, $741 is allotted for preventive maintenance cost.

24. The project management will turn over the irrigation system to the WUG when ready for operation. With training and education of the WUG on the proper operation of the system, it is expected that they will operate and maintain the physical facilities of the system properly. The cost for minor repairs and maintenance will be shouldered by them. However, costs for major repairs of the structures will be the responsibility of the government. Annual O&M cost is estimated at $38,219 in economic terms or 3% of the total direct capital cost.

C. Agricultural Development Period

25. Full agricultural development is assumed to be attained in Year 6, i.e. 5 years after the subproject construction and will remain constant until the end of its economic life. The gradual development takes into consideration the absorptive capacity and financial capability of the farmer beneficiaries. Furthermore, farmer beneficiaries depend on the support from the project and other local institutions.

D. Evaluation Results and Sensitivity Analysis

26. The results of the economic and sensitivity analysis are shown below. Based on the results, it can be concluded that the proposed subproject is economically viable in the base case scenario and are robust against downside risks. The sensitivity analysis indicates that the subproject is sensitive to a reduction in yield in the with-project scenario, but the EIRR remains above the EOCC. Details of the EIRR and NPV calculation are presented in Annex B-10.

Table 3: Evaluation Results and Sensitivity Analysis – Nam Oun

Scenario

Variable Change

NPV / 1 (US$)

EIRR / 2 (%)

SI / 3 SV / 4

Nam Oun a. Base Case 555 17.0% b. Increase in Capital Costs 10% 432 15.6% 2.22 45% c. Increase in O&M Costs 10% 534 16.9% 0.38 263% d. Dry-season Irrigated Area

(With-Project Scenario only)

-10% 303 14.9% 4.54 22%

e. Yield Reduction -10% 86 12.8% 8.46 12% f Decrease in Economic Life 5 yr 434 16.4% - -

1/ NPV = Net Present Value discounted at EOCC (12%)

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2/ EIRR = Economic Internal Rate of Return 3/ SI = Sensitivity Indicator (ratio of % change in ENPV to % change in a variable) 4/ SV = Switching Value (% change in a variable to reduce the ENPV to zero) Source: consultant’s estimates

E. Distribution and Poverty Impact Analysis

27. The benefits and costs of the subproject are shared among different groups. An assessment of the distribution of benefits and costs is presented in Table 4. The analysis indicates that the overall share of the poor to subproject net benefits is about 33%.

Table 4: Distribution and Poverty Impact Analysis – Nam Oun

Item Financial

NPV Economic

NPV Externality

NPV Government

Labor Farmers

Nam Oun

Project Benefits - 2,005 2,005 - - 2,005 Project Costs (includes O&M)

Traded 447 435 -13 435

- Unskilled labor 179 174 -5 179 -5 - Non-traded 865 841 -24 841

-

Subtotal 1,491 1,449 -42 1,455 -5 - Net benefits -1,491 555 2,046 -1,455 5 2,005

Proportion of poor (%)

29% 40% 30% Benefits of poor

182 -422 2 601

Share of poor to net benefits (%)

33%

F. Household Financial Return

28. The average annual net income of an average 1 ha farm in the subproject area is estimated at Kip1.5 million without the project and Kip6.4 million with the project. This represents an annual net incremental income of Kip4.9 million.

29. The average farm size per household in the subproject benefit area is 1 ha. If the average farm can be assumed to have representative proportions of sufficiently and insufficiently irrigated land without the project, the average farm will be able to generate Kip4.9 million in net incremental crop income due to the subproject. This net incremental crop income represents a 328% increase in average household’s existing income from agriculture source. The expected high financial return per household due to the subproject should provide ample incentive to farmers to adopt higher yielding crop technologies made possible by the improvements in irrigation. In addition, this level of incremental income demonstrates an ability to handle and provide O&M duties and costs falling to the individual households who are WUG members.

8 Annex A

Annex A- 1: Price Structure for Rice, Yellow Corn and Soybean in Nam Beng (Constant 2015 Prices)

Commodity: Rice

Economic

$US/ton kip/ton kip/ton

1. FOB Bangkok (Thai 5% broken

constant 2015 prices)/a 415

2. Adjustment to Lao PDR quality /b 83

3. Adjustment to Lao PDR variety /c 42

4. Freight and insurance ( Bangkok-Thanalaeng) 35

5. CIF value, Thanalaeng port 326

6. Conversion to Kip ($ US 1= 8,115 kip) 2,641,433 2,641,433

7. Port handling charges and bagging/d 120,000 108,000

8. Transport cost (Thanalaeng to wholesaler)/e 50,000 47,500

9. Transport cost (Wholesaler to project site)/e 160,000 152,000

10. Ex-mill price 2,311,433 2,333,933

11. Conversion to paddy (63% recovery) 1,456,202 1,470,377

12. Milling charges /e 150,000 142,500

13. Value of by-products (20% of paddy) 150,000 150,000

14. Handling and transport (farm to mill)/e 60,000 57,000

15. Farmgate price of paddy 1,516,202 1,534,877

16. Farmgate price of paddy (kip/kg) 1,516 1,535

a/ World Bank forecast in 2015 nominal price (Commodities Markets Outlook, October 2014)

b/ 20% of the FOB price

c/ Non-glutinous rice (10% of the FOB price)

d/ Financial price multiplied by SCF (0.9)

e/ 50% of the financial price as non-tradeable multiplied by SCF plus 50% of the remaining cost

Commodity: Yellow Corn

Items Economic

$US/ton Kip/ton Kip/ton

1. FOB Price, Gulf Port, Constant 2015/1 195

2. Freight and insurance

Gulf Port to Bangkok to Thanalaeng 80

3. CIF value, Thanalaeng 275

4. Conversion to kip (1$ US=8,115kip) 2,231,625 2,231,625

5. Port handling and bagging/2 120,000 108,000

6. Transport cost (Thanalaeng to wholesaler)/3 50,000 47,500

7. Ex-wholesale price 2,401,625 2,387,125

8. Transport cost (Wholesale to project site)/3 170,000 161,500

9. Wholesale price 2,231,625 2,225,625

10. Handling and transport (farm to mill)/3 60,000 57,000

11. Economic farm gate price 2,291,625 2,282,625

12 Farmgate price (kip/kg) 2,292 2,283

Commodity: Soybean

Items Economic






4. Conversion to kip (1$ US=8115kip) 4,706,700 4,706,700





9. Wholesale price 4,700,700 4,706,700




1/ World Bank forecast in 2015 nominal price (Commodities Markets Outlook, October 2014)

2/ Financial multiplied by SCF (0.9)

3/ 50% of the financial price as non-tradeable multiplied by SCF (0.9) plus 50% of the remaining cost

Nam Beng

Nam Beng

Items

Nam Beng

Financial

Financial

Financial

Annex A 9

Annex A- 2: Price Structure for Urea, Triple Superphosphate and Muriate of Potash in Nam Beng

(Constant 2015 Prices)

Commodity: Urea

Items Economic




Euro Port to Bangkok to Thanalaeng 78





7. Average wholesale price 3,217,470 3,204,970


9. Handling and transport (dealer to farm)/3 60,000 57,000


11. Farmgate price (kip/kg, nutrient) 7,495 7,442

Commodity: Triple Superphosphate

Items Economic


1. FOB Price, Euro Port, Constant 2015/1 380




4. Conversion to kip (1$ US=8115 kip) 3,716,670 3,716,670








Commodity: Muriate of Potash

Items Economic

















Financial

Nam Beng

Financial

Nam Beng

Financial

Nam Beng

10 Annex A

Annex A- 3: Summary of Financial and Economical Prices (2015 Constant Lao PDR Kip)

Finanical Economic

Outputsa/

Paddy Kip/kg 1,516 1,535

Maize Kip/kg 2,292 2,283

Soybeans Kip/kg 4,767 4,758

Peanuts Kip/kg 6,000 5,400

Water melon Kip/kg 1,000 900

Pumpkin Kip/kg 800 720

Cabbage Kip/kg 2,000 1,800

Garlic (Cloves) - about 10cloves/bulb Kip/kg 10,000 9,000

Green bean Kip/kg 1,200 1,080

Inputsa/

Rice Seed improved Kip/kg 6,000 5,400

Maize Seed hybrid Kip/kg 21,000 18,900

Peanut Seed improved Kip/kg 10,000 9,000

Soybean Seed improved Kip/kg 8,000 7,200

Water melon hybrid Kip/kg 550,000 495,000

Pumpkin hybrid Kip/kg 520,000 468,000

Cabbage hybrid Kip/kg 1,200,000 1,080,000

Garlic Kip/kg 35,000 31,500

Green bean seed Kip/kg 15,000 13,500

Urea (46-00-00) Kip/kg 7,495 7,442

TSP Kip/kg 8,906 8,854

Muriate of Potash Kip/kg 5,746 5,706

Agro-chemicals - (liquid) Kip/l 120,000 108,000

- (powder) Kip/kg 150,000 135,000

Bags Kip/bag 1,500 1,350

Farm labor Kip/day 50,000 40,000

Land preparation kip/ha 1,000,000 900,000

Threshing (rice,maize,soybean) Kip/kg 100 90

Rice milling cost Kip/kg 500 450

Broken rice cost Kip/kg 2,000 1,800

Rice brand cost Kip/kg 5,000 4,500

Transportation from farm to village bag 3,000 2,700

Plastic sheet Roll 140,000 126,000

a/ Financial output and inputs prices are supplemented by on-farm interviews.

Nam Beng

Annex A 11

Annex A- 4: Crop Budget for Paddy Rice Per Hectare (Economic Prices at Constant 2015)

Commodity: Irrigated Paddy Rice (Wet Season)

Item Unit Oty Price/unit Value Qty Price/unit Value

Production

Paddy Yield kg 3,200 4,600

Paddy Price kip 1,535 1,535

Gross Income kip 4,911,608 7,060,436

Production Cost

Seeds kg 80 5,400 432,000 60 5,400 324,000

Fertilizer

N kg 30 7,442 223,270

P kg 15 8,854 132,804

K kg

Pesticides kip

Human labor man-day 60 40,000 2,400,000 85 40,000 3,400,000

Animal labor kg-paddy - -

Tractor/machine Kip-ha 1 900,000 900,000 1 900,000 900,000.00

Other costs/a kip 49,116 70,604

Total Production Cost kip 3,781,116 5,050,679

Net Income kip 1,130,492 2,009,758


Item Unit Oty Price/unit Value Qty Price/unit Value

Production



Gross Income kip 4,604,632 8,441,826

Production Cost

Seeds kg 80 5,400 432,000 60 5,400 324,000

Fertilizer

N kg 60 7,442 446,540

P kg 30 8,854 265,609

K kg

Pesticides kip






Net Income kip 1,226,586 2,821,259

Commodity: Rainfed Paddy Rice (Wet Season)

Item Unit Oty Price/unit Value

Production

Paddy Yield kg 2,500

Paddy Price kip 1,571

Gross Income kip 3,926,662

Production Cost

Seeds kg 80 5,400 432,000

Fertilizer

N kg 0

P kg 0

K kg 0

Pesticides kip 0

Human labor man-day 40 40,000 1,600,000

Animal labor kg-paddy -

Tractor/machine Kip-ha 1 900,000 900,000

Other costs/a kip 39,267

Total Production Cost kip 2,971,267

Net Income kip 955,395

/a 1 per cent of gross income

Without Project

With ProjectWithout Project

Without Project With Project

12 Annex A

Annex A- 5: Crop Budget for Yellow Corn, Soybean and Pumpkin (Economic Prices at Constant 2015)


Item Unit Qty Price/unit Value Qty Price/unit Value

Production

Corn Yield kg 2,500 4,500

Corn Price kip 2,283 2,283

Gross Income kip 5,706,563 10,271,813

Production Cost

Seeds kg 30 18,900 567,000 30 18,900 567,000

Fertilizer

N kg 50 7,442 372,116

P kg 20 8,854 177,073

K kg

Pesticides liter -




Other Cost/1 kip 57,066 102,718


Net Income kip 1,382,497 4,952,905

Commodity: Soybean


Production

Soybean Yield kg 1,500 2,000

Soybean Price kip 4,758 4,758

Gross Income kip 7,136,550 9,515,400

Production Cost

Seeds kg 40 7,200 288,000 40 7,200 288,000

Fertilizer

N kg 30 7,442 223,270

P kg 15 8,854 132,804

K kg

Pesticides liter 1 108,000 108,000




Other Cost/1 kip 71,366 95,154


Net Income kip 3,477,185 4,568,172

Commodity: Pumpkin


Production

Pumpkin Yield kg 22,000 32,000

Pumpkin Price kip 720 720

Gross Income kip 15,840,000 23,040,000

Production Cost

Seeds kg 1 468,000 468,000 1 468,000 468,000

Fertilizer

N kg 40 7,442 297,693

P kg 20 8,854 177,073

K kg





Other Cost/1 kip 158,400 230,400


Net Income kip 10,913,600 16,858,834

1/ 1% gross income

Without Project

Without Project


With Project

With Project

Annex A 13

Annex A- 6: Crop Budget for Peanut, Watermelon & Green Bean

(Economic Prices at Constant 2015)

Commodity: Peanut


Production

Peanut Yield kg 1,200 2,000

Peanut Price kip 5,400 5,400

Gross Income kip 6,480,000 10,800,000

Production Cost

Seeds kg 50 9,000 450,000 60 9,000 540,000

Fertilizer

N kg 30 7,442 223,270

P kg 30 8,854 265,609

K kg





Other Cost/1 kip 64,800 108,000


Net Income kip 2,265,200 5,455,121

Commodity: Water melon


Production

Water melon Yield kg 15,000 30,000

Water melon Price kip 900 900

Gross Income kip 13,500,000 27,000,000

Production Cost

Seeds kg 1 495,000 495,000 1 495,000 297,000

Fertilizer

N kg 60 7,442 446,540 90 7,442 669,809

P kg 30 8,854 265,609 60 8,854 531,218

K kg 0 60 5,706 342,347

Pesticides liter 1 108,000 108,000 2 108,000 216,000



Tractor/machine kip-ha 1 900,000 900,000 1 900,000 900,000.00

Other Cost/1 kip 135,000 270,000


Net Income kip 7,949,852 19,773,626

Commodity: Green bean


Production

Green bean Yield kg 15,000 22,000

Green bean Price kip 1,080 1,080

Gross Income kip 16,200,000 23,760,000

Production Cost

Seeds kg 30 13,500 405,000 30 13,500 405,000

Fertilizer

N kg 50 7,442 372,116

P kg 20 8,854 177,073

K kg




Tractor/machine ha-day 1 900,000 900,000 1 900,000 900,000.00

Other Cost/1 kip 162,000 237,600


Net Income kip 11,133,000 16,652,211

1/ 1% of gross income


With Project

With Project

Without Project

Without Project

14 Annex A

Annex A- 7: Crop Budget for Garlic (Economic Prices at Constant 2015)


Production

GarlicYield kg 2,200 4,000

Garlic Price kip 9,000 9,000

Gross Income kip 19,800,000 36,000,000

Production Cost

Seeds kg 50 31,500 1,575,000 50 31,500 1,575,000

Fertilizer

N kg 35 7,442 260,481 50 7,442 372,116

P kg 10 8,854 88,536 20 8,854 177,073

K kg





Other Cost/1 198,000 360,000

Total Production Cost 6,422,018 7,492,189

Net Income 13,377,982 28,507,811

1/ 1% of gross income


Annex A 15

Annex A- 8: Derivation of Incremental Benefits (Economic)

Annex A- 9: Summary of Investment Cost (Financial and Economic)

Planted area Net Income Total Net Income Planted area Net Income Total Net Income

(ha) ('000 Kip/ha) (Kip) (ha) ('000 Kip/ha) (Kip)

Wet Season:

Irrigated paddy 200 1,107 221,346 386 2,001 772,569

Rainfed paddy 186 955 177,703

Sub total 386 399,050 386 772,569

Dry Season:

Irrigated paddy 0 0 0 5 2,812 14,058

Yellow corn 20 1,382 27,650 4 4,979 19,915

Soybean 10 3,477 34,772 25 4,580 114,499

Peanut 4 2,265 9,061 20 5,467 109,342

Green bean 3 11,133 33,399 15 16,777 251,654

Water melon 30 7,950 238,496 50 19,944 997,206

Garlic 10 13,378 133,780 40 28,531 1,141,243

Pumpkin 40 17,040 681,591

Sub total 77 477,157 199 3,329,508

Total 463 876,207 585 4,102,078

Cropping Intensity (%) 120 152

Incremental Benefit '000 Kip 3,225,871

'000 US$ 398


Financial Economic

Survey Design and supervision*1 135,531 132,143

Civil Works *2 1,129,424 1,101,188

Associated cost *1 46,800 42,120

Total Direct Cost 1,311,755 1,275,451

Vehicles & Equipment *2 6,542 6,378

Consulting Services *2 36,343 35,434

Training, Studies and other operating Cost *1 43,278 38,950

Sub-Total Indirect Cost 86,162 80,762

Physical Contingency *3 26,235 25,509

Total Cost 1,424,152 1,381,722

a/ At constant 2015 prices

*1 SCF of 0.9 was used to convert from financial to economic value

*2 SCF of 0.9 was applied to 25 % of the financial cost, while 75% was multiplied by 1

*3 2 % of the total direct cost was converted to economic value by applying the SCF of 0.9

Cost Item(In US$)

16 Annex A

Annex A- 10: Project Economic Costs, Benefits and EIRR Nam Beng Subproject (US$)

Project

Year Capital Repl'ment O&M Total

1 -1,381,722 0 0 -1,381,722 0 1,381,722

2 0 -7,653 -7,653 79,504 87,157

3 0 -15,305 -15,305 159,008 174,313

4 0 -22,958 -22,958 238,512 261,470

5 -2038 -30,611 -32,649 318,016 350,664

6 0 -38,264 -38,264 397,520 435,783

7 0 -38,264 -38,264 397,520 435,783

8 0 -38,264 -38,264 397,520 435,783

9 2038 -38,264 -36,226 397,520 433,745

10 0 -38,264 -38,264 397,520 435,783

11 0 -38,264 -38,264 397,520 435,783

12 0 -38,264 -38,264 397,520 435,783

13 2038 -38,264 -36,226 397,520 433,745

14 0 -38,264 -38,264 397,520 435,783

15 0 -38,264 -38,264 397,520 435,783

16 -20377 -38,264 -58,641 397,520 456,160

17 0 -38,264 -38,264 397,520 435,783

18 0 -38,264 -38,264 397,520 435,783

19 0 -38,264 -38,264 397,520 435,783

20 -2038 -38,264 -40,301 397,520 437,821

21 0 -38,264 -38,264 397,520 435,783

22 0 -38,264 -38,264 397,520 435,783

23 0 -38,264 -38,264 397,520 435,783

24 -2038 -38,264 -40,301 397,520 437,821

25 0 -38,264 -38,264 397,520 435,783

PV@12% -1,233,680 -6,027 -211,129 -1,450,837 2,193,420 742,583

EIRR 18.6%

Project Costs Project Benefits Net Benefits

0 Annex B

Annex B- 1: Price Structure for Rice, Yellow Corn and Soybean in Nam Oun (Constant 2015 Prices)

Commodity: Rice

Financial

$US/ton kip/ton kip/ton

1. FOB Bangkok (Thai 5% broken

constant 2015 prices)/a 415

2. Adjustment to Lao PDR quality /b 83

3. Adjustment to Lao PDR variety /c 42

4. Freight and insurance ( Bangkok-Thanalaeng) 35

5. CIF value, Thanalaeng port 326

6. Conversion to Kip ($ US 1= 8,115 kip in April. 2015) 2,641,433 2,641,433

7. Port handling charges and bagging/d 120,000 108,000

8. Transport cost (Thanalaeng to wholesaler)/e 50,000 47,500

9. Transport cost (Wholesaler to project site)/e 160,000 152,000

10. Ex-mill price 2,311,433 2,333,933

11. Conversion to paddy (63% recovery) 1,456,202 1,470,377

12. Milling charges /e 150,000 142,500

13. Value of by-products (20% of paddy) 150,000 150,000

14. Handling and transport (farm to mill)/e 60,000 57,000

15. Farmgate price of paddy 1,516,202 1,534,877

16. Farmgate price of paddy (kip/kg) 1,516 1,535

a/ World Bank forecast in 2015 nominal price (Commodities Markets Outlook, October 2014)

b/ 20% of the FOB price

c/ Non-glutinous rice (10% of the FOB price)

d/ Financial price multiplied by SCF (0.9)

e/ 50% of the financial price as non-tradeable multiplied by SCF plus 50% of the remaining cost


Items Financial






4. Conversion to kip (1$ US=8,115kip) 2,231,625 2,231,625





9. Wholesale price 2,231,625 2,225,625




Commodity: Soybean

Items Financial











9. Wholesale price 4,706,700 4,700,700







Nam Oun

Nam Oun

Items Economic

Nam Oun

Economic

Economic

Annex B 1

Annex B- 2: Price Structure for Urea, Triple Superphosphate and Muriate of Potash in Nam Oun

(Constant 2015 Prices)

Commodity: Urea

Items Economic














Commodity: Triple Superphosphate

Items Economic














Commodity: Muriate of Potash

Items Economic

















Financial

Nam Beng

Financial

Nam Beng

Financial

Nam Beng

2 Annex B

Annex B- 3: Summary of Financial and Economical Prices (2015 Constant Lao PDR Kip)

Finanical Economic

Outputsa/

Paddy Kip/kg 1,516 1,535

Maize Kip/kg 2,292 2,283

Soybeans Kip/kg 4,767 4,758

Peanuts Kip/kg 6,000 5,400

Water melon Kip/kg 1,000 900

Pumpkin Kip/kg 800 720

Cabbage Kip/kg 2,000 1,800

Garlic (Cloves) - about 10cloves/bulb Kip/kg 10,000 9,000

Green bean Kip/kg 1,200 1,080

Inputsa/

Rice Seed improved Kip/kg 8,000 7,200

Maize Seed hybrid Kip/kg 20,000 18,000

Peanut Seed improved Kip/kg 10,000 9,000

Soybean Seed improved Kip/kg 8,000 7,200

Water melon hybrid Kip/kg 550,000 495,000

Pumpkin hybrid Kip/kg 520,000 468,000

Cabbage hybrid Kip/kg 1,200,000 1,080,000

Garlic Kip/kg 35,000 31,500

Green bean seed Kip/kg 15,000 13,500

Urea (46-00-00) Kip/kg 7,495 7,442

TSP Kip/kg 8,906 8,854

Muriate of Potash Kip/kg 5,746 5,706

Agro-chemicals - (liquid) Kip/l 120,000 108,000

- (powder) Kip/kg 150,000 135,000

Bags Kip/bag 1,500 1,500

Farm labor Kip/day 50,000 40,000

Land preparation kip/ha 1,000,000 900,000

Threshing (rice,maize,soybean) Kip/kg 100 90

Rice milling cost Kip/kg 500 450

Broken rice cost Kip/kg 2,000 1,800

Rice brand cost Kip/kg 5,000 4,500

Transportation from farm to village bag 3,000 2,700

Plastic sheet Roll 140,000 126,000

a/ Financial output and inputs prices are supplemented by on-farm interviews.

Nam Oun

Annex B 3

Annex B- 4: Crop Budget for Paddy Rice Per Hectare (Economic Prices at Constant 2015)



Production



Gross Income kip 4,604,632 7,674,387

Production Cost

Seeds kg 80 7,200 576,000 60 7,200 432,000

Fertilizer

N kg 30 7,442 223,270

P kg 15 8,854 132,804

K kg

Pesticides kip






Net Income kip 1,082,586 2,109,569

Commodity: Irrigated Paddy Rice (Dry Season)


Production



Gross Income kip 5,832,534 8,748,802

Production Cost

Seeds kg 80 7,200 576,000 60 7,200 432,000

Fertilizer

N kg 60 7,442 446,540

P kg 30 8,854 265,609

K kg

Pesticides kip






Net Income kip 1,098,209 2,817,165

Commodity: Rainfed Paddy Rice (Wet Season)

Item Unit Qty Price/unit Value

Production

Paddy Yield kg 2,500

Paddy Price kip 1,535

Gross Income kip 3,837,194

Production Cost

Seeds kg 80 7,200 576,000

Fertilizer

N kg 0

P kg 0

K kg 0

Pesticides kip 0

Human labor man-day 55 40,000 2,200,000


Tractor/machine Kip-ha 1 900,000 900,000

Other costs/a kip 38,372

Total Production Cost kip 3,714,372

Net Income kip 122,822

/a 1 per cent of gross income



Without Project

4 Annex B

Annex B- 5: Crop Budget for Yellow Corn, Soybean and Peanut (Economic Prices at Constant 2015)



Production

Corn Yield kg 2,500 4,000

Corn Price kip 2,283 2,283

Gross Income kip 5,706,563 9,130,500

Production Cost

Seeds kg 30 20,000 600,000 30 20,000 600,000

Fertilizer

N kg 50 7,442 372,116

P kg 20 8,854 177,073

K kg

Pesticides liter -




Other Cost/1 kip 57,066 91,305


Net Income kip 2,149,497 3,390,006

Commodity: Soybean


Production

Soybean Yield kg 2,000 2,500

Soybean Price kip 4,758 4,758

Gross Income kip 9,515,400 11,894,250

Production Cost

Seeds kg 40 7,200 288,000 40 7,200 288,000

Fertilizer 7,200

N kg 30 7,442 223,270

P kg 15 8,854 132,804

K kg





Other Cost/1 kip 95,154 118,943


Net Income kip 5,832,246 6,923,233

Commodity: Peanut


Production

Peanut Yield kg 1,200 2,100

Peanut Price kip 5,400 5,400

Gross Income kip 6,480,000 11,340,000

Production Cost

Seeds kg 50 9,000 450,000 60 9,000 540,000

Fertilizer

N kg 30 7,442 223,270

P kg 60 8,854 531,218

K kg 30 5,706 171,174

Pesticides liter




Other Cost/1 kip 64,800 113,400


Net Income kip 1,865,200 5,460,939

1/ 1% gross income

With Project

With Project

Without Project

Without Project

With ProjectWithout Project

Annex B 5

Annex B- 6: Crop Budget for Green Bean, Watermelon & Cabbage (Economic Prices at Constant 2015)

Commodity: Green bean


Production

Green bean Yield kg 16,000 25,000

Green bean Price kip 1,080 1,080

Gross Income kip 17,280,000 27,000,000

Production Cost

Seeds kg 30 - 30 -

Fertilizer

N kg 50 7,442 372,116

P kg 20 8,854 177,073

K kg





Other Cost/1 kip 172,800 270,000


Net Income kip 12,607,200 20,264,811

Commodity: Water melon


Production

Water melon Yield kg 18,000 28,000

Water melon Price kip 900 900

Gross Income kip 16,200,000 25,200,000

Production Cost

Seeds kg 1 495,000 495,000 1 495,000 297,000

Fertilizer

N kg 60 7,442 446,540 90 7,442 669,809

P kg 30 8,854 265,609 60 8,854 531,218

K kg 0 60 5,706 342,347




Tractor/machine kip-ha 1 900,000 900,000 1 900,000 900,000.00

Other Cost/1 kip 162,000 252,000


Net Income kip 10,622,852 17,991,626

Commodity: Cabbage


Production

CabbageYield kg 9,000 15,000

Cabbage Price kip 1,800 1,800

Gross Income kip 16,200,000 27,000,000

Production Cost

Seeds kg 1 1,080,000 540,000 1 1,080,000 1,080,000

Fertilizer

N kg 60 7,442 446,540 90 7,442 669,809

P kg 30 8,854 265,609 60 8,854 531,218

K kg 0 0





Other Cost/1 kip 162,000 270,000


Net Income kip 10,577,852 19,332,973

1/ 1% gross income




6 Annex B

Annex B- 7: Crop Budget for Garlic (Economic Prices at Constant 2015)


Production

GarlicYield kg 2,200 4,000

Garlic Price kip 9,000 9,000

Gross Income kip 19,800,000 36,000,000

Production Cost

Seeds kg 50 31,500 1,575,000 50 31,500 1,575,000

Fertilizer

N kg 35 7,442 260,481 50 7,442 372,116

P kg 10 9,030 90,300 20 8,854 177,073

K kg 0 0





Other Cost/1 kip 198,000 360,000


Net Income kip 13,576,218 28,507,811

1/ 1% gross income


Annex B 7

Annex B- 8: Derivation of Incremental Benefits (Economic)

Annex B- 9: Summary of Investment Cost (Financial and Economic)

Planted area Net Income Total Net Income Planted area Net Income Total Net Income

(ha) ('000 Kip/ha) (Kip) (ha) ('000 Kip/ha) (Kip)

Wet Season:

Irrigated paddy 250 1,083 270,647 420 2,138 898,121

Rainfed paddy 170 123 20,880

Sub total 420 291,526 420 898,121

Dry Season:

Irrigated paddy 0 0 0 0 0 0

Yellow corn 10 2,149 21,495 0 0

Soybean 25 5,832 145,806 10 6,923 69,232

Peanut 5 1,865 9,326 10 5,474 54,738

Green bean 5 12,607 63,036 35 20,406 714,220

Water melon 10 10,623 106,229 45 18,151 816,788

Garlic 5 13,576 67,881 20 28,531 570,621

Cabbage 30 19,418 582,555

Sub total 60 413,773 150 2,808,155

Total 480 705,299 570 3,706,276

Cropping Intensity (%) 114 136

Incremental Benefit '000 Kip 3,000,977

'000 US$ 370


Financial Economic

Survey Design and supervision*1 135,369 131,984

Civil Works *2 1,128,072 1,099,870

Associated cost *1 46,800 42,120

Total Direct Cost 1,310,241 1,273,975

Vehicles & Equipment *2 6,542 6,378

Consulting Services *2 36,343 35,434

Training, Studies and other operating Cost *1 43,278 38,950

Sub-Total Indirect Cost 86,162 80,762

Physical Contingency *3 26,205 25,479

Total Cost 1,422,607 1,380,216

a)Cost updated at 2015 constant prices

*1 SCF of 0.9 was used to convert from financial to economic value

*2 SCF of 0.9 was applied to 25 % of the financial cost, while 75% was multiplied by 1

*3 2 % of the total direct cost was converted to economic value by applying the SCF of 0.9

Cost Item(In US $)

8 Annex B

Annex B- 10: Project Economic Costs, Benefits and EIRR Nam Oun Subproject (US$)

Project

Year Capital Repl'ment O&M Total

1 -1,380,216 0 0 -1,380,216 0 1,380,216

2 0 0 -7,644 -7,644 72,658 80,302

3 0 0 -15,288 -15,288 145,315 160,603

4 0 0 -22,932 -22,932 217,973 240,905

5 0 -741 -30,575 -31,316 290,631 321,947

6 0 0 -38,219 -38,219 363,289 401,508

7 0 0 -38,219 -38,219 363,289 401,508

8 0 0 -38,219 -38,219 363,289 401,508

9 0 -741 -38,219 -38,960 363,289 402,249

10 0 0 -38,219 -38,219 363,289 401,508

11 0 0 -38,219 -38,219 363,289 401,508

12 0 0 -38,219 -38,219 363,289 401,508

13 0 -741 -38,219 -38,960 363,289 402,249

14 0 0 -38,219 -38,219 363,289 401,508

15 0 0 -38,219 -38,219 363,289 401,508

16 0 -7410 -38,219 -45,629 363,289 408,918

17 0 0 -38,219 -38,219 363,289 401,508

18 0 0 -38,219 -38,219 363,289 401,508

19 0 0 -38,219 -38,219 363,289 401,508

20 0 -741 -38,219 -38,960 363,289 402,249

21 0 0 -38,219 -38,219 363,289 401,508

22 0 0 -38,219 -38,219 363,289 401,508

23 0 0 -38,219 -38,219 363,289 401,508

24 0 -741 -38,219 -38,960 363,289 402,249

25 0 0 -38,219 -38,219 363,289 401,508

PV@12% -1,232,336 -6,027 -210,885 -1,449,248 2,004,542 555,294

EIRR 17.0%

Project Costs Project Benefits Net Benefits

Documents

LAO: Northern Rural Infrastructure Development …. INTRODUCTION 1. The project is an additional financing for the ADB G0235-LAO: Northern Rural Infrastructure Development Sector Project