Although certain of the assumptions employed and shown in Table 12 are undoubtedly favourable towards the project, most notably the government's MPS of unity, the modest foreign exchange premium must be regarded as an adequately offsetting factor.
The conclusion we draw from Table 14 is therefore a relatively optimistic one suggesting that if the productive potential of the plant at Kenana is in fact realised then the social return will be very satisfactory. Of course, this underlying assumption is critical. Fortunately, however, with the viability indicated, some room is available either for output, or indeed world price, not to realise the forecasts being used here. It also permits the (likely) eventuality that the government will not in fact save all the marginal income received from the project.
If recent experience with the world sugar price reflects, however, a substantial price fall which will be sustained significantly in the future, the optimistic conclusion will be weakened. Table 15 reproduces the exercise for a world price of 5 cents/1b (well below average) throughout the remainder of the project life. The profitability of the project becomes much more marginal at the interest rates used.
Table 15: Present Value of Net Benefits in the Base Year Under Assumptions in Table 12
(output at 5 cents/lb - in millions S£)
Item |
Equation Number |
Social Rate of Discount | ||
|
|
8% PINV=5 |
10% PINV=3 |
13% PINV=1.8 |
A |
(1) |
+79.8 |
-74 |
-121.15 |
(2a) |
+101.7 |
+86.5 |
+74.5 | |
(n.b < 0) |
(2b) |
+198.3 |
+153.1 |
+113.9 |
xW (n.b x > 0) |
x(2c) |
-47.89 |
-38.9 |
-30.2 |
B |
(2) |
+331.9 |
+129.7 |
37.05 |
BGO |
(3a) |
+207.9 |
-31.7 |
-80.95 |
BL |
(3b) |
+251.69 |
+200.3 |
+148.2 |
BV |
(3c) |
-47.9 |
-38.9 |
-30.2 |
C |
(5) |
1128 |
19.62 |
-42.9 |
