An empirical application of probabilistic cost–benefit analysis: three case studies on dams in Malaysia, Nepal and Turkey

Abstract

This paper empirically applies cost-benefit analysis (CBA) to much debated hydropower projects in Malaysia, Nepal and Turkey. The study selects an interesting mixture of cases, as the main characteristics of each dam, the geographical locations of each dam, and the development stage of each country differ. The study brings together all the major issues attached to each hydropower project and estimates the quantitative impacts of these controversial dams. The CBA model in this study takes into account the 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 (NPV) at the 100th year of the analysis with the 5% discount rate for the Sharada-Babai Dam in Nepal shows a positive figure, whereas the mean cumulative NPV after 100 years for both the Bakun Dam in Malaysia and the Ilisu Dam in Turkey are negative. The mean cumulative NPV 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 NPV for Bakun, and the parameter expressing initial expected increase in economic output for Sharada-Babai and Ilisu.

Three applications of dams in Nepal, Malaysia, and Turkey

“…The project specific variables are FI (impacts on downstream fishery) for Bakun; IF (infrastructure cost) for Sharada-Babai; and LT (tourism loss) and AS (archaeological loss) for Ilisu. A brief summary of the equations used in the model, and all the parameters in the model and their values are listed in Morimoto and Hope [9]. Dixon et al [10] argue that the appropriate time horizon should be long enough to encompass the useful life of the proposed project, therefore the project life of 100 years is selected in this study.…”