Economic cost/benefit analysis of Thailand petrochemical project | |
| Author | Yanyong Phataralaoha |
| Call Number | AIT Diss. no.IE-86-02 |
| Subject(s) | Cost effectiveness Petroleum chemicals industry--Thailand |
| Note | A dissertation submitted in partial fulfilment of the requirements for the Degree of Doctor of Engineering, School of Engineering and Technology |
| Publisher | Asian Institute of Technology |
| Abstract | The analysis of Thailand petrochemical project is carried out in the framework of a cost-benefit study of a semi-public investment in industrial development in the context of less-developed economies. Since the context of t he project is that of less-developed economies, the conventional cost-benefit analysis framework is modified and extended to include the issues that are thought to be important in the evaluation of the project, namely, the impacts of the project on public funds and country foreign exchange, and externalities. The approach proposed here is a technique for analysis that forces the analyst to consider all the relevant factors systematically, hence results in a more valid decision . The systematic analysis is accomplished through the development of a versatile computer model that does not only assist and support researcher and decision makers in their decision processes but also provides a very efficient and effective means of solving the problem. The model is developed at a sufficiently detailed level to include all the assumptions relevant to the project analysis, detailed financing, financial analysis, the impact of the project on public finance, the impact on foreign exchange, and the economic valuation of the project. It is proved to be very useful for short-term/long-term plannings and evaluation of the project. Assumptions are defined and shown in the model, so that a decision maker can see clearly what is being assumed. Moreover, the structure of the model is flexible and can easily be upgraded over time to meet the requirement s and refinements with availability of more information and changing conditions. It is felt that with the existence of an easy to us e computer model the reluctance or indifference to test alternatives and carry out sensitivity analysis which continues to the detriment of the nation's interest will be eliminated. The result of financial analysis suggests that, under the base case assumptions, based on the 1984 average world crude oil price at $29/barrel, the investment would be viable. The project financial IRR is at 32.5% under 5% uniform inflation rate . Even though the direct foreign net cash flows are consistently negative throughout the project life, when the second round foreign exchange cash flows are taken into account, this negative impact is reversed. This is due to the substantial savings of foreign exchange as a result of import substitution by domestic product s that more than compensate for the initial negative outflows. A serious implication of the project on public funds is the overall impact on government revenues from taxes. Taxes losses as a result of the elimination of imports was found to be quite significant, while the increase in revenue collections would come from personal, dividend and corporate taxes. It was found that even though the total effect will be the increase in government funds of some 6.7 billion Baht over the project life, the government would have to sustain the continuing negative cash flows during the first seven years of the plan. The economic rate of return was found to be high at 21 . 2% at constant 1984 prices with no allowance for inflation. The effect of externalities would be very small at only 3 . 3% of the total economic value, while the foreign exchange premium would amount to some 10% of the total value . It was found that the government would lose 0.1 Baht of revenue for each Baht that the country will gain in terms of foreign exchange. The results of sensitivity analyses indicate that the product selling price is the most sensitive variable, while the variations in production cost, production volume of ethylene, fixed capital cost, long-term interest rate, inflation rate, and the value of Baht will affect the project performance in order of significance. It was found that if selling price drops more than 17% below the base case estimates , the project would become unacceptable. That is, assuming the selling price has a direct linear relationship with the world crude oil prices, the project would become unfeasible if the oil prices drop below $24/bbl. Furthermore, lower inflation rate will produce less IRR and foreign exchange gains, and more loss in government revenue . For example, with the drop in inflation rate by 5%, the financial IRR would drop by almost 10%. As for the effect of varying the short-term interest rate, it was found to be very small since the project would be able to pay off its short- term debt soon after the plant starts its operation. |
| Year | 1986 |
| Type | Dissertation |
| School | School of Engineering and Technology (SET) |
| Department | Other Field of Studies (No Department) |
| Academic Program/FoS | Industrial Engineering (IE) |
| Chairperson(s) | Tang, John C.S. |
| Examination Committee(s) | Oudheusden, Dirk L. van ;Ramangkura, Virabongsa ;Tabucanon, Mario T. ;Weber, Karl E. ;Langham, Max R. |
| Scholarship Donor(s) | The Government of Japan |
| Degree | Thesis (Ph.D.) - Asian Institute of Technology, 1986 |