Economic Appraisal of Power Development Projects in Developing Countries: A Preliminary Model of the Semi-Input-Output Framework

Abstract

Electric power is one of the most important resources that supply not only the final demand of an economy but also the intermediate inputs to various industries. In many developing countries, power development is one of the major development objectives, and planning and appraising power projects constitute one major field of development assistance extended by international and bilateral donor agencies. It is easily envisaged that improved power supply in quantity and quality has significant impacts on the economy. Since industries use power as their primary input, the repercussions of improved power supply should vary depending on the industrial structures and linkages of the economy. However, the conventional methods of economic appraisal for power projects do not have the mechanism that could explicitly assess the repercussions that the different industrial structures and linkages would influence. Because it is important to identify economic costs and benefits based on the repercussions in developing countries, this paper proposes an alternative method of economic appraisal for power projects. The alternative method employs the semi-input-output (SIO) framework, which would be able to reflect the different industrial structures and linkages in the appraisal, and assess the indirect impacts explicitly.
The semi-input-output model is known as a cost-benefit version of input-output model. The original purpose of the model was to assess comparative advantages of tradable sectors. However, because the power sector is a non-tradable sector, it is impossible to directly apply the SIO framework to the power sector. This paper, therefore, first estimates the increase in total outputs during the construction and operation periods, and then applies the SIO framework to the estimated increase in total outputs. Thus, the indirect impacts of a power project could be explicity assessed.
Finally, the results of economic appraisal of a hydropower development project on Sumatra Island in Indonesia will be reviewed, so that the advantages using the proposed model could be made clear. At the same time, some limitations that have to be improved to employ the SIO framework in a more practical situation will be pointed out for further studies.