Hydropower project recommendation to government

Government (public) projects are judged by the benefit–cost ratio on a social basis, taking all benefits (power, irrigation, recreation). Amounts are in Rs crore, MARR = 8%, N = 60 years.

 yr 0: -50        yr 1..60: benefits +11, O&M -1.5        yr 60: +40

• Annual benefit B = 8 + 1 + 2 = Rs 11 crore
• (P/A, 8%, 60) = 12.3766; (P/F, 8%, 60) = 0.00988
• PW(B) = 11 × 12.3766 = Rs 136.14 crore
• PW(O&M) = 1.5 × 12.3766 = Rs 18.56 crore
• PW(S) = 40 × 0.00988 = Rs 0.395 crore (very small, because it comes after 60 years)

Conventional B/C = 136.14 / (50 + 18.56 − 0.40) = 136.14 / 68.17 = 2.00

Modified B/C = (136.14 − 18.56) / (50 − 0.40) = 117.58 / 49.60 = 2.37

Net present worth = 136.14 − 18.56 − 50 + 0.40 = Rs 68.0 crore (positive).

Suggestion: B/C is about 2.0 (> 1) and NPW is about Rs 68 crore, so the project is economically justified and should be implemented. Power sales alone (Rs 8 crore a year) would justify the project (B/C ≈ 1.45), and the irrigation and recreation benefits (Rs 3 crore) add further value. The project stays acceptable unless the total benefits fall by about half: at about Rs 5.5 crore a year, B/C ≈ 1.0 (break-even). Before final approval, the government should also check environmental and resettlement costs, construction delay, and the sensitivity to the MARR and to hydrological risk, which are not in the data.