Net Present Value

The NPV disclosure within the ICR reports builds the foundation for the proper SROI calculation of the LDCs of this research project. Not only is NPV the central concept

85 _{Cf. Baneth, Jean (1996), p. 29 et sqq.; Pearce/Giles/Susana (2006), p. 70 et seq.; WB (2015): IEG}

37 of the SROI calculation in general and that it defines if an investment is meaningful or not, it is further the preferred method of project evaluation of the WB. The NPV disclosed within a report is also commonly referred to as the Economic-NPV or E- NPV86. A positive NPV contributes to the fundamental objective underlying the WB’s

policy which is the strengthening of a country’s economy, and more generally, the increase in welfare of poorer countries. Thus, a positive effect on a single country’s economy has a positive ripple effect on the world’s economy itself or –most posi- tively spoken– the country itself does require less or none funds in the future.87 In

principle, there are 2 types of NPVs which can be identified for WB projects:

1. Overall-NPV: The sum of NPVs of each existing project component. Gener- ally, all project costs (all capital/investment and recurring costs) have been considered in order to calculate the overall-NPV.88 Depending if the project

consists of 1 or multiple components and if in the latter case the ICR docu- ment discloses each component NPV separately or the sum of the overall project NPV itself, it is necessary to distinguish between 2 overall-NPVs:

a. Manually calculated overall-NPV: The sum of the NPVs of each exist- ing project component which has been manual calculated by the au- thor.

b. Overall-disclosed NPV: The disclosed NPV of the whole project. Inde- pendent of whether the project consists of 1 or multiple project com- ponents, the overall-disclosed NPV is the accumulated NPV gener- ated from all project components. In the ICR documents the overall- disclosed NPV is generally referred as the “NPV of the whole project” or the “overall-NPV of the project”.

86 Author’s Note: Within this research paper the abbreviation “NPV” is used for the E-NPV. 87 _{Cf. Pearce/Giles/Susana (2006), p. 70.}

88 Author’s Note: Please refer to the NPV calculation of any country ICR document publicly available

under the WB homepage (http://documents.worldbank.org/curated/en/country). However, there are some overall-NPVs where not all invested capital costs of the project have been considered for the NPV calculation.

38 2. Partial-NPV: The NPV of a project component or of multiple project compo-

nents, but never refers to all project components. A partial-NPV is only de- clared in case the ICR document does not disclose an overall-NPV. To cal- culate a partial-NPV only related project costs (capital and recurring costs) of the corresponding project components haven been considered.89 There are 2

types of partial-NPVs which can be distinguished:90

a. Component-NPV: Based on at least 1 project component, but can also be the NPV of multiple components. In case of multiple components the component-NPV is mostly manually calculated.

b. Sample-NPV: Refers to neither a whole project nor multiple project components. A sample-NPV normally showcases based on a few pro- ject specific activities or tasks how valuable the investment would be. For all of the above mentioned types and sub-types of NPVs there are again 2 dif- ferentiations:

1. Standalone-NPV: This NPV is outlined as a single value. That is the usual disclosure of a NPV within the ICR reports.

2. Scenario-NPV: This NPV is disclosed as a range of multiple values, whereat there are at least 2 values. The 2 values outlining the most negative and most positive value are defined as the minimum and the maximum NPV of the scenario-NPV. For this research project only the outlined minimum and max- imum NPV values are taken into account.91

Furthermore, every NPV is categorized into 1 of 3 groups, depending on its valua- tion:

89 The question why the ICR department of the WB doesn’t take all project components into account

when calculating the partial-NPVs’ is discussed in chapter 3.2.4 Calculation of the proper SROI Ratio. However, it is an open question if the amount of the recurring costs for partial-NPVs would actually be higher in case all project components would have been considered.

90 Author’s Note: Please refer to the NPV calculation of any country ICR document publicly available

under the WB homepage (http://documents.worldbank.org/curated/en/country).

91 Author’s Note: The reason for the existence of scenario-NPVs are sensitivity analysis using differ-

ent parameters for e.g. the RR, project lifetime, cash flows in order to account for unpredictable changes in the future.

39 1. Positive NPV: Described by a positive value which is greater than 0. In case of a scenario-NPV, the overall- or partial-NPV of the project is defined as positive if the minimum and maximum NPVs are both positive.

2. Neutral NPV: Exists only for a scenario-NPV and is described by the fact that the minimum NPV value is negative and the maximum NPV value is positive. 3. Negative NPV: Described by a negative value which is less than 0. In case of a scenario-NPV, the overall- or partial-NPV of the project is defined as negative if the minimum and maximum NPVs are both negative.