The benefit-cost ratio analysis of the Nakdong and Han River projects conducted by Professor Hong Jong-ho. The red box indicates net value of the projects, total benefits subtracted by total costs, will be 9 trillion and 337 billion Won, 10 trillion and 982.2 billion Won, 8 trillion and 640.3 billion Won, 10 trillion and 285.5 billion Won in red respectively according to four types of scenarios.

Expert¡¯s benefit-cost analysis is contrary to calculations by the Lee administration

An expert has announced that his cost-benefit analysis calculations for the Four Major Rivers Restoration Project show a benefit-cost ratio (BCR) of 0.16 to 0.24, indicating the project is completely lacking in economic feasibility. These figures are diametrically opposed to government claims that the project is capable of obtaining value worth several dozen times the budget put into it via flood prevention and the securing of service water.

Hong Jong-ho, professor of Seoul National University¡¯s Graduate School of Environmental Studies, submitted the findings of a recently conducted cost-benefit analysis of the Nakdong and Han River projects to the Seoul Administration Court for a lawsuit filed with the court by a citizen plaintiffs¡¯ group demanding a suspension of the Four Major Rivers Project.

According to the analysis, which was divided into four types of scenarios according to maintenance costs and service water provision effects, the BCR for the Four Major Rivers Restoration Project amounts to 0.16 to 0.24. In all four scenarios, costs were four to six times higher than benefits. Generally, a BCR of less than one indicates that a project is not generating sufficient benefits to offset the costs going into it. Hong¡¯s findings indicate that a benefit of 16 to 24 Won could be obtained for every 100 won input.

¡°Even if this is an urgently needed state project in policy terms, its feasibility is only recognized when the ratio is in the neighborhood of 0.8 to 0.9,¡± Hong said. ¡°Undertaking a project with a BCR of 0.1 to 0.2 is unthinkable.¡±

In his analysis, Hong took into account flood prevention and service water provision effects as well as some eco-stream returns as benefits of the project, using as his basis estimates produced by the Grand Korean Waterway Research Association. As expenses, he included only the construction and maintenance expenses announced by the government. The Lee Myung-bak administration does not take maintenance expenses into account in its Four Major Rivers Restoration Project budget.

However, Hong took the view that maintaining the state of the river bottom after large-scale dredging would inevitably require the removal of soil entering due to heavy rains, and he therefore assumed a yearly expenditure of 0.5 to 1.5 percent of construction costs as maintenance expenses. The guidebook of the Korea Development Institute earmarks 0.5 percent of construction costs for maintenance expenses, and 1.7 percent of construction costs on Germany¡¯s Rhine-Main-Danube Canal are spent each year on maintenance.

¡°To prevent flooding, you have to empty the weirs, and to increase the supply of service water you have to fill the weirs,¡± explained Hong. ¡°The two benefits clash with one another.¡±

Hong also said, ¡°And the actual BCR is probably lower than what I have calculated because it does not take the costs of damages to the ecosystem into account at all.¡±

The Lee administration expediently amended an ordinance to the National Finance Act stipulating that large-scale state projects with total costs of 50 billion Won ($43 million) or more must be submitted to a preliminary feasibility study. The feasibility study that was carried out addressed only a 2.5 trillion Won, representing just 11.2 percent of the Four Major Rivers Project's overall budget of 22 trillion Won.

¡°As it has been shown that the Four Major Rivers Restoration Project lacks economic feasibility, the administration must halt the project and submit it to a thorough reexamination, if only to prevent the wasting of taxpayer money,¡± said Lee Mi-kyung, chairwoman of the Democratic Party¡¯s Special Committee to Block the Four Major Rivers Restoration Project.

Please direct questions or comments to [englishhani@hani.co.kr]