Investment Value vs. Market Value in the assessment
process of special constructions assets – pipeline
transportation systems
Eng. Ciprian GHEORGHE
Real Estate Valuer, Full Member of The Romanian Association of Appraisers ANEVAR
PhD Student, Valahia University of Targoviste, Faculty of Economics, Targoviste, ROMANIA
Eng. Gabriela POTORAC
PhD Student, Valahia University of Targoviste, Faculty of Economics, Targoviste, ROMANIA
``VALAHIA University`` of Targoviste,
ROMANIA
Multidisciplinary Science and
Technology Research Institute
of Valahia University of Targoviste
www.icstm.ro
Research Areas of
Multidisciplinary Research Institute of Valahia
University of Targoviste
- Research Center "Academic School of Materias Science„
- Research and Studies Center in Accounting and Finance
- Research Center "Applied Sciences and Modern Technologies„
- Biotechnology and Applied Engineering Sciences Center
- Research Center for Electrical Engineering, Electronics and Information
Technology
- Energy Environment Research Department
- Center for the Study of the Environment, Habitat, Motor and Leisure Activities
- History of International Relations and Cultural Studies "Grigore Gafencu"
Research Center
- Center for Research and Studies in Management and Marketing
- Nanomaterials for Micromechanical Systems Research Center
- Research and Expertise Centre of the Natural Resources and Environment
- Research Center for Political Science and
3 Comunication
The objective of this paper:
to analyze the advantages and disadvantages between the
estimation of the market value using traditional evaluation
approaches for pipeline transportation systems vs. the evaluation
"at investment value " using incoming approach in comparison to
the cost approach
Property Right
Evaluation
Economic
Evaluation
THE
EVALUATION
PROCESS
Technical
Evaluation
Investment Value vs. Market Value in in the assessment process of pipeline
transportation systems
``market value`` is usually done by cost approach because there are not
available enough market information for this industry in the analyzed area
``investment
value`` concerning to the EVGN 5 requirements, we use the
incoming approach (Discounted Cash Flow method )
The Investment Value may be different from the Market Value
In the book `` About evaluation and verification assessment ``
Vascu, A., Ed. Iroval , Bucharest, 2015 in Chapter 7 – How many
values has a good? :
`` an asset theoretically has only one value `` but there may be more
values of the same good depending on the purpose of valuation, but
between the values of the same good there should be no differences
greater than 20%.
In practice valuation of pipeline transportation systems the
difference between market value and investment value is more
than 20%
Fluid & Gas transportation by pipelines systems:
Advantages:
- pipeline transportation is the perfect tightness
- possibility of a continuous transportation (non-stop pumping)
Disadvantage:
- it requires very large investments
Evaluation of special construction assets like pipelines is a complicated
process that does not use traditional approaches to evaluation, but rather a
mixture of evaluation methods because each pipeline is unique in its own way,
but also because its value is influenced by many factors. These factors, acting
together, represent the influences the value of a pipeline from several points of
view: the physical - chemical, technological and economical.
The main factors that should be taken into consideration when carrying
out a modern, high quality evaluation, under specialty standards existing
on the market are as follows:
- factors which depend on the material themselves (e.g. physicochemical
characteristics and technological);
- factors that depend on the working conditions (e.g. temperature,
pressure, chemical composition and properties of working
environments-relax, streamline, corrosion etc.)
Pipeline Systems Evaluation for MARKET VALUE
Economic Evaluation
Pipeline Evaluation
for MARKET VALUE
Technical Evaluation
Pipeline Systems Evaluation for INVESTMENT VALUE
Economic Evaluation
Pipeline Evaluation
for INVESTMENT
VALUE
In accordance with the recommendations of EVS 5 and EVGN 5 requirements,
for the estimation of the Investment Value the assessor will usually use the
Discounted Cash Flow method
Specific Economic Elements for Pipeline Transportation Systems
evaluation analyzed in Discounted Cash Flow method:
-
revenue,
operating costs
land costs
interest
tax
amortization
depreciation
THE EVALUATION OF THE DECISION FOR INVESTMENTS
How should I decide whether or not to make an
investment
or go forward with a financial project?
How do I evaluate an investment’s performance some time
period after the investment has been made ?
If I have a number of alternative investment options,
how I decide which is the best alternative?
There are a number of techniques that can help with these
questions and to obtain the INVESTMENT VALUE
Payback method
Accounting rate of return (ROR) method
Internal rate of return (IRR) method
Net present value (NPV) method
the net present value (NPV) method as the most effective and accurate
technique of evaluating potential investments
The corrosion process is a complex mechanism that occurs during operation of all
equipment and technological equipment in the refineries or pipelines systems or
found in petrochemical installations and is done at oscillating temperature and
pressure (high/low), in the presence of some work environments (type: crude oil,
compressed gases, petroleum and petrochemical products, etc.).
Corrosion is defined as the destruction, in a certain span of time, of metals and
metal alloys as a result of chemical and/or electrochemical actions of the
technological environments and surrounding or due to physical dissolutions
In normal operation of the pipeline system there are complex corrosion
processes which depend on many factors, but this corrosion processes can be
grouped in two categories: corrosion which have as finality added mass of
corrosion material and corrosion which have as finality loss mass of corrosion
material. In these conditions the influence factor of depreciation due to corrosion
it has the following relationship:
𝜑=
𝑀𝑖+𝑀𝑎
𝑀𝑖−𝑀𝑐
(4)
Mi - the initial mass of the pipeline at the initial time;
Ma – the added mass of corrosion material; Mc – the loss mass of corrosion material
If in the process of corrosion occurs only added mass of corrosion material and if in the process of
corrosion occurs only loss mass of corrosion material are also the situations that can be explained
and graphics dependencies that can be analyzed.
Conclusions:
- Estimating the investment value is very useful and important for the investors,
but to estimate the investment value of the pipeline transportation systems that
are special construction assets are made different by the market value
-
The relation between depreciation and the influence factor of depreciation due
to corrosion is the quantitative expression of the correlation between
depreciation and corrosion and is a very useful tool for appraisers in predicting
of the market value for pipeline transportation systems
- The value of the pipeline transportation systems is directly influenced by the
corrosion
- The higher thithe influence factor of depreciation due the corrosion is, the
higher the amount of depreciation is and the smaller marhet value is
- As the value of depreciation directly affects the market value, it can be said that
the factor of influence of depreciation due to corrosion φ directly influences the
market value of the pipeline systems.