Proxy Model for Costing Infrastructure Projects:
A Guidance Note
Annual Meeting of Global Network of
Parliamentary Budget Offices-2015
Note to the reader:
This guidance note proposes a comparative approach to estimate the cost of policies, using infrastructure
as an example. PBOs may face constraints in time, access to data as well as limited human and financial
resources. Using comparative analysis, a PBO can leverage the data and experience of GN-PBO members
and the broader PBO community to undertake a policy costing with or without government data. The
comparative approach adopted here excludes social and economic costs of an infrastructure project, which
can again be pursued by the PBO if needed.
As with any approach, the PBO analyst should account for their particular country, political and economic
contexts as well as the nature of their project in undertaking costing with this or any other methodology.
The working group would like to thank the World Bank, University of Ottawa and other experts in
facilitating the meetings and providing valuable advice and comments in developing this report.
Introduction
Legislative decision making needs to be based on comprehensive, accurate, appropriate and
timely information. A Parliamentary Budget Office plays a crucial role in assisting the
legislature to fulfill its fiscal scrutiny function by holding the government to account. A PBO is
an objective unit that specializes in high quality research and analysis on fiscal policy for the
Parliament. It provides independent, non-partisan and policy neutral analysis on the full budget
cycle, fiscal policy and the financial implications of proposals.
The Global Network of Parliamentary Budget Offices (GN-PBO) was developed to share design,
function and practices between PBOs in developing countries. This aims to benefit members to
implement tools, methods and practices that have been implemented successfully in other
countries.
A GN-PBO working group consisting of PBO officers from Uganda, Thailand, Vietnam and the
Philippines was established to capture the approach to developing proxy models for costing
infrastructure projects. Governments are large public sector infrastructure financers, typically
roads, rail, ports, airports and pipelines. In the next ten years, $78 trillion is expected to be spent
on infrastructure projects globally (PWC).
The guidance note aims to:
 Support PBOs undertaking policy costings or fiscal analysis.
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Analyze an infrastructure project’s fiscal impact without commenting on policy decisions
or policy options. Providing policy options distorts the PBO’s mandate to provide
independent and policy neutral analysis. The guidance note focuses solely on analyzing
the infrastructure’s fiscal impact.
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Be applicable across sectors such as transportation, hydropower, telecommunications and
other infrastructure in the varied GN-PBO member jurisdictions.
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Establish good practice guidelines for PBOs in their mandate to assist parliamentarians to
make informed policy decisions on the full budget cycle, fiscal policy and the financial
implications of government project proposals, programs and policy implementation.
Choice of Model
PBOs are better suited to perform comparative or proxy cost estimates of the infrastructure
projects. In these models, the analyst can use similar existing or past projects to estimate costs.
The most challenging and important component of comparative cost estimates is acquiring
accurate data. With solid data, a PBO can produce a reasonable cost range for the policy under
question.
Proxy Modellings steps
This methodology can be used to cost policies, projects, or bills.
Step 1: Understand the Proposed Project
This is a stage when the PBO Analyst should acquaint him/herself with the project. In order to
compare the cost of a project it is important to understand its constituent parts. Below are some
of the key questions the analyst should ask in order to better understand what the project is:
1. What is the Purpose of the project?
The analyst needs to articulate the project proposal’s objective, inputs required and assumptions.
In this stage, the driving forces behind the potential project should be articulated. These driving
forces can include:
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Fiscal and economic imperatives: The project is necessary to improve competitiveness,
attract or sustain economic activity. For example, a particular transportation infrastructure
project can be built to attract business investment and facilitate trade and commerce.
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Technological productivity: Latest technology such as sophisticated computer models
and software can be used to increase operations efficiency. For example, latest
technology is being used in 19th century railroad infrastructure to improve waiting times.
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High consumer demand: In developing countries, due to high consumer demand,
telecommunications infrastructure is expected to increase.
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Compliance with law: For example, if a law is passed to build monitors across different
transportation projects in the state, the government will have to procure the necessary
monitoring equipment.
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Government programs: The infrastructure projects can be a part of a central or state
sponsored scheme to develop the country’s infrastructure.
2. What is the Scope of the project?
The Scope of a project is the extent to which it tackles a specific purpose. This can be
measured in many different ways, for example – the extent individuals might benefit from
services, the extent different regions are covered, or the extent an issue is dealt with as part of
the project.
3. What is the Lifecycle of the project?
The Lifecycle of the project are the successive stages the project passes through, such as the
design, build and operation stages of the project. It is important that all stages in the
Lifecycle of the project are costed. For example, a road infrastructure project has a one-time
capital cost and ongoing operations and maintenance costs. Delay in road maintenance leads
to massive direct and indirect costs as neglected roads are more difficult to use and increase
vehicle operating costs. Hence, routine and periodic maintenance costs must be factored in
the project strategy.
4. What is the Scale of your project?
The Scale is a set of amounts that measure the size of the project.
5. What is the Context in which the project is being implemented?
This question enables the analyst to incorporate any extraneous variables that would have an
impact on the costing. For example political considerations where in some countries for an
infrastructure project to be approved requires a number of conditions to be met like an
Environmental Impact Assessment among others which all have a bearing on the final cost of
the project.
Scenario 1: Very Limited Time
This is a situation in which a PBO has very limited time to come up with comparative analysis to
test the reasonableness of the Government estimate. The PBO can produce a Due diligence report
that can help MPs answer or raise relevant questions such as:
 What is the public interest being served by the project?
 Are the projects driving forces identified above clearly justified?
 What is the business model1 involved and what is the risk associated with it?
 Does the project deliver critical public expenditure?
1
Infrastructure projects, especially those that are funded through Public-Private Partnerships (build Own operate,
build Own Operate & Transfer, Design Build finance, Design build Finance & Maintain), undergo cost-benefit
analysis and the PBO must demand that these information be disclosed. A comparative analysis of the different
models should be done to assess the risk transferred with its associated cost. Such as the Policy and strategic; Design
and tender; Procurement; Site conditions;Environmental issues; Construction and Equipment risks.
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Does the project leverage private sector expertise and capital?
Are the project’s data, evidence and background clearly disclosed?
What is the return on investment?
What is the projected fiscal impact?
What is the Project` impact on the government debt?
What are the preliminary cost estimates?
What are the major constraints (existing laws, potential relocation costs,
interjurisdictional issues) that might result into cost overrun?
What is the potential environment cost?
What is the potential social cost caused from relocation of businesses and citizens?
What is the Opportunity cost for executing the Project?
Will the project lead to creation of jobs through local labor and use of local content?
Are there any other financial and non-financial benefits?
Scenario 2: Sufficient time
This is a situation in which a PBO has time to come up with a comparative analysis to test the
reasonableness of the Government estimate. In addition to answering the above questions, the
analyst can proceed through the next steps.
Step 2: Comparative Analysis & Methodology
Once the analyst understands what the project is they are able to identify the characteristics that
can be used to identify similar domestic or international projects that they can compare against
their own project. Below are key steps in identifying comparative jurisdictions:
1. Identify key characteristics based on an analysis of the purpose, scope, lifecycle, scale
and context of the project
2. Analyze Political Processes
3. Identify Key Variables
These vary from one infrastructure type to another such as roads, rail, communications,
energy (Oil extraction, Power Plants), health (hospitals), education (school buildings). For
example key variables in road infrastructure projects are length, width, durability, fixed and
variable costs while those in telecommunication are towers, number of end users, Number of
end user devices.
4. Identify Comparative Projects- ensure its apple to apple Similar infrastructure-lifecycle, width if a road, type, scale..
 Use and Purpose- volume & type of traffic e.g. Cargo vz Passenger road
 Geography & climate-topography e.g. flat vs mountainous areas
Note: Ideal number of comparative Projects is 6-7 but 3-4 is enough to start. However the PBO
should not limit itself on these numbers because statistically, the more numbers the better.
Step 3: Cost Buckets (Categories of Data)
At this stage, the analyst is to separate data into different categories for ease of comparison and
Analysis. Below are proposed major cost categories that can be further divided by the analyst.
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Capital Expenditure
Expenditures that will go beyond the immediate year (e.g. plant, property and
equipment)
Operating and Maintenance costs
• costs to keep and run the project
Step 4: Data Collection
At this stage the analyst understands the project and knows the kind of data needed for
comparison. Below are some data sources:
1. Domestic data based on similar projects
2. Look in GN-PBO
a) epbo blasts
b) Good Practices for data reference- include a cover sheet to define the terms and
references
c) Checklist of Data Sources
3. Other International jurisdictions
Step 5: Normalize the Data
At this stage, the analyst has acquired the data but needs to ensure comparability taking into
consideration various years when the identified projects were started. The analyst should ensure
that the data has:
 Same currency in real terms (similar base year)
 Identify specifications and break down costs accordingly e.g. per metre, per
kilometer, per user etc.
 Identify Quantities (e.g. number of users, traffic volume, etc.)
Note: Look for unique costs and outliers and remove them
Step 6: Develop a shadow cost
At this stage the analyst uses the normalized data to come up with a shadow cost which is an
estimate based on actual data. Some key activities in this stage include:
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Identifying the cost drivers- Can use correlations like in the case study attached.
Developing a reasonable cost range with a sensitivity analysis
Establishing if the Government`s cost is reasonable
Step 7: Defensibility of Results
This stage is to promote transparency in the PBO work by letting the data speak for itself. In
ensuring that the data can speak for itself, a PBO should:
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Peer Review the work through the GN-PBO community, researchers or experts in that
sector
Publish the report and Methodology
ANNEX
Case Study (appended)