# Chapter 5. Conclusion

The pilot of the IPF in Chile produced valuable overarching findings beyond the outcomes of the actual prioritization exercise. First, the outputs of CBA were found to be useful inputs to the FEI – inputs that can also be effectively complemented by the simultaneous and direct consideration of social and environmental policy goals that are otherwise difficult to quantify and value. The extensive economic appraisals (partial SCBAs) in place are useful to generate important economic measures associated with projects, including IRRs and NPV index (IVAN) scores, which should be used as key inputs to project prioritization and, in the case of IPF, inputs to the FEI. In this case, the IPF complements rather than substitutes traditional CBA appraisal.

The Chile pilot has shown that IPF has application beyond the 'stepping stone' approach previously proposed (Marcelo, et al, 2016), which couched IPF as a stop-gap measure until more sophisticated project appraisal methods could be implemented. Such CBA outputs as benefit-cost ratios, internal rates of return, and net present value indexes can be used to construct the FEI – either as the sole input or in combination with other relevant financial and economic factors, such as risk. As such, the IPF has relevance to a wide array of government capacity levels. It can serve to systematize consideration of key factors, where only limited project information is available, or complement full economic appraisals with additional policy considerations.

Moreover, CBA analyses are not necessarily used as the basis of prioritization. In Chile, for example, CBA analysis is used as a filter to eliminate projects with IRRs below a profitability threshold (6%). Once projects pass this filter and are given a positive endorsement for development (RS) within the SNI, they may be prioritized in a number of ways (often unspecified) by the proponent agency. The reservoir MCE directly responds to the inability of the CBA to fully account for critical yet undervalued strategic issues, which resulted in poor CBA results for projects that were required to ensure water security. So then, even where CBA is extensively applied and used to filter out ‘bad’ projects, there is a demand for systematic consideration of other important policy factors in the actual prioritization of investments.

Also, in the last couple of years, some road projects that were traditionally appraised using the CBA methodology have been appraised instead by the CEA approach, due to political pressures and considerations, because for those low traffic flows were not allowing the project to satisfy the positive NVP criteria. These kinds of projects were not considered in the prioritization exercise, as the main economic efficiency index (IVAN) values were not possible to get. This can be seen as a signal of how economic efficiency is losing influence in the investment and prioritization decision by the authorities, as the objectives are politically driven.

IPF recognizes that, in addition to economic considerations, projects may be valued by governments and other stakeholders due to non-economic considerations such as reducing income disparity or territorial inequality, promoting social cohesion, safeguarding the environment, preserving culture, or managing disaster and climate risks. CBA analyses are often unable to capture such developmental policy goals, which are inherently difficult to valuate. While SCBA should certainly be maintained as the gold standard in project appraisal and a key input for decision making, IPF can help prioritize projects under a variety of analytical conditions and according to multiple policy goals.

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