Economic Analysis of Water Infrastructure: Have We Got It Right?

The paper describes shortcomings of the general economic analysis procedure adopted in water infrastructure development projects in Sri Lanka. As a case study an application of the ‘Educated Trade-off’ framework in the Ma Oya river basin is used to illustrate the shortcomings of general economic analysis procedure. This framework facilitates the systematic identification of resource uses and the possible range of environmental and social impacts by the water infrastructure project, through the involvement (consultation and participation) of key stakeholders. The study revealed two types of shortcomings that result in erroneous economic indicators: first, the lack of a competent process to establish the baseline situation leading to non-inclusion of some important social and environmental impacts, both positive and negative, by the project and, second, deviations from reasonable practices either due to negligence or on purposes that give decision makers optimistic data which could result in questionable decisions.