JPRS ID: 9126 EAST EUROPE REPORT ECONOMIC AND INDUSTRIAL AFFAIRS

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• Content Type: REPORTS

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JPRS I~/9126
4 June 1980
East Euro e Re ort
p p
ECONOMIC AND INDUSTRIAL AFFAIRS
(FOUO 5/80)
" F~IS FOREIGN BROADCAST INFORMATION SERVICE
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JPRS L/9126
4 June 1980
EAST EUROPE REPORT .
ECONOMIC AND INDUSTRIAL AFFAIRS
(FOUO 5/80) -
CONTENTS
INTERNATIONAL AFFAIRS
Effects of Fertilizers on Grain Quality of Wheat
(Jaroslav Prugar; AGROCHEMIA, Mar 80) 1
- CZECHOSLOVAKIA
Capital Investment Reviewed in Detail
(INVESTICNI VYSTAVBA, No 1, 1980) 6
Capital Investment in 1980, by Karol Ujhazy
Economic Efficiency Diacussed, by Jiri Klima
Energy Constructions Viewed, by Jiri Barcal,
_ Jiri Kobosil
.
- a - [III - EE - 64 FOUO~
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INTIItNATIONAL AFFAIRS
EFFECTS OF FERTILIZERS ON GRAIN QUALITY OF WHEAT
Bratislava AGROCHEhIIA in Czech No 3, Mar 80 pp 75--76 .
[Article by Doc Eng Jaroslav Prugar, Candidate for poctor of Science,
~ Tnstitute for the Research of Vegetable Produce, Praha-Ruzyne Part 2]
[Text] Ni~rogen fertilization has the maximum importance for the synthesis
of proteins in the plant and the storing of them"in the wheat grain. _
Hundreds of experiments [conducted] all over the world undex the most varied
conditions have confirmed, however, that fertilization with nitrogen alone
is not sufficient and that only a balanced source of nntr~~~on with all
~ biogenic elements, including trace elements, in the quantity and ratio
_ that optimally meet the needs of a given variety can lead to a successful
result from the viewpoint of b oth quantity and quality. The protetn content
of wheat grain (and of cereal grasses in general) does not necessarily always
rise proportionately with the increasing amounts of nitrogenous fertilization.
This applies particularly to the cur*_-ent, highly productive varieties which
react to fertilization with a steep rise of the grain yields. This is
_ especially striking in those cases whcn CCC (expansion unknown) an3
herbicides were applied and grawT.hs were maintained in an optimum~~s~tate (46).
It leads to that "diluting effect" which we are currently seeing in our
practice as well: record yields of wheat, especially the Soviet varieties
of the Mironov culture, are ofEe~:~ associated with a great decline of the ~
protein content and vitrescence af the grain. With the current pote~tials
of the agricultural~production this unwelcame~phenomenon can be prevented
_ only be additional fertilization with nitrogen in the later stages of
growth thus givi~g the plattt the possibility of utilize these nutrients
primarily for improved grain quality. Most of the many publications dealing
with questions of fertilizing wheat in all the countries where this grain is
cultivated are concerned with nitrogen fertilization.
~ The largest number of such studies is currently found in Soviet technical
literature. While (Knyaginichev) (47) in 1951 ~.n his monograph on the
biochemistry of wheat was still ~ustified in statin� that "studies of
the effect of fertilization on the quality of wheat grain for these
areas (he means the dry areas of the USSB) were few and inadequate--only
the total yield of grain was followed," today there is in the USSR no ar.ea
_ important for wheat cultivation..which has not been subjected to many fertili-
~ zation experiments aimed at the study of the grai.n quality adapted to the
_ local characteristics and regiona i varieties. ~is applies not only to such ~
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renowned areas as the Ukraine, Northern Caucasus, Volga region and Kazakhstan,
but also to vast areas of the non-chernozem zones.
Fr.om the large number of Soviet studies on the subject of "nitrogenous
fertilization and quality of wheat" we list at least those which, from the _
beginning of the 1970's, we have been comparing with the results of our
own ~xperiments (48-75).
The action of mineral and especially nitrogenous fertilizers on the quality
of the wheat grair was given great attention at the VIIth International
Congress of Industrial Fertilizers in 1976 in Moscaw (76, 77). Pavlov et al
(78) prepared the basic report on this subject on the basis of data acquired
when dealing with a pro~ect of similar orientation in the CEMA countries.
It was found that with low rates of nitrogen application (around 40 kg per
hectare) the protein content ~n the wheat grain as a rule does not rise;
on the contrary, it may even decline, namely in those cases when the plant
utilizes the supplied nitrogen for increased yield but not for improvement
of the grain quality. Nitrogen rates around 80 kg per hectare ust~ally
increase both the yield and the protein content. With further rate increases
of nitrogen fertilization the protein content continues to rise, but the
- increments of hectare yields gradually level off, and at unusually high
rates of supplied nitrogen one can even note depression of yields. This
was demonstrated experimentally, for examp"le, in the GDR, the USSR, the
Romanian Yeople's Republic and the CSSR. According to the results of
VIUA [the D.N. Pryanishnikov All-Union Scientific Research Institute for ~
Fertilizers and Agronomic Soil Science] obtained under conditions of the
non-chernozem zone, a nitrogen rate of 90 to 100 kg per hectare appeared
optimal for obtaining the highest grain yields, while 120 kg per hectare -
was optimal for increasing the protein content to 14 percent and higher.
In the years 1971 to 1975 the Deparfiment of Vegetable Produce qf the College
flf Agriculture in Gorki ~ointly with VIUA studied the effect of high dosea
of industrial fertilizera (N60-240~ P60-18p and Kyp_12p) on the yielda
and quality of grain of the Mironov varie~y and their subsequent effect
an the productivity and quality of the grain of summer wheat and barley.
(Kodanev) et al (79) presented the results of these and additional experi-
ments at the Moscow Congr.ess. It was found that the highest and best
balanced yields of winter wheat were obtained with nitrogen rates of 9~0
to 120 per hectare. Larger applications.did not result in yield increases,
while the protein content in the grain, on the whole, rose evenly from
13.5 to 15.9 percent. .
, From 1968 to I971 in the Polish People's Republic in Wroclaw (80) field
experiments were carried out with ten varieties of winter wheat using
different levels of nitsogen fertilization: 30, 60, 90 and 120 kg per
hectare, applied either as a single dose in the spring or fractionally, a
part before sowing and a part in the spring, or a part in the spring and
_ the rest during the phase of grain formation, always in the form of ammonium
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nitrate. The reaction of the varieties differed on the averag~, however,
increased doses of nitrogen increased the content of total and protein
nitrogenr while the content of non-protein nitrogen showed practically
no change. The content of all amino acids likewise rose but when converte~
to proteins, the content of essential amino acids started to decl3ne in
the ma3ority of the varieties studied beginning with 120 kg per hectare.
In 1969 to 1972 Polish researchers in Stettin (81) carried out detailed o
~ studies of the reaction of a number of winter and summer wheats to varying
~ doses of nitrogen in heavy soils with the medium content of phosphorus
and potassium. Rates of 40 and 80 kg per hectare increased the yield of
winter wheat, while administration of 120 kg per hectare had a depressive
effpct on the yields. Variety Grana reacted most to nitrogen fertilization,
while vaiiety Zeliazna and the Swedish variety Starke, the least. The
protein content in the grain increased parallel with the rising rates of
nitrogen. The values for the sedimentation test and farinograms also
_ improved concurrently.
As to the yield, a nitrogen rate of only 40 per hectare was found suffi-
cient for the summer wheat; further increases, to 80 and 120 per heetare had
only a minimal effect. The protein content increased, however, from an
average value 13.3 percent (40 kg per hectare) to 14.9 percent (120 kg
per hectare). Both with the w3,nter and su~er wheat the maximum yield of
proteins per unit area was ob tained~at the nitrogen rate 120 per hectare. �
The author compared the experimental data obtained with the results of
experiments carried out earlier (82, 83) on the same soil with different
varieties and nitrogen rates of 30, 60 and 90 per hectare. At that time
the tested varieties reacted differently: the yeilds increased with rising
doses of fertilizers, while the qualitative indicators generally did not
change.
In the experiments carried out in Romania (84) in podsolized soils, the
yields rose to a nitrogen rate of 120 per hectare, and the rise of the
protein content in the grain continued up to the rate of 160 per hectare,
the optimum ratio being N:P205 = 2.5 : 1. Fractionation of proteins
canfirmed that gliadin, i.e. the prolamin fraction, is mostly responsible
for the increase of the protein content. Its rise was associated with a
concurrent decline in the lysine content of the grain.
Workers of the Experimental institute of Grains and Technical Produce in
Fundulea, using the Aurora vaiiety obtained very interesting information �
about the effect of fertilization vn the susceptibility of wheat to fungal
attacks (85): Annual nitrogen application of 120 and 160 per hectare
instead of 40 to 80 per hectare not only had no positive e�fect on the grain
yield but also to sensitized the plants to fungal attacks; this was mani-
fested in the shrivelling of the grain and reduction of mass per 1000
grains.
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At the College of Agriculture in Novi Sad in Yugoslavia, Drezgic et al (86),
using a sowing progression of wheat-corn-barley in the chernozem-typ~ soil,
studied changes in the yield aad quality of wheat with graduated doses of
aitr~gen--60, 90, 120, 150 and 180 per hectare. The Italian Libellula
was the experimental variety. The yield increased only with law and medium
doses of nitrogen, with the maximum around 80 per hectare. The total content
of nitrogen and proteins in the grain showed a linear rise up to the maximum
rate.
a
Jevtic and Malesevic (87), investigators at the same institution, set up
field experiments with two varieties of wheat--Sava and early Novosad--
on chernozem in the northeaetern part of Yugoslavia. They applied nitrogen
doaes of 50, 100, 150 and 200 per hectare with the same ratio of nutrients
N:PZOS:K20 m 1:0.8 : 0.6. In the variant without irrigation the yield
declined at the rate 200 kg per hectare, and on the irrigated plots the
yield decline began to manifest itself at 100 kg N per hectare. The
content of nitrogen, proteins, and protein layer of the grain increased
with the graduated nitrogen fertilization; the gains were maximum at the
nitrogen doses of 50 and 100 kg per hectare. The content of essential
amino acids in the grain shawed a similar pattern. The suthors did not
include the content of amino acids converted to proteins, but from the data
in the tables one can deduce that the biological value of the proteins was
beginning to decline at the highest ni~rogen rate.
At the FAO [Food and Agricultural Organization] symposium on the effect
- of fertilizers on the quality of plant products held in New York in 1974,
Kulakovskaya (88) reported on experiments in the Belorussian, Latvian and
1~ithuanian SSR's with graduated mineral fertilization. Optimum doses of
nitrogen, manifested positi~vely both in the yieid and in the quality of "
the wheat grain, varied between 90 to 120 Isg per hectare. Further increasing
the nitrogen doses wae no~t cost-effective.
Further studies along theee lines were carried out in the 1970's in
Bulgaria (89, 90), Poland (91, 92), Hungary (93, 94), GDR (95), Romania
(96, 97) , Yugoslavia (98, 99) , FRG (100, 101) , the Netherlanda .(102, 103) ,
- Austria (104), Italy (105), Scotland (106), Ireland (107) and the U.S.
(108, IO~, 110) . Most of them '~ave noted the favorabl~e effect of nitrogen
fertilization on the protein content of the grain. As a rule, however,
higher rates bring about.depressions of yielde.. �
In recent years many pro~e~:~Q in the CSSR have also been aimed at stu~3ying
the eff ect of nitrogen nourishment on the quality of the wheat grain. The
purpose of some was to study various forms of nitrogenous fertilizers (111
- to 119); others also s~udied the influences of other agroecologic factors
acting concuriently witn fartilization (117, 118).
Concluaion
_ The largest numbes of studies in the area of research on the effect of
mineral nourishment on the quality of wheat deal with nitrogenous fertiliza-
tion. It has often been demonstrated experimentally that the increase of
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the protein coutent in the grain is not always proportionate to the amount
of nitrogen supplied. It depends on the genotqpe and on the external
environmental conditions whether the growing crop will utilize this element
more for the increase of the yeild or the quality of the grain. A number
of results obtained with.different varieties and under different ecological
conditions cite the range 90 to 120 kg per hectare as the optimum doses
from the quantitative and qualitative viewpoint. Higher doses are econom3:c
only with applied in a separate applications.
COPYRIGHT: ALFA, Bratislava, 1980
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CZECHOSLOVAKIA ~
- CAPITAL INVESTMENT REVIEWED IN DETAIL
Capital Investment in 1980
Pragu~ INVESTICNI VYSTAVBA in Czech No 1, 1980 pp 3-10
[Article by Eng Karol Ujhazy, deputy chaix.~man of the State Planning Commission,
in Slovak: "Capital Investment in the 19~0 Plan"] ~
[Text] The 14th Plenum of the CPCZ Central Committee discussed the report .
of the Presidium of the CPCZ Central Committee on the most important develop-
raent goals of the national economy for this year. Consistent with the
increasing exigency of contemporary development, the results of the past
four years of the Sixth Five-Year Plan were assessed more critically than in
previous years. An appropriate place at the plenum was allotted to capital
investments. This was fitting and in accord with what was stated by
Comrade V. Hula: "To a aignificant extent, increasea in technological and
economic potential; innovation in and modernization of its structure; the
- rise of the technological level of production, products and servicea; labor
_ productivity and effectiveness are [all] determined by capital investments."
Establishing the major targets for 1980 is exceptionally important, because .k
--more than at any time hitherto we realize the impact external economic ~
conditions have un'our domestic economy, as well as the fact that we have
as yet made little effort to ad~ust to them;
--wh~?e. this is the final year of the Sixth Five-Year Plan, it is als.o the �
preparatory year for the Seventh Five-Year Plan, which we are currently .
~ working on; � .
--moreover, we realize more than ever the role,_of our own shortcomings in. .
the comparatively low effectiveness of development which, however, to a
decisive degree, holds down the rise in our people's living standard.
In order to understand correctly the tasks in capital inveatment we ahould ~
mention at least briefly the existing basic trends in the development of the
economy taken as a whole and the taska in overall development for this year.
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Reaulta of the Fulfillment of the National Economic Plan for the Sixkh Five-
Year Plan
In the report o~ the.Presidium of the CPCZ Central Com~ittee it was stated
that a sober sesessment of our evolution during the paet few years reveals
th~ positive growth of the economq of our country, despite the fact that our ,
economy is o~perating under worsened internationaS. conditions (the rise in
the prices of energy and raw materials on the world marketa) and for two
years out of the last four our agriculture was affected by exceptionally bad
- weather. Even though we are not co~Qletely achieving the results stipulated
by the Sixth Five-Year Plan, the 17-percent rise in national income, the
- 21-percent rise in industrial output (including a 32-percent rise in engineer-
ing), and the 24-percent rise in construction testify to the increase of our
country's~economic potential.. And the average annual agricultural production
is 7.6 percent higher than was that of the Fifth Five-Year Plan.
_ The report also asseased as poaitive certain structural changes made in our
economy during the past four years, the groundwork for which had been laid
by capital investments made in the last years of the Fifth and the firat
yeara of the Sixth Five-Year Plans. ~Quoting from the report, "A not always
eufficiently appreciated fact is that we devoted sizeable investment funds
' to insuring future development in the productiv~ and nonproductive spheres.
In four years we invested Rcs 564 billion in capital construction, -
_ approximately 64 percent of which was in the productive sphere."
In addition, the report cites capacities.for the mining of brown and black
coal, the constsucfion of large thermal, hydroelectric and nuclear power -
plants, the natural gas transit pipeline, and natural gas undergraund tanks. `
The report cites other large-scale investment programs in which we have
concentrated funds and.capacities in recent years, such as nuclear engineering,
tube production, the modernization and renovation of inetallurgical plants,
the construction of a modern petrochemical base fn Zaluzf, Slovnaft, and ~
the construction o~ new cellulose mills and cf the wood-processing industry
- generally. We could extend this list by mentioning new engineering capacities,
~ new capacities in the food-processing industry, as well as decisions taken
in the nonproductive sphere (for example, in transportation jthis includes]
the relaying of railroad beds, increased electrification, highway construction),
and also construction in the broad complex in the North Bohemian Rra~, in the
Prague metropolitan area, and in Bratislava.
On the other hand, the evaluation of results achieved to date is also
justly criticiied with respect to capital construction. After all, while
the creation of n3tional income is approximdtelq a third lower than
stipulated by the plan,partof the blam~ for this,in addition to insufficiently
utilized .fixed assets, is due to rising investment costs per extra unit of ~
production, extending the time necessary for const=uction, the time it takes
newly-buitt capacities to reach deaigned parameters and in sum, then,
lower effectiveness from funds invested than env~s~ged by the plan.
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The economy of. our country, which is pooz rather than rich in natural ~
resources, proved incapable of uaing exports to compensate for the rise
in the prices of imported energy and raw materialso M~oreover, the export
targets, eapecially in ~ngineering, were not even completely met during .
- the past four years. And the impact of climatically adverse years, especially
this last one, had to be made up for by expenaive imports of agricultural _
products, of grain in particular.
These are all reasons why it was necessary to distribLte the national income. r
generated more cost-consciously and also to reflect the decreased scope o~
- , investments for last year and for this year in the way it was used..
Fulfillment of the Capital-Inve~tment Plan in 1979
The deceleration of the rate of capital investment called for by last year's
plan was adhered to as follows:
Anticipated
_ reality
1978 1979 1979
1977 1978 1978
Year-to-year rates of inv~stment
growth
--Investments in the national
economy, tot~zl 1,04.7 102.3 102.1
--Investments in the national
economy, without the "Z" program ~
and private construction 105.5 102.4 102.4 ~
- These and the other figures given were derived from the anticipated reality -
_ as of the time of the writing of this article. Corrections to them will
perhaps be necessar~r, but none that would affect the trends in last year's
fulfillment essentially.
_ The task set at the 12th Plenum of the CPCZ Central Committee and in the
plan was thus completely fulfilled within the over-all volume of investment.
= While the rate of inveatment is slowing down (to half of that of 1978 and a
third of that of 1976), the complexity of structural changes in investment
_ is increasing, as well as the difficulty of adhering to the structure and
material content of investment set by the plan. _
_ The results from last year where, despite agreement in total investment
volume there is a significant difference in plan fulfillment in the
structure of work and deliveries, must be appraised all ~the more critically.
- While deliveries of machinery and equipment last year were exceeded by 5.1
percent, that is, by Kcs 2.9 billion, construction work lagged below the
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level of the year~s plan by 3 percent, that is, by Kcs ?.4 billion. This
disproportion in fulfilling the atructure of work and deliveries appeara with
even greater force if we compare last year's results with the tasks get for
1979 in the Sixth Five-Year Plan. Deliveries of machinery and equipment
were exceeded by approximately the amount called for in the 1979 plan, thae
is, by 5 percent, but construction work was under fulfilled by 7.8 percent.
The amount of uncompleted construction, as comgared to that stipulated in
the Sixth Five-Year Plan, amounts to nearly Rcs 6.5 billion.
- Just as in the structure of work and deliveries, the results in the fulfillment ~
af the plan according to individual indicators vary greatly. On the one .
hand, deliveries for construction projects budgeted at under Kcs 2 million
and machinery and equipment not included in the budget (SZNR) were exceeded _
by 8.5 percent (the mal~or portion of which overfulfillment, however; must
r.e adjusted by the overfulfillm~nt in agriculture, which resulted last year
- partially from the methods used to regulate this investment category). On
ths other hand, deliveries for pro3ects budget~d at over Rcs 2 million were _
underfulfilled by 6 percent, that is, by approximateYy Kcs 3 billion.
Projects with the special system of regulation were underfulfilled by 1.8
percent, practically the entire shortfall occurring in full-service housing `
~ construction.
Underfulfillment in construction pro~ects budgeted at over Kcs 2 million
would show up even more starkly in comparison with the 5ixtl~ Five-Year Plan.
The tasks of the Sixth Five-Year Plan for this year were fulfilled by only
85.4 percent. With respect to the structure of work and deliveries [of
materialsJ these tasks have remained 75~G unfulfilled [sic] in the ccns~ruction
industry, being fulfilled by only 82.5 percent.
Although these deviacions from the plan are relatively smaller than were
those~of the Fifth Five-Year Plan, it remains a fact that conditions are
not improving in the category of construction pro~ e~ts budgeted at over Kcs
2 million except for those designated mandatory tasks. If we subtract from .
last year's results pro~ects designated mandatory tasks, for which the plan
for volume was fulfilled, indeed, even somewhat exceeded, then the entire
Kcs 3 billion of nonfulfillment is charged to those projects not desigr.aced
as mandatory tasks of the state plan. It is surprising that no improvement
occurred in this category last year even after the fulfiliment of
deliveries for pro~ects budgeted at over Kcs 2 million was, in acco~dance =
- with organizational measures for last year's plan, to become one of the `
- criteria for evaluating workers in contracting organizations in construction
and in engineering.
A positive aspect of last year's development is that despite the deviations
mentioned, last year, in contrast to the previous 2 years, the only deliveries
to increase were those for construction pro~ects budgeted at over Kcs 2
million and construction pro~ects with a special method of regulation,
combined (thus for larger construction pro~ects), while deliveries for con- -
struction pro3ects budgeted at under Kcs 2 million and SZNR essentially
remained at th~e 1978 level:
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1977 1978 1979 -
1976 1977 1978
Construction pro~ects budgeted
' a,t under Kcs 2 million and SZNR 110.2 106.7 99.6-100.
Construction projects budgeted -
at over Kcs 2 million and
pro~ects with the specia?
- system of regulation 102.5 ~104.6 104_.1
Behind the nonfulfillment of the plan for construction pro~ects we must then
also see nonfulfillment in c~mmissioning capacities for trial operation. The _
_ resules for this indicator last year were among the worst yet for the Sixth
Five-Year Plan. As for the number of capacities that were cflmmissioned in
maiidatory tasks, the plan was fulfilled by only 59 to 62 percent, thus with
n~uch worse results than in previous years. Of the capacities commissioned
last year we should mention at least the following: ' .
In fuels--the Jiri II open pit mine in the SHR [State Economic Council], the
LAB II natural gas underground reservoir,and pumping s~ations on the natural
gas transit pipeline; in metallurgy--construction pro~ects 1 and 2 in the
central oxygen plant in Ostrava--Vratimova's tube-production capacities in -
the Svermov ironworks in Podbrezova; in engineering--building No 4--separators
in Tlmace, partial capacities in the construction program Tatra Korprivnice;
in the chemical industry--petrochemical plant II in Zaluzi, a cellulose mill
in Zilina, the polypropyle;ie fiber cutting facilities of CHZJD [the Juraj ~
- Dimitrov Chemical Works] in Bratislava; in building materials--an additional
section of r.he central telecommunications building in Prague; in transporta-
tion--the partial highway section between Horice and Humpolec and sewer
section K in Prague; 127,000 housing units were completed and put into use. -
Cn the other hand, however, some capacities were not put into operation,
for example: -
Tn fuels--some pumping stations on the natural gas transit pipeline; in the
en~rgy sector--the Kosice II power and heating plant; in metallurgy--some
capacities at the SONP [United Steel Works] in Kladno; in engineering--the
- construction of the Pribor plant in Tatra in Koprivnice and capacities�for
Elitex in Surany; in the timber industry--capacities at the new wood combine -
in Polomka, and in the building materials in.duatry--ceramic tiles Rako III;
in full-service housing construction--a number of pro~ects in technical �
and civic services at new residential centers.
New construction starts last year were exceeded only to the extent made
possible by methodology (that is in agricultural construction such pro~ecta
as drainage systems, putting in new gardens, vineyards, or hop-gardens).
In comparison with the plan originally ratified for last year, however, Chere
were deviations with the consent of the government, partially because it
waa not until last year that some construction pro~ects got under way thaE ~
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had been originally planned for 1978 �ox' exanuple, part of the second
nuclear power plant in Jaslovske Bohun~.ce budgeted at Kcs S.3 billion~, while,
on the other hand, agreement was given to eazly starts to the detriment of
the limit established in the directive for this year (for example, additional
stages of the construction of the Dukovany nuclear power plant budgeted at
_ Kcs 5.9 billion, some power and heating plants, etc). Even after making
these ad,justments, the total of new building starts remained below the limit
set for the last year of the Sixth Five Year Plan.
Nonfu2fillment of the plan for constructton pro~ects budgeted at over Kcs 2 -
million was the major reason why the development of unfinished construction
last year was not in accordance with the annual plan, much less with the plan
- for the Sixth Five-Year Period. The balance of RN (budget funds) at the
_ begi.nning of last year was only 0.6 percent higher than in the previous year,
and with a growth in the volume of deliveries of approximately 2.25 percent
there was in 1979 even a slight decline in the volume of unfinished
construction (not quite 2 percent). But even so the amount of unfinished
construction at the end of last year was greater than stipulated by the Sixth
Five-Year Plan for 1979.
The results of the fulfillment of the plan for capital investment had to be
taken into account in making the preliminary draft of this year's plan.
Proportions in the Development of the National Economy in 1980
This year's plan focuses on creating the preconditions for maintaining the
dynamic development of social production as the basis for a continually rising
standard of living. The development of production must be insured while
consistently taking into account our limited fuel-energy and raw material
resources, while achieving the necessary savings in imports and the greatest
possible effectiveness of the entire xepr.oductive process. The tasks
stipulated in the plans for particular areas of the national economy require
the concentration of all available resources on the solution of internal
and external problems connected with our economy~s growth. The dynamics
and the structure of material resources~ with respect to their creation and
their allocation to different areas of final use, are established with this
objective in mind. The rate of growth of social product is to be higher
than it was last year. This is to be insured by a growth in industrial output
of 4 percent as compared to 3,9 percent in 1979 (5.8 percent in eng~.neering),
by a growth in agricultural production of 8 percent compared to an exceptionally
bad preceding year, and a growth in construction of 3.8 percent.
The principle direction that increasing the effectiveness of the national
economy's development will take in 1980 remains achieving the greatest possible
_ savings in human labor while raising labor productivity 3.6 percent and while
increasing production by im~roving labor productivity from its current figure
~ of 94.7 percent.
Even though our fuels and energy base is better prepared for this year than
it was at the beginning of last year, it will still be necessary to devote
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maximal attention to conserving all types o~ energy, especially liquid fuels.
The plan has set demanding targets for conserving liquid fuels in all branches,
particularly in transportation, construction and agriculture, and in freight
and passenger transportation generally.
In comparison with last year�'-s results, the plan counts on a growth in the _
total commodity turnover in foreign trade of 7 percent, with a priority
growth in export of 8.4 percent as compared to an increase in imports of
6.4 percent. Fulfilling the targets for exports to both socialist and
nonsocial~st countries must be regarded as crucial. Insuring the planned ~
relations in foreign trade must be considered one of the severely limiting
factors in the development of the national economy in 1980.
The plan also established measures related to the state budget, targets for
achieving savings in and cutting down on administrative and technical-economic -
ataffs to achieve the planned slowdown in the present rate of growth of
- material costs in the nonproductive sphere.
The 14th plenum of the CPCZ Central Committee referred to the fact that targets
for deliveries for the market funds in the requi~ite structure, variety and
quality of products are no less obligatory than those for export. The primary
goal should be to improve the way the market is supplied with several products
- that have not been available in recent years. _
The targets for exports, for supplies for the domestic market and no less for
the planned structure of capital investment are making increased demands on
production to adapt more efficiently to the needs of the national economy.
The targets for the development of nonproductive consumption and for the ~
potential scope of capital investment also are based on the potential growth
of resources of national income and the necessity of solVing the problems
connected with foreign trade~ The plan therefore calls for the more rapid -
growth of creation and the slower rate of domestic utilization of national
income. This lower rate of growtn of internal consumpiion of national income
makes it necessary to ensure the practical and effective utilization of
resources in the individual components of the economy, therefore also in
capital investment.
The Basic Indicators for the Capital Investment Plan for 1980
At the 14th plenum of the CPCZ Central Committee, Comrade Hula in the report
by the Presidium of the CPCZ Central Committee stated: "Starting this year
(1979) and to an even more significant extent in 1980 we shall~decrease the
increment in the volume of capital investment projects from the originally
planned 5 percent to 2.4 percent. Even so, the volume of capital investment
is high and its share of the national income represents the highest poasible
Iimit." ~
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This principle is completely adhered to by the plan for 1980, and thus it
counts on a stagnation in the level of capital investment and in the rate of
growth of capital investment pro~ects in comparison with last year. Taking
this as its starting point the plan:
--concentrates supplier capacities on providing for construction pro~ects -
designated mandatory tasks of the state plan, especially in the fuels and
energy sector; for important facilities that are due to go into operation �
either this year or next; for regions of concentrated construction, especially -
in the North Bohemian Kraj. If the process of realization requires it, then,
in the interest of concentrating contractor capacities and deliveries, the
rate of construction of some less urgent pro~ects will be temporarily slow~d
down;
--gives priority to the renovation and modernization of existing fixed assets
over new construction. For this purpose it stipulates the more effective
utilization of funds for projects budgeted at under Kcs 2 million and SZRN.
It stipulates that the ma~or share of these investments will be used in
accordance with integrated programs, either for modernization or for investment
programs with rapid return of investment cost;
--the branch orientati.on of capital investments follows the fundamental idea
set forth in the Sixth Five-Year Plan, but takes into account to a greater
extent the concept of the Seventh Five-Year Plan being drawn up, especially
with regard to the development of the fuel--energy base; construction pro~ects
that will ensure export or anti-import production; projects related to intex-
national economic integration and to the utilization of our own sources of
raw materials;
--decreases the number of starts of construction projects budgeted at over
Kcs 2 million by 20 percent below the guideline, that is by a total of Kcs
12 billion, and decreases the number of starts in the category of specially
regulated construction pro~ects by approximately a quarter. This measure
is an attempt to accelerate construction and to decrease the amount of
unfinished construction, although its effects will not become apparent until
the first year of the Seventh Five-Year Plan.
The capital investment plan for this year stipulates the following growth
in the volume of investment in the national economy (exclusive of Z-program
projects and private construction) broken down on the basis of the structure
of work and deliveries:
1980 guidelines 1980 plan
1979 plan 1979 anticipated
Year-to-year growth rates of
capital investment projects in
th~ national economy, total 105.0 102.4
of which construction work 107.1 103.9
--machinery and equipment 102~0 100.3 .
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The slowdown iti the overall capital investment growth rate is in accordance
with~the conclissions of the 14 Plenum of the CPCZ Central Committee. The
slowdown in the dynamics stipulated in the guidelines for the 1980 plan
is higher by almost half for deliveries of machinery and equipment. The
higher rates of growth for construction work than for deliveries of
machinery and equipment could lead to the erroneous conclusion that the
active part of fixed assets, i.e., machinery and equipment, is receiving
lower priority. It should be pointed out in this regard that the higher
growth rates for construction work is due to the significant underfulfillment
- of the plan for construction work last year. The progressiveness of the
structure of construction work and deliveries in the capital investment plan
shows up more clearly if we compare this structure with that planned for
1980 in the Sixth Five-Year Plan. In this year's plan, construction work
reaches only 93.4 percent of the volume planned in the Sixth Five-Year Plan
and is Kcs 5.6 billion below this level; deliveries of machinPry and equipment
will be 4 percent higher than stipulated in the Sixth Five-Year Plan and will
total Kcs 2.3 billion more than called for. This will also raise the prop~r-
tion of machinery and equipment in the total volume of capital investment
pro~ects from 40.3 percent [of the figure] stipulated by the Sixth Five-Year
Plan to 42.9 percent [of that] stipulated in the plan for 1980. ~
The slowdown in the rate of growth of investment projects as compared to the
guidelines is reflected in practice in the categories o� construction projects
in projects budgeted at over Kcs 2 million and in projects and branches with
a special method of regulatin~ unfinis:led construction:
1980 guideline 1980 plan
1979 plan 1979 anticipated reality
- Total volume of capital investment
projects 105.0 102.4
of. which:
- --construction projects budgeted
at over Kcs 2 million 111.8 106.1
--branr_hes with a special method
cr regulation 106.7 103.9
--consrruction projects budgeted
at under Kcs 2 million and SZNR 96.0 97.5 �
We consider the more realistic growth rate of work and deliveries for
construction projects budgeted at over Kcs 2 million to be practical, based
_ on the experience of recent years. Even so, the increase of 6.1 percent is
twice that achieved last year. The g,*~owth rate of deliveries of machinery
for this category (104.1) is below the level achieved last year (105.) On
the other hand there is a certain risk or demandingness involved in the
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realization of construction work which, following the failure to fulfill the
1979 plan (the plan for work rose only 1 percent above 1978's level), is to
grow by more than 7 percent this year as compared to last year's anticipated
reality.
The slowdown in the growth rate of work on construction p ro~ects in branches
having a special method of regulating unfinished construction is a consequence
of the slowdown of work on the natural gas transit pipeline.
With redard to deliver:Les for construction projects budgeted at under Kcs 2 ~
million and SZNR it should be mentioned that in addition to a stagnation or
slight decline as compared to last year's anticipated reality, there was also
- a str~ngthening of investments in this category in comparison with the guide-
lines, as well as in comparison with the original Sixth Five-Year Plan for
this year. The planned scope of work and deliveries in this category will
- be Kcs 3.7 billion higher (i.e., approximately 8 perc~nt) than anticipated .
by the Sixth Five-Year Plan.
The principle of the priority concentration of deliveries for construction
- pro~ects designated mandatory tasks is expressed especially clearly in the
plan for this year in the deliveries of machinery and equipment, including
installation. While deliveries of machinery and equipment as a whol~ are to
remain at the level of the anticipated reality of last year, for construction
pro~ects budgeted at over Kcs 2 million they are to grow by 4.1 percent, and
for projects designated mandatory tasks they are to be 7.7 percent higher
than last year's anticipated reality. The reason for this more dynamic
growth in the face of the less dynamic growth of construction work for manda-
tory tasks (only 2.6 percent) is to be sought in the adherence to the
principles of the more rapid beginning and completion of projects designated
social priorities.
While in recent years we have called attention to the fact that in the
category of construction pro~ects budgeted at under Kcs 2 million and SZNR
~ the indices did not fully express the planned ob~ective with respect to
the means of regulating this portion of capital investments in agriculture ~
(that part based on the possible surpassing of orientational limits on the
assumption of their forming greater resources of their own), we must point
out in the plan for 1980 that for the first time we are including the
total potential extent of capital investments in agriculture in the volume
of capital :~nvestments for this category. Under the normal functioning of
the financial instruments of regulation for this part of capital investments
in agriculture there could thus be only negative deviations in their realiza-
tion. The limits were set at their full extent as maximal, obligatory and
nonsurpassable.
A certain potential for exceeding limits in this category of capital invest-
_ ments in the productive sphere exists due to the reserve the State Bank of
Czechoslovakia has for the purchase of ma.chinery and equipment in the form
of foreign-exchange--return credits.
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The share of particular categories in the overall volume of capital investment
during the last three years of the Sixth Five--Year Plan also testifies to
o~sr failure to orient the work of contractor capacities in accordance with
the plans for particular categori~s of capital investments:
- 1979 1979 1980
actuality plan anticipated guideline plan
actu~lity
Total capital investments -
of whic:h l0a 100 100 100 100
--constructioa projects ~
budgeted at over Kcs 2
million 38.0 40,0 38.0 42.6 39.4
--sectors with a speci.al
method of regulation 23.0 24.4 24.0 24.8 24.4
--construction projects
budgeted at under Kcs 2
million and SZNR 39.0 35.6 38.0 32.6 36.2
In the category of construction projects with a special system of regulation a
steady proportion will essentially be achieved even with slight deviatioas
in rea:lizing the plans, or rather, between the guideline and the plans. But
the redistribution between deliveries of pro~ects for construction pro,jects -
- budgeted at over Kcs 2 million and deliveries for pro~ects budgeted at under
Kcs 2 million and SZNR continues to be appreciable. Even though this
redistribution is more evident in deliveries of machinery and equipment we
must point out that it is also somewhat apparent in carrying out construction
work. This state of affairs testifies to the lack of adaptability of our _
capacities, particularly engineering, to r_he needa af our capital investment.
On the other hand, it also points to thp great reserves there are in utilizing
the significant extent of capital investments realized in the categories of
construction projects budgeted at under Kcs 2 million and SZNR. Unfortunately,
in this category, which continues to represent more than one-third of the
volume of capital investments in the national economy, neither in realization
so far nor in the drafts for the 1980 plan is either an increased share of
modernization and rapid-return-of-investment-cost pro~ects, or a more
- appreciable shift toward a more integrated program for utilizing this category
in capital investment clearly visible.
With regards to the Z program, the plan for this year l~aves its total volume
at the level set in the guidelines for 1980 in its orientation indicator.
In view of t~e fairly significant exceeding of the Z program last year,
a3hering to this indicator would mean a rather substantial decline in the
extent of Z program projects. In the plan we took certain measures which
would help in adhering to the principles now in effect in this part of
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capital investment. To a certain degree the possibflity of using contractor
_ capacities for construction pro~ects in the Z program is being reatricted
with respect to enterprises within the [Czech and the Slovak] ministries of
construction, and also in other contracting organizations subordinate to the
Federal Ministry of Fuels and Power and the Federal Ministry of Transportation.
In the sector composition of capital investments there are certain deviations
in the plan from the guidelines, the result not on~y of a~ecline in overall
volume but even more markedly of deviations in the implementation of the
plan for last year: '
1979 antici- 1980
pated plan ~
~ 1980 actuality 1979 anticipated plan
Natiopal economy, total 102.6 102.4
of which
--industry 102.8 99.5 ~ _
- (industry, exclusive of the natural
gas transit pipeline) 100.9 101.3
including ,
fuels and energy 116.3 101.6
(without the natural gas transit
pipeline) 111.0 107.9
� metallurgy _97,5 72,7
engineering 96.3 107.0
chemical industry 92.0 87.9
light industry 99.7 92.2
- timber industry 127.2 125.2
food industry '97.8 104.4
building-materials industry 94.8 96.7
--construction ~ 105.9 93.9
--agriculture and forestry 97.8 92.9
--transportation and teleconmmunications 102.0 . 99.8
--full-service housing construction ~102.5 111.0
--special-purpose construction by
national committees 97.7 108.2
For the first time in several years the growth rate of capital investments
in industry is slower than in the national economy overall. This is caused
by the slowdown in the tempo of capital investments in fuels and energy
(basically by the smaller volume of capital investments in the natural gas
transit pipeline). If we disregard.the influence of capital investments in
the gas transit pipeline, however, then the overall growth~rat~ of capital
investments in industry is up from last year's level, and~the decline in
the rate for fuels and energy is less. The rate of growth of capital ~
investments in metallurgy is declining, deliveries in this industry having
peaked to a certain extent in 1978 and 1979. The situatioa is similar for
crucial construction pro~ects in the chemical industry. On the other hand,
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capital investments continue to increase significantly in the timber industry,
chiefly with the'pro gress of pro3ects at the pulp mills in Ruzomberok and
_ in part in Paskov as well. Capital investments are increasing in engineering
and, after [many] years, in the food industry as well.
The growth rate of capital investments in full-sernice housing construction
and in special-purpose construction by the national committees is indirectly .
determined by the significant underfulfillment of the plan in these areas last
year. It should also be ad~ed that the scope of capital investments, both
in full-service housing construction and with respect to the number of
complzted housing units, will once again at the beginning of the year, in
the final phase of checks on houaing construction regime~, be verified and
ad~usted according to the results (most likely downward)..
Finally, a note in conclusion on the table in this section: these figures,
in view of their greater detail than in previous tables may have a greater
influence on final results than data of a more general nature.
Increasing the Share.of Machinery and Equipment for Progressive Modernization
and Rapid-Investment-Cost-Return Undertakings ,
~
After the last few years, which we can regard as a kind of test period, we
have increased the percentage of modernization projects by an average of 5
percent. These percentages are set as an obligatory task of the state plan.
This means that this part of SZNR and construction pro~ects budgeted at under
- Kcs 2 million cannot be used for other purposes.~ On the other hand, we have
stipulated in the organizational measure that if it should be impossible
to complete all deliveries for these programs according to the adopted
- programs by the end of the year, and if these percentages have not been
exhausted, it will b e possible to carry them over to the following year
(on the condition, of course, that the overall limits of SZNR will not be
exi~austed by a aimilar extent) .
In establishing the percentage we began with the requirements for moderniza-
tion, especially in the procesaing industry, but also took into consideration
previous results. For this reason the differentiation of percentage shares
~s still rather significant, ranging from a low of 22 percent in the CSR
:lmber industry and the CSR health-care-p roducts industry to a high of
4%~ percent for construction output in the CSR and the SSR in both ministries
of construction. High percentages are stipulated for engineering: in
general engineering, 40 percent; in heavy engineering, 38 percent; in
consumption engineering In the SSR, 41 percent; and in cor~sumption engineering
in the CSR, 37 percent.
Putting Capacities into Operation
By channeling funds into construction pro~ects budgeted at over Kcs 2 million
the plan creates the preconditions for putting capacities into trial opera-
tion, as well as for the gradual finishing of projects in 1980. Pa~rtly in
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accordance with the postulates of the Sixth Five Year Plan, but also partly
as a result of shoxtfalls in putting capacities into operation laet year
this year is more demanding than any previous year of the Sixth Five-Year
Plan. .
Let us mention at least a few crucial capacities that are alated to go into
operation this year which will determine whether the desired increase in
the productive-sphere output will be achieved not only this year, but
especially in the first years of the Seventh Five-Year Plan:
In fuels and power these are new capacities for mining brown coal at the
Brezno open pit mine (1 million tons/year), at the giant open pit mine Maxim
Gorky--at the fourth stage (1.7 million tons/year of coal); further capacities
on the natural gas transit pipeline ("Consortium"), 621 km in length and with
the appropriate fully-equipped stations, are slated to be put into
operation; ~n order to increase capacities for the production of electric
energy, the first capacity of the 500 PS+T b?.ock at the Melnik III power plant
is ta go into operation this year; the first blocks will also become
operational at the Prunerov II power plant, backed up by Polish capacities
(210 I~dd). At the nuclear power plant in Jaslovske Bohunice the second ~
block, having an outpnt of 440 I~J, will go into trial operation as early
as the beginning of the year. The increase in output at the nuclear poEJer
plant, in particular, together with the r~:aching of its designed parameters
by Lhe first block sfiould provide the basic part of .the increased output of
- electric energy. Of the larger thermal power plants, the capacity of the
thermal power plant in Koaice is to become operational.
~In metallurgy, there will be new, modera facilities at the blooming and
billet mill in the United Steel Works, National Enterprise in Kladno, the
third stage of the medium-section mill at the Rlement Gottwald New Metallur-
gical Works in Kuncice and capacities for continuous slab casting at the
VSV [Eastern Slovakia lronworksJ in Rosice. ~
In heavy engineering, the most aignificant increase is the conclusion of
the construction of the reactor unit at Skoda Plzen. In general engineering
. there will be capacities for constructing the Tatra truck operation.
In the chemical industry the m4st challenging task will be the star.t--up of
Petrochemicals II, a new ethylene unit in Zaluz, at the designed parameters.
Important capacities wi11 be obtained by expanding the production~of
synthetic fibers and polypropylene rope in the Chemical Works of Jura~ -
- Dimitrov in Bratislava and for polypropylere silk at Chem~svit in Svit.
In the food-processing industry a second.meat combine for supplying Prague
(Prague I~orth~ is slated to go into operation. -
In th~ ~onproductive sphere it w~ll be necessary firat of all to complete the
number of housing units in full-service housing construction this year. The
plan, as discussed by the federal and national governments, calls for the ~ _
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com~letion of 140,700 housing units~ This apprec:Cable incx'ease over last
year's level--nearly 11 percent--still requires verif.ication of actual
results. We should also recall here that part of the report of the Presidium
of the CPCZ Centrai Committee at its 14th Plenum in December last year that
criticizes the condition of so-called finishing housing units, which even
after several months cannot be handed over to tenants, or tenants are unable ~
to move in because of the lack of basic utilities (electricity, water, gas,
etc). The housing construction plan for this year with its lower number of
starts in housing also provides a smooth transition to the lower amount of
housing construction during the Seventh Five-Year Plan.
An important increase this year will be the 56 kilometers of highway sections
that by the end of the year will make more rapid travel between Prague and
Bratislava possible.
In the extensive construction in Prague two subway extensions will come into
use this year, [sections] on routes C and A having a combined length of 8
km with 7 stations.
New Construction Starts in 1980
In an attempt to compensate for the shortfall in decreasing~the excessive .
volume of unfinished construction in the previous year~; of the Sixth Five-
Year Plan, the federal government back in September 1y79 approved a directive
on drawing up a draft plan for this year to decrease the number of starts
by 20 percent. The plan as adopted retains this d~.rective. The plan for
starts for construction projects budgeted at over I~cs 2 million is Kcs 12
million lower than stfpulated for this year by the Sixth Five-Year Plan of
set by the guidelines for preparing the plan for this year which were
reduced last year by some construction projects approved in advance.
Even though the state of design preparation for construetion projects
slated to begin this year was seen to be unsatisfactory as early as August
1979, it remained a challenging task in the preparation of the plan to uiake
= this reduction.in such a way that the fundamental prcvortions for the final
years of the Sixth Five-Year Plan would not be affected, but chiefly so that
the desired sectoral structure of capital investments for the years of the
- Seventh Five-Year plan be taken into consideration. The number of starts
chis year, in addition to the volume of uncompleted construction, signifi-
cantly affects the sector structure of capital investments ~uring the first
half of the Seventh Five-Year Plan.
Following precisely these approaches, 60 percent of the number of capital
construction pro~ects (even after the reduction is made) are oriented toward
industrial development. Of the capital investments in industry, priority
number one is beginning construction pro~ects for developing the fuel and
energy base, to which as much as 42 percent of industrial construction
starts are devoted (25 percent of all starts in the national economy).
- A suitable share, nearly 9.5 percent, goes to.tHe development of agriculture.
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The plan adopted also contains the fundamental tectinological-economic indica-
tora for construction pro~ects that-are to begin this year. Analysis
indicates that if these are adhered to in implementing the plan, these
pro~ects, af ter being.put into operation, can contribute to increasing the
export capability of the econoury, to raiaing the overall effectiveness of -
the reproduction system. Profit from these projects rises faster than the
value of output and the number of workers. An especially pusitive factor
is that reconstruction and modernization pro~ects show qualitati~vely better
indicators. To a certain extent the large portion of the increase in manpower
for newly-begun pro~ects must be counted as a minus. Of all the construction
pro3ects in industrial production, almost hali of the total number for newly-
started projects are oriented toward fuels and energq. Of projects in
industrial production, exclusive of fuels and energy, there are out of the
total number of pro~ects started such pro3ects as wtll make it possible to
incr~ase our export potential in the future. State goal programs (such as
were included in the objectives) have been allotted 28 percent of the total
. starts in the productive sphere. Carrying out these pro~ects appears fram
the fundamental indicators alone to be quite demanding with respect to
imports of machinery and equipment.
In this section on building starts it ought to be mentioned why the lists of.
key pro~ects at least slated to be b,egun in 1981 and 1982 were not approved
' together with the pYan for this year, as ha$ been done in the past. This ~
was because at the time when the plan for this year was befng approved, the
guideline for 1981 had not been approved for any area of the development ~f ~
the national economy. The ob~ective reason for this was the fact that at
this stage of work, work on drawing up the draft of the Seventh Five-Year
Plan was far from complete. According to the program for last year, such
work was supposed to be finished in January or February of this year. We -
wish to mention that the basic indicators for the Seventh Five-Year Plan
had already been worked out by this time in the independent materials~on
the problems of preparing the Seventh Five-Year Plrin in the area of the
reproduction of fixed assets. A component of the work on this material
as early as the middle of last year were the checkered balances.of deliveries
of construction work [and] of machinery and equipment, as well as the.work .
list of key construction pro3ects slated to be begun during the years of
the Seventh Five-Year Plan. To be sure, this list was more exhaustive
in the fuel and energy sector, and was only selective in the other sectors. .
� In the guidelines for the preparations for ihe plan for 1980 the orientation
list of construction projects to be begun in 1981 was also ratified. '
Accordingly, during the ratification of the plan the methods for completing
the work on the plan for designed works for this year were also ratified.
We have to admit, however, that such a state of affairs tends to interfere '
- with the smoothness of the preparations for capital investment, or at least
gives rise to the possibility of formal excuses for a slower rate of
preparation, either predesign or design. �
The importance of timely design documentation jis something] we must be
fully aware of for the plan for this year, too: approximately 20 percent
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of the construction projects that are supposed to or may begin this year did
not have at the time when the plan was being ratified, fully ratified or
approved design documentation aC the level of the introduced design. The
government therefore had to require the central capital investors throughout
the year, but worst of all iri April, to submit reports on the solution of
supplier-customer relations based on the design documents completed, and
only afterwards make a final binding decision on their beginning this year.
This will be within the limits of the ratified limits. A separate problem
with tt~ese construction projects is progress in the construction at the new
cellulose mill in Paskov, or rather, the beginning of its further stages
this year in accordance with the results of the evaluation of foreign offers
and the decisions made regarding them.
Despite the significant limitation [placed] on the number of new construction
starts, it will not be possible to decr~ase the volume of uncompleted
construction to such a degree that the target of the 15th Congress of the
CPCZ of reducing incomplete construction by 15 to 18 percent can be met.
With a decrease in starts of 20 percent, as compared to the Sixth Five-Year
_ Plan, and a 5-percent increase in the volume for construction pro~ects budgeted .
at over Kcs 2 million, as compared to last ye~r's actuality, a decline of -
budget funds of 5 percent will be achieved (taking into consideration the
growth of budget outlays and reserves for them). In addition to the nonfulfill- ~
ment of the plan for construction projects budgeted at over Kcs 2 million
during the first four years we should also mention, howev~er, that the volume
of work ~nd deliveries for construction pro~ects budgeted at over Kcs 2
million will be 13 percent lower than envisaged by the Sixth Five-Year Plan.
Taken all together, the evolution of these indicators testifies to the
fact that the volume of uncompleted construction this year will remain at
- Che same level, or will improve [onlyJ insignificantly as compared to last
year. The basic indicators and Particularly the 20 percent reduction in the ~
valume of uncompleted construction and the stipulated growth in the volume.
ir~ construction pro3ects budgeted at over Kcs 2 million this and next year
are creating favorable conditions for the volume of uncompleted construction
to decline approximately 8 percent in the firat year of the Seventh Five-Year
Plan. ~
'Ct~e ~oncentration of funds on the finishing of construction projects finds
con~~rete e~ression in the quantified indicator for putting fixed assets into
o~eration as well. r1s compared to last year's actuality, the value of
completed capital construction projects added to the capital stock should
rise approximately 13.5.percent.
Also directly related to this is the development of incomplete capital
investment, that is, the amount of works and deliveries transferred but
not yet added to the cagital stock--it is actually a matter of unemployed
assets. This indicator is supposed to decline 5.5 percent from last year's
actuality by the end of the year. We have to admit, though, that the extent
of incomplete investment, which nearly equals the value of the entire-year
volume of capital investment in the national economy (ex~luding the Z
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program and private construction), is excessive. Even theoretical
considerations, for example, bear witness to the kind of reserves we have
_ Eor decreasing incompYete investments~ If we decreased incomplete investment
by 10 percent, then, assuming that at least half of this decrease would be
new, productive fixed capital of at least average lucrativeness, we could
achieve an increase in output amouating to roughly Kcs 4 to 5 billion per
year.
The Development of the Basic Aggregate Indicators for the Reproduction of
Fixed Capital
Due to the growth of ineasurable ca~ital investment costs during the previous
years of the Sixth Five-Year Plan, not even the relations between the
growth of fixed assets and the growth of output in the final year of the -
Sixth Five-Year Plan are satisfactory. The ~ost general basic relations can
b~ e~:pressed as follows:
Indices of ~1980
growth 1979
Fixed assets Output
National economy, total a 1n6.8 103.7* ~
oF which b 109.0
industry a 107.7 104.0
b 109.0
~ construction industry a 110.2 104.0
b 112.0 ~
agriculture a 106.1 108.0
b 110.0
a--total fixed assets
b--fixed assets: machinery
*--volume of national income created
in every part of the productive sphere the relation between the growth of
output and the growth of inechanical fixed assets is unsatisfactory, the
increase of inechanical fixed assets in industry and construction not reaching
even half the rate of growth of fixed assets. Considerably better results
Chan those of previous years were achieved in agriculture, where the growth
of production is neasured against an especially unsuccessful preceding year.
In the industrial sectors it was especially the productive-technoTogical
~ase in the fuels-and-energy sector that rose (by approximately 10 percent), -
and also in the building-materials industry, by 9.4 percent, and in the
timber industry, by 8.3 per.cent.
The more rapid growth of fixed assets this year stems, to an important degree,
from the cumulation of finishing of construction pro~ects up to the last year
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of the Sixth Five-Year Plan. With :i slower growth of output (caused by other
factors than shortages of fixed assets, or capacity) there subsequently .
results a decline in the efficiency of fixed assets. For the ma~or sectors
of the productive sphere, this fall amounts to 2.2 percent overall, including '
3.9 percent in industry and approximately 5 percent in construction. These
= and other indicators of the effectiveness of the reproduction process in
industry as a whole lowez- the large share of expensive capital investments
in fuels and energy. In the future it will therefore be necessary to test
carefully whether capital investments in fuel and energy conservation would
not be less expensive. Primarilq, however, it is investors in the fuels-
and-energy base who should approach the entire reproductive process and capital
investment with greater regard for cost-consciousness.
In the structure of fixed assets, fixed assets in the form of machinery are
growing fas[er this year than buildings. These basic indicators point out
reserves we still have in the better utilization of existing fixed assets,
especially the most modern of these, built in the last few years.
The plan for the reproduction of fixed assets this year stipulates the -
rollowing development of the elimination and scrapping of fixed assets:
1979 anticipated 1980 plan ~
, reality 1979 anticipated
1978 reality
Ivational economy, total a 104.9 107.3
- b 110.0 109.1
of which, industry a 111.5 110.3
b 122.2 107.3
a--fixed assets, total -
b--fixed assets: machinery
Tnlith an absolute increase in scrapped fixed assets, the rate of scrapping
remains at essentially the same relatively high level attained last year. r
There is only a certain deceleration for machinery fixed assets in industry, ~ _
where however, the dynamics last year as compared to a low 1978 were
~xceptional. As c~mpared to the guidelines for 1980, there was in the plan
a certain decline in the extent of elimination, primarily of a number~of
production capacities in metallurgy, in the chemical industry, in the
building-materials industry, and in the food and timber industries.
Adhering to the planned ob~ectives for elimination is in the overwhelming
anaja~ity of cases associated with providing the necessary manpower for
newly built or modernized capacities~ which could be better utilized with -
respect to time. For these reasons we shall impose sanctions this year as
we11 for failure to fulfill the planned extent of elimination last ~ear.
- Conditions to Provide for the Realization of Capital Investments for 1980
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With a 20-percent decrease in the number of starts it could be assumed that
the construction projects begun will be better provided with design -
documentation than in past years. Unfortunately, we must once again atate
that nearly 20 percent of the reduced number of conetruction starts did not
have at the time of ratification of the plan a completely concluded deaign
documentation at the level of the introductory deaigna. Therefore the
government had to eatabliah separate targets for the investir~ ministriea
for completing design documentation and for supplier-customer relationa,
in order to insure the beginning of these construction projects. More than
half of such pro3ects are pro~ects o.f the Ministry of Fuels and Energy. The
reduced number of projects to be begun creates better conditions.for the
continuous provision of the pro~ects being executed.
The reduced scope of the construction part of capital investments, by
approximately Kcs 4.5 billion from the guideline level, should create.for
the bui.lders, after an unsuccessful last year, more realistic conditions
for insuring the planned scopes of construction work. In the resources part
_ of the plan, work by nonconstruction organizations remained unchanged, at
the level established by the guidelines, and deliveries of construction
capacities are rising by approximately 10 percent as compared to the guideline
level (also as compared to last year's anticipa~ed reality). This rise in
construction capacities delivered is not the result of cou~issioning new '
construction projects~but this is requ3red by rational procedure at uncompleted
or finished pro~ects, especially at large projects such as the construction
of the Prunerov II electrical genez'ating plant or the construction of the
cellulose mill in Ruzomberok.
_ In the section of construction work from contractor and nonconstruction ~
organizations there is less difference with respect to the guidelines, the
result in particular of fulfilling the plan last year:
- 1980 1980
guideline plan
Construction work, total 100.0 .100.0
of which, construction organizations 78.6 77.4
including: the ministries of con-
~ struction of the CSR
and the SSR 60.7 59.8
- other national 10.4 10.5
federal 7.5 7.1
nonconstruction organizations 19.2 19.9
imports 2,2 2.7
In this period of emphasis on completing construction pro~ects and putting
_ capacities into operation, insuring the deliveries of machinery and equipment
in the requested structure is of prime importance. The overall exten~ of
deliveries of machinery and equipment remained at essentially the level set
in the guideline (with an increase of under 1 percent as compared to the ~
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guideline). Not even in the composition of suppliers were there any signifi- -
~ cant changes: _
1980 1980 _
~ guideline plan
Total machinery and equipment 100.0 100.0
of which, of domestic manufacture 71.8 73.7
including FMHTS (Federal Ministry ~
of Metallurgy and
Heavy Engineering 27.2 26.5~
FMVS (Federal Ministry ~ ~
of General Engineering 29.8 30.6
other 14.8 16.5
fmported 2g,2 2g,3
Perhaps only the shift of. two points between deliveries from imports and
deliveries from domestic manufacture with an increase in deliveries from
domestic manufacture is more suggestive.
"Chess-board" balances of deliveries of machinery, 3ust as of those of
construction work, have their obligatory part in deliveries for construction
pro~ects budgeted at over Kcs 2 million; in the course of construction at the
projects these deliveries are of key importance. A check at the end of the
third and the beginning of the fourth quarter last year showed that in ;
engi.neering in particular the mandatory character of "chess-board" balances ,
for deliveries for construction projects budgeted at over Kcs 2 million lagged
in practice behind the need for it, in some cases in the very specifications
for these indicators from ministries to VHJ's and from VHJ's to prime
~ontractors. ~
The total volume of deliveries of machinery and equipment for construction
_ projects budgeted at over Kcs 2 million this year is 13.4 percent below the
guideline. This means a somewhat more realistic scope for deliveries and
installations. The percentage shares of individual contractors, however, _
are nor changing significantly: (see tatSle below)
1980 1980
guideline plan -
~ ~
rfachinery and equipment for con- ~
struction projects budgeted at ~ ~
over Kcs 2 million, total 100.0 100.0
oi which, of domestic manufacture 73.0 69.7
including FMHTS (Federal Ministry
of Metallurgy and Heavy
Engineering) 45.7 44.7
FMVS (Federal Ministry
of General Engineering) 11.7 10.4 -
other 15.6 14.6
impo rted 27.0 30.3
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Note: Only the 3.3 percent increase in the share of deliyeries from imports
and the corresponding decline in deliveries from domestic manufacture is
comparatively marked.
As is done every year, supplier-customer relations for this year~s plan were
specifically discussed up to the level of the central organs for conatruction
pro~ects designated mandatory tasks. It mugt be said that these discussions
went better than in previous years. Under the leadership of the FMTIR
[Federal Ministry of Technological and Investment Development] the require- -
ments were verified for work and deliveries based on the provisions of
construction-pro~ect flowcharts and schedules. The number of projects for
which it was necessary to resolve disputes at the VPK [State Planning
Com~issionJ level with the cooperation of the central organs of investors and
- contractors and the FMTIR in the course of preparing the plan declined from
last year to this. Nonetheless, in spot-checking on the fulfillment of the
plan for mandatory tasks during the third quarter of last year at the end
of the year it still proved necessary to point out that in some cases
construction-pro~ect schedules for this year still had not been worked out
and concluded. We believe that it has already happened or that it will
happen in the very first m~nth of this year tha,t the plans and sc.hedules
at the construction sites will become a real instrument for managing the
construction process.
In preparing the plan it proved ~pore difficult than in previous years to ~
balance the required scope of steel construction fabrications. This is partly
because part of the capacities for manufacturing them had to be freed for -
producing track transport for the brown-coal coalfield, and partly because
the labor--input requirements has grown extzaordinarily for deliveries of ~
steel construction fabrications for the new types of nuclear power plants
in Jaslovske Bohunice and in Dukovany. In some cases at less important
construction projects where it was impossible to meet the need for steel '
construction fabrications, it was necessary to malce ad3ustments in the
voliune of construction work, and in exceptional cases even to extend the
deadline for completing the projects.
The balance of resources and requirements for building material. fabrications
will not be any better in the near futux^ .'^t:c:~f;,~;., it is more important
than ever to be conscious of the necessity of using these fabrications
sparingly and to specify them in plans or use them only where it is
absolutely required by the technology of the future operation or the use -
of the building. We cannot allow these steel fabrications to be used
[simply] because this construction technology better accords with the
- fulfillment of indicators for construction enterprises. It will be
necessary to abide more consistently by the ~egulations already in effect
on the use of.building-steel constructions, especially for structures of
a nonproductive nature, or in the nonproductive sphere in.general.
- The better material provision of planned capital construction for this~~ear
will also be helped by the sharp rise in the number of balanced items, both
at the SPK as well as at the ministry and VfiJ levels.
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The slowdown in the tempo of ~nvestment and thus the growth of deliveries
- to capital construction, the decline in the number of building starts and
the intensification of the balance method in the plan create without doubt
better conditions for the uninterrupted supply of building sites and the
planned progress of construction. All this, however, cannot substitute for,
but continues to call for, good~organizational work on the part of all those
who are responsible for insuring the progress of construction, especially in
the supply and investor areas.
Some Methodological Adjustments in the Plan for This Year
Even if we assume that in drawing up the specifications for the plan the
workers involved were acquainted with resolutions by the national governments
on the plan and with organizational provisions for the 1980 plan, which were
an appendix to government resolution number 320/1979, we still consider it
useful to point out some changes:
--The resolution of the federal government prohibits the construction of new
pro~ects budgeted at over Kcs 2 million of an administrative nature, with
the exception of those that are a part of necessary new outfitting of housing
facilities and which were approved by a team of government experts.
--The government resolution ordered that the greater part of SZNR deliveries
be oriented by program toward the unified modernization of production lines
or operations. Programs thus worked out are to be furnished by the central
organs to the Czechoslovak State Bank so that it can make provisions for
their goal-oriented financing.
--For c.onstruction within the framework of the Z program it was ordered
that they not be allotted deliveries of construction work from contracting
organizations within the CSR and SSR ministries of construction, the Federal
Ministry of Fuels and Power and the Federal Ministry of Transportation.
--Tt must also be pointed out that the resolution moves up the deadlines
for working out and ratifying design tasks and preliminary d"esigns for
canstruction pro~ects slated to begin in the coming years. Design tasks
for pro~ects scheduled to begin in 1982 should be ratified by 1 August 1980,
_ and preliminary designs for projects slated to begin in 1981 by 1 August
l~ao.
. Organizational provisions for the 1980 plan were published in an appendix to
HOSPODARSKE NOVINY No 49 last year. Of the measures that were newly formu-
lated for this year or more extensively interpreted, let us mention the
following:
--modernization programs for unified production sectors; machinery and
equipment slated for modernization and their priority and priority provision
for these starCing with the drafting of the plan;
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- Organizational provisions for the 1980 plan were published in an appendix
to HOSPODARSKE NOVINY No 49 last year. Of the measures that were newly
formulated for this year or more extensively interpreted, let us mention the
following:
--modernization programs �or unf.fied production sectors; machinery and equip-
ment slated for modemization and their priority and priority provision for
these starting with the drafting of the plan;
--for construction projects designated mandatory tasks, the responsibility
of ineeting the ratified interim work deadlines;
--the explanation of the method to be used in making adjustments to con-
struction pro~ect schedules at the beginning of the year and in evaluating ~
the implementation of the plan in annual volumes in cases of savings in
bndgeted outlays achieved at construction pro~ects;
--measures prov~.ding for the method of drafting and implementing the plan
for design work.
This year is the final year of the Sixth Five Year Plan. We could therefore
also assess the fulfillment of the plan of the entire five-year period
(assuming that this year's~plan will be completely fulfilled). We can already
' state that the overall scope of investment as well as the size of investments
developed within the framework of the overall proportions established in the
Sixth Five-Year Plan. Of the potential resources for investment,
~ approximately 4 percent will remain unused. This will occur especially for
construction work, where part of the origina~.ly planned resources, however,
were not even generated due to the lower increase in construction capacities.
_ The average year-to-year rate of increase in investments (4.2 to 4.3 percent)
was lower than in the previous five-year plan (7.4 percent and somewhat
lower than called for by the plan (4.6 percent).
In the implementation of the planned structure of work and deliveries for
capital construction, despite an overall nonfulfill~ent of the volume of
investment amounting to some 1.5 percent, the shortfall for pro~ects budgeted
at over Kcs 2 million and projects with a special method of regulation, ~
combined, will come to 8.3 to 8.5 percent, and pro~ects budgeted at under
- Kcs 2 million and Z pro~ects combined will be exceeded by nearly 11 to 12
percent. This shift from large-scale construction pro~ects to comparatively
small undertakings we consider to be a fundamental problem of the current
and past evolution of capital contruction. It is caused only i~ part by
the lack of discipline on the part of investors, and to a greater extent by
the insufficient adaptability of contractor capacities to the planned
structure of work and deliveries.
- One of the important indicators of the Sixth Five--Year Plan, namely, the
decrease in the volume of uncompleted construction by 15 to 18 percent,
will not be met. Assuming that this year~s plan will be fulfilled, the
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volume of uncompleted construction this year will remain at essenti.ally the
same level as in the first year of the five--year plan. The conditions allow-
ing for the decrease in uncompleted construction by 8 percent next year will,
however, be created.
We can consider as positive results a certain stabilization in the budgeted
outlays for construction projecta and their slower increase. The branch
proportions in the implementation of the Sixth Five-Year Plan will be adhered
to in a relatively favorable way with the desired slight increase in the
share of investments in the productive sphere.
Important capacities were (or will be) put into operation during this five-
year period. Thus, for example, in the history books of the future the Sixth
Five-Year Plan will stand for the largest increase in electrical generating
station capacities (almost 3000 MW from steam electric plants and 880 I~J from
the nuclear power plant. During this five-year plan the largest number of
housing unirs ever constructed in a five-year period will be completed
(660,000 units). On the other hand, however, not all deadlines were met.
and not all capacities planned in the Sixth Five-Year were (or will be) put
into operation before the deadline. ~
A negative result of the five-year plan is that the economic effectiveness
of the reproduction of fixed assets did not impro~re. On the contrary, there
will be a worsening in the indicators characterizing the effectiveness of
the reproduction process as a whole, especially with respect to the relation -
between the growth of fixed assets and the growth of social product or the
national income produced. There will be a decline in thP efficiency of fixed
assets in industry, in construction, and in agriculture as well.
We must xeflect seriously on these and future, more detailed analyses of the
results of the implem~ntation of the Sixth Five-Year Plan in devising the .
Seventh Five-Year Pl~an.
Economic Efficiency Discussed
Yrague INVESTICNI VYSTAVBA in Czech No 1, 1980 pp 11-12
(Ar~ttcle by Jiri Klima, corresponding member of the Czechoslovak Academy
r?f Sciences: "On Perfecting the 'Principles for Assessing the Effectiveneas
- of Investments"']
[Text] Two years ago a discussion had already developed in the pages of
INVESTICNI VYSTAVBA (1) on the experience gained�in implementing decree number
3/1975 of the Federal Ministry of Technological and Investment Development
on the principles for assessing the effectiveness of investments (henceforth,
'Principles~). At that time I(2) pointed out several advantages the
Principles had over previou~ methods, not only for the energy sector, but,
I think,~for the greater number of the other branchea and departments as
well.
What is involved here is primarily a matter of introducing a un~ified normative
of the comparable economic effectiveness of investments; of introducing the
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time factor; and further, of the coefficient of the economic effectiveness
of investments (presented in Paragraph 8 of the Principles) taking into
account both the economic lifetime of the fixed asset under consideration
. as well as the time factor. I consider the chief advantage of the Principles
to be that in selecting the economically most effective alternative of the
various investmenta being considered they return to the criterion of the ~
minimum of transferred costs expressed as an absolute [value], as compared ~
to the previous method (3), which was based primarily on relative indicators,
chiefly the indicator for return. In this respect, the Principles also .
~ enforce a certain integrating tendency with methodological suggestions
[being made] in the countries of the socialist camp, primarily in the Soviet
Union: ~
The theory and practice of evaluating the effectiveness of investments is
still in the process of development, however, and therefor~e it would not
be sensible to regard the methods in use even today as definitive. Signifi-
' cant in this reapect is, for example, the article by Academician Rhachaturov
(4), an exteneive discussion in VOPROSY EKONOMIKI on the theory of the
effectiveness of investments where the author asserts the pasitive role of
- the Soviet entire-state methodology (5), but at the same time points to
the necessity and the directions for its further improvement. I think that ~
our Principles, too, require a certain improvement in a number of areas.
Distinguishing the Concepts of the Effectiveness of Investments and the
Economic Effectiveness of Investmen.ts .
The economic optimalization of the productive system we understand as being
the selection of ~hat possible development of the system that, given limited
= resources, leads to the achievement of the stipulated economic goals, or that
approaches these the most closely. The degree of attainment of the economic
goal by such a development alternative of the productive system we define
. as its economic effectiveness. The "economic effectiveness" of the system
- of investments under consideration, and withi.n the framework of this system,
of every individual investment, we thus understand to mean the degree of
- attainment of the economic goal of the entire systeffi by the decision in
question.
_ Economic optimalizations, criteria of economic effectiveness, are often
criticized for not being comprehensive, for not taking into consideration
certain unquantifiable conditions and relations in the system being optimalized,
for example, the environment, health and safety at work, psychological,
aesthetic and other factors. In the great ma~ority of such cases critics
have extra-economic factors in mind, which economic optimalization criteria ~
_ do no t in fact take into consideration, nor should they. It should be
realized that consideration of the economic effectiveness of investments
- is merely one (even if the most important) part of the decision-making process.
A decision about the developtaent of the system is always a political decision ~
that must be based on systemic criteria; in the case of a social system, such
as the economic system is, on society-wide criteria. One instrument used
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in such decision-making must always be an appraisal of social effectiveness,
which includes not only economic but all extra-econotnic criteria as well.
These we consider to be all social interests affected by the decision under
consideration, such influences being as a rule incapable of being expressed
in monetary terms and incompatible with economic evaluation. This often
concerns such considerations as political, social, trealth, national defense,
ecological, psychological, etc. Actual decision-making is often influenced
by just such considerations and not always in accord with the results of the -
calculations of the economic effectiveness of the decisions being contemplated.
This is because for decision-making what is of prime importance is the higher
level of effectiveness--social effectiveness, which includes both economic and
extra-economic considerations. Since, however, these disparate perspectives
cannot be expressed in the same units (usually they can be expressed only
in words), it is not even possible to formalize the decision-making process -
and one has to accept that decision-making must be more or less intuitive.*
One thing that I consider to be a deficiency of the Principles is that they
fail to distinguish between these concepts and often designate as "effective-
ness" what, from context, obviously means only economic effectiveness. This
shortcoming is also reflected in another weakness of the Principles, namely
in the ambiguous formulation of the economic effectiveness of investments
and in distinguishing between what is the criterion and what is the indicator
. of effectiveness,
Expressing the Economic Effectiveness of Investments
A close study of the Principles reveals that they do not specify unambiguously ~
the number and kind of criteria or indicators of for the economic effectivenese
- of investments and the hierarchy of their importance. In the second part
of the Pr-�nciples, the economic effectiveness of investments is characterized
by the indicator of comparable economic effectiveness (transferred costs)
and five indicators of overall (absolute) economic effectiveness. This, in
my ~udgment the most valuable part of ths Principles, which also resembles
most closely the Soviet methods previously mentioned (5), stands here as ~
somehow isolated, lacking any relation to the other parts. In the Federal
Ministry of Technological and Investment Development Decree No 31/1975, to
~~~t~ich the Principles are an appendix, there are given in Section 2, paragraph
- 1:: an additional 11 mandatory indicators for evaluating investment objectives ~
for productive construction projects and in Section 3, Paragraph 2 there are
another 7 indicators for accessing preparatory documentation for productive
construction pro~ects.
- Decree No 3/1975 of the Federal Ministry of Technological and Investment
Development does not, however, explicitly define anywhere the use of even
a single of the indicators of absolute economic effectiveness or the criteria
of transferred costs for expressing comparable economic effectiveness.
*Only in certain cases is it possible to include quantified extra-economic
criteria in the optimalized model in the form of limits.
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With the best will in the world one can consider only Section 2, Paragraph 2,
letter b to be such a definition, to which the introductory paragraphs of
the Principlea refer concerning absolute effectiveness (article 7) and
comparable effectiveness (article 8). This part of the decree, however,
concerns only construction projects that are a task of the state plan or
~rojects that are centrally monitored. But there remain outaide the scope -
o~ such monitoring all the other buildings and all the investments that are
not buildings (for example, the machinery included in the budget of building
projects frequently represents a larger investment volume than the buildings
in which it will be installed).
~ Even in the other parts of the Principles themselves, however, a definition
of the comparable and overall economlc effectiveness of investments is not
mer.tioned. In the third part of the Principles, which is devoted to the
application of general methodological principles, they do not appear at all,
while in article 22, paragraph 3, economic requirements and effects are
desr_ribed by 78 indicators of economic effectivertess (of appendix number
5/D), among which are included indicators for comparable and overall economic
effectiveness.
The lack of lucidity and the length of the Principles, with the:Lr large
number of important and less important criteria and indicators, presented
a].1 together and not differentiated as to their significance, thus make it
possible for different users to assess the economic effectiveness of one
and [he same investment completely differently, depending on which indicator
or indicators they give greatest subjective weight to. It would therefore
be desirable for the Principles to define one or two criteria for the economic
effectiveness of investments (Soviet methods give one criterion for absolute
and one criterion for relative economic effectiveness) and to list as supple-
mentary indicators a fairly small number of those that in a specified form
can partially supplement the criterion with regard to the practicality ~f
- the decision under consideration, for example, in terms of material and
energy balance-sheets and so forth.
It would contribute to the comprehensive nature of the criteria for the
economic effectiveness of investments if at least some of these supplementary
indicators of effectiveness could be combined into a single separate criterion.
Cooperative research studies couducted by the departments of economic and
power management of the CWT (Czech Institute of Technology) and the Research
- Institute for the P].anning and Management of the National Economy show that
it would be possible to take demands on investment funds, manpower, energy
consumption and imports into consideration by including these factors, in
the form of limiting conditions, directly in the type of cost criteria used.
Implementing the results of this research in practice would help significantly
in simplifying the Principles and in insuring their more unambiguous and
unified application.
Evaluating the Economic Effectiveness of the Development of the Productive
Systems
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With the development o~ our economy and the links between its individual
elements it is becoming ever more difficult, in a number of cases, to
evaluate econonic effectiveness in isolation and to determine how
individual investments (construction projects) have been realized independ-
ently of the other elements together with which it forms a certain productive
system (for example, transportation, communications, energy, water manage-
ment, etc). Khachaturov (4) also touches on a similar problem, namely,
the expression of the so-called integral economic effect.
What is involved here is the expression of the economic effect of more
comprehensive investments, of specific systems that are realized gradually, -
over a fairly long period of ti~e. It might be a matter of selecting the
~ optimal variant of complexes being constructed in stages that are composed of
a number of partial capital investment pro~ects that are put into operation
in stages in different years, with a different economic lifetimes of the
partial pro~jects and that are functioning throughout their entire lifetimc
(for example, the gradual construction or elaboration of distribution networks,
the gradual construction of heat and gas systems, the~atep-wise expansion
of manufacturing plants by adding new units, etc).
The annual form of the transferred costs criterion given in the Principles is
not suitable for making decisions in such cases. The correctness and
suitability of aggregative criteria that take into consideration the entire
period of optimalization must be reviewed, and this period must also be defined,
or a base period must be defined, i.e., a period, the data for which are
included in the criterion selected). Examples for this already exist, both
in the Soviet literature as well as in the methodologies of our own branches.(6) �
Since the optimalizations of developing systems are characteristic not only
of the energy sector, I c~nsider the problem of devising an integral criterion
for system optimalization to be an urgent one.
In order to further improve the Principles I suggest:
--That the concepts of the effectiveness of investments and the economic
effectiveness of investments, and the concepts of the criterion of effective-
ness and the indicator of effectiveness be consistently distinguished.
--Ti~~at the usage of these criteria and indicators be unified in the sense of
FMTIR Decree No 3/1975 and the Principles.
--That the nunber of indicators for the effectiveness of investments be
reduced to an absolute minimum.
--That the comprehensive character of the cxiterion of the economic
~ effectiveness of investments be increased by the inclusion of some important
limiting factors.
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--That the criterion of the economic effectiveness of the development of the
production system also be included in the Principles (an integral criterion
of system optimalization).
BIBLIOGRAPHY
1. Editorial board: "Assess:ing the effectiveneas of investments in the
branches of the national economy." INVESTICNI VYSTAVBA, No 7-8, 1977,
p 248.
2. Klima, J. "Problems in evaluating the effectiveneas of investmenta in
the energy sector." INVESTICNI VYSTAVBA, No 7-8, 1977. _
3. Stipulations t~j the State Co~ission for Technology and the Czechoslovak
State Bank for implementing the selective management of investments
from 5 Apr 1967 to 15 Apr 1968.
4. Khachaturov, T. S. "The development of the theory of effectiveness of
capital investments." VOPROSY EKONOMIKI, No 11, 1977.
5. Tipovaja metodika opredeleni3a ekonomichesko~ efektivnosti kapitalnykh
vlozhenii. [Standard Methods of Determining the Economic Effectiveness .
of Capital Investments.) Ekonomika, Moscow, 1969.
6. Federal Ministry of Fuels and Power Guideline No 11/1975 on evaluating
the effectiveness of capital. investments in the energy [sector] and
gasworks.
~
Energy Constructions Viewed
Prague INVESTICNI VYSTAVBA in Czech No 1, 1980 pp 13-17
[Article by Eng Jiri Barcal and Eng Jizi Kobosil, "Notes on the Use of the
Branch Method for Evaluating Energy Construction"]
[Text] A numbei of regulations have been issued serially for the area of
capital investment, among which is the basic regulation concerning the
_ evaluation of the effectiveness of investments, namely, the FMTIR jFederal
Ministry of Technological and Investment DevelopmentJ Decree No 3 of 11 Mar
1975 (henceforth FMTIR Decree) (1).
The current method of evaluating the effectiveness of investments has been~in
- use for four years now and so it can be partially assessed.
In accordance with the F~iTIR Decree, several departments have published
branch guidelines in which they applied this regulation to their own apecific
conditions. One of these branches is the energy [sector]. We wish to acquaint
the reader with some of the results of using the branch method and to attempt
to summarize the inf~rmation gathered to help further improve the quality of
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r~n ~rrlt,trw u~r. udLz
the data used in the decision-making processes at the different levels of
preparing capital investments.
The Reasons It Was Issued
The publication of the branch regulation, Guideline of the Federal Ministry
of Fuels and Power No 11 of 23 Dec 1975 on the Evaluation of the Effectiveness
of Investments in Power and Gas Works (2) (henceforth, FMPE ~ecree) was ~
necessary for two basic reasons:
--The first was the need to take into consideration the specific cot~ditions
in construction projects in the energy [sectorJ. . '
The general regulations can meet the specific needs only of average construction
projects, whether this be in respect to the scope and complexity of the
pro~ect, technological solutions, automatic control, ecological considera-
tions, the supplier systems, etc. For pro~ects that do not fall under this
_ heading, those that are of either exceptionally large or small scope or
that invulve very exacting production technology, working for systems where
its producrs are put into use immediately, the general regulations are usually
not applicable to the specific requirements of the needs of either the .
preparers nor the reviewers of documentation. Therefore, some parts of the
general regulations cannot be used, and others must be extended and supple-
mented. The basic reasons for publishing the FMPE Guidelines are described
in detail in (3). In this contribution we shall present only the basic
supplements and adjustments of this guideline as compared to the FMTIR Decree.
a) Augmenting the criterion of comparative economic effectiveness, i.e.,
transferred costs. The criterion given in the branch guideline makes it
possible to take into acco unt the dynamics of the use of investments (chiefly -
_ the start of their use) in the course of operating, while the FMTIR Decree
assumes constant operating costs. '
b) The FMPE Guideline introduces a criterion for evaluating the variant of
the system.developing. A system wide perspective is essential for electrical
and heating systems. The article Systems Optimalization in the FMPE Guideline
also makes it possible to evaluate the effectiveness of different ways of
strc~cturing the various stages of the construction of a given complex of ~
projects.
3) The FMPE Guideline permits in certain special cases (chiefly in the
heating sector), where it is impossible to achieve a suitable productive
effect, certain adjustments in the criteria of transferred costs.
d) The FMPE Guideline also establishes an outline for the economic part
of projective studies. This proved to be necessary since it is in studies
(studies of the development of a system, optimalization studies, studies '
serving as a basis for issuing investment ob~ectives--IZ) that the fundamental
economic and technical comparisons (the selection of the technical solution,
site selection, amount of resources, etc) between the m~st diverse variants
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are made. In view of the ve~cy long lead time �oz~ major capital investment
projects in the energy field`(studie~, p~eparatory and design documentation _
including discussion, construction)--approximately 10 years--it is already
too late for such calculations after the IZ [investment objectives] have been
issued.
3) An appendix to the FMPE Guideline gives a detailed listing of specifica- .
tions and indicators for the basic types of investments in energy (condensation
etectricity generating stations, nuclear power plants, hydroelectric power
plants, electric stations, installation of electricity, power and heating
plants, heating plants, heating mains, fly-ash control installations). It
is also unambiguously defined which specifications and indicators must be
verif.ied at the various levels of documentation (perspective study, IZ,
capital construction objective, study for a complex of pro3ects (SSS), design -
task (PU), preliminary design (UP~, final technical and economic evaluation
of a project (ZTEV). For other types of project it is reco~ended that the
listing oi' specifications and indicators be suitably adapted.
f) The FMPE Guidelines sets out in detail the economic content of the prelim- -
inary documentation report, which is most extensive for large-scale capital
investment projects. The discussion of the progress of the work has been
considerably simplified, a number of duplications and obscurities have been
- eliminated. ~
g) The FMPE Guidelines omitted some of the prescribed indicators of economic -
effectiveness of Sections 2 and 3 of the FMTIR Decree. These are indicators
not pertinent to this type of project. On the other hand, some of the
indicatars were made more extensive.
h) The FMPE Guidelines omit areas that do not concern energy, for example,
means of formulating and assessing the effectiveness of construction projects -
in the area of civic services.
i) The recommended indicators for internal relations are replaced by suitable -
indicators for construction projects in the energy field. In so doing their
number, as compared to the FMTIR Decree, was significantly reduced.
j) The branch guidelines eliminate the recomonended indicators for foreign
trade (which for all practical purposes are irrelevant for construction
projects in the energy field).
k) The FMPE Guidelines contain other minor differences and adjustments
such as the definition of a single terminology for the economic section at
. the different levels of documentation, the introduction of a calculation for
the updated total costs of a construction project (to determine the losses
_ from une~loyed ir..vestment funds after the construction period), and so forth.
A secend reason for publishing the branch guidelines was to unify a number
~ of published regulations in a single comprehensive regulation.
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In our view it ts essential that in the process of drafting the documentation
of a construction project the economic sect~on and techn~cal--econom3c
calculations not be dealt with only by worker-economists, but that technical-
economic calculations, ~ust like technical calculations, be made an element
of the methods and process of conceptual workers too in the documentation of
key pro,jects. Nor is it correct to turn out specialized economists who come
inta contact with the technical problems of a construction pro~ect only from ~
time to time and then demand that they draw up the technical-economic
sections as a conclusion to the design process at the appropriate level of
dc~cumentation. Experience shows that we have
--only a very limited number of centralized and specialized workers for the
economic aspect of construction proj ects who supervise the work in this ~
area of specialization, influence conceptual questions, determine the thorough-
ness of eva.luation, etc.
--technical workers who in their work on designs provide for the economic
part and who, to the extent possible orient the conceptual workers toward -
en~.loying the economic perspective from the very beginning of work on the
given documentation. Those workers who come into c:ontact with the given
problems only occassionally cannot be expected to have a detailed knowledge
~f all regulations and how they interrelate, for there is a considerable
number of them. For example, the basic regulations in the area of evaluating
Lt:e effect~~~veness of capital investment projects in effect today are the .
~ oll.owing :
-----FMTIR Announcement No 163/73 of the Codebook of Laws, on documentation
for construction projects dated 12 December 1973
----Fi~iTIR Decree No 3 on principles for evaluating ttie effectiveness of
r..o;~struction projects dated 11 March 1975
-----FMTIR and FCU [Federal Price Office] Decree No 4 on supplementary prepara- _
tc~ry documentation for construcrion projects sub~ect to review by a board of
novernment experts dated 19 March 1975
----FMTIR Guidel.ine No 2 on sets of technical-economic indicators (THU)
~r; capital construction dated 15 February 1972 .
----SPK [State Planning Commission] Methodological Directions No 52240/74
_ ~~or drafting the proposal for the Sixth Five-Year Plan for the years 1976
to 198U.
~+n indisputable advantage of the FMPE Guidelines issued was that all these
_ regulations were combined in a single document, thus making possible their
real and consjstent employm~nt in practice. It turned out that the branch
guidelines made it possible to.provide the timely, high-quality and unified
e.laboration of the economic sect~on of the documentation for energy -
ccnstruction prajects and thereby accelerate the decision-making proeess
and thus capital construction itself in the branch. _
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The Complex Nature of the Concept
This evaluation method is, when appropriately and creatively applied and when
a responsible attitude is taken toward the work, applicable to p~actically
all. tasks that come up in practice. We shall name aome specific.taske where �
this method has proved its suitability as well as ita demandingness:
--the construction of the building [sector] administrative center for the
energy
--the construction of ASR [Automatic Management Systems] in enterprise
practice ~
--the construction of a desulfurization device for a condensing electricity
generating plant.
The most important reason [for.using this method] is to capture the broadest
possible congruities, but at the same time orily the most important of them,
in evaluating capital investment pro~ects, which are defined primarily from
a national-economic perspective of evaluation, Here is where we~observe the
greatest contribution of.this method as compared to earlier ways of evaluating
- the effectiveness of .capital investment pro3ects, where economic reports had
only a sit?gle goal, the calculation of the prescribed indicators of the
economic effectiveness of capital investment pro3ects (the internal percent
of capital investment projects (the internal percent of return, the time
to recoup funds investea), which for the most part reflected the enterprise
point of view. For th3s reason the adoption of the new method caused great
difficulties and in a number of cases continues to do so.
We should mention the basic requirements of the national-economic perspective.
in evaluating the effectiveness of capital investment projects.
--the extent of uncovered requirements, the share of the pro~ect for covering
- these requirements (including the shares of other pro~ects, as appropriate),
--the current and future use of existing capacities,
--the comparison of investment and noninvestment alternatives,
--the determination of the influence of the pro~ect on the use of existing
fixed assets, .
- --coordination of the pro,ject with the development plans af rhe enterprise,
VHJ, branch,
- --the effect of the project on changing the structure of work and deliveries
from tl~e contractors, on ov~rloading the transportation [system], etc.
--the effect of the project on regional development,
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--how the pro~ect will affect foreign relations,
--the effect or the pro~ect on the scientific-technological infrastructure,
.
--extra-economic effects of the pro~ect (the living and working environments,
health and safety conditions at work, etc).
Every construction pro~ect also has a large number of relations, which is
also dependent on its purpose. We should limit ourselves to the essential
requirements and effects, which are proportional to the effects of the given
project, that is as a rule to its size, and deal with them in greater detail.
_ It must be admitted that each of these points is demanding with respect ~
to data and time for working these data up. The informative ability of
the results is proportional to the depth and specificity of the data~
1'he basis of the approach should be a certificate testifying that the capital -
investment pro,ject suggested is the ~st effective means of covering the
disproportion between requirements and resources. The fact is that a capital
investme~t pro~ect is usually one of the most expenaive solutions,
up significant funds unproductively during the course of construction and
predetermining the level of their effectiveness for very long periods. For
this reason we often try, when evaluating alternatives to calculate the
results of what is called thE null alternative, that is, noninvestment
solutions (utilizing the time fund, organizational solution, etc). Not until
this variant has been considered is the evaluation of the alternatives
su~gested a complex solution. Unfortunately it is most difficult to obtain
data for this alternative and there is an obvious fear on the part of the
investors that reserves will be discovered in building funds, in the excessive-
ness of requirement, etc. If the investment is allowed, that is always a
simpler solution than intensifying the use of existing production funds or ~
optimalizing requirements, etc. For the majority of construction projects
in the energy [sectorJ the shortage of energy can be solved by intensification
only very rarely. There are greater reserves in optimalizing power demands
on the part of customers.
A:lother frequent occurrence is the attempt to restrict or to lower the
criteria for evaluating a construction project. This simplifies work on
the documentation involved considerably. That this part may as a result
be ~aartliless, however, is in many cases overlooked; after all, the results
this causes with respect to a given construction cannot be legally determined.
At the same time, this effect must be dealt with sooner or later, and thus
cov~ring it up creates problems difficult to resolve for a later time. We
, see, therefore, advantages to the prescribed national-economic perspective
in that it is relatively easy to detect the "mariuevers" referred to and
_ then to eliminate their adverse effects more or less successfully.
The Influence of the Amount of Detail of the Technical and Economic Parts
of Documentation
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_ The use of the given method of evaluating the effectiveness of construction
pro~ects points out, in a number of cases, that technical details are worked
out quite unnecessarily in the preparatory documentation, for example, in
line with the area of specialization and intereats of thoae working on the
docutnentation, while more fundamental technical-economic and extra-economic
aspects of the pro~ect are left unconaidered. The argument here ia that
"the design capacity for the increased volume of the economic report is not
available." Meanwhile, it would be enough if workers of specifically technical
orientation were primarily technical-economic workers, and if high-quality
operating capacity were available without demands for additional manpower.
(The statement "this must be decided upon by the economist in a separate
task" is aimply incorrect, because this practically eliminates in advance
the influence of effectiveness on the deciaion.) For the decision-making
process it is not important at the PU [design task] stage what the detailed
solution will be for such problems as, for example, fire escapes (unless
this should happen to be a matter of an entirely new concept for this
fire-escape that would also affect the selection of the concept of the entire
capital investment project). ?~hat is important is what kind of external
relations and effects the entire pro~ect will have, or certain individual
pro~ects or operational systems, as the case may be. The solution of these
detailed easks should be dealt with only by the drafters of the design. -
The Importance of Relative Economic Effectiveness for the Decision-Making ~
Process
It has turned out that strengthening the c:iteria of the relative economic
effectiveness of.capital investment pro3ects in the FMPE Guidelines, that is;
. of transferred funds, in comparison with the generalYy applicable regu-
lations, was a correct [decision]. In the course of working on the docu-
ment.~tion of especially extensive systems of construction pro~ects it proved,
in fact, that this amplification was sti11 not sufficient.
It r~ust be borne in mind that the criterion of relative economic
effectiveness is not the sole basis upon which options are selected in the
decision-making process. It might perhaps suffice where it is 3ust a
matter of making a technical-economic judgment on partial technical solutions,
for example the selection of the number of cooling pumps for some machines,
where the effect of other, extra-economic influences is minimal. Where
it is a question of the effect of external connections of various degrees
~ of operational reliability, of various ecological effects, etc; the current
regulations attempt to take these effects into consideration even in the
decision-making process. The technical-economic calculation, of transferred
co3ts of different alternatives, for example, is only one.of the bases
for decision-making. In order for there to be a certain ob~ectivity in
_ evaluating the influences referred to, in more complex cases (for example,
. for heating-plant systems) a tabular arrangement of all the ma~or factors
affecting the selection of the alternative in the decision-making process
is utilized.
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TABLE I .
Table .I. ~Ma~or Requirements and Effects of Alternative Development Decisions
~ for a Power and Heating System
Factor Unit of Measurement Alternative ~
1, 2, 3 etc.
Capacity Megawatt
Annual energy supply Heat unit/year
Megawatt-hour/year
Transferred costs Kcs 1 million/year
Investment costs Kcs 1 million/year
increased requirements TeraWatt hours/year
for fuels and energy
Increased manpower Persons
Ecological effects Natural units
Foreign trade effects
--during construction Kcs 1 million
--during operation Kcs 1 million/year
Reliability Relative, between
alternatives
Fu~ure prospects. Relative, between
alternatives
Table I is a simplified example of such a table for evaluating the alternatives
for the development of heating-plant systems which has already been used in
practice. Its advantage is the horizontal comgarison of the pertinent data.
Clearly, this arrangement was selected because it is not possible to express
all requirements and effects (for example, ecological effects, local condi-
tions, construction deadlines, reliability, etc) in monetary terms in such
a way that their vertical sum ~.ro uld be a single overall value expressing the
efrectiveness (not ~ust economic effectiveness, but effectiveness in the
broadest sense of the word) of the given construction pro~ect.
In practice, the headings of this table must be adapted to the specific
requirements of the particular type of projects, as well as of specific
undertakings.
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The use of the filled-out table in the decision~making process then consists
of the expert determination of the weight jto be given to] the individual
specifica~ions. We are convinced that this procedure must be further
intensified by including experience gained and thus contribute to improving
the quality of decision-making. . ~
The Continuity of the Evaluation of Effectiveness at the Various Levels of
Documentation
It appears that the groundwork for a correct orientation is laid as early as
in the pro3ective studies. In the energy sector these studies are of
basically two types:
--optimalization studies,(studies on the development ~f the electrification
network, tasks for the development of science and technology, etc). The.
drafters of these materials are research institutes, scientific-technological
bases, and so forth. The methods used are varied and adapted to the spec.ific
purpose. They do not always employ the same methodological principles,
however, and thus they are not always bound by the national-economic perspectives
of the FMPE Guidelines. The relation of the evaluation of effectiveness to
the evaluation of specific capital investment pro3ects is sometimes weak.
--territorial-technical studies, serving commonly as a basis for issuing
the IZ [investment ob3ective], or several IZ's. What is involved is the
selection of a suitable locality, location, selection of the optimal size
of output, etc. The drafters are usually design institutes cooperating with
the investor. Some of these tasks should be handled in studies of the first
type, which is far from being the rule. The comprehensive comparison of ~
possible alternatives, chiefly from the national-economic point of view, is
essential here, however. The task is a di~ficult one, whether a new capital
investment pro~ect, "in a green field," is involved, or expansion of existing
capacities. When it is a matter of expansion, the question also arises of
effects on the use of existing funds (or of their liquidation, as the case
may be). The data must be carefully classified, since data are broken down
_ differently in operation than is required for the evaluation of the effective-
ness of capital investment projects.
The number and extensiveness of projective studies are increasing gradually
and the predictive ability of the results, that fs, their usefulness in
making decisions on IZ, is also increasing.
This goal should always be kept in mind in drafting them. An appropriate
aid here can be the decision table. -
At this level, too, the evaluation of com~arable economic effectiveness (the
basis for selecting the most advantageous alternative) often ends, and
further documentation for the most part expr~sses predominantly description
- and the results of the selected alternative of the decision, that is, it
expresses the overall economic effectiveness of the specific construction
project.
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The investment objective, the next step in the documentation of a construction
- pro~ect is, up until the time of drafting (and chiefly the ratification of
the PU) the binding document of the pro~ect~ The data and criteria of the
IZ also express the value (for example, of funds) for which this investment
proved advantageous in comparison with other alternatives and thus was
chosen to be realizPd. If these values are exceeded it could happen that
other, including noninvestment, decisions could prove to be more advantageous.
For key construction projects in the branch, the IZ study and the IZ itself
are drafted far in advance of the realization of the pro~ect (as much as ten
years), with the result that costs calculated for the project in the study
are set at the level of the year it was drafted. In the course of preparing
the project the calculated costs are generally not revised and updated and
often not even the expanded scope of the pro~ect arising in the course of
discussing and defining in greater detail the requirements of local organs, _
contractors or the investor.
Adverse changes in the basic specifications and indicators with respect to
the specifications and indicators in the IZ occurring in the course of drawing
up the preparatory documentation are undesirable and can interfere with the
optimal nature of the solution chosen. In addition, it must be kept in mind �
that the data in the IZ form part of the bases upon which intermediate plans
for capital construction are compiled, thereby increasing their importance.
The IZ of key pro~ects in the sector does not compare alternatives, it requires
a certain conception of the construction to have been formulated already and
gives only an evaluation of partial alternatives, usually of a technological
nature in the preliminatry documentation. _
The figures given in the IZ are the first data with which the data achiEVed
in the PU [design task], UP [preliminary design], and ZTEV [final technical-
economic evaluation of the pro~ect] are compared.
Tn the IZ more complicated calculations of economic effectiveness are of ten
uot carried out; the basic questions of comparable economic effectiveness
really must be solved in advance.
'fhe study for a complex of pro~ects (SSS) is frequently a further level of
~tc.r_umentation, concerned either w,ith its chronology (stages of construction)
or its material aspects (relations with other investment pro~ects being built
at the same time).
The specificati.ons and indicators for individual construction pro~ects and _
f.ar all of them taken as a whole form the basis for the work on the economic
section of this document. An attempt is generally made, however, to limit
the economi~ report of the SSS in comparison with the economic report of the -
PU of the main project, the PU of related projects, in view of the shortage
of data, the amount of work considering the deadlines, etc. On the other
hand it must be admitted that many SSS's have to be redone later because
fundamental changes have occurred that raise doubts about the~advisability
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of using the original study. Nevertheless, one must see that it is possible
to decide upon the concept of a pro~ect constructed in stages, for instance
a heating plant, only after the study for the complex of the entire heating
system, including the economic report, has been completed. Only in this way
_ can one see.the advantage of seemingly disadvantageous pre-investments, the
efficacy of the final concept, etc.
The degree of precision required for the economic report in the PU of key
projects is then confirmed by the panel of government experts. The need for
sufficient explanation, supporting materials, etc, is well known, despite
which there are always many_deficiencies in the economic reports in practice.
The amount of work required by so~ sections is considerable, however, and
frequently excessive. What is involved is principally
--comparing the THU of the project being evaluated to the standards. The THU
of the pro3ect itself are essential, but it would perhaps be practical to
_ omit some of the standards, for instance [that of] another similar pro~ect, '
- particularly one abroad. The fact is that the THU in themselves tell
nothing about the construction conditions of the project under review. In
such ~ases it is perhaps better to use the pro~ect~s complete technical-
economic document for the comparison. The rules for converting to standard
values--actually, comparable values--are followed by the comparison
alternative in the sets of~THU gradually being issued for the basic types of
power plants, power and heating plants, electric stations, he$ting systems,
ash control). Likewise, the comparison of every specification listed with
[its value at] the previous level is perhaps excessive. It should be enough -
to compare the basic specifications and indicators, which is what is prescribed
in the first section of the economic report under pb~sibilities for
limiting duplication;
--the quite complex calculation of profit generation and distribution. In
the energy [sectoi] we have~to be sure~compiled computer programs to do
this, as described in detail in (5), but there are times when a hand
calculation for a single year of operation, for example a target year, would ~
be preferable for a specific purpose, chiefly to analyze the effect of key
factors.
_ Basically, we must realize that it is a matter of computing overall economic
effectiveness at a time when the possibilities for selecting alternative
- decisions and their consequences (chiefly with respect to savings) are
extremely limited as compared with earlier documents.
The Economic Report of the UP or the Single-Stage Pro~ect (JP) is the last
overall technical-economic document of the project until it is completed.
Practice has shown that it is only a matter of making the values given in
the PU more precise. Since the concept of the construction is by this time
- quite clear, it is not necessary to j ustify it aga3a in detail, as is often
done in practice (in cases where this is not required by the panel of
government experts for the PU). The calculations of comparable economic
effectiveness in this document are important only in assessing possible
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alternatives for the detailed technical solution. The remarks on the
excessive amcunt of work required by certain sections of the economic report
of the PU alsa apply here.
The Final Technical-Economic Evaluation of a Construction Project (ZTEV) is
the last document on the effectiveness and practicality of a construction
pro~ect. From the standpoint of effectiveness it is the most important ,
comparison of the THU's achieved with the requirements of the IZ, PU or UP.
It often becomes necessary here to make complicated recalculations of the
projects' requirements to the real operating conditions and implementation.
This is not always ob~ectively necessary but often merely serves as an alibi
for some of the participants in the capital construction pro,ject. What is
far more useful is to determine the pluses and minuses of a particular
project in time for them to be reflected in other pro~ects being designed
and built. The length of time necessary to prepare and realize cnnstruction
pro~jects in the energy [sector], however, somewhat decreases the effectiveness
of this final document. For key construction projects in the energy sector
the ZTEV is conducted before all the ma~or designed parameters can be
attained (e.g., those of output, utilization, etc) which decreases the useful-
ness of this document still further.
Evaluating the Effectiveness of Reconstruction and Expansion -
Capital investment projects for rebuilding or expanding existing industrial
p].ants are becoming more common all the time. Instructions on how to evaluate
these specific questions are scanty. Certain i.nstructions do exist, namely -
--in the THU system, where it is necessary to compare specifications and
indicators in the starting year (existing conditions) with specifications
and indicators in the target year (the future conditions after the recon-
srruction or expansion under consideration);
_ --for calculating the generation and distribution of profit.
T:~is involves only calculations characteristic of the alternative referred
to, that is only calculations giving the absolute economic effectiveness
of ehe pro~ect. A disadvantage of the FMTIR Decree and the FMPE Guidelines
i:~ their neglect of this part of the task in calculating the comparative ~
e~�.~nomic effectiveness of capital investment pro~ects, i.e., in evaluating
[he alternative to the decision. Obtaining the increase in output desired.
by constructing new facilities is usually the uast expensive way. It is
clear, therefore, that first the possibility of achieving the increase in
output by renovating or expanding existing capacities should be inves[igated,
and only then should new construction be undertaken.
To solve the practical tasks it was necessary to devise and draw up new
- methods (in so doing we proceeded on the basis of the fundamental principles
of the system-optimalization criterion of the FMPE Guidelines~.
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Let us mention some of the basic problems that arose in the course of dealing
with these tasks:
How does one define a suitable period of time to use in comparing the
altern+~tives to expaneion being evaluated when existing and new facilitiea
are involved? Is it necessary to evaluate the increased price of existing
fixed assets when it is similar for all the alternatives and differences
appear in the need for future investment, will it be enough then to evaluate
only new capital investments? Does it suffice to evaluate only the change
(usually an increase) in the cost of operation?
We devised certain methods because it is a matter of a task that we
have to deal with frequently, and one that is in the most important area of the
evaluation of the effectiveness of capital investments, the calculation of
comparable economic effectiveness.
The Relation af These Regulations to Others
The FMPE Guidelines collected in one place all the regulations on e~aluating
the effectiveness of construction projects issued to that time. Since then
other regulations have been issued, for example:
the advantage of apparently disadvantageous pre-investments b~come clear,
as well as the practicality of the ultimate conception.
To concern oneself with the detailed technical-economic evaluation of one
stage of the construction of a heating plant is a waste of time, even if it
is an independent project, because what is important is the economics of
the entire heating system which is to be detailed in the SSS. Then for the
individual projects of the complex it must be verified that_they agree in
- all parameters with the values of the corresponding SSS. If not, ad~ustments
~ must be made and the SSS must be sub~ected to another technical--economic
review.
The Economic Report of the PU [design task) is, up until the ZTEV, that is
until the stage of ordinary operation is reached, the most important
construction document, virtually replacing the IZ. The basis for economic
evaluation in the PU should be.
--the calculations for comparable economic effectiveness only if these have
not already been made. Otherwise, it suffices to calculate the results
together, reference being made to the appropriai:e sources;
--the working-out of the technical--economic indicators (THU) for evaluat3ng
- the project and the comparison of these data with the comparative bases.
a) FMTIR and FCU [Federal Price Office] Decree No 4 dated 24 August 1976,
which changes FMTIR and FCU Decree No 4 on supplementing the prepaxatory
documentation for industrial construction pro~ects sub~ect to review by
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government experts dated 19 Mar 1975. This eliminated the necessity of working
o~it the gross orientation conversion to the wholesale price level from the
camplex reorganization.
b) Communication on a metho~ of studying the economic effectivenes~ of
capital investments affecting woodlands (FMTIR Bulletin, Part 3--4 dated
18 July 1977).
c) FMTIR Methodological Instructions dated 28 October 1977 for evaluating
the effectiveness of rationalization measures for conserving fuel and energy.
d) FMTIR and FCU Announcement on conditions for initiating construction
projects and their registration and record keeping dated 1 November 1977.
These general regulations conflicted with the complex concept of the FMPE
Guidelines.
For a) the situation is very simple: the calculation of one of the tables
in the preparatory documentation for industry construction pro~ects sub~ect
ro review by a panel of government experts was eliminated. . -
The change in b) was one of the first experiments :Ln putting a jmonetary]
value on extra-economic influences, in this case the functions of the wood-
Iands. As everyone knows, in addition to their direct economic importance
as a source of wood,forests also have a value due to their effect~on the
cl.imate, the recreational possibilities they offer, etc. The financial
- expression of all these aspects is very beneficial from the standpoint of
the national economy and is the first step toward the.possibility of a
verti~al addition in the decision-making tables. Meanwhile, however, mis-
understandings have occurred in practice; in our view this value expression
can be used only in transferred costs, specifically where the pro~ect~s _
evaluated alternatives require different amounts of woodland, or where
woodland is used with different degrees of quality. The practical signifi-
cance is obvious: there is a possibility here of influencing this criterial
size of the comparable economic effectiveness. The request of the sector
of forest and water management is that these value specifications should
also influence the absolute effectiveness of the pro~ect (lower profits, etc).
Thi.s seems unrealistic, however, because no.enterprise will make up the
amounts calculated; this is a fictitious entry/item, as contrasted to the
a:pression of losses in agricultural production resulting from construction. -
With regards to c), the situation here is also acceptable because the
FMPE Guidelines and the methodological instructions issued by the FM'TIR are
similar. What is involved is tightening up the rather general criteria of
the FMPE GuidEline on evaluating the specific tasks in the area of rationaling
fuels and energy, which in the form of practicality studies can be demanded
during the discussions on the preparatory documentation of the pro~ect.
Unifying the philosophy of economic evaluation has proved to be not only
beneficial but objectively necessary. Rationalization, i.e., achieving
savings in production and consumption, is always contingent upon the extra _
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_ costs for its realization being available which is similar to one of the
aspects of the comparable economic effectiveness of investments (whether
it is better to make a capital investment or not). In these ncethodological
instructions the CSSR's limited resources of fuel and energy are referred to
quite frequently; we too consider this an important factor in the rational
utilization of the primary energy resources.
' There are great difficultiea with d) in practice. The list of THU required
by the FMPE Guidelines No 11, 1975 understandably does not include any of
the specifications and indicators called for in the pro~ect's registration
permit by announcement No 85/1977 of the Codebook of Laws. Misunderstandinga
and unnecessary correspondence are the consequences, giving rise to delays
in discussing and approving the documentation for the construction pro~ect.
The 4 years these methods have been in effect have been enough to demonstrate
their strong points and their weak points. Let us attempt to summarize the �
most important of these that we discovered in evaluating the effectiveness
of capital investment pro~ects:
Drafting the branch guidelines proved to be most useful. If they had not
been issued, it would have been impossible to achieve the relatively great
improvement in the qualiCy of the documentation for construction pro~ects
in the energy sector, both because of the complexity of the demands and the
comparatively low degree of specialization of those working on this part
of the work. _
The supplements and adjustments to the FMTIR Decree made in the FMPE Guidelines
have completely proved their worth. Practice shows that in some sections
they could be expanded even further.
Practice confirms the necessity of improving the calculations of the
comparable economic effectiveness of capital investment projects (comparison
of alternatives, ~ustification of the pro~ect) and the possibility of
restricting the calculations for overall economic effectiveness (description
of the selected alternative in preparatory and design documentation). This
situation is linked to the position of the energy sector, where the need
_ for the construction is the result of very real need for energy, the
primary purpose of the economic section of the documentation for construction
projects in the energy sector being to demonstrate that the decision made
was the optd.mal one.
It is essential, especially for ma~or capital investment pro~ects, to compare _
alternatives before the TZ is issued, and for this purpose.to have this
aspect of the evaluation of the effectiveness of construction pro3ects more
thoroughly covered by regulations. The general regulations have not yet
_ dealt with this area; the FMPE Guidelines goes further in this direction thar~
do the gene~al regulations.
In justifying the construction project all the more important circumstances
relating tc the project must be evaluated, i.e., the pro~ect muat mandatorily
be evaluated from the national-economic point of view.
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It is useful to calculate comparable economic e�fectiveness by computing the
so-called null investment alternative, meaning what would be the result if
the cap ital investment project under consideration was not carried out.
~conomic effectiveness can also be computed for projects not having a direct
economic effect, or one we do not know how to express. It is still possible
to compute funds transferred to this project, which then dEtermine the
societal reductions required to achieve the effectiveness of the given pro~ect.
The methods for computing the comparable economic effectiveness for renovation
and expansion projects should be worked out in greater detail.
For construction projects that have an exceptionally large number of ties
[o other entities, the evaluation of the comparable economic effectiveness
should be made by using a tabular arrangement of the ma3or factors since the
expression of transferred costs is not sufficiently comprehensive.
Changes in the regulations relating to the evaluation of the effeetiveness
of capital investment projects should be kept to a minimum, and to the extent
possible they should be issued all together when the basic regulations are
revised or supplemented.
Those working on drawing up the documentation must be induced to deal prim-
arily with thp basic technical-economic conditions of the construction project
until the preparatory documentation is completed, even if this means leaving
problems of technical details unresolved.
Design personn~l, especially those working in design organizations, must
incorpo rate the criteria of economic evaluation in the methods and
processes of their work.
In conclusion, we can say that the methods used to evaluate the effectiveness
of capital investment pro~ects now in use in the energy sector have proved
rheir worth. They have helped raise the economic justification of construc- ,
tien projects to a much higher level than formerly and provide, to a certain
extent, an objective view of a contemplated capital investment pro~ect. The
q uality of this work is gradually improving, thereby also improving the
basis for decision-making concerning a specifi.c project. Nevertheless,
~ldjustments to further improve this aspect of capital construction still
appear to be necessary. In.no case, however, can one agree with the opinion
that these methods are unsuitable, complicated and superfluous. Experience
- and information show that these methods are basically in the right direction -
and that the changes recommended are of a quite minQr nature.
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l. F BIBLIOGRAPHY
l. Federal Ministry for Technological and Investment Development Decree No
3 on principles for evaluating the effectiveness of capital investment
projects dated 11 March 1975.
2. Federal Ministry of Fuels and Energy Guidelines No 11 on evaluating the
effectiveness of power and gas-works capital investment projects datf~=d
23 December 1975.
3. Matura, J. and Barcal, J. "Sector Methods for Evaluating the Effectiveness `
of Capital Investments in the Energy Sector," INVESTICNI VYSTAVBA No 2,
1977. .
4. Jiresova, A. and Kobosil, J. "Applying the Criterion of Developing ~
Systems in the Energy Sector," INVESTICNI VYSTAVBA No 12, 1977.
5. Skurovec, V. "The Use of Computer Technology in Eco~nomic Effectiveness
Calculations in the Energy Sector," INVESTICNI VYSTAVBA No 4, 1978.
6. Table Summarizing the Major Requi_ements and Effects for [Use in]
Evaluating Alternative Decisions in Projective Studies of Systems
Providing Centralized Heat. Energor.rojeckt, October 1978.
COPYRIGHT: SNTL hakladetelstvi Technicke Literatury, n.p. Praha 1980
8805
CSO: 2400 ~D
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