The City Of Trujillo Vs The Port Of Salaverry:A Quantitative Analysis

Salaverry is a small port that serves the city of Trujillo and its surroundings, min the north of Peru. Since 1982, the state-owned company that operates the port’s only terminal has attempted to reduce dredging costs by enlarging a mole built perpendicular to the coast. Unfortunately, this solution has altered the coast’s dynamic equilibrium and produced the virtual destruction of Trujillo’s beaches. Cost estimates of a permanent solution are higher than the benefits the population perceives. This paper aims to determine, from the economic point of view, whether it is worth maintaining the port open and, if so, how to pay for the cost of repairing the externality it causes to Trujillo’s inhabitants. Results provide evidence that even ports with limited demand have the potential to produce important savings when alternative ports are located relatively far. Quantitative results also show that: (i) operating Salaverry’s single terminal will not generate enough resources to pay for repairing Trujillo’s beaches; (ii) if the government wants to concession the terminal to a private company, an additional subsidy will have to be granted; and (iii) whereas the total cost of maintaining the port open is dear, CBA analysis shows that closing it down would cost society even more.