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preventing that labour from working overseas and earning foreign
exchange, which would be considerably higher than the market
rate used here.
At must well sites, significant tcntributions were made by
the comaunity in the construction of the well. This consisted
of food ~~pplied to the drilling and civil works crews, and
village labour and materials provided during site preparation
and construction. The value of these inputs should be included
in a t ~ economic e appraisal, but have not been included here.
These issues are discussed more fully in Section 2.5 and 3.0.
4,3,1.2, Currency Exchange Rate
Labour costs form the major part of local currency costs in
well construction, operation and maintenance. Once a set of
shadow prices for labour has been determined, a shadow exchange
rate should be used to provide an economic analysis. This is
often claimed to be properly represented by the "free-marketw,
or "black markettq, cost of foreign currency.
The situation in Somalia is confused by the existence of
three exchange rates, as discussed in Section 4.1.1.1. At the
tine of writing, it appears to be the intention of the
Government ta eventually bring the "official" rate, now at
So.Sh-61 to the U.S. dollar, up to the wcommercialn rate, now
at So.Sn.83 to the U.5. dollar. A "free-marketw rate exists
which is currently operated at between So.Sh.105 and Ss.Sh.120
to the U.S, dollar, In deference to the Govementrs wish that
all three rates should converge, a rate of Sa.Sh.81 has been
used throughout this report- The difference made to the basic
well constxxction costs applicable to the Bay Region, for
example (Table 2.4.11, are, as shown below, not significant.
- sxch. Rate Cost of Diesel Di f ferenc
Sa.Sh./U,S. Well Installation from mode
Official rate
Model
Commercial
Free market low
Free market high