Why isn't the statutory compensation figure enough on its own?

Because national law and the lender standard are measuring different things. Many statutes direct depreciated value for structures and market value for land — reasonable in an ordinary transaction, and exactly what IFC PS-5 and World Bank ESS-5 prohibit for a displaced household, because a depreciated payment cannot rebuild an equivalent structure. Where the two diverge, the project has to pay the higher figure and show the difference was closed, not simply choose one.

What exactly does 'no deduction for depreciation' mean in practice?

The valuation asks what it costs to build an equivalent structure today, at current material and labour prices, regardless of the age or condition of the structure being replaced. A thirty-year-old house is compensated at the cost of a new equivalent house, not at a depreciated fraction of it — because the household cannot buy a thirty-year-old replacement to order; it has to build or buy new.

Should salvage value be deducted from the compensation figure?

No, under PS-5 and ESS-5. Deducting the assessed value of materials a household may keep from a demolished structure assumes a salvage market that frequently does not exist, and assumes the materials are reusable — which for mud, thatch and old timber they frequently are not. The worksheet records whether salvage was deducted specifically so this can be checked.

How should the top-up between statutory and replacement cost be paid?

Through a mechanism with its own basis, not folded silently into the statutory figure. Common approaches are a distinct resettlement assistance payment, or a project-specific rate schedule adopted for the purpose and disclosed as such. What does not work is resolving the gap case by case at the point of payment, which produces inconsistency between households and no defensible record of why one received more than another.

When should this reconciliation be done — before or after payment?

Before. The gap has to be identified before the entitlement framework is finalised and the budget set, not discovered during implementation. A project that budgets on statutory rates and then finds it must pay replacement cost faces a funding shortfall at the worst possible moment, and the usual resolution is delay — which transfers the cost to the households waiting.

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Replacement Cost Reconciliation Worksheet — IFC PS-5 / ESS-5

A free worksheet for reconciling statutory compensation against IFC PS-5 / World Bank ESS-5 full replacement cost, per asset — 15 fields covering depreciation, salvage, the gap and how it was closed.

15 fields · response type · why it matters at audit

The gap that is written into the law, not hidden from it

Where a project's compensation falls short of replacement cost, the usual explanation is not incompetence or bad faith on the part of the valuer. It is faithful application of a statutory method drafted to a different standard. Uganda's Land Act, for instance, directs rural buildings to be valued at depreciated replacement cost — the deduction the lender standard prohibits is, for those structures, the method national law expressly requires. A valuer applying the statute correctly produces a figure below full replacement cost by following the law rather than departing from it.

That makes the reconciliation a design decision, not a valuer's error to be caught after the fact. This worksheet exists to make the gap visible, per asset, before it becomes an unfunded liability discovered at the point of payment.

Two columns, not one blended figure

The discipline this worksheet enforces is structural: record the statutory valuation and the replacement-cost valuation as separate, auditable figures for every asset, rather than negotiating a single number that quietly absorbs the difference. A blended figure cannot later demonstrate that the statutory floor was met, that the standard was satisfied, or that the top-up — if any — was calculated rather than estimated. Two columns can.

The line that is hardest to defend after the fact

Whether depreciation was deducted is a yes-or-no fact about a specific valuation, and it is exactly the kind of detail that disappears from memory once a valuer has moved to another project and a claimant is disputing a figure years later. Recording it explicitly, per asset, at the time of valuation is the only way to answer the question when it is eventually asked — and in this field, it is asked more often than any other.

Questions

Why isn't the statutory compensation figure enough on its own?: Because national law and the lender standard are measuring different things. Many statutes direct depreciated value for structures and market value for land — reasonable in an ordinary transaction, and exactly what IFC PS-5 and World Bank ESS-5 prohibit for a displaced household, because a depreciated payment cannot rebuild an equivalent structure. Where the two diverge, the project has to pay the higher figure and show the difference was closed, not simply choose one.
What exactly does 'no deduction for depreciation' mean in practice?: The valuation asks what it costs to build an equivalent structure today, at current material and labour prices, regardless of the age or condition of the structure being replaced. A thirty-year-old house is compensated at the cost of a new equivalent house, not at a depreciated fraction of it — because the household cannot buy a thirty-year-old replacement to order; it has to build or buy new.
Should salvage value be deducted from the compensation figure?: No, under PS-5 and ESS-5. Deducting the assessed value of materials a household may keep from a demolished structure assumes a salvage market that frequently does not exist, and assumes the materials are reusable — which for mud, thatch and old timber they frequently are not. The worksheet records whether salvage was deducted specifically so this can be checked.
How should the top-up between statutory and replacement cost be paid?: Through a mechanism with its own basis, not folded silently into the statutory figure. Common approaches are a distinct resettlement assistance payment, or a project-specific rate schedule adopted for the purpose and disclosed as such. What does not work is resolving the gap case by case at the point of payment, which produces inconsistency between households and no defensible record of why one received more than another.
When should this reconciliation be done — before or after payment?: Before. The gap has to be identified before the entitlement framework is finalised and the budget set, not discovered during implementation. A project that budgets on statutory rates and then finds it must pay replacement cost faces a funding shortfall at the worst possible moment, and the usual resolution is delay — which transfers the cost to the households waiting.

Read before you use it

Practical guides

Technical research

Replacement cost: the rule that separates lender valuation from statutory compensation

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The software behind this

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A template is a starting point. The version that survives a completion audit is one where every change is attributed to a person and a date, and where the numbers reconcile to what was actually paid.

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