Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

4.4.2 Financial analysisAlthough in this project the owner of the infrastructure (the Municipality) is different from the operator(the private partner of BOT assignment), a consolidated financial analysis is carried out. The time horizonfor the analysis is assumed to be 30 years, the same as for the BOT.In the analysis constant prices are used and corrections are entered for changes in the relative prices. Suchadjustments are undertaken by assuming an average annual inflation rate of 1.5% and also by taking intoaccount growth factors, marginal decreases in the prices of some services and some operating costs (seebelow for details). Thus, only relative price changes are considered. The financial rate of discount is 5%,expressed in real terms.The cost of the investment includes the construction of the effluent and discharge mains, of the wastewater treatment plant, the water refining treatment plant and the aqueducts (including the pumpinghouses) to supply water resources to the industrial and irrigated areas. The cost of such an investment,excluding VAT, is set at €100,831,000 (at constant price) 82 and has been subdivided into homogeneouscategories, whose values have been attributed to the first three periods, on the basis of the timeprogramme for the implementation of the project.Table 4.39 Distribution of investment cost in the time horizonInvestment costs at constant prices (Thousands of Euros) Total 1y 2y 3yFeasibility study, design, work management, licensing, etc. 9,259 7,363 0 1,896Land expropriation 1,094 726 368 0Labour 43,323 4,255 25,915 13,152Materials for civil works 12,900 990 7,031 4,078Rentals 3,238 26 1,607 1,604Transports 2,681 44 1,331 1,306Electro-mechanical components and equipment 29,138 0 11,551 17,587Total investment 100,831 13,404 47,804 39,623The start-up phase, lasting 5 months, will commence in the fourth year, in which the production isassumed to be at 70% of the regime production. The components of short lifetime 83 (60% of theequipment costs) will be replaced once during the investment horizon, at the end of their economic life(16 years 84 ). For the sake of simplicity, the calculation is made by introducing the whole cost of theaforementioned components in the twentieth year 85 .Keeping in mind the aforementioned PPP arrangement scheme, the investment is financed 86 by grant(ERDF and national or regional funds), by the fund provided by Municipality and by funds provided bythe private partner. The requested co-financing EU grant is €22,129,000 (21.9% of total investment costsat current prices without VAT). An amount of €19,029,000 (18.9% of investment costs) is provided by anational or regional fund. The Municipal fund is €10,263,000 (10.2% of investment costs). The privatefinancing (€49,410,000, the 49.0% of investment costs) is given by equity for 50% of the amount(€24,705,000) and by loan for the other 50% (€24,705,000). The loan has a 5.00% interest rate with anamortization period of 10 years.The financing for the replacement of the short life-time components is provided by the private partner(50% equity, 50% loan) in the 20 th year (€22,652,000).8283848586The cost of the investment at current prices is € 100,831,451.These are, basically, machines and other electromechanical equipment for the treatment and pumping plants.In accordance with the technical data from literature.The twentieth year has been determined taking into account 3 years of plant construction plus 16 years of life.The sum to be financed is the cost of investment net of VAT.170