Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

- Civil water purification gives rise to benefits in different sectors, first and foremost the environmentalprotection of water and land, but also the safeguarding of human health and the integrity of the livingspecies (see also Annex F). A possible conservative value for these positive externalities can beobtained by putting a value on the volume of purified water discharged and susceptible for re-use fordifferent purposes. In this case, the volume of purified water not used in situ and thus discharged,reduced by a coefficient of dispersion 101 (0.70), are equal to roughly 9 Mm 3 /year, assuming a potentialirrigation re-use, at an accounting price of €0.81 per m 3 , already used to evaluate the benefits of thesupply of resources for industrial purposes.The conversion factor was also applied to the benefits derived from the revenue from the residual value ofthe infrastructures 102 .The social discount rate is 5.5%. From the cash flows, the following performance indicator results areobtained:- Economic Net Present Value ENPV €295,519,106- Economic Rate of Return ERR 28.9%- Benefit / Cost Ratio B/C 2.24.4.4 Risk assessmentThe results of the sensitivity analysis are shown in figures 3.13, 3.14 and 3.15, with reference, respectively,to the FRR(C), the FRR(K) and the ERR. Figures 3.16 and 3.17 show, respectively, the sensitivity of theFNPV(C) and the FNPV(K) and the ENPV to variations in the inflation rate.The following variables are identified as critical for the financial analysis (the table shows the relativevariation of the FRR(C) and of FRR(K) due to changes from -1% to +1% in the critical variable):Table 4.42 Critical variables for financial analysisCritical variable % of FRR(C) % of FRR(K)Investment cost ± 4.3 ± 2.2Yearly cost of materials ± 3.4 ± 2.4Yearly cost of the intermediate goods and services ± 5.4 ± 3.8Yearly cost of waste sludge disposal ± 4.2 ± 2.9Wastewater treatment tariff ± 13.9 ± 9.8Industrial water supply service tariff / Industrial water demand ± 5.5 ± 3.9The following variables are identified as critical for the economic analysis (the Table shows the totalrelative variation of the ERR due to changes from -1% to +1% in the critical variable):Table 4.43 Critical variable for economic analysisCritical variable% of ERR(C)Investment cost ± 0.8Improvement of the crop production in the well irrigated agricultural area ± 0.8Account price for savings in groundwater resources ± 0.4The risk analysis of the project has been carried out by assigning appropriate probability distributions tothe critical variables, identified as explained above. Table 4.44 shows the assumptions made for theprobability distributions of the variables.101Due to the leakage and other reasons.102The weighted average of the CF’s applied to the categories of investment is applied to the long life investment value. The CF used for theequipment, machinery, manufactured goods, carpentry, etc. is applied to the replaced parts.175