Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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availability (litres/inhabitant*day 28 ) or the hectares which shall be irrigated, the types of crops, theaverage expected production, the resource availability (litres/hectare*year), the time and periodicity ofwaterings, etc.- the projects may have non-local objectives, for example on a regional or interregional scale. This is thecase with aqueducts for the long-distance transportation of water from relatively rich areas to aridzones or the construction of dams intended to supply wide regions, which may be also far away fromtheir location. In this case, the specific objectives shall also refer to the volumes made available(millions of cubic metres per year), the maximum conveyed flow rates (litres/second), and the overallcapacity of the long-term resource regulation, which has been realised by the system.Typology of the investmentWe list below some examples.FOCUS: TYPOLOGY OF INVESTMENTS AND OFFERED SERVICESType of actions:- construction of entirely new infrastructures (aqueducts, sewer systems, depurators), intended to meet increasing needs,- works intended to complete aqueducts, sewers and depurators that have been partially realised, including the completion ofwater supply networks or sewer systems, the construction of trunk lines for connection to existing conditioning systems, theconstruction of conditioning systems for the existing sewer systems, the construction of waste water treatment plants withtertiary treatment sections for the reutilization of conditioned sewage,- actions intended to improve the efficiency of the water asset management,- partial modernisation and/or replacement of the existing infrastructures in compliance with the strictest rules and laws inforce,- works intended to increase water availability,- works intended to assure water availability in dry weather conditions (on a seasonal, annual basis),- actions intended to save water resources and/or to provide for its efficient use,- actions intended to rationally replace the use of the resource when it is not regulated (for example irrigation with privateuncontrolled wells).Prevailing typology of investments:- works meant for the collection, regulation or production of the resource, even on a pluriennial basis,- works meant for water transportation,- works meant for the local distribution of water resources as well as for civil, industrial or irrigation purposes,- works meant for the treatment of primary water (clarification, desalination, purification)- works meant for the collection and elimination of sewage,- works meant for the treatment and discharge of conditioned sewage,- works meant for the reutilization of treated sewage.Services offered:Civil services- infrastructures and/or plants serving high-density urban areas,- infrastructures and/or plants serving the districts of towns or villages,- infrastructures and/or plants serving small (agricultural, mining, tourist) settlements and/or isolated houses,- infrastructures and/or plants serving high-density industrial settlements and/or industrial areas,- rural aqueducts.Irrigation service- district aqueducts for collective irrigation,- local aqueducts for individual or small-scale (oasis-like) irrigation,Industrial service- district aqueducts, sewage nets and depurators for large industrial areas, industrial districts, technological parks or similarindustrial concentrations,- local infrastructures for individual factories and for small craft/industrial areas,Mixed service- aqueducts for irrigation and civil and/or industrial service,- industrial and civil aqueducts.28If the resource is destined to the service of tourist areas, it is necessary to take into account the fluctuation of the population and theseasonality of the demand.94
Territorial reference frameworkIf the project is placed within its territorial planning framework, this will provide for a preciseidentification of the investment.The proposer will also supply the elements required to ascertain the project’s consistency with the sectorplanning, at least from the following four points of view:- consistency with the framework for Community action in the field of water policy, as it may beinferred by the legislation acts under the common and/or national implementation strategy of theDirective 2000/60/CE;- consistency with the economic-financial planning of the water sector, as may be inferred from thepluriennial schedules for the use of Community and national financing that have been approved forthe various countries or regions;- consistency with the national sector policies, in particular the project shall significantly foster theindustrialisation objectives of the sector, for the countries where this process is under way;- consistency with the Community, national and regional environmental policies, mainly for the use ofwater for human purposes, the treatment of sewage and the protection of water bodies (see also thebox on communitarian legislation).The SWOT analysis, which evaluates the project’s potential and risks deriving from the institutional andlegal rules and the economic and social context in which the project is developed, may also be helpful insome cases.3.2.2.2 Feasibility and option analysisDemand analysisThe demand for water may be broken down into separate components according to the use (demand fordrinking water, for irrigation or industrial purposes, etc.), and the timing of demand (daily, seasonally,etc.).The estimation of the demand curve may be based on data gained from previous experience in the areainvolved or on published forecasting methods often based on the concept of the consumer’s willingnessto-pay29 .In case of replacements and/or completions, it is also useful to make reference to the data on historicalconsumption, provided that these data have been measured by reliable methods (for example from thereadings of meter consumption).Demand is fundamentally made up of two elements:- the number of users (civil use), the surfaces that will be irrigated (agricultural use) or the productionunits which shall be served (industrial use);- the quantity of water, that is being or will be delivered to users for a given period of time 30 .It is important to consider the elasticity of demand with respect to tariffs. In some cases it will benecessary to estimate the elasticity for different income groups and also for small and large users, becauseit may have quite different values and distributive impacts.In any case, the elasticity of water demand with respect to service price should be estimated on a localbasis. In fact these parameters vary considerably in different geographical areas that are otherwise similar.The project will focus on a demand forecast for the period corresponding to the project cycle. It shall takeinto account the demographic forecasts and the migration flows for an estimate of the users and the29J. Kindler, C.S. Russell, 1984 and D. C. Gibbons, 198630Mainly, but not only, in cases where the water network had not been well maintained in the past. It is important to consider, that the analysisof demand has to include the problem of leakages. That is to say that the total water supply consists of the final consumption and the leakages.95
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ACRONYMS AND ABBREVIATIONSBAUB/CCBA
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TABLESTable 2.1 Financial analysis
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FIGURESFigure 1.1 Project cost spre
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Cohesion Fund, and through the leve
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or the plant will not reveal excess
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CHAPTER ONEPROJECT APPRAISAL IN THE
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Some specifications for financial t
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FOCUS: INFORMATION REQUIREDGeneral
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In particular, CBA results should p
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CHAPTER TWOAN AGENDA FOR THE PROJEC
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objectives, are, as far as possible
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considered the appropriate shadow p
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2.3.2 Feasibility analysisFeasibili
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This approach will be presented in
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Current assets include:- receivable
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The following items are usually not
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Mainly, the examiner uses the FRR(C
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The dynamics of the incoming flows
Page 44 and 45: eturn on their own capital (Kp). Th
Page 46 and 47: While the approach presented in thi
Page 48 and 49: 2.5.1 Conversion of market to accou
Page 50 and 51: Table 2.9 Electricity price dispers
Page 52 and 53: 2.5.1.2 Fiscal correctionsSome item
Page 54 and 55: previously estimated in projects wi
Page 56 and 57: FOCUS: ENPV VS. FNPVThe difference
Page 58 and 59: 2.6 Risk assessmentProject appraisa
Page 60 and 61: Table 2.14 Impact analysis of criti
Page 62 and 63: Figure 2.6 Probability distribution
Page 64 and 65: eneficiary. The project proposer sh
Page 66 and 67: There are many ways to design an MC
Page 68 and 69: PROJECT APPRAISAL CHECK-LISTCONTEXT
Page 70 and 71: - reduction of congestion by elimin
Page 72 and 73: - the methods applied to estimate e
Page 74 and 75: - the marginal external costs: cong
Page 76 and 77: - the benefits for the existing tra
Page 78 and 79: The following tables show some refe
Page 80 and 81: 3.1.1.6 Risk assessmentDue to their
Page 82 and 83: As shown in Figure 3.1, only under
Page 84 and 85: 3.1.3.7 Other project evaluation ap
Page 87 and 88: - Waste Management Hierarchy rules
Page 89 and 90: The time horizon for a project anal
Page 93: every user support the total costs
Page 97 and 98: Cycle and phases of the projectGrea
Page 99 and 100: One of the most important aims of t
Page 101 and 102: projects, as in other sectors in wh
Page 103 and 104: 3.2.3.2 Project identificationBasic
Page 107 and 108: In order to evaluate the overall im
Page 109 and 110: for regassification plants, number
Page 111 and 112: Examples of objectives are:- change
Page 113 and 114: decontamination if any;- the techni
Page 115 and 116: 3.3.3.6 Risk AnalysisCritical facto
Page 117 and 118: 3.3.4.6 Risk assessmentCritical fac
Page 119 and 120: 3.4.1.5 Economic analysisThe follow
Page 121 and 122: Financial inflows• Admission fees
Page 123 and 124: expectancy suitably adjusted by the
Page 125 and 126: The time horizon for project analys
Page 127 and 128: A Cost-Benefit Analysis should cons
Page 129 and 130: CHAPTER FOURCASE STUDIESOverviewThi
Page 131 and 132: - finally, there is the traffic tha
Page 134 and 135: c) Road users producer’s surplus:
Page 136 and 137: 4.1.5 Scenario analysisTwo scenario
Page 138 and 139: The financial performance indicator
Page 140 and 141: Table 4.10 Economic analysis (Milli
Page 142 and 143: Table 4.12 Financial return on capi
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4.2 Case Study: investment in a rai
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4.2.4 Economic analysisThe benefits
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Financial investment costs have bee
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Figure 4.6 Results of the risk anal
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Table 4.22 Economic analysis (Milli
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Table 4.24 Financial return on capi
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4.3 Case Study: investment in an in
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ate of 0.6% per year is assumed for
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The shadow price of the CO 2 avoide
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As a result, the probability distri
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Table 4.36 Financial return on capi
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16 17 18 19 20 21 22 23 24 25 26 27
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4.4 Case Study: investment in a was
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4.4.2 Financial analysisAlthough in
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THE CALCULATION OF REVENUESReferrin
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0.15 m 3 /m 2 a depreciation of 20%
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As result, the probability distribu
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Figure 4.13 Probability distributio
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Table 4.48 Financial return on nati
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Table 4.50 Financial return on priv
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16 17 18 19 20 21 22 23 24 25 26 27
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4.5 Case Study: industrial investme
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4.5.4.1 Investment costsThe total i
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Finally, a residual value was estim
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This analysis shows the need to pay
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Table 4.62 Financial return on inve
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Table 4.64 Return on private equity
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Table 4.66 Economic analysis (thous
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ANNEX ADEMAND ANALYSISDemand foreca
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The method applied for the forecast
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Furthermore, travel demand depends
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This Guide supports a unique refere
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A higher discount rate for countrie
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Figure C.1 Project ranking by NPV v
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The main problems with this indicat
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EXAMPLE OF SHADOW WAGE IN DUAL MARK
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Another exhaustive way to include d
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Figure E.2 Percentage of low income
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ANNEX FEVALUATION OF HEALTH &ENVIRO
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Figure F.1 Main evaluation methodsS
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- expenditure on capital equipment
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due to air pollution or water conta
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BENEFIT TRANSFER - SELECTED REFEREN
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ANNEX GEVALUATION OF PPP PROJECTSIt
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adjustments for Competitive Neutral
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ANNEX HRISK ASSESSMENTIn ex-ante pr
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Reference ForecastingThe question o
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Figure H.5 Levels of risks in diffe
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ANNEX IDETERMINATION OF THE EU GRAN
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A.4. Technological Alternatives and
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GLOSSARYAccounting period: the inte
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Market price: the price at which a
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BIBLIOGRAPHY1. ReferencesBelli, P.,
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Ray, A. 1984, Cost-benefit analysis
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EnvironmentGeneralAtkinson, G., 200
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European Commission, DG Tren, 2003,
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Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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