Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

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