ECON3220/7740 Case Study Applied Cost-Benefit Analysis代写

100%原创包过,高质代写&免费提供Turnitin报告--24小时客服QQ&微信：120591129

ECON3220/7740 Case Study Assignment in Applied Cost-Benefit Analysis, Semester 2 2017

Alternative Sources of Water Supply Augmentation for South East Queensland

Project Outline

The Department of Water Resources (DWR) is planning to increase South East Queensland’s

urban water supply to meet the anticipated extra demand over the 24 year period from 2021 to

2044 inclusive. Demand is expected to rise from the anticipated 2020 level of 900,000 megalitres

per annum (ML/a) in equal annual increments of 9,000 ML/a to a total of 1,116,000 ML/a in 2044.

DWR is considering a proposal to construct a dam on the Katherine River in the years 2019 and

2020 which would provide a yield of up to 150,000 ML/a. This would meet the anticipated

additional demand in the years 2021 to 2034 inclusive. In 2034 the dam wall would be raised

thereby providing a further yield of up to 66,000 ML/a which would meet the anticipated extra

demand until 2044.

DWR does not have desalination technology or expertise, but an Italian company, Acqua

Salato (AS), has suggested an alternative way of meeting the anticipated extra demand for water. It

proposes to build a series of four desalination plants, each with a capacity of 54,000 ML/a. Plants

1 and 3 would be built with extra tunnel and pipeline capacity which would be utilized by Plants

2 and 4. The plants would each take two years to construct and would be built so as to become

operational in 2021 (Plant 1), 2027 (Plant 2), 2033 (Plant 3) and 2039 (Plant 4). AS would

operate as a commercial company and would sell the water it produced to DWR. At the end of

2044 AS would sell the desalination infrastructure to DWR at an agreed price.

In order to maintain capacity and the additional 216,000 ML/a water supply provided by each

option, further expenditures by DWR would be required in the period 2045-68 inclusive. The

dam and its extension would require a capital refurbishment program, the equipment comprising

the interconnection network and the water treatment plant would have to be replaced at some

stage and the annual fixed and variable operating costs would be incurred. If the desalination

option were chosen DWR would bear the costs of replacement of plant and equipment and the

annual fixed and variable costs of the plants. At the end of 2068 the economic life of both

projects will be over.

You have been engaged as a consultant by DWR to evaluate the AS proposal from the viewpoint

of the State of Queensland: DWR wishes to know which of the two proposals is the least-cost

method of supplying the additional demand in the period 2021-2044 and maintaining that supply

in the subsequent period 2045-68. Your recommendation will be either to accept the AS proposal, or

to reject it and proceed with the Katherine River dam project. Note that the State Government

expects to receive from the Commonwealth 30% of any additional GST revenues generated in

Queensland as a result of either project. Present values are to be estimated at 3%, 5% and 7% real

rates of discount.

The estimated costs of the two projects are detailed below. All costs reported are in 2019 AUD.

The Katherine River Dam Project

Capital Costs

It is estimated that 3% of all capital costs reported here consists of Goods and Services Tax

(GST) payments.

Initial Capital Costs

($Millions)

2019 2020

Dam 1275 1275

Interconnection

Pipelines and Pump Stations 426 426

Water Treatment Plant

Plant 18 18

Equipment 75 75

Storages 7.5 7.5

Year 2023 2028 2033 2038 2043 2045-68

Capital Refurbishment ($ Millions)* 0.21 1.2675 0.8925 3.2925 0.495 30pa

* Refurbishment costs are inclusive of the additional costs to raise the level of the dam in 2034.

Operating Costs

Annual fixed and variable costs in the year 2021 together with their composition and tax

components in that year are shown below. The labour, energy and materials proportions apply to

both the Fixed Annual Cost and the Variable Cost.

Operating Costs

Fixed Annual Cost ($ Million/pa) 27.00

Variable ($/ML) 337.5

Labour (Proportion)* 0.6

Energy (Proportion) ** 0.15

Materials (Proportion) ** 0.75

* Includes 4.5% Payroll Tax

** Includes 15% GST

The Desalination Project

Capital Costs

It is estimated that 3% of all capital costs reported here consists of Goods and Services Tax

(GST) payments.

Capital Costs ($ Millions)

Plant

Year 2019 2020 2025 2026 2031 2032 2037 2038

Plant

Tunnels and Marine Infrastructure 240 240 0 0 240 240 0 0

Plant, Buildings and Equipment 375 375 264 264 375 375 264 264

Land Acquisition 7.5 0 0 0 7.5 0 0 0

Interconnection

Pipelines, Pumps and Tanks 142.5 142.5 0 0 142.5 142.5 0 0

In addition to the capital costs reported above, capital expenditures of $30 million per annum will

be required in the years 2045-68 inclusive for refurbishment of the plant and related

infrastructure.

Operating Costs

Fixed annual costs and variable costs for each Plant, together with the composition of

costs (calculated at 2019 prices) and the tax components.

Operating Costs of each Plant

Plant

Fixed Cost ($ Million/pa) 33 15 33 15

Variable ($/ML) 525 525 525 525

Labour (Proportion)* 0.4 0.4 0.4 0.4

Energy (Proportion)** 0.3 0.3 0.3 0.3

Materials (Proportion)** 0.3 0.3 0.3 0.3

* Includes 4.5% Payroll Tax

**Includes 15% GST

The Acqua Salato (AS) Venture

Acqua Salato (AS) will borrow $650 million at a 6% real rate of interest from an overseas bank in

2019. The loan together with interest will be repaid in equal annual amounts, in the form of an

annuity, over the 15 year period starting in 2020.

AS will sell to DWR the water it produces at a price of $5750 (2019 dollars) per ML. It will pay

33% business income tax on its earnings net of operating costs, interest payments and depreciation

allowances (assume that AS can deduct any losses against taxable income from its other

Australian projects):

Depreciation

Item Years

Tunnels and Marine Infrastructure 40

Plant, Buildings and Equipment 30

Pipelines, Pumps and Tanks 25

Depreciation allowances can be claimed using the straight line method starting in the year 2021

(Plant 1), 2027 (Plant 2), 2033 (Plant 3) and 2039 (Plant 4). At the end of 2044 AS will sell its

desalination plants to DWR for a surrender value of $200 million (2019 dollars), which will be

subject to business income tax. AS says that it requires a real rate of return of 10% on the project if

it is to proceed.

Labour Market

There is very low unemployment in Queensland, especially in the construction industry, but it is

expected that job vacancies can be filled by migrants from other States.

Cost of Energy

A consultant estimates that the energy price will rise at a rate 1.5% above the general rate of price

inflation, starting in 2022, over the period until 2044. From 2045 onwards the energy price is

expected to follow the general rate of price inflation.

External Costs

Both projects are thought to involve significant external costs.

The Dam Project involves flooding the Katherine River Valley with consequent loss of recreation

facilities and wild life habitat. The Katherine River is home to a rare species of lungfish, together

with other animals such as platypus, crayfish and frogs. A Choice Experiment valuation study

undertaken by a consultant from the local university estimated the annual cost of the inundation

of the valley (to users and non-users) between $100 and $200 million (2019 dollars) starting in

2021. 1

The Desalination Project produces highly saline water as a waste product and it is proposed to

release this as a brine trail into the ocean with consequent damage to marine ecosystems in the area

of release. Assuming that the volume of waste product is proportional to the volume of water

produced and the amount of damage is proportional to the volume of waste, the consultant has

estimated an environmental cost between $200 and $400 per ML of water produced (2019 dollars)

starting in 2021. 1 Concerns have also been voiced about the loss in visual and recreational amenity

in the vicinity of the desalination plants, but these have not been quantified.

The Dam Project may provide some benefits in the form of flood mitigation, but the Desalination

Project may be a more reliable source of supply in the immediate future. No attempt has been

made to quantify these effects.

1 For the initial, base case scenario, use the mid-point between the lower and upper estimates.

INSTRUCTIONS

On behalf of the Government of Queensland, you are required to undertake and report the findings

of a cost-benefit analysis of the Katherine River Dam and AS Desalination proposals. The analysis is

to be reported in millions of 2019 Australian dollars, to two decimal places, with present values

in year 2019 to be calculated.

Since the government of Queensland is mainly interested in the costs to Queensland of the two

proposals for meeting SE Queensland’s additional water supply needs into the middle of the century,

the costs reported in the Market and Efficiency Analyses, and in the Department of Water

Resources (DWR) section of the Private Analysis, are to be entered as positive numbers. In the

Acqua Salato (AS) section of the Private Analysis the usual convention is to be followed, with

revenues entered as positive numbers and costs as negative numbers. In the Referent Group Analysis

costs to Queensland are to be entered as positive numbers (with any incidental benefits to

Queensland entered as negative costs), and net benefits to other groups are to be entered as positive

numbers. These conventions must be borne in mind in summing the overall effects of the two

projects.

You should summarize the results of the Market, Private, Efficiency and Referent Group analyses by

calculating and reporting NPVs, with the NPV for the Referent Group reported on an aggregated and

disaggregated basis. The costs calculated in the Market and Efficiency analysis should also be

expressed on a per ML basis in the Summary Table of Results. The IRR for the Private analysis

of the AS Project should also be reported, and the impact of the proposals on DWR’s budget

estimated. The government generally uses a 5% discount rate (real) for investment decision-making,

but is interested in knowing the sensitivity of the results at 3% and 7% discount rates. The

government also wishes to be advised about the viability of the desalination proposal from AS’s

perspective.

You should also conduct and report the results of a sensitivity analysis, including the derivation of

the threshold values at which the present values of costs would be the same for the two options. You

are required to calculate and comment on the sensitivity/threshold analyses for, at least, the following

three variables: (i) the expected increase in the real price of energy, (ii) the likely external costs of the

projects; and, (iii) the commercial price of water. You are encouraged to explore the sensitivity of the

results to a small number of other variables with a view to identifying those that have most impact on

the results and that would warrant further investigation.

In your report you should also indicate if there are any omitted costs and benefits that could be of

potential significance to the decision-maker and might warrant further investigation.

Assignment Format and Submission

Two Files to be submitted:

(i) CBA Analysis in Excel Workbook, and; (ii) CBA Report in PDF

Excel Workbook

In constructing your CBA spreadsheets you are required to use the template Excel Workbook

downloadable from Blackboard. You should not change the structure of the template tables in

the spreadsheets unless requested by an instructor to do so, with the exception of the Summary

Results sheet to which you may add additional summary tables including results of your

sensitivity and threshold analysis. Precise details of the assumed values for variables in the

sensitivity analysis should be clearly stated alongside the results tables to allow the markers to

replicate your reported results. (If you require additional tables and working space for generating

your sensitivity and threshold analysis results these can be added to an additional spreadsheet at

the end of your Workbook with a clearly labelled ‘tab’.) NO ADDITIONAL EXCEL FILES

SHOULD BE SUBMITTED.

All Excel analysis and reporting of results should be conducted in 2019 prices in millions of

dollars to two decimal places.

You are required to enter your name and student ID number in the space provided at the

top of the ‘Summary Results’ sheet in the template Excel Workbook.

CBA Report

Your written report should not be more than 12 pages in length, including the Executive

Summary and tables. It should be on A4 size pages (portrait orientation only) in PDF format, 12-

point Times New Roman font, 1.5 spacing, 2.5 margins on all sides. Penalties apply for excessive

length.

ECON3220/7740 Case Study Applied Cost-Benefit Analysis代写

The report should provide a Front Page containing name, student number, etc. This is not

included in the page limit. The Report should begin with the Executive Summary of no more

than one page. Results of the all project options and sensitivity analyses should be reported in

summary tables included in the text, and where necessary, in more detailed tables in an Appendix

(not included in 12 pages). Do not attach copies of spreadsheets (e.g. in PDF) to your main

report, although sections showing summary results can be cut-and-pasted into the report.

Your report (in PDF format) plus your Excel Workbook file should be submitted

electronically via Blackboard (Bb) by 23.59 pm 16 October 2017. (Maximum 2 submissions

allowed.)

You may submit only one Excel Workbook file, containing all relevant spreadsheets should be

formatted in landscape in normal view, and left unlocked so all calculations and sensitivity testing

can be checked.

Your Excel file must be named: DESAL_[your family name]_[your student ID number]

PLEASE ALSO NOTE

A. Late penalties: See below and ECP for further details of the marking criteria and weights and

the penalties for late submission.

B. Feedback on work in progress:

(i) Electronic files containing work-in-progress in spreadsheets should not be e-

mailed or brought to instructors for uploading to their PCs. We can provide assistance

during the lab sessions or we can comment on spreadsheet files (in the template format

only) which are printed out or are accessible on student’s own laptops during consultation

and lab times; and,

(ii) We will not agree to read and comment on draft reports before the submission

dates; however, general guidance on the direction and structure of the reports will be

provided, including the lecture “Guidelines for Preparing a CBA Report” and through the

Discussion forum in Bb.

MARKING GUIDE

Weighting of marks for Case Study Assignment

Overall weighting in final mark 30%

Total assignment mark 100

1. Excel-based CBA (20/100)

2. Written Report (80/100)

Breakdown of marks:

– Statement of approach and methodology: 10 marks

– Presentation and discussion of results: 40 marks (10 marks for Excel analysis)

– Presentation and discussion of sensitivity/threshold analysis: 40marks (10marks for Excel

analysis)

– Conclusions and recommendations: 10 marks

– Minus late penalties (5 marks deducted per day overdue.)

Associate Professor Richard Brown

School of Economics

August 2017

ECON3220/7740 Case Study Applied Cost-Benefit Analysis代写