COST BENEFIT ANALYSIS OF WASTEWATER TREATMENT PLANT IN FAMAGUSTA – NORTH CYPRUS
Nanje Frederick NgoeSubmitted to the
Institute of Graduate Studies and Research
in partial fulfillment of the requirements for the Degree of
Masters of Science
inBanking and Finance
Eastern Mediterranean University
September, 2018
Gazimagusa, North Cyprus
Approval of the Institute of Graduate Studies and Research
281559034099500 Assoc. Prof. Dr. Ali Hakan Ulusoy
Acting Director
I certify that this thesis satisfies the requirements as a thesis for the degree of Master of Science in Banking and Finance.
right30226000
Assoc. Prof. Dr. Nesrin Ozatac
Chair, Department of Banking and Finance
We certify that we have read this thesis and that in our opinion it is fully adequate in scope and quality as a thesis for the degree of Master of Science in Banking and Finance.
2884170381000 Prof. Dr. Glenn P. Jenkins Supervisor
-317518986500 Examining Committee
Asst. Prof. Dr. 284416516510000Hasan Altiok Ulas
284289515113000Asst. Prof. Dr.
282892514605000Asst. Prof. Dr.
ABSTRACT
The aim of this study is to explore the unit cost of treated wastewater that farmers may be willing to pay per cubic meter for irrigation purposes in other to give up the use of underground water. However, an appraisal for the wastewater treatment plant was undertaken using the cost-benefit analysis approach. The appraisal assesses solely the financial and sensitivity analysis to enable an efficient long term feasibility and sustainability of the wastewater treatment plant. The financial analysis conducted shows that the FNPV of the treated wastewater plant is positive and significantly large enough to generate high returns on investment for the municipality. Therefore, we can say that, the treatment plant project is feasible and it will be able to generate sufficient cash flows. Also, based on the sensitivity analysis results, it appears that the variables under observations are not sensitive enough to affect the FNPV of the project. At the end of this study, it was found that farmers in Gazimagusa – North Cyprus are charged 0.66 EUR per cubic meter of treated wastewater, which is quite expensive when compared to what is obtainable by farmers in the Southern Cyprus of 0.15 EUR per cubic meter of treated wastewater.
Keywords: Investment Appraisal, Financial Analysis, Sensitivity analysis, Wastewater Treatment Plant, Gazimagusa – North Cyprus.
ÖZI dedicate this thesis to my parent, who taught me that there is dignity in learning.
ACKNOWLEDGEMENT
My profound gratitude is that we are the entire universe expressing ourselves as a human for a little while right here in Eastern Mediterranean University. I want to appreciate my lovely parents (Mr. and Mrs. Ngoe Nanje Mambe) for their love and full support during my master’s program.
I want to appreciate Prof. Dr. Glenn P. Jenkins, who supported me in making this study a success. I am grateful and do lack words to express my gratitude.
I want to use this medium to appreciate Prof. Dr. Mustafa Besim, Prof. Dr. Cahit Adaouglu, Assoc. Prof. Dr. Hatice Jenkins, Assoc. Prof. Dr. Hassan U. Altiok, Dr. Seyi Saints, Dr. Mehdi, Dr. Baris, Dr. Nigel, Dr. Behzan, and all members of the Banking and Finance Department, who has tutored me during my studies in Eastern Mediterranean University.
I want to use this medium to express my appreciation to Joel Lobe, Bayo Edmond, Nana B. Koffi, Nchang Belinda, Mathis Ayuk, Fereshte P., Primrose Basikiti, Mr Shaw, Brian B, Mr. Suat Ufuk, Mr. Mustafa Serdar, Simon Tsorai, Mathew Shinowa, Aristide Agbor, Belole Janet, Mande Cathy, Ngoa Emery, Richard and Julius Ayafor, Chefor Philips, Nkume Atabe, just to name but few for their moral support and for always pushing me to level up in every events. I am infinitely grateful.
TABLE OF CONTENTS
ABSTRACT …………………………………………………………………………iii
ÖZ ……………………………………………………………………………………iv
DEDICATION ………………………………………………………………………v
ACKNOWLEDGEMENT ………………………………………………………….vi
LIST OF TABLES…………………………………………………………………..ix
LIST OF FIGURES …………………………………………………………………x
LIST OF ABBREVIATION………………………………………………………..xi
1 INTRODUCTION …………………………………………………………………1
Background Study ……………………………………………………………..1
Wastewater Treatment Plant and its Importance ………………………………4
Statement of the Problem……………………………………………………….7
Research Methodology …………………………………………………………7
Outline of the Study ……………………………………………………………8
OVERVIEW OF THE STUDY ………………………………………………….9
Introduction ……………………………………………………………………9
The use of bacteria’s and chemicals in the wastewater treatment plant ………10
The Secondary process or Biological treatment ………………………..10
Tertiary process or Chemical treatment ………………………………..12
The Effect of wastewater to the environment or groundwater ………………13
Benefits of reused treated wastewater ………………………………………..15
METHODOLOGY ……………………………………………………………..16
An overview of Cost-Benefit analysis ………………………………………..16
Components of analyzing a project …………………………………………..17
Financial appraisal ……………………………………………………………18
Sensitivity analysis ……………………………………………………………19
PROJECT DESCRIPTION……………………………………………………..22
Project parameter and assumptions …………………………………………..22
Project Life ……………………………………………………………………22
Investment Cost ……………………………………………………………….22
Project Financing ……………………………………………………………..23
Treatment of Wastewater …………………………………………………..…23
Wastewater unit cost, Unit operating cost and Unit price of treated water …..23
Inflation and Foreign exchange rate…………………………………………..23
Taxes ……………………………………………………………………….…24
Workers……………………………………………………………………….24
4.10 Debt financing……………………………………………………………….24
Discount rate…………………………………………………………………24
Owner’s (Municipal’s) point of view……………………………………….24
CONCLUSION and RECOMMENDATION ……………………………..…26
Conclusion ………………………………………………………………….26
Recommendation ……………………………………………………………27
REFERENCES ……………………………………………………………………..28
INDEXES …………………………………………………………………………..31
LIST OF TABLES
Table 1. Investment Cost Variables …………………………………………………22
Table 2. Indexes………………………………………………………………..
Table 3. Indexes………………………………………………………………..
Table 4. Indexes………………………………………………………………..
Table 5. Indexes…………………………………………………………………
Table 6. Indexes………………………………………………………………..
LIST OF FIGURES
Figure 1. Wastewater Treatment Plant Process ………………………………………6
Figure 2. Gazimagusa Wastewater Treatment Plant ………………………………..25
LISTS OF ABBREVIATION
A/R Account Receivables
A/P Account Payables
ADSCR Annual Debt Service Capacity Ratio
BCRBenefit Cost Ratio
CBA Cost Benefit Analysis
CL? Chlorine
CMCCentre for Mediterranean Cooperation
EAA Environmental Engineer Association
EUR Euros
FeCL? Ferric Chlorine
FNPV Financial Net Present Value
GDP Gross Domestic Product
IUCN International Union for Conservation of Nature
NPVNet Present Value
STPSewage Treatment Plants
SBNSewage Board of Nicosia
TRNCTurkish Republic of North Cyprus
UNESCO United Nations Educational, Scientific and Cultural Organization
UNUnited Nations
VAT Value Added Tax
WWTPWastewater Treatment Plant
WB World Bank
LLCRLoan Life Coverage Ratio
Chapter 1
INTRODUCTION
Background Study
Water is a foundation of life and it is the key to sustainable development. Having access to potable water is becoming a pressing social, economic and geopolitical issue in the livelihood of people in the Mediterranean region, Middle East Region and North Africa. This is because freshwater resources are very scarce and about 60% of freshwater comes from river basins, (UN Water, 2017). The scarcity of freshwater resources is as a result of pollution and poor water management, that is, uncontrolled use of freshwater have led to a drop in the level of freshwater around the globe, whereby 1.8 billion people now use a source of drinking water contaminated by human waste; also around 80% of wastewater returns to the environment without adequate treatment, as well as 30% of global water abstraction is lost through leakages in pipelines due to poor sustainable development goal (UN, UNESCO, 2017).
Notwithstanding, global climatic conditions surges the problem of water scarcity around the globe as well as in the Mediterranean region. Where the over-pumping groundwater, beyond natural recharge rates has resulted in lowering the water table and causing an increase in groundwater salinity, groundwater depletion and ecological degradation, (World Bank, 2009). According to reports from the International Union for Conservation of Nature (IUCN) and Centre Mediterranean Cooperation (CMC), this region in particular is exposed to constant and rapid climate change which forecast a sharp decrease in precipitation between -4% and -27% across all seasons, and an estimated increase in average surface temperature between 2.2 °C and 5.1 °C. Thus, making the rapid urbanized and agricultural based region that rely on rainfall to seek for alternatives source of freshwater resources due to water scarcity. This is especially the case of Island of Cyprus specifically the Northern Cyprus (The Turkish Republic of Northern Cyprus).
The Turkish Republic of Northern Cyprus popularly referred to as “TRNC” and also known as Kuzey Kibris Turk Cumhuriyeti is a partially recognized state that comprises the North Eastern portion of the Island of Cyprus. By being recognized only by the country of Turkey, Northern Cyprus is considered by the International Community to be part of the Republic of Cyprus (Wikipedia, 2018)
In 2016, the country is said to have an estimated total population of 264,172 people and a surface area of 3,355 km² (1,295 Square Milles) as well as a Gross Domestic Product (GDP) of over $4,032 billion in 2016. In addition, North Cyprus constitutes of six districts, Lefkosa (Capital), Gazimagusa, Girne, Guzelyurt, Iskele and Lefke. Three out of these six districts experienced rapid growth in population due to tourism, tertiary institutions (universities) and industrial development with Lefkosa of about 84,893, Gazimagusa -67,852 and Girne – 61,192 people respectively.
Despite its flourishing tourism sector, North Cyprus is located in a semi-arid area in the Mediterranean region, where these arid areas do experience continues rise in temperature as well as in the last century, the Island have experienced a decrease in the amount of rainfall by 25%. Year after years, North Cyprus faces not only “water quantity problems” but also “water quality problems” owing to reduction in the rainfall and “water management problems”.
Due to the constant decrease in rainfall rate, the demands for water domestic, industrial and agricultural purposes are met mostly from groundwater resources (92% from groundwater, 5% from surface waters and 3% from desalinization water). Total annual fresh water resources supply are 90 million m³ against 105 – 110 million m³ annual water demand, while the bulk of the water say 60% – 80% is allocated for agricultural purposes (Michael and Rebecca, 2017). For this reason there has been a decrease in the groundwater levels causing sea water intrusion in the shoreline aquifers. In addition, according to some reports from Michael et al (2017), the problem of water shortage stems from the uncontrolled use of water by certain farmers, who has direct access to the aquifers, couple with the absence of a strict policy from the local governing body for determining the most effective and efficient supply of agricultural water. This is done to encourage better techniques for irrigating crops and for tree planting. Furthermore, there is little or no policy or strategy to protect the natural resources used in the tourism sector. In a situation, where some large hotels were built in desalinization plants, this largely remains unregulated, thus have grievous effects on seawater or groundwater.
The continuous unregulated extraction of groundwater resources above sustainability level, led to a partial or almost complete depletion of all aquifers and seawater intrusion in the aquifers. This has pushed both the government and the local municipality to step up on drastic measures to improve and increase both the quantity and quality of water in North Cyprus. Such measures includes, bringing freshwater from Turkey (which was dubbed as the project of the century), desalinization of plants and some wastewater treatment plants.
Wastewater Treatment Plant and its Importance.
Wastewater treatment is a process used to convert wastewater (used water originating from domestic, industrial, agricultural, medical and transport activities) into an effluent (outflowing of water to a receiving body of water) that can be returned to the water cycle with minimal impact on the environment or directly reused (Wikipedia, 2018). It is also known as water reclamation because the treated wastewater can be used for other purposes. However, wastewater does not include water released from ponds or reservoirs for fish farming and thus, the treatment of wastewater is of the field of sanitation, which involves the management of human waste (sewage water), solid and light waste (industrial wastewater) as well as storm water (drainage).
The treatment process takes place in a Wastewater Treatment Plant (WWTP), which is often referred to as a Sewage Treatment Plant (STP) or a Water Resource Recovery Facility (WRRF). Here, all pollutants or contaminants in municipal wastewater (both household and small industries) are broken down into by-products (known as sewage sludge) via various processes and further treatments before being suitable for disposal or application to land.
Generally, the basic function of wastewater treatment is to speed up the natural processes by which water is purified and this involves three stages, such as the primary, secondary and tertiary treatment. First, before the wastewater enters the plant for primary treatment, it goes through a pretreatment for filtration, screening, water flow regulation and some fat and grease removal in the Bar Screen (removal of heavy and large objects such as rags, sticks, plastic packets, tree limbs, branches and other heavy objects), grit chamber (consists of sand, gravel, cinders and other heavy materials for the removal of leftover organic matters such as eggshells, bone chips, seeds, coffee grounds and others), clarifiers and equalization basin, then it is send for primary treatment.
The primary treatment involves the separation of organic solid matter or human waste from wastewater. This is done by putting the wastewater into large settlement tanks for the solids to sink to the bottom of the tanks, large scrappers continuously scrap the floor of the tank and push the sludge towards the center where it is pumped away for further treatment. The rest of the water is then moved to the secondary treatment. In the secondary treatment stage, the water is put into large rectangular tanks. These tanks are called “aeration lanes”. Then, air is pumped into the water to encourage bacteria to breakdown the tiny bits of sludge that escaped the sludge scrapping process.
In the tertiary treatment stage, the almost treated wastewater is passed through a settlement tank. Here, more sludge is formed at the bottom of the tank from the settling of the bacterial action. The sludge is scraped and collected for treatment. The water at this stage is almost free from harmful substances and chemicals. The water is allowed to flow over a wall where it is filtered through a bed of sand to remove any additional particles. Then, the filtered water is either released into the river or directed to the farmers for irrigation purposes.
Figure 1: Wastewater Treatment Plant Process
Moreover, the wastewater treatment plant is highly important because its main objective is to produce an effluent (that is, treated or untreated industrial and household wastewater) that will do little or no harm to the aquatic ecosystem, animals or humans, when discharged to the surrounding environment. Thus, it serves as a prevention mechanism to pollution when compared to untreated wastewater into the environment.
Lastly, the treated wastewater is primarily important and useful for irrigation, given the increasing competition for water between agriculture and other sectors, (Sato et al. 2013 and Toze, 2006). Another importance of a wastewater treatment plant is that, since the crisis of water scarcity is looming on the horizon threatens the stability and security of the district, the crisis will continue and increase with time, if no suitable actions are taken as soon as possible. Therefore, the reuse of treated wastewater is well recognized for having a potentially significant role in alleviating the quantitative and qualitative stress of water resources in the region
Statement of the Problem
This study seek to investigate the activities of farmers in Northern Cyprus as it relate to wastewater treatment plant, since it has been observed that for a long time now, the underground aquifers where drying up and this was due to farmers activities in North Cyprus especially those of Gazimagusa. It was believed that, farmers in North Cyprus had access to fresh water in the aquifers for irrigation purpose, while the demand for drinking water kept on increasing, its supply was limited. In order to find a last lasting solution to this insufficient water supply. In this study, we intend to examine the causes of these problem and ways to reduce it. That is, we seek to find out how much are the farmers willing to pay for a cubic meter (m³) of treated water to give up direct access to freshwater in the underground aquifers for irrigation purposes.
Research Methodology
There are several instruments that have been adopted in analyzing the influence of a wastewater treatment plant to the economy as a whole; but hardly has an integrated investment appraisal approach been used. However, the aim of this study is to seek how the cost per cubic meter (m³) of treated wastewater can be used as an alternative to lure farmers from using freshwater for irrigation purpose; that is, by building a financial and economic model while exploring the Cost-Benefit Approach, which will helps us understand the influence of a treatment plant to its community as well as its risky variables that might affect the treatment plant and the environment or the society involve.
Outline of the Study
Chapter one of this study consist of the background history of water scarcity both in the world and in North Cyprus, the step by steps treatment of wastewater in a treatment plant, the importance of a sewage treatment plant. Chapter two gives a brief overview of the wastewater treatment plant, its literature review and empirical analysis related to the study. Chapter three entails the methodology adopted to carry out this study, while chapter four deals with the financial appraisals. The input parameters would be used to construct the financial model of the sewage treatment plant. This model shows how the input parameters are used to show the depreciation periods, unit cost of wastewater, unit operating cost, the cost per cubic meter and the cash flows. In addition, the real net present value(R-NPV) will be interpreted to guarantee that the plant is profitable to the municipality. Chapter five provides a brief explanation of the entire project analysis and the conclusion is entailed with suggested policies recommendations.
Chapter 2
AN OVERVIEW OF THE STUDY
2.1 Introduction
In recent time, it is believed that a significant amount of money is devoted to the treatment of water and sewer systems. However, the Sewage Board of Nicosia (or Lefkosia) and the Environmental Engineers Association voice out that there have been a considerable increase in groundwater contamination which has cause scarcity of freshwater and drying out of the underground aquifers over the years from wastewater and seawater intrusion as well as arid (or rigid) climatic conditions. Therefore, the degree to which wastewater affects the environment and groundwater cannot be underestimated. This means that water has a precious value and each drop must be accounted-for, most especially in water scarce regions. Wastewater has to be reclassified as a renewable water source rather than waste as it helps increase water availability and prevents environmental pollution by treating and reusing it (Jhansi and Mishra, 2013). With agriculture being the main user of freshwater; the reuse of treated urban wastewater for agriculture could, at least, relieve the current freshwater stress, (Maite et al, 2012; Kimberly et al, 2015 and Arslan et al, 2015). Hence, there is need for a treatment plant(s) in every region of Northern Cyprus in other to avoid further groundwater contamination and drought in the aquifers.
Wastewater treatment plant can be described as the process of removing contaminants from wastewater, primarily from household’s sewage. The physical, chemical and biological processes are used to remove contaminants and produce treated wastewater that is safer for the environment.
2.2 The Use of Bacteria’s and Chemicals in the Wastewater Treatment Plant
2.2.1 The Secondary Process or Biological Treatment
The secondary stage in the wastewater treatment plant is also referred to as the biological treatment which involves the use of the micro-organisms or bacteria such as aerobic, anaerobic and facultative bacteria in the aeration basin, anaerobic chamber and the secondary clarifier tank to purify the water. Out of the microscopic organisms the bacteria (singular: bacterium) are the most important in wastewater treatment plants and can be seen with the light microscope only under the highest magnification, (Micheal, 2006).
In the activated biological or sludge process, micro-organisms or bacteria are mixed with wastewater. Here, the aerobic bacteria are used in the aeration basin where air is pump along the process. This means that there is dissolved oxygen available for the respiration of the bacteria. They use the free oxygen in the water to degrade the pollutants (or biodegradable materials) in the incoming wastewater into energy (or as food) they can use for growth and reproduction. In most cases, the oxygen has to be done mechanically to the wastewater through the use of aerators in the aerated basin of the treatment plant. With a normal influent load of pollutants, the dissolved oxygen content in the aerated section of the treatment plant should be kept between 3 and 5 MG/L.
The anaerobic bacteria are normally used in an anaerobic digester to reduce the volume of sludge to be disposed of and to produce methane gas. This process is completed in anaerobic conditions, without any dissolved oxygen in the water. The anaerobic bacteria normally get the oxygen needed for their respiration from their food source. This process is also called fermentation. As previously mentioned above, during the anaerobic digestion process, methane gas is produced by the anaerobic bacteria. This gas, if properly cleaned and collected, it may be used as an alternative energy source.
Another use of anaerobic bacteria is in the biological removal of phosphorus. During this process, part of the aerobic section of the treatment plant may be made into an anaerobic zone to facilitate the growth of phosphorus accumulating organisms, which in turn lowers the amount of phosphorus in the effluent.
Lastly, facultative bacteria are able to change their mode of respiration from aerobic to anaerobic and back again. These bacteria are able to adapt to either conditions, although they prefer the aerobic condition. These three types of bacteria are grouped only by their method of respiration. There are many species of bacteria used in treatment of wastewater in a wastewater treatment plant. Therefore, the composition and diversity of the microbial community had the greatest impact on stability and performance of the wastewater treatment plant Miura et al (2007). Hence, once the biological treatment in the aerobic basin, anaerobic chamber and secondary clarifier tank is over, the biologically treated water is then transferred to the tertiary step for further (or chemical) treatment.
2.2.2 Tertiary Process or Chemical Treatment
The disinfection of municipal wastewater is necessary for safe portable water supplies and for healthy rivers and streams. Micro-organisms are present in large numbers in the sewage treatment plant effluents and waterborne disease outbreaks have associated with sewage-contaminated water supplies and recreational waters. This is where the chemical treatment takes over before discharging the treated water into the river, streams or surrounding environment. The chemical treatment process involves the removal of micro-organisms such as bacteria, viruses, and other toxic pollutants such as cyanides, pesticides, industrial chemical wastes and other chemicals, left after the secondary clarifier treatments which are known to be harmful to humans. Thus, the type of chemicals used in the chemical treatment process includes Chlorine (CL?), Polymers and Ferric Chlorine (FeCL?) and others.
Chlorination plays a key role and it is by far the most common method of wastewater disinfection. It is used worldwide for the removal of pathogens before discharged into receiving streams, rivers or oceans. Chlorine is known to be effective in destroying a variety of bacteria, viruses and protozoa including salmonella, shigella, vibrio cholera, typhoid, dysentery, ammonia and many others.
The process of chlorination is usually applicable physically or mechanically with strict steps for safe handling and use purpose. It is either applicable in gaseous form (elemental chlorine) or in liquid form (sodium hypochlorite solution or chlorinated compound) or in a solid form (calcium hypochlorite). Generally, elemental chlorine is the most commonly use and cost effective option. This is because its concentration and pH-level in the treatment process is easy to control.
In addition, wastewater treatment polymers are synthetics, organic flocculants that are used for clarification, thickening or dewatering applications. It is of three forms: nonionic polymers (it exhibits neutral behavior in solution), anionic polymers (attracts positively charged ions in solutions) and cationic polymers (attracts negatively charged ions in solution). When applicable, polymer chains acts to attract the fine particles suspended in a liquid, forming larger groups, called FLOCS (these are masses of bacteria held together by slime and fungal filaments to form mesh-like structures). If these FLOCS develop sufficient density, then they we precipitate during settling, leaving behind a clear liquid. Alternatively, low density FLOCS may be used to separate undesirable particulates from the surface of the treated water, leaving behind clear water.
Another chemical use is ferric chloric (FeCL?). It is aim at making the water clean, clear (colorless) and odorless. This is due to its high efficiency and effectiveness in clarification and utility as a sludge dewatering agent. The chemical offers very good turbidity removal.
2.3 The Effect of Wastewater to the Environment and Groundwater
Wastewater is simply water that has been used. It contains various forms of pollutants from households, industries and others. When sewage is not properly treated, the first danger is usually on the aquatic life in nearby rivers, lakes or streams. Obviously, chemical contaminants and toxic metals will kill fishes and aquatic plants, even regular sewage will harm aquatic life. Regular organic waste contains large amounts of phosphorus and other fertilizing compounds. This can stimulate overgrown algae and other aquatic plants.
However, this is not beneficial to the aquatic organisms, because these plants also die and must be decomposed. Normally, bacteria are responsible for this decomposition because the bacteria consume oxygen. When the amount of decomposition is manageable, then the bacteria will do their job and make available enough oxygen for fishes and aquatic animals. When the environment is unbalanced, the bacteria multiply to large amounts and consume all of the oxygen in the water. Fish populations usually experience mass death in these cases.
On the other hand, when the environment is depleted of oxygen, the bacteria will continue to decompose the waste but will switch to anaerobic metabolism instead. This produces more noticeable waste compounds and smelly gases. Hence, the environment produces many of the smells of rot decomposition.
In addition, the dangers posed by wastewater to humans include infections such as typhoid, cholera and dysentery. This is due to the scarcity of freshwater available for drinking and wastewater infiltration into the ground. This is usually difficult to restore and could cause large amounts of water to become unusable and expensive to purify.
More so, untreated wastewater especially from industrial sources is often contaminated with various metals. These metals are not usually harmful in small amounts, but they are usually heavily concentrated in wastewater. If the water is not properly treated, then the disposed metal in the soil and consumed by plants. Since, many farms and croplands around the world are irrigated primarily by treated wastewater. Then as time passes, these crops will take up larger concentrations of metals, which ultimately contaminate the food supply. Worse of all, this contaminants are difficult to detect. This may result to long term food poisoning. Lastly, when the water is managed and treated properly, it does not cause harm and can be recycled for a variety of benefits.
2.4 Benefits of Reused Treated Wastewater
The reuse of treated wastewater in irrigation will increase the water supply for agriculture and the availability of freshwater resources for domestic and industrial uses again (Nassar et al., 2009). Nassar et al. (2010) argued that, the treated effluent from wastewater treatment plant that will be used for irrigation must meet with appropriate quality standards to ensure adequate protection of human health, agricultural and the environment. The reuse of treated wastewater is not only environmentally and financially sound; it is becoming indispensable for meeting the staggering water demand in certain regions, especially under conditions of alarming water scarcity (Esra et al. 2017).
Wastewater reclamation and reuse is well recognized for its ability to mitigate water shortage which is a major threat to sustainable development and political stability. The reuse of wastewater has been practiced in many areas worldwide for thousands of years, the economic incentives to reuse reclaimed wastewater is the scarcity of water resources and the environment (Abu-Mad and Al-Sa’ed, 2009).
In addition, treated wastewater makes a significant contribution to the limited irrigation water supply and ensures the contamination of agriculture in parts of the country (Carr et al, 2011). Reclaimed water can contain substantial amount of plants nutrients; thus, reducing the amount of chemical fertilizers needed to profitable crop yields (Carr et al, 2011 and Hanjra et al, 2012).
Chapter 3
METHODOLOGY
3.1 An Overview of Cost-Benefit Analysis
In this section, we analyze the method used in measuring the impact of treatment plant to region in question. There are several instruments used by municipalities to boost economic growth and development of its region, but the most important instrument is the effective and efficient use of funds. A project is needed to match up with the available policies that will enhance the societal growth as a whole including the limited economic resources. Therefore, a suitable analysis is required to identify the type of project in question that will be productive and according to the society’s standard.
However, this section of the study presents the approach used to produce feedbacks to the aims and objectives of the study. Cost – Benefit Analysis (CBA) techniques has been widely used in similar ways and found to be highly effective and efficient. The Cost – Benefit Appraisal techniques is one of the unique analysis developed by Jenkins and Harberger in 2002 (Jenkins, Harberger and Kuo, 2013). This integrated approach was developed to take into consideration several steps, such as the Technical, Financial, Risk, Stakeholders analysis over the projects operation period. The investment appraisal would help us to effectively carryout solely the assessment of the financial viability and sustainability of the project that is been considered as well as the available risk associated with the plant.
3.2 Components of Analyzing a Project
Different projects have varying components that must be taken into considerations before starting each analysis. These components are known as the building blocks or modules. These modules includes: demand, technical, environmental, human resources, institutional, financial and economic modules as well as social appraisal or distributive analysis. The building blocks helps in the efficient and effective analysis of the plant during appraisal, as stated by Jenkins, Harberger and Kuo (2013).
The demand modules emphasis the use of primary data; in other words, it study the sources of demand and the nature of market; that is, by determining if the product is used domestically, or sold for other consumption. In addition demand module also put into consideration the market prices both real and nominal over the project’s life.
The technical modules on the other hand, layout the various investment and operational cost phases of the project as well as secondary information that can be used in appraising a project. Thus, all input forms, quantity as well as the required skills, wages should be known in other to determine the construction and operational cost including the uncertainties surrounding the project.
The financial module shows how the sources of debt and equity financing arise. Since, the projects viability is determine by its financial stability. Supposed, the project is funded by borrowing then the repayment schedules should be stated and the number of years to be refunded should be considered.
In other to construct viable model, the following should be taken into consideration: The table of parameter is constructed starting all the necessary variable that would be needed in carrying out further analysis during the cause of evaluating the project and it would be very helpful and building its economic, financial and sensitivity analysis.
An integrated investment appraisal and project finance is meant to calculate the cost and benefits surrounding the domestic prices for both financial and economic appraisal. It is also used to fish out the impact on the stakeholder among other parties. Despites the fact that, projected costs and revenues are being spread throughout the projects life. The occurrence of any force majeure due to uncertainty are dealt with before carrying out the financial analysis and the after effects which are then assessed in the economic analysis. Hence, an overview on how a project is evaluated through an integrated financial, economic, risk and stakeholder analysis.
3.3 Financial Appraisal
According to Harberger and Jenkins (2003) the input key variables do help in determining the feasibility of the project. In order to be able to carry out an evaluation financially, it is necessary to get the respective data, which provides the fundamental information on the volume of wastewater intake and the capacity of the plant.
However, most financial models are built with specific base case assumptions carried out as regards to the prices and quantities of the project inputs, outputs and other parameters which are stated in the table of parameter as well as the depreciation of each equipment life span. The built in model generates the Cash Inflow and Cash Outflow of the domestic currency in nominal terms which are later converted into real terms over life of the whole project.
More so, due to fluctuations in foreign exchange rate the price per cubic meter is set in foreign currency. In addition, the projected nominal cash flows are then converted into real cash flows but a required rate of return is needed to make sure the project is viable. Any project with negative cash flows will be rejected, except it generates positive cash flows. Therefore, in evaluating the viability of a project, several criteria are taken into consideration such as the net present value (NPV), benefit – cost ratio (BCR), pay-out or payback period, internal rate of return (IRR) and debt service coverage ratio (DSCR) as well as the average debt service coverage ratio (ADSCR) and loan life coverage ratio (LLCR). The most useful and preferred criterion is the NPV which is used to evaluate whether a project is financially feasible enough. Investor(s) must invest in a project with NPV greater than zero (NPV ; 0) and such project must be the one that its IRR is larger than the cost of funds. Therefore, projects with negative NPV are not financially viable but should be revised before considering worth investing.
3.4 Sensitivity (Risk) Analysis
The projects financial analysis and results is usually based on deterministic and some estimated values from the projects variables. However, the likelihood of adverse event occurring cannot be ignored, such as the rate of inflation, the market exchange rate, the price and quantities of inputs and the projection of outputs throughout the project’s life. Since, these variables are complex and prone to uncertainty; risk analysis therefore plays a major role in identifying the threats, estimating the risk, measuring the probability of a project to succeed or fail, analyzing the possible future economic states, forecasting and minimizing future negative unforeseen risk, sharing and controlling the risk as well as preparing for unintended consequences.
In addition, the variables used should not only consider a greater portion of the costs and benefits of the project but it should also take into consideration a significant amount of past results that would vary in terms of the final outcomes. It is highly important to solely focus on the key risky variables that contribute to the projects wellbeing in a significant way. In addition, it identifies the correct probabilistic distribution and the ranging of these values for each risky variable as well as past variables.
In order to properly generate a probability distribution of a projects outcome, a Monte Carlo Simulation Analysis is required. This is because every project is connected to various types of instability and dangers. That is, project owners do perceive instability and hazard differently as far as their resistance to danger is concerned. This instability can be identified with suppliers, customers or venture financing. Thus, there is a need for some security arrangements to reallocate its hazard more effectively and ensure project completion. Also, upon completion it ensures that a project generates sufficient cash to cover operating expenses and meet debt service requirements as well as to ensure that the projects can service their debts in the event of disruption in operation (including force majeure).
Moreover, most projects usually necessitate security contracts such as the mortgage on project assets, turnkey contracts, sales and purchase contractual agreements, sponsors’ commitment/support, financial covenants, guarantees, insurance, escrow funds and others etc. to further mitigate more risk. Thus, after all the necessary security packages are done, the project owners can then move on to term sheets which can then enable the project to commence.
More so, projects in the form of grants do not have to undergo all the necessary steps, since they are most build and handed for free to the region in question. For example, the Gazimagusa wastewater treatment plant (WWTP) which was designed, built and handed to the Gazimagusa municipality as a grant by the European Union.
Chapter 4
PROJECT DESCRIPTION
4.1 Project Parameter and Assumption
The financial model for the wastewater treatment plant is built on actual parameters. The calculation of the inevitable outcome (net present values) is based on the key variables which are stated in the table of parameters.
4.2 Projects Life
The wastewater treatment plant has a life span of 25 years evaluation period with a construction period of one year. Project operations are assumed to start the following year.
4.3 Investment Cost
The actual investment cost for the wastewater treatment plant is 6,219,721 EUR, in which all the budgeted or allocated fund is used during the construction period. Where 100,000 EUR would be allocated for land, while 5,701,563 EUR is allocated for capital and 418,158 EUR is allocated for human resource as well as 0% for investment cost over-run.
Table 1. Investment Cost Variables
Currency Amount
Land EUR 100,00
Capital Cost EUR 5,701,563
Human Resource Cost EUR 418,158
Total Investment Cost EUR 6,219,721
Investment Cost Overrun 0%
4.4 Project Financing
The wastewater treatment plant project is financed through a grant. The project has neither debt nor grace period, since it was handed to the municipality as a gift and subsequently starts receiving its cash flows from year one of the operating period. However, the total investment cost is fully financed as a grant from the European Union. The grant is financed with a discount rate of 10%.
4.5 Treatment of Wastewater
The treatment of wastewater commence in the first year of operation immediately after construction period. The maximum capacity or wastewater intake of the treatment plant is 4,100,000 m³/year while the estimated amount of treated wastewater discharged in year one is 1,929,187 m³/year and keeps increasing until it gets to full capacity of the plant. Lastly, the treated wastewater is usually discharged back into the stream and environment.
4.6 Wastewater Unit Cost, Unit Operating Cost and Unit Price of Treated Water
The unit price of treated water is 0.35 EUR/m³ (or 1.30 TL/m³) to be sold to the farmers in Gazimagusa district, while the unit operating cost of the wastewater is 0.31 EUR/m³ (or 1.13 TL/m³) as well as the wastewater unit cost is 0.66 EUR/m³ (or 2.43 TL/m³).
4.7 Inflation and Foreign Exchange Rate
The domestic inflation rate is 14.68% and it is assumed to be constant every year for the entire project life, while the foreign inflation rate is 1.10% and it is assumed to be constant every year for the entire project life as well as the real exchange rate is 3.69 TL/EUR.
4.8 Taxes
Taxes changed are said to be 15% in the domestic country, while corporate tax is 10% as well as the Value Added Tax (VAT) on electricity consumed is 3%.
4.9 Workers
The workers are divided into skilled, semi-skilled and unskilled workers. The skilled workers include Civil Engineer (1), Environmental Engineer (1), Lab Assistant (1) and Plant Manager (1) while the Semi-Skilled Workers include Operators (5) as well as the Unskilled Workers which include Channel Cleaner (4) and Sewage Truck Driver (1).
4.10 Debt Financing
The project not financed through debt rather it is financed by the European Union as a grant.
4.11 Discount Rate
The required discount rate needed in the project is 10%.
4.12 Owner’s (Municipal) Point of View
The derived cash flow statement stems from owner’s perspective. The net cash flows are computed in real terms and are thereby converted from nominal to real. Here the cash flow statement involves the sash inflow and cash outflow. The cash inflow includes revenue from reclaimed water, sewage surcharge and sludge, account receivables (A/R) and residual values while cash outflow includes capital expenditures, reinvestment – future capital expenditure and working capital (such as account payable and cash balance). After estimating the real net cash flow after financing, the following step involves calculating the NPV which is about 2,055,786 EUR with a discount rate of 10%. The results obtained show that the wastewater treatment plant is capable of generating sufficient net cash flows over the project life, which would cover its capital investment. Hence, all things being equal after evaluating the key variables, the wastewater treatment plant is said to be in motion.
Figure 2: Gazimagusa Wastewater Treatment Plant.
Chapter 5
CONCLUSION AND RECOMMENDATIONS
5.1 Conclusion
In this study, we presents a technical and financial analysis of the implementation of the Wastewater Treatment Plant (WWTP) in other to meet up with capacity intake of the wastewater distribution network from the surrounding municipality as well as the needs for the underground aquifers to be refilled with clean treated water. However, the appraisal of the Wastewater Treatment Plant (WWTP) Project was undertaken using the Cost – Benefit Analysis Approach. This appraisal assesses solely the financial and sensitivity analysis to enable an efficient long term feasibility and sustainability of the WWT Plant.
The proposed project was built to help refilled the underground aquifers with clean treated water in the Gazimagusa district, which will prevent it from drying out and environmental pollution as well as help farmers for agricultural purposes.
The reason for conducting a financial analysis is to estimate the unit cost of treated wastewater and by so doing assess the sustainability of the WWT Plant solely from municipality point of view. This is done to examine whether the cash flows obtained from the treatment plant will generate high returns for the municipality.
The financial analysis conducted shows that the FNPV of the treated wastewater plant is positive and significantly large enough to generate high return on investment for the municipality (see appendix). Thus, we conclude that, the treatment plant project is feasible and it will be able to generate sufficient cash flows. Based on the sensitivity analysis results, it appears that, the variables under observations are not sensitive enough to affect the FNPV of the project (see appendix).
5.2 Recommendations
Based on the results reported in appendix, we give the following recommendations. Since the FNPV is positive and to the tune of 2,055,786 euros, we are of the opinion that, instead of discharging the treated water back to the ground to refill the aquifers, the Gazimagusa municipality should encourage the local farmers in the district to buy more of the treated water for agricultural purposes. For example, the farmers should acquire advance equipment to help control irrigation.
Conclusively, the local farmers have to be convinced that water sustainability is profitable enough in a long run. In other words, they have to be educated about the dangers surrounding direct access to water from the underground aquifers for irrigation in the near future for agricultural purpose and the environment. Although, based on our financial analysis, we found that, farmers in North Cyprus are charged 0.66 euros per cubic meters of treated wastewater. This is quite expensive when compared to what is obtainable by farmers in the Southern Cyprus of 0.15 euros per cubic meters of treated wastewater (Theodoros, 2016)
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