Investment Programme

Up one level

10.2.2. Investment Programme

 

Total costs of realization of the aforementioned measures amount 68.7 million roubles.  For the facilities of phase 2 – 25.4 million roubles.  Further to the above environmental measures, the programme of reconstruction includes:

 

- Construction of new main sewage pumping station in the value of 48.23 million roubles;

- Reconstruction of mechanical treatment at the cost of 48.3 million roubles; and

- Inspection and reconstruction of sewage system – 134.49 million roubles;

 

Total investments will amount to 342 million roubles, including 94.1 million roubles for the first five years.

 

Feasibility Analysis

 

Economic assessment of water-protective measures was carried out by means of correlation of economic results of these measures with the costs required for their realization.

 

Smolensk Vodokanal presented the following input data:

 

- The cost of reconstruction of the treatment facilities (for five years) is 94.1 million roubles.

- The savings in the operation costs as a result of the reconstruction will be 7.08 millionroubles.

 

The cost of averted damage determined  identified mitigation measures is estimated at 10.15 million  roubles.  The lost financial benefit exceeds 1.0 million roubles.  Discounted costs will make up 4.2million roubles, with a net economic effect – 6.96 million roubles. 

 

Pay-back period in water-protective measures will make up 13.5 years. 

 

Assumptions for Economic Assessment

 

Comprehensive cost and energy usage data were available for the Vodokanal.  However, the best quality information was available for the first nine (9) months of 2003.  This was simply prorated by a factor of 1.5, to yield a conservative estimate of annual costs and energy usage.

 

While 2001 water quality data on the Dnieper River upstream and downstream of the MWTP (as referenced in Section 4) indicates that there is little or no difference in the effect of the facility, this was not considered in the analysis, and thus, is assumed to have a negligible effect.  While much of this may be attributable to industrial effluents and poor wastewater treatment upstream from the facility, there is no accounting for the ambient pollution in the river’s water flow.

 

Where water treatment efficiencies or potential load reductions were identified they have been included in the analysis, elsewhere they had to be imputed. 

 

The following assumptions have been made to establish the boundaries for the analysis.

 

- Current water supplied to residents and industry is 34.412 million cubic metres.

- Current volume of wastewater treated is 36.065 million cubic metres.

- 30% of wastewater treated is from industrial discharges while the remaining 70% is from residents.

- All costs are assumed to be 2001 constant dollars (including 2003 data identified above).

- All costs are in US dollars.

- The tax rate is assumed to be 8% of all wastewater collection and treatment operating costs.

- There is no growth in materials and labour costs over the timeframe.

- There will be no growth in fees charged for water services.

- The water tariff is assumed to be $0.048 per cubic metre (1.4 roubles/m³).

- The majority of upgrades will be focused at the Krasnflotskaya WwTP.

- Current electrical consumption is 62.5 million kWh, of which 19.4% is used directly in wastewater treatment processes.

- The tariff on electricity is set at $0.044/kWh.

- Current electricity usage for wastewater treatment: 0.336 kWh per m³_.

- “Social Costs” are assumed to be discharge fees.

- Equipment depreciation for new capital is set at 22.5% of a three-year moving average on new capital investment.  Rate set lower due to lack of information on capital component of new projects.

- All new investment is assumed to be “new capital”.

- For all wastewater treatment cost, they are indexed to the quantity of wastewater treated.

 

- Depreciation: $0.001/m³

- Repair & Maintenance/Allowance for Repairs: $0.0004/m³

- Capital Repair/Capital Repair Allowance: $0.0005/m³

- Labour: $0.006/m³

- Social Charges: $0.002/m³

- Workshop Expenditures: $0.0135

 

- Any new process that reduces effluent will result in a proportional decline in contamination (in absolute quantity of contamination – and assumed concentrations will remain the same).  It is anticipated that the Plant will have a ready secondary market for removed contaminants and sludge, and revenues received will cover any incremental disposal costs.  Otherwise, this will be covered under operating expenses of the treatment facility as a whole.

- No wastewater treatment related programs/initiatives would be implemented under Status Quo.

- The timeframe for the analysis of investments is 2005 to 2014.  It is assumed that any new investments can be made starting in 2004.

- The discount rate used for Net Present Value (to assess values over ten year timeframe into a single 2005 value) is 10%.

- No subsidies to offset losses were considered.

- Effluent loadings were developed from actual monitoring data, with residual parameters obtained from Phase 1 estimates presented in Chapter 10.

- At this point, no consideration for ambient parameter levels has been considered.  Thus, the value of the damages of the total amount of the contaminant has been considered.

- No valuation of surficants (SSAS) undertaken in the analysis.

- Adjusted value per tonne of monopollutant (i.e. economic measure of damages resulting from wastewater discharges) is $521. The benchmark value for monopollutant in Russia is $290, which is adjusted by a factor of 1.8 for the Dnieper River.

- The opportunity cost associated with environmental damages is assumed, based on professional judgment by country Economic Experts, to be 10% of the total value of environmental damages.

- No cost contingencies or incremental insurance has been considered.

- No reduction on CO₂ considered from any reductions in energy use. 

- Projects are considered independent and the net impact is not necessarily cumulative (and thus impact needs to be evaluated with potential benefits identified on the combined initiative).

 

Assessment of Status Quo Scenario

 

Based on assumptions identified above, a status quo scenario was prepared to benchmark how the Smolensk Vodokanal will perform if nothing were changed and planned investments (as identified in Section 4) were undertaken over the ten-year timeframe 2005 to 2014.  Detailed analysis can be found in the attached spreadsheets.  The results are presented in Table 10.3.

 

Overall, the Vodokanal is forecast to continue incurring an annual loss of $4.06 million.  This translates into a 54.5% loss against revenues.  Thus, reinforcing the problem the existing low tariffs for water services in the city.  Over the identified time frame, water charges (based on “social cost” of wastewater treatment) will amount to $0.71 million, and account for 1.8% of total losses.

 

In terms of environmental damages, the plant is assessed to inflict approximately $4.66 million a year.  Over the identified timeframe, the plant is estimated to cause almost 1.15 times the value of net loss in environmental damages.  The facility would appear (based on actual discharge data) to have a problem with Phenols and heavy metals.  This is primarily a result of industrial discharges. 

 

In terms of energy consumption for wastewater, treatment will be 121.0 million kWh and account for 19.4% of all energy used by the utility.  On average, electricity used for this process will cost about $0.53 million annually.

 

Table 10.3 : Smolensk Vodokanal – Status Quo Scenario 2005-2014

Dollars in 2001 constant 2001

 

 

Selection of Projects for Assessment

 

Based on the assessments reviewed and our team’s site visits, the following projects have been selected for evaluation. 

 

- Aeration Tanks – Replacement of Air Blowers and aeration system.  Project cost: $1 million USD.

- Construction of Sand Filters for Treatment after Final Clarifiers.  Project cost: $344,827 (based on 10 million roubles).

- Replacement of Screens and Sand Separation Devices.  Project cost: $1.6 million USD.

- Sludge Dewatering System: Project Cost: $1.31 million USD.

 

It is noted that these projects are slated to be implemented at the beginning of the timeframe of interest. Thus, overall profitability will be affected as any of these projects will be considered a cost, and likely reduce net revenues.

 

For reasons of public health, our team strongly recommends that the installation of the UV-light disinfection system and construction of a local sewage treatment plant at the Oblast Tuberculosis Clinic happen immediately.  While costs have been identified, reductions in pathogens have not.  These are two projects where, regardless of the cost and environmental benefit, the public benefit needs to be considered as paramount in their undertaking.

 

Sewer pumps, though considered attractive to Plant management, have not been considered as they may not have a direct benefit to the Dneiper River Basin

 

Investment №1: Aeration Tanks – Replacement of Air Blowers and Aeration System

 

As indicated in the Site description “Wastewater Treatment Plant on M. Krasnoflotskaya Street/Smolensk Vodokanal Company,” the objective of this project is to provide improved containment for bacteria and reduce environmental pollution levels (i.e. denitrification) through the introduction of an efficient aeration system, while achieving a significant reduction in operating costs.  This component of the investment programme includes installation of a new aeration system and air blowers with automatically regulated rotation speed in one aeration tank.  Based on a cost estimate of $954,400 US, the budget has been rounded up to $1 million US, and implemented over 2005-2006.  Initial estimates suggest an energy consumption reduction of 31%.  The following assumptions were made:

 

- Implementing this project will reduce the following loadings relative to the Status Quo:

 

- Ammonium nitrogen – 10% reduction;

- Nitrates – 60% reduction;

- Nitrites – 5% reduction; and

- Phosphates – 10% reduction.

 

- All reductions will take effect in 2007

- There would be the associated cost reductions

 

- Repair & Maintenance/Allowance for Repairs – 15% reduction

- Capital Repair/Capital Repair Allowance – 15% reduction

- Materials – 5% reduction

- Labour – 10% reduction

- Social Charges – 5% reduction

- Workshop Expenditures – 15% reduction

 

- Energy usage in treatment will decline by 25% (from 2007). 

 

Detailed analysis of this investment can be reviewed in the attached “Investment 1” spreadsheet.

 

Overall, the Vodokanal will continue to incur an average annual loss of $3.97 million – a 2.1% improvement in net revenue. This translates into a 53.8% loss against revenues – 0.6% improvement, though still operating at a deficit.  Over the identified time frame, water charges (based on “social cost” of wastewater treatment) dropped by about $30,000 relative to the status quo.

 

In terms of environmental damages, the plant is determined to inflict approximately $4.62 million a year – about 0.8% less than the status quo.  Over the identified timeframe, the plant is estimated to cause 1.16 times the value of net loss in environmental damages (higher as operating loss is less than if no mitigation measure was considered). 

 

In terms of energy consumption for wastewater, treatment with this technology will be 96.8 million kWh – a 20% drop relative to status quo. The share of the cost of the energy in used in wastewater treatment is 16.1% of all energy used by the utility – a 3.3% drop relative to the status quo.  On average, electricity used for this process will cost about $0.42 million annually – a $106,000/year drop.

 

In terms of energy savings and operating loss reduction, this project would be attractive to the utility’s management.

 

Table 10.4 : Smolensk Vodokanal – Investment №1

Aeration Tanks – Replacement of Air Blowers & Aeration Systems

Dollars in 2001 constant USD

 

 

Investment №2: Construction of Sand Filters for Treatment after Final Clarifiers

 

Based on a cost estimate of 10 million roubles, the budget has been estimated at $344,800 US, and implemented over 2004-2005.  The following assumptions were made:

 

- Implementing this project will reduce the following loadings relative to the Status Quo:

 

- BOD₅ – 50% reduction; and

- Suspended Solids – 10% reduction.

 

- All reduction will take effect in 2006

- There would be the associated cost reductions

 

- Repair & Maintenance/Allowance for Repairs – 5% reduction

- Capital Repair/Capital Repair Allowance – 5% reduction

- Labour – 10% reduction

- Social Charges – 5% reduction

 

- Energy usage in treatment will decline by 2% (from 2006). 

 

Detailed analysis of this investment can be reviewed in the attached “Investment 2” spreadsheet.

 

Overall, the Vodokanal will continue to incur an average annual loss of $4.07 million – a 0.3% decline in net revenue. This translates into a 54.5% loss against revenues – 0.1% decline, though still operating at a deficit. This is primarily a result of sunk capital costs early in the timeframe, as well as relatively small reduction in overall operating costs.  However, water charges (based on “social cost” of wastewater treatment) dropped by about $32,000 relative to the status quo – a 4.5% decline.

 

In terms of environmental damages, the plant is determined to inflict approximately $4.5million a year – 3.3% less than the status quo.  Over the identified timeframe, the plant is estimated to cause almost 1.11 times the value of net loss in environmental damages – one of the lower ratios of the three projects considered. 

 

In terms of energy consumption for wastewater, treatment with this technology will be 118.9 million kWh – a 1.8% drop relative to status quo. The share of the cost of the energy in used in wastewater treatment is 19.1% of all energy used by the utility – a 0.3% drop relative to the status quo.  On average, electricity used for this process will cost about $0.52 million annually – an $9,500/year drop.

 

In terms of energy savings and pollution mitigated, this project would be attractive to the utility’s management. However, addition management costs should be considered in the suspended solids removed from the effluent.

 

Table 10.5 : Smolensk Vodokanal – Investment №2

Construction of Sand Filters for Treatment After Final Clarifiers

Dollars in 2001 constant USD

Investment #3: Replacement of Screens & Sand Separation Devices

As indicated in the Site description “Wastewater Treatment Plant on M. Krasnoflotskaya Street/Smolensk Vodokanal Company,” The objective of this project is to improve efficiency of sand separation process and increase operational lifetime of mechanical equipment at the municipal WwTP. This component of proposed investment programme includes construction of a new building for screening and sand separation devices. Waste collection and sand separation equipment will be installed and screens will be cleaned automatically. New plant will replace both existing mechanical treatment lines.  Based on a cost estimate of $1.526 US, the budget has been rounded up to $1.6 million US, and implemented over 2004-2005.  The following assumptions were made:

 

- Implementing this project will reduce the following loadings relative to the Status Quo:

 

- COD – 5% reduction in 2005; 10% for 2006 onward;

- Suspended Solids – 5% reduction in 2005; 20% for 2006 onward; and

- Petroleum Products– 5% reduction in 2005; 10% for 2006 onward.

 

- There would be the associated cost reductions (2005 reduction/2006 onward)

 

- Repair & Maintenance/Allowance for Repairs – 5%/20% reduction;

- Capital Repair/Capital Repair Allowance – 5%/20% reduction;

- Labour – 5%/20% reduction; and

- Workshop Expenditures – 10%/25% reduction

 

- Energy usage in treatment will decline by 5% in 2005, and 20% thereafter. 

 

Detailed analysis of this investment can be reviewed in the attached “Investment 3” spreadsheet.

 

Overall, the Vodokanal will continue to incur an average annual loss of $3.88 million – a 4.5% improvement in net revenue (best performance of the four projects evaluated). This translates into a 53.2% loss against revenues – 1.2% improvement, though still operating at a deficit.  Over the identified time frame, there will be no change in water charges (based on “social cost” of wastewater treatment) as the majority of most harmful contaminants will remain in the effluent stream after mechanical treatment.

 

In terms of environmental damages, the plant will continue to inflict approximately $4.0 million a year – about 5.5% less than the status quo.  Over the identified timeframe, the plant is estimated to cause almost 1.14 times the value of net loss in environmental damages. 

 

In terms of energy consumption for wastewater, treatment with this technology will be 98.6 million kWh – an 18.5% drop relative to status quo. The share of the cost of the energy in used in wastewater treatment is 16.4% of all energy used by the utility – a 3.0% drop relative to the status quo.  On average, electricity used for this process will cost about $0.43 million annually – a $98,000/year drop.

 

In terms of energy savings and operating loss reduction, this project would be attractive to the utility’s management. However, there will likely be incremental disposal costs associated with the waste removed from screens.

 

Table 10.6 : Smolensk Vodokanal – Investment №3

Replacement of Screens and Sand Separation Devices

Dollars in 2001 constant USD

 

Investment № 4: Sludge Dewatering System

Plant staff have indicated that this a priority project.  The cost estimate $1.31 US, and will implemented over 2004-2005.  The following assumptions were made:

 

- Implementing this project will reduce the following loadings relative to the Status Quo:

 

- An 85% across the board reduction in all parameters starting in 2006.

 

- There would be the associated cost reductions (2005 reduction/2006 onward)

 

- Repair & Maintenance/Allowance for Repairs – 5%/15% reduction;

- Capital Repair/Capital Repair Allowance – 5%/15% reduction;

- Materials - 5%/15% reduction;

- Labour – 5%/15% reduction;

- Social Charges – 0%/15% reduction; and

- Workshop Expenditures – 5%/15% reduction

 

- Energy usage in treatment will decline by 5% in 2005, and 15% thereafter. 

 

Detailed analysis of this investment can be reviewed in the attached “Investment 4” spreadsheet.

 

Overall, the Vodokanal will continue to incur an average annual loss of $3.97 million – a 2.1% improvement in net revenue. This translates into a 53.8% loss against revenues – 0.7% improvement, though still operating at a deficit.  Water charges (based on “social cost” of wastewater treatment) dropped by about $96,000 relative to the status quo – a 13.5% decline.

 

In terms of environmental damages, the plant will continue to inflict approximately $4.0 million a year – 13.5% less than the status quo.  Over the identified timeframe, the plant is estimated to cause almost equal to the value of net loss in environmental damages – the best performing project of the four projects evaluated. 

 

In terms of energy consumption for wastewater, treatment with this technology will be 98.6 million kWh – an 18.5% drop relative to status quo. The share of the cost of the energy in used in wastewater treatment is 16.4% of all energy used by the utility – a 3.0% drop relative to the status quo.  On average, electricity used for this process will cost about $0.43 million annually – a $98,000/year drop.

 

In terms of energy savings and operating loss reduction, this project would be attractive to the utility’s management. However, there will likely be incremental sludge disposal costs associated with the dewatering process.

 

Table 10.7 : Smolensk Vodokanal – Investment № 4

Sludge Dewatering System

Dollars in 2001 constant USD