CHAPTER ONE INTRODUCTION - Econ-Jobs.com · Cost-Benefit Analysis of the proposed installation of a 60,000m3 sea water desalination plant by the Government of Ghana at Teshie to improve

Cost-Benefit Analysis of the proposed installation of a 60,000m3 sea water desalination plant by the Government of Ghana at

Teshie to improve water supply to the area. Page 1

CHAPTER ONE

INTRODUCTION

1.1 Background Study

Water situation in Ghana

Although Ghana has abundant water resources, urbanization and population pressure as well as

the degradation of traditional water resources such as streams, rivers, springs and wells through

mining or “galamsey” and other activities have put a severe strain on water access in most areas

of the country. Water shortages and the attendant negative impact on the health of communities,

household incomes and productivity in general have become the rule rather than the exception,

particularly in Accra, the nation‟s capital. The shortfall in supply of potable water is a staggering

272,765m3/day (approximately 60 Million Gallons per Day). This unserved consumer demand is

paying an average of GHC9.00/m3 from less hygienic tanker sources (a multiple of eight times

the amount of Ghana Water Company‟s household tariff rate). Owing to the increased demand,

there is a strain on the current water production capacity resulting in frequent shortages

especially in Accra. Presently, the daily demand for water in Accra is about 681,913m3/day with

Ghana Water Company Limited being only able to supply 409,108m3/day. The water crisis in

Ghana has emerged as a major obstacle to the government‟s economic development plans and

therefore, the government of Ghana as a way to solve the acute water problems of the country

has proposed the installation of a sea water desalination plant in one of the municipalities in the

capital which will supply the area and its environs with fresh water.



1.2 Problem Statement

The source of water to the Teshie Municipality is the Kpone Water works which has its

catchments area in the Volta River Basin. However, due to the fact that, the area lies at the very

tail end of the water distribution network (that is, Weija and Kpone water distribution plants in

Accra and Tema respectively), Teshie and its environs do not have frequent access to fresh

water1. First class residential areas such as the Greda Estates, Manet Gardens etc. which

constitute, but a few of the population are connected to the water supply network and in most

cases receive water most days of the week and pay official rates, which range from 20 pesewas a

bucket to a maximum of 65 pesewas per bucket. In recent times it is common to have water tanks

or “polytanks” in such areas to supplement shortage that may occur.

However large sections of the middle and low income earners in the Municipality have very poor

or irregular supply of water although they are connected to the network. In such areas, residents

who can afford “polytanks” are compelled to purchase them as a matter of necessity to

supplement their water supplies. The most critical water problem in the Municipality however

relates to inability of supply of water to meet demand. Water leakage is estimated at 30% for the

entire supply system. A decrease of 5% in the leakage rate is expected to save water within the

margin of 30,000m3 daily. Consequently, residents do not have access to direct pipe-borne water

and this situation has compelled some residents to use the sea water for some domestic uses such

as bathing and washing utensils. The perennial water supply shortage in the community and its

environs has been the result of damaged old pipelines, increase in demand for potable water

which results from the rapid housing and industrial development and expansion in the area.

Moreover, assessing water during the dry season has not only health implications with the



masses of the people having to walk long distances to purchase water but also deprive them of

productivity. Besides that, the secondary service providers such as water tanker services and

domestic vendors charge comparatively higher rates for water supplied, thereby resulting in

various forms of extortion. Hence, a need for the installation of the sea water desalination plant

to increase water supply arises.

1.3 Objectives of the study

It is imperative when deciding to embark on a project, be it private or public, to assess its

viability. That is, whether it improves the welfare of the people for whom the project is intended

and whether it minimizes costs. In such a case, then it becomes necessary to conduct a cost-

benefit analysis of the project before it commences to prevent resources wastages. CBA is a

framework often used by governments to evaluate the desirability of a given project, program or

policy. It therefore, seeks to determine whether a project under consideration is feasible after

critical analysis of the costs and benefits of the project, and whether it should be undertaken or

not.

The objectives of the study were therefore;

To analyze the viability of desalinated sea water as an alternative source of safe

drinking water for the people of Teshie.

To identify, estimate and evaluate the costs and benefits of the proposed sea water

desalination plant to the people of Teshie.

These are to lead to an improvement in the provision of water for domestic purposes, industrial

processing, power plant applications, and recharging of groundwater supplies.



1.4 Significance of the study

The significance of the study was to point out the acute water shortages faced by residents of

Teshie and its environs and to support the proposition of the government to install a desalination

plant to increase water supply to the area. The study was also to serve as a reference paper for

future projects concerning the installation of a sea water desalination plant in other coastal areas

of the country.

1.5 Methodology

1.5.1 Sources of data

The study predominantly relied on secondary data. This data was obtained from public

institutions such as the Ghana Water Company Limited, Befesa Ghana Limited, the Ministry of

Water Resources, Works and Housing, the Ledzekuku-Krowor Municipal Assembly as well as

the internet.

1.5.2 Investment criteria

To examine a project that involves costs and benefits, there are various investment criteria that

can be used. These include the Net Present value (NPV), Internal Rate of Return (IRR),

Discounted Payback Period (DPP) and Domestic Resource Cost method (DRC). These criteria

help to evaluate the viability of the project.

The project was a Public-Private Partnership project and was funded solely by the private

partner. This was based on a Design, Build, Own, Operate and Transfer contract terms. This

study used the Net Present Value to analyze data. NPV is defined as the sum of all discounted



cash inflows less all cash outflows associated with an investment decision. The discount rate was

based on the monetary policy rate of the Bank of Ghana. The choice of NPV as an investment

criterion is due to the fact that, it considers the time value of money as a result of using the

inflation rate which keeps the value of money stable over a period of time. It also considers the

cash flow stream over the whole life span of the project. Moreover, it makes the investors aware

of the risks involved in investing in the project through the cost of capital invested into the

project by the help of the discount rate. Finally, the choice of NPV makes it simple and is easily

understood by managers in their investment decisions.

The formula for the NPV is given as follows:

NPV= (𝑩𝒕−𝑪𝒕)

(𝟏+𝒓)𝒕𝒏𝒕=𝟎

Where, Bt is benefit over time,

Ct is cost over time,

(Bt-Ct) is the net benefit of the project in year t and 1

(1+𝑟)𝑡 is the discounting factor.

However, the future values of all costs and benefits of the project will be adjusted to the end of

year average inflation rate. The formula to be used is given as:

Future Value= Present Value * (1+π) t

Where π is the inflation rate and t is the year.



1.5.3 Justification of the NPV and discount rate

The net present value approach was used because it is technically proven to be superior since it

considers the time value of money and shows the relative risks associated with the project. The

NPV criterion takes into account the time value of money due to the following reasons:

Inflation reduces the purchasing power of the cedi. Therefore the uncertainty surrounding

the receipt of the cedi increases as the date of the receipt recedes into the future

The notion of opportunity cost implies the return on the forgone investment that the

projects could yield hence making use of the interest rate. The NPV criterion therefore

incorporates any variation in the discount rate over the span of the project.

In relation to this study, the Bank of Ghana monetary policy rate (14.5% as at April 2012), was

used. This is because:

It reflects societal preferences of the value of money since the central bank takes into

account social factors in determining that rate.

It forms the basis upon which commercial banks and other financial institutions fix their

base rate which in turn determines the market interest rate.

The monetary policy rate plays an important role in determining all other rates including

the interest rate, hence the money supply.

1.5.4 Decision rule

If the Net Present Value is greater than zero (i.e. NPV>0), then the project is desirable because

the benefits exceed the costs. However, if the Net Present Value is less than zero (i.e. NPV<0),



then the project is not worth undertaking and should not be implemented. If the Net Present

Value is zero (i.e. NPV=0), the decision to accept or reject depend on social factors.

1.6 Organization of the study

This study was organized into five (5) chapters. Chapter one primarily concentrated on the

introduction of the study, background information, problem statement, objectives of the study,

methodology and finally the organization of the study. The second chapter covered the project

appraisal. For the purpose of this project, the appraisals used included the technical, financial,

institutional, social, commercial and economic appraisals. Chapter three consisted all the benefits

and costs involved in undertaking the project. That is all the direct tangible benefits, direct

tangible costs, direct intangible benefits, direct intangible costs, indirect tangible benefits,

indirect tangible costs, indirect intangible benefits, and indirect intangible costs. Chapter four

analyzed all the estimations and values assigned to the costs and benefits. To determine whether

the project was viable, the Net Present Value Criteria was used. The final chapter comprised the

summary, recommendations and conclusions based on the sequential and coherent manner of

work done.



CHAPTER TWO

PROJECT APPRAISAL

2.0 Introduction

As stated earlier, this chapter focuses on the project appraisal. In the words of John Filicetti,

“project appraisal is a generic term that refers to the process of assessing, in a structured way,

the case for proceeding with a project or proposal. In short, project appraisal is the effort of

calculating a project's viability”. 2

Project appraisal is the “Systematic and comprehensive review of the economic, environmental,

financial, social, technical and other such aspects of a project to determine if it will meet its

objectives. Once this phase is complete, the final consent on the project flow, details and budget

are confirmed and the project is ready to take off”.3

Project appraisal can also be said to be a

technique applied by welfare economists to evaluate the efficiency of alternative projects or

more widely the efficiency of alternative policies.

If a project is well formulated and thoroughly appraised, a good follow-through on the

subsequent stages of the project cycle will see to its goals being achieved. Appraisal involves a

careful checking of the basic data, assumptions and methodology used in project preparation, an

in-depth review of the work plan, cost estimates and proposed financing, an assessment of the

project's organizational and management aspects and finally the validity of the financial,

economic and social benefits expected from the project. On the basis of such an assessment, a

judgment is reached as to whether the project is technically sound, financially justified and

viable from the viewpoint of the economy as a whole. Upon its completion, the final approval on

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the project flow, budget and any other details are established then the project can take off.

Project appraisal can be categorized into the following: technical, financial, institutional, socio-

cultural, economic, and commercial appraisals.

Technical Appraisal determines whether the requirements of a successful project have been

covered and good choices have been made with regards to location, raw material

requirements and other factors such as availability of required professionals, technicians and

workers.

Financial Appraisal focuses mainly on the sources of finance for the installation of the

proposed sea water desalination plant and also whether funds obtained will be adequate to

cover the expenditure requirements during the installation of the plant.

Institutional Appraisal examines the institutional environment within which the project will

be executed. It covers areas such as the institutions that will undertake and manage the

project, the various stakeholders involved as well as the norms, rules and regulations

involved in undertaking such projects.

Socio-cultural Appraisal focuses on the impact of the project on the lives of the people who

live around the area where the plant is to be installed. It also looks at the impact in terms of

problems like waste water disposal, air emissions, noise and spills.

Economic Appraisal assesses the contribution of the project to the developmental objectives

of the community as a whole such as providing safe drinking water for the people at a

reasonable cost, improving their living standards as well as achieving economic growth and

development.

Commercial Appraisal is concerned with the arrangements for the marketing and

distribution of desalinated water produced by the plant and the arrangements for the supply



of inputs needed to install the plant. Commercial appraisal considers a project from the

private lens where profit maximization is the norm. Here, market prices are normally used.

2.1 Technical Appraisal

The motive behind the installation of the sea water desalination plant at Teshie is to

provide potable water and help curtail the problem of water shortages that has struck the people

of Teshie and its environs for some time now, hence the situation of the plant at the area. The

source of water to the Municipality is from the Kpone Water works with its catchments area in

the Volta River Basin. The area lies at the very tail end of the water distribution network (that is,

Weija and Kpone water distribution plants) and therefore makes it impossible for the people to

have frequent access to potable water.

The 6.1 acre project site is situated at the beachfront, 400 m west of the Nungua fish

landing site. The size of land acquired was influenced by the amount of water to be produced to

serve the areas under consideration and is enough to accommodate the design stated below. The

desalination plant is designed to include four trains fed by two high pressure pumps, plus one in

standby, and twelve energy recovery systems per train. The system converts roughly half of the

intake seawater into potable product water and the remainder is discharged via an outfall as

brine.

Per the plant size, it will have the capacity to utilize 146,400 m3/day of raw intake water

to produce 60,000 m3/day of potable product water, and 70,000 m

3/day of rejected brine water

after the reverse osmosis process.

The installation of the plant will be under the joint supervision of Befesa Desalination

Developments Ghana Limited (the project enterprise) and the Ghana Water Company Limited

Befesa Agua, S.A.U. of Spain is one of the subsidiary companies of Befesa, which is the leading



company of Abengoa‟s Environmental Services Business Unit. It has a technological capability

accumulated during the course of more than 60 years of experience in the Environmental Sector

with its presence in several countries. It has also the experience in Structuring Finance, through

BOT or PPP projects worldwide. The potable product water is expected to be distributed to the

residents and businesses in the Teshie-Nungua area through a Water Purchase Agreement with

GWCL (sole agency acting on behalf of the government to supply water to the population). The

water will be delivered to a GWCL connection point by Befesa Ghana Limited, via product pipes

of the GWCL. Befesa is expected to recoup their funds through tariffs collected by the GWCL

from users through a prepaid system.

Other facilities expected to be developed at the site include the desalination plant, intake

pipe, outfall pipe, an office complex and a parking lot. The intake pipe is the main pipe to collect

sea water into the plant to be converted into potable water whereas the outfall pipe is to pump

back rejected brine into the sea after the process. The parking lot is also to serve as a parking

space for the company and staff vehicles.

During construction, 55 direct hire workers are expected to be employed, with 40 local hires

and 15 expatriate staff based on the capacity of the plant. The project enterprise may also engage

local sub-contractors. During operation, the desalination plant is expected to employ 52 workers,

with 40 local hires and 12 expatriate staff. It is however important to note that electricity needed to

power the desalination machines will be provided by the Electricity Company of Ghana.4

2.2 Financial Appraisal

The proposed plant, which is a large scale project, is estimated to cost GHC219, 954,355.00 (i.e.

$115, 765, 450.00 with details shown in the table below). The main source of finance for the

plant will be from an investment loan facility of $203million (including retained earnings and



interest for a period of up to 20 years against the risks of transfer restriction, expropriation,

breach of contract, and war and civil disturbance) to be acquired from the Multilateral

Investment Guarantee Agency (a World Bank Group) by Befesa water Projects S. L., Spain and

the Standard Bank of South Africa.5

The installation of the plant is to be funded wholly by Befesa without any financial outlay from

GWCL or the Government of Ghana per the contractual agreement, which is Design, Build,

Own, Operate and Transfer terms of agreement. This amount will be spent on the installation of

the physical infrastructure. As part of the financial appraisal, the operations and maintenance of

the plant as well as the cost recovery of the project will be considered. Hence the cost to be

incurred in the installation of the proposed desalination plant can be summarized as follows from

the table below;



Table 2.1 Showing the Physical structure cost

Item Amount (US $millions) Amount (GHCmillions)

Pumps 2.2 4.18

Intake screen system 0.8 1.52

Surf cleaning system 0.54 1.026

Cartridge filter system 0.126 0.2394

Ultra- filtration system 7.7 14.63

Auxiliary pump system 0.3 0.57

Pump system for RO 6.7 12.73

RO system 7 13.3

Energy Recovery system 2.4 4.56

Product water pumps 0.4 0.76

Re-mineralization system 0.46 0.874

Dozens system 0.76 1.444

Valve system 2.2 4.18

GRP pipes and accessories 3.7 7.03

Plastic pipes and accessories 1.8 3.42

Creams and host 0.15 0.285

Static mixers 0.25 0.475

Auxiliary equipment 0.54 1.026

Electrical equipment 7.3 13.87

Instrumentation and control 2.9 5.51

Fire fighters 0.3 0.57

Laboratory equipment 0.2 0.38

Workshop expenses 0.42 0.798

Civil works materials 4.1 7.79

Replacement of cartridge filters 0.008985 per year 0.0170715 per year

Replacement of membranes

(fixed)

0.442795 per year 0.8413105 per year

Replacement of membranes

(variable)

0.283 for 2 sets 0.5377 for 2 sets

Maintenance 0.065998 per year 0.1253962 per year

Chemicals 1.7 per year 3.23 per year

TOTAL 115.76545 219.954355

Source: Ghana Water Company Limited (GWCL)



2.2.1 Operation and maintenance

After the installation of the plant, Befesa (that is, the project enterprise) will own and operate the

plant for a period of twenty-five years. Per the agreement, the company is expected to have

recovered all funds invested into the project plus its profit after this period. All maintenance

costs will also be borne by the enterprise during this period. This situation is based on the terms

of the contract for the installation of the plant, that is, on a Design-Build-Own-Operate and

Transfer contractual terms. After the twenty-five years of operation, the plant will then be

handed over to the government of Ghana. The government of Ghana will then hand it over to

GWCL for operation and onward day-to-day maintenance. Costs to be incurred at this time will

be as a result of maintenance, salaries of administrative and managerial staffs, security personnel

and sanitation workers, electricity bill and miscellaneous expenses.

2.2.2 Cost Recovery

There is also the need to look at how the money invested into the plant will be recouped. The

money invested is expected to be recovered mainly from GWCL through water bills collected

from customers based on a prepaid system. This system is introduced in order to prevent any

accumulation of debt by household consumers.

2.3 Economic Appraisal

The project under study can be placed under the services sector of the economy. It is targeted at

increasing water supply which will first and foremost benefit the people of Teshie-Nungua and

later, Burma Camp, Spintex and Batsonaa. The plant, when installed will bring numerous

benefits as it will help curb the acute water shortages within the areas to benefit from this plant.



The execution of this project will also go a long way to increase productivity in the economy

since less time will be spent roaming in search of water.

This plant will lead to the dependence on inland water sources and natural waterways being

reduced. The strain on the natural waterways will be minimized, thereby sustaining nature, bio-

diversity and the aquatic ecosystem. Direct employment can also be enumerated as a benefit

since the plant will employ many local employees, both skilled and unskilled in its installation

process. In addition, Ghanaians will be employed to manage it after it has been transferred to the

government based on the contractual terms. With income in the hands of people, aggregate

demand will be stimulated. There is also an indirect short term employment that will crop up

when the plant is ongoing; as canteens will be established to serve the workers with nutritious

food.

Revenue will accrue to the government through the taxes levied on the profits of the project

enterprise after a period of five years operation under tax exemptions and also through income

tax levied on employees‟ salaries. This revenues accrued will add to the fiscal resources of

government and help its development expenditure which is very much needed to propel the

country and help it achieve its developmental goals.

2.4 Socio-Cultural Appraisal

The installation will result in the spill of hazardous materials from on-site machinery and

chemicals that will be used in the installation of the plant as well as hazardous material storage

areas. Construction waste, solid waste and hazardous waste are also expected to be generated

through construction, installation and operation phases. Construction waste includes building

materials debris, soil and plant debris. These are expected to affect the environment negatively.



Aside these setbacks, the benefits this plant when installed could bring to the society cannot be

ignored. Employment will be created as people will be needed in the installation process such as

carpenters, masons etc. This can help minimize certain social vices that arise from

unemployment such as school drop-outs and armed robbery. The municipality can also benefit

from developmental projects that will be undertaken as a result of the corporate social

responsibility of the project enterprise. Indisputably, the desalination plant will go a long way to

solve the water shortage problems of the people of Teshie and the surrounding areas that will

benefit from the plant.

2.5 Institutional Appraisal

Institutional appraisal aims at assessing the institutional arrangements that surrounds a

new project and its implementation. This assessment includes; laws, government policies,

management and organizational arrangements as well the necessary international standards that

need to be met with regards to the project. All these measures are to ensure that the right

principles and industry practices are adhered to in the execution of a project. By way of face-to-

face interview of the elders of the community where it was realized that the building of the sea

water desalination plant at the sea side did not violate any cultural norms of the people and in

reality; they consider it as a monumental occurrence in their lives. As a result, they were willing

to offer their maximum support towards the installation of the plant in any way possible.

Moreover, the preparation and submission of the ESIA (Environmental and Social Impact

Analysis) to the Ghana Environmental Protection Agency (“Ghana EPA”) formed part of the

requirements for an Environmental Permit for the proposed project, in accordance with the

requirements in EPA Act, (Act 490) and the Environmental Assessment Regulations, 1999 (LI 1652).

This legislation requires Befesa Ghana to undertake an assessment of the risks and impacts of the



proposed project, prepare and submit a draft ESIA and prepare and submit a final ESIA after review

by Ghana EPA.

The institutions to be involved in the management of affairs of the plant are Befesa

Desalination Developments Ghana Limited, Ghana Water Company Limited, Ministry of Water

Resources, Works and Housing, Ledzekuku-Krowor Municipal Assembly, Public Utility

Regulatory Commission, Environmental Protection Agency, Ghana Maritime Authority,

Electricity Company of Ghana and the Ghana Investment Promotion Centre.

2.6 Commercial Appraisal

The potable product water is expected to be distributed to the residents and businesses in the Teshie-

Nungua, La, Spintex, Burma camp and Batsonaa areas through a Water Purchase Agreement with

GWCL. The water will be delivered to a GWCL connection point by the project enterprise, and

further be distributed to customers through GWCL‟s pipe network configuration at relevant prices.

The table below shows the current water tariffs in Ghana.

Table 2.2 Current water tariffs in Ghana

Ghana‟s Current Water Tariffs GHC/m3 US$/m

3

Domestic usage up to 20,000 litres (20m3) 0.80 0.56

Domestic usage more than 21,000 litres (21m3) 1.20 0.84

Commercial Rates 1.54 1.08

Special Commercial Rates 4.79 3.35

Source: Global water Intelligence



CHAPTER THREE

IDENTIFICATION OF COSTS AND BENEFITS

3.0 Introduction

It is imperative for one to consider in Cost-Benefit Analysis, all costs and benefits emanating

from a project. An objective assessment of the costs and benefits of any project is essential for

the efficient allocation of resources. In general, the overall improvement in societal welfare is the

aim of projects in societies, hence the need to identify the elements of benefits and costs. This

chapter therefore attempts to identify and estimate all possible costs and benefits associated with

the proposed installation of a 60,000m3 desalination plant by the government of Ghana at Teshie

to improve water supply to the area. With the numerous costs and benefits associated with the

plant, the study will be concerned with those enumerated below.

3.1 BENEFITS

Benefits refer to all possible advantages or pros that result from the execution of a project or

policy. They reflect improvements in the interest and well-being of members of the society.

There are numerous benefits associated with the installation of the sea water desalination plant.

They include direct tangible benefits, direct intangible benefits, indirect tangible benefits, and

indirect intangible benefits.

3.1.1 Direct Tangible Benefits

They attempt to measure fund inflows which are closely related to the setting up of the project

and its implementation. They reflect direct increases in the community‟s welfare as a result of

the project implementation. These benefits are said to be tangible because they can be



determined under the market system, that is, they can be valued at a given market price. The real

direct tangible benefits that will arise from the plant‟s installation are as follows:

3.1.1.1 Creation of employment

The installation and the operation of the plant will provide employment to hundreds of people.

These include those who will be involved directly with the physical installation of the plant and

its operations such as masons, plumbers, electricians, painters, carpenters as well as consultants

like the architects, quantity surveyors, structural engineers and the project manager, site

supervisors, site manager, quality supervisor, construction manager and many others. The total

salary to be paid to these workers is expected to be GHC 33,630,000 ($17.7million) for the first

year. This is expected to increase by 2% each year over the life span of the project.6

3.1.1.2 Revenue from sale of desalinated water

The plant when completed is expected to provide water supply to Teshie, Burma Camp and some

other areas. Customers provided with water supply from the plant will be charged a specified

amount of money based on GWCL tariffs. A little above the domestic and commercial rates

charged by the GWCL is expected to be assigned as tariffs to the desalinated water. A summary

of annual revenue from the sale of water from the daily production from the plant is as follows:

Amount daily – GHC2.143/m3

x 60,000m3 = GHC144, 780.00

Amount monthly – GHC144, 780 x 30days = GHC4, 343, 400.00

Annual amount – GHC4, 343, 400 x 12months = GHC52, 120, 800.00 7



3.1.1.3 Easy accessibility to potable water.

This plant will also be beneficial to Teshie and its surrounding coastal communities that have

depleted or limited access to traditional ground or surface water supplies. The plant is estimated

to produce 60,000m3 daily, thus making it easier for the people to have access to water.

Households are able to save some amount of money due to the minimal charge on the desalinated

water as compared to water supplied by private water dealers. This is summarized as follows:

40litres = 1 gallon = 0.04m3

1000liters = 1m3

0.04m3 = GHC0.45 (average price charged by private water dealers)

60, 000m3daily= (0.45 x 60000)/0.04 = GHC675, 000.00 daily

Monthly amount spent = 30 x 675000 = GHC20, 250, 000.00

Annual amount = 12 x 20250000 = GHC243, 000, 000.00

Therefore amount saved by households annually = 243000000 - 52120800 = GHC190, 879, 200

The figure above represents the difference between expenditure incurred for water purchased

before the installation (i.e. GHC243, 000, 000) and the expenditure that will be incurred after

plant is installed (i.e. GHC52, 120, 800 – based on the tariffs on desalinated water).8



The table below shows a summary of all values of direct tangible benefits enlisted above.

Table 3.1 Summary of direct tangible benefits

Item Amount (GHC)

Employment 33,630,000.00

Revenue from sale of desalinated water 52, 120, 800.00

Savings from easy accessibility to water 190, 879, 200.00

Total 276, 630, 000.00

Source: Authors’ own compilation

3.1.2 Direct Intangible Benefits

These refer to those benefits of the project which are closely related to the implementation of the

project but cannot be quantified in monetary terms by the existing market system. They

constitute a direct increase in the community‟s welfare, albeit cannot be valued. With respect to

this study, these benefits include the following:

3.1.2.1 Availability of a reliable source of water even in times of drought.

Sea water, unlike other sources of water such as inland water sources and natural waterways does

not dry up during drought seasons. Therefore, desalination plant when installed will serve as a

source of supply for fresh water all year round. This will lead to a minimal reliance on the

extended water delivery systems (that is, Kpone and Weija delivery systems).



3.1.2.2 Sustenance of the natural sources of water

The installation of the plant will cause a reduction in the pressure put on the natural sources of

water that result from their usage as sources of water supply to quite a large number of the

population. As a result, the strain on our natural waterways will be minimized, thereby sustaining

nature, bio-diversity and the aquatic ecosystem.

3.1.2.3 It saves time

Unlike previous times when much time was used in accessing water, the installation of the plant

will reduce the amount of time „wasted‟ in accessing water. Due to this factor, people will have

ample time to pursue other activities that could lead to increased productivity.

3.1.3 Indirect Tangible Benefit

These are gains that accrue to the project which are not directly/closely related to the objective of

the project but can be quantified in monetary terms and also reflect indirect increases in societal

welfare. These indirect benefits are tangible because they can be valued at given market prices.

Those related to the study are as follows:

3.1.3.1 Improvement in infrastructure and social amenities

The installation of the plant in one way or the other would bring about improvement in some

infrastructural facilities and social amenities which include road networks leading to the

township and project site, and building of schools and hospitals as part of its corporate social

responsibilities.



3.1.3.2 Increase in foreign direct investment

This project will be the first ever private investment in the water sector and this will engender

confidence to other investors in this troubled sector. The success of the installation of the plant to

deal with the water shortage problems in the area will go a long way to induce other investors to

develop an interest in the water sector by engaging other sources of water supply such as

boreholes and fresh water source in other areas of the country. An example of such an

investment is the Wa Water Supply Project with an investment value of $55, 000, 000.00

(GHC104, 500, 000.00).9

3.1.3.3 Introduction of prepaid system to enhance viability of GWCL

The plant when installed will operate on a prepaid system where consumers will have to pay for

the water supply services before they are provided with the product. This enhances the revenue

collection of GWCL and helps solve the problem of piled-up debts which is usually the case with

the post-paid system.

3.1.3.4 Useful by-product

The plant, aside providing fresh water to the people can also provide industrial salt for existing

petroleum companies. Overall, the desalination plant will utilize 146,400 m3/day of raw intake

water to produce 60,000 m3/day of potable product water, and 70,000 m

3/day of rejected brine

(salt). Salt, as a by-product is useful to petroleum industries in their production process and this

can readily be available from the desalination plant. Below is an estimation of the above:

1 tonne = 1 cubic metre

70,000 tonnes = 70,000m3



GHC38/tonne = GHC38/m3

(GHC38 is existing market price for industrial salt with a dollar

equivalent of $20/m3).

Daily amount to be generated = 70000 x 38 = GHC2, 660, 000.00

Monthly amount to be generated = 30 x 2660000 = GHC79, 800, 000.00

Annual value of salt to be generated from the process = GHC957, 600, 000.0010

3.1.3.5 Providing strategic industrial support

The plant will have the opportunity to provide strategic industrial support. The water demands of

industry especially the Free Zone enclave can be addressed indirectly by this project. That is, the

plant will have the capacity to provide the several industries around Teshie-Nungua and its

environs with the amount of water they will demand for daily use.

3.1.3.6 Income of canteen and shop operators

Canteen operators will be at the site to sell various dishes such as kenkey, banku with okro stew,

plantain with beans, and yam with stew among others. A shop is also expected to be situated

close to the site. Total profits that will accrue to say, two canteen operators and a shop keeper are

assumed to amount to GHC687.75 monthly. The annual amount will be GHC8, 253.00.11

3.1.3.7 Rents

The project will make provisions for a shop and two canteens which will be given out to private

entities to run and in return, they will be required to pay an annual rent. A rental fee of GHC4,

560.00 per annum is expected to be generated from the canteens and GHC1, 140.00 per annum

from the shop.



Table 3.2 Rental Charges

Category Number of people Unit charge (GHC) Total amount

(GHC)

Canteen operators 2 2, 280.00 4, 560.00

Shop keeper 1 1, 140.00 1, 140.00

Total 5, 700.00

Source: Accra Metropolitan Assembly

Below is a summary of all indirect tangible benefits.

Table 3.3 Summary of indirect tangible benefits

Item Amount (GHC)

Increase in foreign direct investment 104, 500, 000.00

Useful by-product 957, 600, 000.00

Income of canteen operators and shop keeper 8, 253.00

Rental charges 5, 700.00

Total 1, 062, 113, 953.00


3.1.4 Indirect Intangible Benefits

These are gains that accrue to a project which are not closely related to the setting up and

implementation of the project, and cannot be quantified in monetary terms. They constitute

indirect increment in societal welfare but cannot be measured in monetary terms.

3.1.4.1 Relief from stress in search of water.

The desalination process would help make water readily available to homes and industries would

go a long way to help reduce the stress individuals go through in search of potable drinking



water. That is to say, the problem of being in queues for hours at the limited distribution points

and also carrying heavy loads of water would be addressed as a result of the desalination plant.

3.1.4.2 Exposure to modern technology.

Since Ghana is a developing country still in the process of getting to be familiar with new ways

of doing things, the installation of the plant will serve as an exposure to modern technology and

new ways of doing things. The process is purely technical and involves the use of sophisticated

and modern machinery which can serve as a learning guide to polytechnics, university and other

school children who may be taken to the site for studies.

Table 3.4 Summary of all benefits

Type of Benefit Subtotal (GHC)

Direct Tangible:

Employment

Revenue from sale of desalinated water

Savings from easy accessibility to water

33, 630, 000.00

52, 120, 800.00

190, 879, 200.00

Indirect tangible:

Increase in foreign direct investment

Useful by-product

Income of canteen operators and shop keeper

Rental charges

104, 500, 000.00

957, 600, 000.00

8, 253.00

5, 700.00

Total 1, 338, 743, 953.00




3.2 COSTS

Costs talk about all possible disadvantages that are incurred from the start-up stage to the

implementation of the project. There are several costs associated with installation plant under

study. These can be classified into direct tangible cost, direct intangible cost, indirect tangible

cost and indirect intangible cost.

3.2.1 Direct Tangible Cost

This type attempts to measure or value fund outflows which are directly related to the setting up

of the project and its implementation. They constitute a direct reduction in societal welfare.

These costs are tangible because they can be valued at given market prices.

3.2.1.1 Wages and Salaries

One of the costs to be incurred from the installation is the cost of labour. The reward for labour is

wages and as such all the different types of labour that will be employed during the installation

of the sea water desalination plant will have to be remunerated. The total salary to be paid to these

workers is expected to be GHC33, 630,000.00 for the first year. This amount, according to the

project enterprise is expected to increase by 2% every year.12

3.2.1.2 Preparation cost

Generally, there is no project that commences without preparations. The preparation cost

basically involves all those costs incurred from activities that help to lay the foundation for the

installation of the desalination plant. These among others, include the cost of land acquisition for

the installation (in this case, 6.1 acres of land), consultancy, registering with or obtaining permits



from institutions such as the GIPC, EPA, GMA etc. and public education on desalinated water as

an alternative source of potable water. The summary is shown in the table below:

Table 3.5 Preparation cost

Type of Cost Amount (GHC)

Consultancy cost 4, 047, 000.00

Land acquisition/lease 950,000.00

Registration and permit 129, 481.485

Total 5, 126, 481.485

Source: GWCL

3.2.1.3 Cost of machinery and equipment

This includes all the costs that will result from the purchase of installation materials such as

pumps, intake water systems, ultra-filtration systems, auxiliary pump systems, chemicals,

laboratory equipment and so on.



Table 3.6 Showing cost of machinery and equipment

Item Amount (GHCmillions)

Pumps 4.18

Intake screen system 1.52

Surf cleaning system 1.026

Cartridge filter system 0.2394

Ultra- filtration system 14.63

Auxiliary pump system 0.57

Pump system for RO 12.73

RO system 13.3

Energy Recovery system 4.56

Product water pumps 0.76

Re-mineralization system 0.874

Dozens system 1.444

Valve system 4.18

GRP pipes and accessories 7.03

Plastic pipes and accessories 3.42

Creams and host 0.285

Static mixers 0.475

Auxiliary equipment 1.026

Electrical equipment 13.87

Instrumentation and control 5.51

Fire fighters 0.57

Laboratory equipment 0.38

Civil works materials 7.79

Total 100.3694

Source: GWCL

Table 3.7 Summary of all direct tangible costs.

Cost item Amount (GHC)

Wages and salaries 33, 630, 000.00

Preparation cost 5, 126, 481.485

Cost of machinery and equipment 100, 369, 400.00

Total 139, 125, 881.50




3.2.2 Direct Intangible Cost

This type measures or values fund outflows which are directly related to the setting up of the

project and its implementation but cannot be valued at market prices. They constitute a direct

reduction in societal welfare.

3.2.2.1 Environmental hazards (pollution)

This literally means the contamination of the environment with toxic substances. The kinds of

pollution associated with the installation of the plant include sound, water, land, and air

pollution. Construction and operation activities are expected to generate noise impacts to

adjacent communities thereby, posing hearing problems for the folks of the communities. Also,

ambient air quality is expected to be impacted as a result of dust emissions from construction

activities. The major expected sources of dust emissions during construction are grading,

excavation and earthworks. This could in the long run pose health threats to the people in terms

of the inhalation of dust particles. The installation process is also expected to cause land

pollution. Construction waste, solid waste and hazardous waste are expected to be generated

through installation and operation phases. Supposing there are twenty people exposed to the risk

of contracting cold (catarrh), skin rashes etc. within a month. The table below shows the form of

diseases and their treatment.



Table 3.8 Diseases and their cost of treatment

Disease Number of drugs

for treatment

Treatment Monthly Cost

of treatment

(GHC)

Annual cost

of treatment

(GHC)

Catarrh 3 packs The cost of drug for

treating cold such as

“ProCold” is

GHC1.00

3 x 20 = 60.00 60 x 12 =

720.00

Skin rashes 2 tubes Using creams such as

“Triple Action” costs

GHC2.00

4 x 20 = 80.00 80 x 12 =

960.00

Total 1, 680.00

Source: Pills and Tabs pharmacy, Legon

3.2.2.2 Disturbance of the eco-marine system

The plant is expected to produce concentrated brine which will be discharged via an ocean fall.

This poses severe threats to the eco-marine system by poisoning several fish species, shrimps,

prawns and so on that have the sea as their habitat. This might cause the fish species to be

extinct.

3.2.3 Indirect Tangible Cost

Real indirect tangible costs are losses that accrue to the project but are not directly related to the

objectives of the project. They reflect indirect reductions in societal welfare as a result of the

project‟s implementation. These indirect costs are tangible because they can be valued at given

market prices.



3.2.3.1 Cost of maintenance and spare parts

This has to do with the amount of funds set aside as a result of wear and tear of machines and

equipment. It also involves the amount set aside to replace any part of the machinery and

equipment when the need arises. This helps to put machines in proper shape. This cost is

summarized in the table below:

Table 3.9 Maintenance and spare parts

Item Amount (GHC)

Replacement of cartridge filters 426, 787.50

Replacement of membranes (fixed) 841, 310.50

Replacement of membranes (variables) 537, 700.00

Plant maintenance 3, 134, 905.00

Workshop expenses 798, 000.00

Total 5, 738, 703.00

Source: GWCL

3.2.3.2 Contingency cost

This involves funds set aside to cater for unexpected occurrences that may result before and

during the implementation of the project and also throughout its lifespan. In the case of this

plant, this cost includes interest on loan, insurance against fire, theft, flood and employment

related risks among others. This is stated as 10% of the entire installation cost per the contractual

terms. From table 2.1, total installation cost = GHC219, 954, 355.00

Contingency cost = 0.1 x 219, 954, 355 = GHC21, 995, 435.50 13



3.2.3.3 Cost of permanent office complex and a parking lot

There is the need to make provision for storage facilities to keep the equipment and raw

materials as and when they are deployed to the site. A permanent office complex and a parking

lot will be constructed for the administrative staff and other workers. The summary of the cost

for the office complex and parking lot are as follows:

Office complex:

A 20 unit, 3-floors office complex

Area = 97.5m x 8.93m = 87.07m2(approximately 87m

2)

Cost/m2= GHC355.00

Cost of 87m2= 87 x 355 = GHC30, 855.00

Number of floors = 3 (Ground, first and second floors)

Cost of 3 floors = 3 x 30, 855 = GHC92, 655.00

Parking lot:

A parking lot for 50 vehicles

Area = 4.50m x 2.50m = 11.25m2 (approximately 11m

2)

Total area = 11 x 50 = 550m2

Clearance, excavation, and filling and compaction cost per m2= GHC18

Total cost of clearance, excavation, and filling and compaction = 18 x 550 = GHC9, 900.00



Construction of sub base = GHC7 x 550 = GHC3, 850.00

Quarry dust layer = GHC6 x 550 = GHC3, 300.00

Pavement blocks = GHC65 x 550 = GHC35, 750.00

Total cost of the parking lot = 9900 + 3850 + 3300 + 35750 = GHC52, 800.00

Table 3.10 Showing Estimates of Office Complex and Parking Lot

Item Amount (GHC)

Parking lot for 50 vehicles 52, 800.00

Permanent office complex 92, 655.00

Total 145, 455.00

Source: Wilkado Construction Limited, Spintex Road

3.2.3.4 Miscellaneous costs

These are costs that will be incurred during the plant‟s lifespan. They include the cost of

purchasing office stationery for administrative purposes, cost of electricity and other costs that

may arise such as replacing electric bulbs, air condition repairs, renovations and painting. This is

shown in the table below:

Table 3.11 Showing Miscellaneous Cost

Item Amount per month (GHC) Annual amount (GHC)

Office stationery 285.00 3, 420.00

Electricity 1, 470,600.00 17, 647, 200.00

Other costs 199.50 2, 394.00

Total 1, 471, 084.50 17, 653, 014.00

Source: Kingdom Books Services and GWCL



3.2.3.5 Cost of first aid.

Danger always occurs in any construction activity and there is therefore the need to guard against

such problems. First aid will be made available on the premises to treat workers who may get

injured until they are sent to the nearest hospital or clinic for better treatment. An example of a

first aid kit big enough to serve the estimated number of workers on the construction site is “First

Aid Only Large First kit” for instance a Bilingual Contractor‟s First Aid Kit (SKU: 9300-10P)

estimated at a cost of GHC85.462for 2-sets (at a retail price).14

Table 3.12 Summary of all indirect tangible costs


Maintenance and spare parts 5, 738, 703.00

Contingency 21, 995, 435.00

Office complex and parking lot 145, 455.00

Miscellaneous 17, 653, 014.00

First aid 85.462

Total 45, 532, 692.46


3.2.4 Indirect Intangible Cost

These are costs that accrue to the project but are not directly related to the objectives of the

project. These costs are intangible and as such cannot be quantified in monetary terms by the

prevailing market system. They also constitute reductions in societal welfare. The real indirect

intangible costs here include the following:



3.2.4.1 Opportunity cost

Opportunity cost refers to the cost of an alternative that must be forgone in order to undertake a

particular venture, in this case, the installation of the sea water desalination plant. The land for

this project could otherwise have been leased out to a private individual for the same duration to

be used for other productive ventures such as construction of a hotel facility, restaurant or a

beach resort since it is situated at the beachfront of the Teshie community. Below is the

computation for the opportunity cost.

Lease of 1acre of land at Teshie cost GHC8, 000.0015

Therefore 6.1 acre = 8000 x 6.1= GHC48, 800.00

So for the period of 25years, total lease cost =48800 x 25=GHC1, 220,000.00

Total lease cost to the government for the period of 25 years is GHC950, 000.00

Therefore the opportunity cost = 1, 220, 000-950, 000= GHC270, 000.00

3.2.4.2 Loss of revenue to private water dealers/suppliers

The desalination plant when installed is expected to supply 60,000m3

of potable water to the

people of Teshie-Nungua, Batsonaa, Spintex and Burma Camp. Upon investigations from these

areas, it was found out that about 15 water tankers supply water to serve these areas on a weekly

basis. Out of these 15 tankers, 5 are large tankers with the rest being smaller ones. If these

tankers were to continue their water supply to these areas, each of the large tankers will be

earning GHC5, 040.00from 8,000 gallons (320m3) while the smaller tankers earn GHC5, 670.00

from 4,500 gallons (180m3) weekly at a price of GHC0.45 per gallon. This means that, the



services of individuals who formerly supplied water to these areas at a cost will either be needed

less or will not be needed at all.16

Revenue lost from 5 large water tankers

Amount lost from a tanker in a week – GHC0.45 x 320 x 7 = GHC1, 008.00

Amount lost by all 5 tankers weekly – GHC1, 008 x 5 = GHC5, 040.00

Total amount lost annually– GHC5, 040x 52 = GHC262, 080.00

Revenue lost from the 10 small water tankers

Amount lost from a tanker in a week –GHC0.45 x 180 x 7 = GHC567.00

Amount lost by all 10 tankers weekly – GHC567 x 10 = GHC5, 670.00

Total amount lost annually – GHC5, 670 x 52 = GHC294, 840.00

Therefore, total amount lost to all the water tankers is GHC556, 920.00

Table 3.13 Summary of all indirect intangible costs


Opportunity cost 270, 000.00

Loss of revenue to private water dealers 556, 920.00

Total 826, 920.00




Table 3.14 Summary of all cost elements

Type of cost Subtotal (GHC)

Direct tangible cost:

Wages and salaries

Preparation cost

Cost of machinery and equipment

33, 630, 000.00

5, 126, 481.485

100, 369, 400.00

Direct intangible cost:

Environmental hazards (pollution)

1, 680.00

Indirect tangible cost:

Maintenance and spare parts

Contingency

Office complex and parking lot

Miscellaneous

First aid

5, 738, 703.00

21, 995, 435.00

145, 455.00

17, 653, 014.00

85.462

Indirect intangible cost:

Opportunity cost

Loss of revenue to private water dealers

270, 000.00

556, 920.00

Total 185, 487, 173.90




CHAPTER FOUR

ANALYSIS OF COSTS AND BENEFITS

It is important to compare the total anticipated costs with the total expected benefits in

determining whether or not this particular project is worthwhile. If the results of this comparative

evaluation method suggest that the overall benefits associated with a proposed action outweigh

the costs, then the project is likely to be implemented. Generally, a cost-benefit analysis has three

parts. First, all potential benefits obtained and costs that will be incurred by implementing a

proposed action must be identified. Second, these benefits and costs must be quantified. And

finally, all identified costs must be subtracted from the expected benefits to determine whether

the benefits outweigh the costs.

This chapter will focus on the last two points, that is all the benefits and costs will be quantified

and a comparison will be made in order to determine the project‟s feasibility. To determine the

feasibility of the project, the NPV criteria will be used.

4.1 ANALYSIS OF COST

There are two types of costs expected to be incurred, those that will be incurred during the

installation/construction process and those that will be incurred during the estimated life span of

the project. The table below shows a summary of all costs incurred:



Table 4.1 Schedule of cost

Type of cost Subtotal (GHC)

Direct tangible cost:

Wages and salaries

Preparation cost


33, 630, 000.00

5, 126, 481.485

100, 369, 400.00

Direct intangible cost:

Environmental hazards (pollution)

1, 680.00

Indirect tangible cost:

Maintenance and spare parts

Contingency


Miscellaneous

First aid

5, 738, 703.00

21, 995, 435.00

145, 455.00

17, 653, 014.00

85.462

Indirect intangible cost:

Opportunity cost

Loss of revenue to private water dealers

270, 000.00

556, 920.00

Total 185, 487, 173.90


4.2 ANALYSIS OF BENEFITS

The benefits to be generated both during and after the completion of the sea water desalinat ion

plant will comprise benefits by way of wages and salaries to labour, income to food vendors,

revenue from the sale of desalinated water and sale of useful by-product.

The table below shows all benefits:



Table 4.2 Showing all benefits incurred

Type of Benefit Subtotal (GHC)

Direct Tangible:

Employment

Revenue from sale of desalinated water

Savings from easy accessibility to water

33, 630, 000.00

52, 120, 800.00

190, 879, 200.00

Indirect tangible:

Increase in foreign direct investment

Useful by-product

Income of canteen operators and a shop keeper

Rental charges

104, 500, 000.00

957, 600, 000.00

8, 253.00

5, 700.00

Total 1, 338, 743, 953.00


In computing the costs against the benefits, the following assumptions were made.

The costs and benefits incurred in the first year of operation of the desalination plant

were taken as year 0.

The discount rate used in calculating the NPV was the monetary policy rate (r). The Bank

of Ghana‟s monetary policy rate as at April 30, 2012 was 14.5% (monetary policy rate -

www.bog.gov.gh).

The inflation rate (π) used in projecting the future values of costs and benefits for the

lifespan of the plant was the average end of year inflation rate from 2001 to 2011 which

when computed stood at 17.8206%. (see appendix 2)



Table 4.3 Summary of initial and operational cost

Item Amount (GHC)

Initial cost:


Preparation cost


First aid

Contingency cost

Salaries

Total

100, 369, 400.00

5, 126, 481.485

145, 455.00

85.462

21, 995, 435.00

33, 630, 000.00

161, 266, 856.90

Operational cost (Year 0):

Loss of revenue to private water suppliers

Miscellaneous cost

Cost of maintenance and spare parts

Total

556, 920.00

17, 653, 014.00

5, 738, 703.00

23, 948, 637.00


4.2.1 Justification for the NPV and the discount rate

The net present value approach was used because it is technically proven to be superior since it

considers the time value of money and shows the relative risks associated with the project. The

NPV criterion takes into account the time value of money due to the following reasons:

Inflation reduces the purchasing power of the cedi. Therefore the uncertainty surrounding

the receipt of the cedi increases as the date of the receipt recedes into the future

The notion of opportunity cost implies the return on the forgone investment that the

projects could yield hence making use of the interest rate. The NPV criterion therefore

incorporates any variation in the discount rate over the span of the project.



In relation to this study, the Bank of Ghana monetary policy rate (14.5% as at April 2012), was

used. This is because:

It reflects societal preferences of the value of money since the central bank takes into

account social factors in determining that rate.

It forms the basis upon which commercial banks and other financial institutions fix their

base rate which in turn determines the market interest rate.

The monetary policy rate plays an important role in determining all other rates including

the interest rate, hence the money supply.

4.2.2 Decision rule

If the Net Present Value is greater than zero (i.e. NPV>0), then the project is desirable because

the benefits exceed the costs. However, if the Net Present Value is less than zero (i.e. NPV<0),

then the project is not worth undertaking and should not be implemented. If the Net Present

Value is zero (i.e. NPV=0), the decision to accept or reject depend on social factors.

The table below calculates the Net Present Value over the life span of the sea water desalination

plant

In calculating the future values for benefits, the formula used is Bt = Bo(1 + 𝜋)𝑡 , where,

Bt is the benefit in year t and Bo is the Benefit in year 0.

In calculating the future values for costs, the formula used is Ct = Co(1 + 𝜋)𝑡 , where, Ct

is the cost in year t and Co is the cost in year 0.

1/ (1+r)t is the discounting factor for the NPV. NPV=

(𝐵𝑡−𝐶𝑡)

(1+𝑟)𝑡𝑛𝑡=0



Table 4.4 Showing computation of the Net Present Value (NPV)

Year Bt Ct Bt-Ct 1/(1+r)t NPV

0 0.00 161,266,856.90 -161,266,856.90 1 -161,266,856.90

1 1,338,743,953.00 23,948,637.00 1,314,795,316.00 0.873362445 1,148,292,852

2 1,577,316,158 28,216,427.81 1,549,099,730.08 0.762761961 1,181,594,348

3 1,858,403,361 33,244,764.54 1,825,158,596.58 0.666167652 1,215,861,616

4 2,189,581,990 39,169,181.05 2,150,412,809.44 0.581805809 1,251,122,665

5 2,579,778,639 46,149,364.13 2,533,629,274.56 0.508127344 1,287,406,315

6 3,039,510,671 54,373,457.71 2,985,137,213.07 0.44377934 1,324,742,222

7 3,581,169,709 64,063,134.11 3,517,106,575.26 0.38758021 1,363,160,904

8 4,219,355,639 75,479,568.99 4,143,876,069.61 0.338498 1,402,693,760

9 4,971,270,130 88,930,481.06 4,882,339,648.47 0.295631441 1,443,373,105

10 5,857,180,294 104,778,426.4 5,752,401,867.87 0.258193398 1,485,232,185

11 6,900,964,966 123,450,570.6 6,777,514,395.13 0.225496418 1,528,305,216

12 8,130,758,328 145,450,203 7,985,308,125.43 0.196940103 1,572,627,402

13 9,579,708,247 171,370,301.9 9,408,337,945.23 0.17200009 1,618,234,970

14 11,286,869,735 201,909,517.9 11,084,960,217.10 0.150218419 1,665,165,197

15 13,298,257,643 237,891,005.5 13,060,366,637.55 0.131195126 1,713,456,442

16 15,668,086,945 280,284,610 15,387,802,334.56 0.114580896 1,763,148,176

17 18,460,234,047 330,233,009.2 18,130,001,037.39 0.100070651 1,814,281,013

18 21,749,958,515 389,082,512.8 21,360,876,002.26 0.087397949 1,866,896,746

19 25,625,931,622 458,419,351.1 25,167,512,271.12 0.076330086 1,921,038,383

20 30,192,626,393 540,112,430 29,652,513,962.91 0.066663831 1,976,750,173

21 35,573,133,572 636,363,705.7 34,936,769,866.18 0.058221686 2,034,077,655

22 41,912,479,413 749,767,536.2 41,162,711,876.95 0.050848634 2,093,067,683

23 49,381,534,719 883,380,609.7 48,498,154,109.70 0.044409288 2,153,768,474

24 58,181,620,496 1,040,804,335 57,140,816,160.97 0.038785404 2,216,229,641

25 68,549,934,358 1,226,281,912 67,323,652,445.75 0.033873715 2,280,502,236

Total 41,159,762,521.59


The computation of the net present value (NPV) indicates a positive NPV of

GHC41,159,762,521.59. Thus, the present value of benefits from the project far exceeds the

present value of its costs. Therefore the Teshie sea water desalination plant is worth undertaking

and should be implemented by the government.



CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

The above analysis shows that the installation of the sea water desalination plant is a viable

project and upon its implementation will not only benefit the people of Teshie and its environs

but also to the nation of Ghana at large. This is because aside the revenue generated and solving

the acute water problem at Teshie and its environs, it will also create employment for some

Ghanaians as well. Furthermore, there are several other benefits both direct and indirect which

will emanate from the installation of the plant. These include increase in profit of industries,

improvement in infrastructure and social amenities, increase in foreign investment and

sustenance of the natural sources of water. In spite of these attractive benefits, there are some

costs associated with the installation of the plant. These costs can be grouped into monetary and

non-monetary costs. The monetary cost involves an initial capital outlay which is approximately

GHC161, 266,856.90. Moreover, there are other costs which include the loss of revenue to

private water suppliers, miscellaneous cost and cost of maintenance and spare parts which

amount to a sum of GHC23, 948,637.00. The non-monetary cost is made up of environmental

cost such as air and noise pollution which will arise during the period of construction. However,

this environmental cost will be minimized when the installation of the plant is completed. The

overall benefit to be derived from the project for the first year summed up to

GHC1,338,743,953.00.



5.2 Problems

5.2.1 Difficulty in Accessing Information

Getting information for the project was a very difficult task. Accessing satisfactory information

for the project work involved separate trips to the Ministry of water Resources, Works and

Housing, Ghana Water Company Limited Head Office, Ledzekuku-Krowor Municipal Assembly

and Teshie over a period of two months. Accessing information from these places was difficult

because some of the institution were reluctant to disclose pertinent information concerning the

project prior to its implementation. This is because the project documentation is still in

parliament and will not want to give out any information that will not conform to parliamentary

proceedings. The same difficulty also pertained to internet publications and GWCL figures

which also gave conflicting figures. Cost and benefits were either overstated or understated.

5.2.2 High Travel and Time Costs

Travelling from Legon to Accra and Teshie cost the group an average amount of GHC15.00 per

trip. In addition to the travel cost, there is also the cost involved in printing and reprinting of the

project work and the cost of binding.

5.2.3 Limited Information for the Quantification of Intangible Costs and Benefits

Due to the limitation of information received from the various sources of information, the group

was unable to monetize some intangible costs and benefits like opportunity cost, increase in

profits of industries, time etc.



5.3 Recommendations

Having closely observed all available information, we recommend the following:

The duration of the study should be extended to one academic year so that an in-depth

study can be made.

The right to Information Bill should be passed to facilitate quick access to information on

major projects of national interest.

All concerned institutions should be made aware of the necessary details of future

projects and its operations to avoid any inconvenience at a future date.

The public should be educated on the portability of desalinated water to clear any doubts

on quality of water generated from the process.

5.4 Conclusion

As with any cost-benefit analysis, an evaluation of the costs and benefits associated with the

installation of the sea water desalination plant at Teshie has been established to assess the social

net benefit of the project and aid in productive investment decision making. Employing the Net

Present Value Approach yields a positive value of GHC41, 159,762,521.59. In accordance with

the NPV decision rule, we assure the major stakeholders such as the Ghana Water Company

Limited, Ledzekuku-Krowor Municipal Assembly, Befesa Agua and the Government of Ghana,

that the project will yield positive net benefits that will improve the welfare of society if the

desalination plant is well maintained and efficiently managed, all other things being equal.

Therefore, the project is economically viable and socially desirable.



REFERENCES

1. Boardman E. Anthony, Greenberg H. David, Vining R. Aidan and Weimer L. David

(2006). Cost- Benefit Analysis: Concepts and Practice. Pearson Publications. 3rd

Edition

2. The Clean Tech Revolution: The Next Big Growth and Investment Opportunity‖ by Ron

Pernick and Clint Wilder (p. 23). Published by HarperCollins in 2007.

3. Layard Richard and Glaister Stephen (1994).Cost-Benefit Analysis. Cambridge

University Press. 2nd

Edition

4. WDI Water Desalination International: Introduction‖ published by WDI.

http://www.waterdesalination.com/introduction.html

5. Environmental and Social Review Summary; Befesa Seawater Desalination Project –

Ghana- June 17, 2011.http://www.miga.org/documents/Befesa_Desalination_ESRS.pdf

6. Bank of Ghana Monetary Policy Committee Press Release, April 13, 2012.

www.bog.gov.gh.

7. Multilateral Investment Guarantee Agency (World Bank Group)-Projects, Washington

DC, USA, 2012. http://www.miga.org/index.cfm

http://www.miga.org/documents/Befesa_Desalination_ESRS.pdf

http://www.bog.gov.gh/



FOOTNOTES

1 Source: Ghana Water Company Limited

2PMO and Project Management Dictionary, August 2007

3 Webfinance Incorporated: www.businessdictionary.com, 2011

4 Source: http://www.miga.org/documents/Befesa_Desalination_ESRS.pdf

5 Source: http://www.miga.org/index.cfm

6 Source: GWCL

7Source: GWCL

8Source: GWCL

9Source: GWCL

10 Covenant impressions Limited: http://www.alibaba.com

11Source: Accra Metropolitan Assembly

12Source: GWCL

13Source: GWCL

14 Source: http://www.firstaidstore.com

15Source: Lands Commission/LEKMA

16Source: AVRL Tanker Services

17Source: Monetary Policy Committee, Bank of Ghana.

http://www.businessdictionary.com/

http://www.miga.org/documents/Befesa_Desalination_ESRS.pdf

http://www.miga.org/index.cfm

http://www.alibaba.com/

http://www.firstaidstore.com/





APPENDIX 2

Inflation rates from 2001 to 2011 respectively.

Year Rate (%)

2001 32.906

2002 14.815

2003 26.677

2004 12.629

2005 15.113

2006 10.151

2007 10.733

2008 16.522

2009 19.251

2010 10.709

2011 8.70

Average 17.8206

Source: Bank of Ghana Statistical Report (2001-2011)

Calculation:

32.906 + 14.815 + 26.677 + 12.629 + 15.113 + 10.151 + 10.733 + 16.522 + 19.251 + 10.709 +

8.70 = 178.206

Average figure = 178.206/10 = 17.8206



APPENDIX 3

Projected future cost and benefits for the lifespan of the project.

Year Bt Ct Bt-Ct

0 0.00 161,266,856.90 -161,266,856.90

1 1,338,743,953.00 23,948,637.00 1,314,795,316.00

2 1,577,316,158 28,216,427.81 1,549,099,730

3 1,858,403,361 33,244,764.54 1,825,158,597

4 2,189,581,990 39,169,181.05 2,150,412,809

5 2,579,778,639 46,149,364.13 2,533,629,275

6 3,039,510,671 54,373,457.71 2,985,137,213

7 3,581,169,709 64,063,134.11 3,517,106,575

8 4,219,355,639 75,479,568.99 4,143,876,070

9 4,971,270,130 88,930,481.06 4,882,339,648

10 5,857,180,294 104,778,426.4 5,752,401,868

11 6,900,964,966 123,450,570.6 6,777,514,395

12 8,130,758,328 145,450,203 7,985,308,125

13 9,579,708,247 171,370,301.9 9,408,337,945

14 11,286,869,735 201,909,517.9 11,084,960,217

15 13,298,257,643 237,891,005.5 13,060,366,638

16 15,668,086,945 280,284,610 15,387,802,335

17 18,460,234,047 330,233,009.2 18,130,001,037

18 21,749,958,515 389,082,512.8 21,360,876,002

19 25,625,931,622 458,419,351.1 25,167,512,271

20 30,192,626,393 540,112,430 29,652,513,963

21 35,573,133,572 636,363,705.7 34,936,769,866

22 41,912,479,413 749,767,536.2 41,162,711,877

23 49,381,534,719 883,380,609.7 48,498,154,110

24 58,181,620,496 1,040,804,335 57,140,816,161

25 68,549,934,358 1,226,281,912 67,323,652,446


Documents

CHAPTER ONE INTRODUCTION - Econ-Jobs.com · Cost-Benefit Analysis of the proposed installation of a 60,000m3 sea water desalination plant by the Government of Ghana at Teshie to improve