Cost-benefit analysis of an infrastructure project and a cost-reflective tariff: A case study for investment in wastewater treatment plant in Serbia

Đukić, Mališa and Jovanoski, Iljcho and Munitlak Ivanović, Olja and Lazić, Milena and Bodroža, Duško (2016) Cost-benefit analysis of an infrastructure project and a cost-reflective tariff: A case study for investment in wastewater treatment plant in Serbia. Renewable and Sustainable Energy Reviews, 59. pp. 1419-1425. ISSN 1364-0321

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Abstract

To prevent the environment from being adversely affected by the disposal of insufficiently-treated wastewater, the European Urban Wastewater Directive (Directives 91/271/EEC and 98/15/EEC) emphasizes the need for secondary or more stringent treatment of urban wastewater in sensitive areas. The EU Water Framework Directive (Directive 2000/60/EC) stresses the role of economic analysis to prevent the degradation and depletion of water resources. The wastewater treatment process results in external benefits that should be quantified in order to assess the economic feasibility of a proposed project. The principle of full cost recovery and “the polluter pays” principle are to be pursued. Using the European Commission methodology for cost-benefit analysis, economic performance indicators of an infrastructure project in Serbia requiring tertiary treatment of wastewater in a sensitive area are calculated. To ensure a financial sustainability, the authors assessed a cost-reflective tariff to be introduced following the start of wastewater treatment plant operations. The economic net present value is positive, while the economic internal rate of return is greater than the social discount rate. Full cost recovery implies a significant tariff increase that should be taken into account by water authorities and companies as the project should not be only economically feasible, but also socially affordable.

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