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

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  • Djukic, Malisa
  • Jovanoski, Iljcho
  • Ivanovic, Olja Munitlak
  • Lazic, Milena
  • Bodroza, Dusko

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.

Suggested Citation

  • Djukic, Malisa & Jovanoski, Iljcho & Ivanovic, Olja Munitlak & Lazic, Milena & Bodroza, Dusko, 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, Elsevier, vol. 59(C), pages 1419-1425.
    • Handle: RePEc:eee:rensus:v:59:y:2016:i:c:p:1419-1425
    DOI: 10.1016/j.rser.2016.01.050
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    Cited by:

    1. A. Bellver-Domingo & F. Hernández-Sancho, 2018. "Environmental Benefit of Improving Wastewater Quality: A Shadow Prices Approach for Sensitive Areas," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(02), pages 1-15, April.
    2. Shengqin Zheng & Ke Xu & Qing He & Shaoze Fang & Lin Zhang, 2018. "Investigating the Sustainability Performance of PPP-Type Infrastructure Projects: A Case of China," Sustainability, MDPI, vol. 10(11), pages 1-15, November.
    3. Liping Cao & Fenqi Zhou & Yuan Zhu, 2021. "Performance-Influencing Factors and Improvement Paths of Third-Party Governance Service Regarding Environmental Pollution—An Empirical Study of the SEM Based on Shanghai Data," Sustainability, MDPI, vol. 13(4), pages 1-24, February.
    4. Carme Machí Castañer & Águeda Bellver-Domingo & Francesc Hernández-Sancho, 2020. "Environmental and Economic Approach to Assess a Horizontal Sub-Surface Flow Wetland in Developing Area," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 34(12), pages 3761-3778, September.
    5. Leticia Gallego-Valero & Encarnación Moral-Parajes & Isabel María Román-Sánchez, 2021. "Wastewater Treatment Costs: A Research Overview through Bibliometric Analysis," Sustainability, MDPI, vol. 13(9), pages 1-14, April.
    6. Ambika Markanday & Ibon Galarraga & Anil Markandya, 2019. "A Critical Review Of Cost-Benefit Analysis For Climate Change Adaptation In Cities," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 10(04), pages 1-31, November.
    7. Nikolic, Ana & Mikic, Miljan & Naunovic, Zorana, 2017. "Broadening the urban sustainable energy diapason through energy recovery from waste: A feasibility study for the capital of Serbia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 69(C), pages 1-8.
    8. Márta Somogyvári, 2018. "Ethical Aspects of Intertemporal Discounting and the Social Discount Rate," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(3), pages 109-132.
    9. Ruiz-Rosa, Inés & García-Rodríguez, Francisco J. & Antonova, Natalia, 2020. "Developing a methodology to recover the cost of wastewater reuse: A proposal based on the polluter pays principle," Utilities Policy, Elsevier, vol. 65(C).

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