Evaluation of the Olifants-Sand Water Transfer Scheme in the Northern Province of South Africa
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RI Cambridge Resources International Evaluation of the Olifants-Sand Water Transfer Scheme in the Northern Province of South Africa By Cambridge Resources International Inc. Cambridge MA, USA January 2003 TABLE OF CONTENTS 1. INTRODUCTION ............................................................................................. 1 2. PROJECT DESCRIPTION............................................................................... 3 2.1 Location ............................................................................................... 3 2.2 Project Scope....................................................................................... 4 3. WATER BALANCE ......................................................................................... 6 3.1 Water Demand ..................................................................................... 6 3.2 Status Quo ........................................................................................... 7 3.3 Development Strategy: Raising of Flag Boshielo+5m (Rooipoort is not built)....................................................................... 8 3.4 Development Strategy: Construction of Rooipoort (Flag Boshielo is not raised) ..................................................................... 10 3.5 Development Strategy: Raising of Flag Boshielo+5m and Construction of Rooipoort............................................................... 12 4. METHODOLOGY........................................................................................... 15 4.1 Objectives of the Integrated Financial, Economic, Distributive and Risk Analysis............................................................................. 15 5. FINANCIAL ANALYSIS................................................................................. 19 5.1 Scope of Financial Analysis ............................................................. 19 5.2 Development Strategy: Raising Flag Boshielo+5m (Rooipoort is not built) ........................................................................................ 22 5.3 Development Strategy: Rooipoort is built (Flag Boshielo is not raised)................................................................................................ 24 5.4 Development Strategy: Flag Boshielo raised by 5m and Rooipoort is built.............................................................................. 26 5.5 Comparison of Development Strategies.......................................... 28 Changes in Water Demand........................................................... 29 Construction Costs Over-runs..................................................... 30 Inflation and Water Costs............................................................. 31 Choice of Rooipoort Site and FSL............................................... 33 5.6 Financing of the OSWTS................................................................... 34 5.7 Cost of Water “Development Reserve” ........................................... 37 5.8 Timing of Investment ........................................................................ 39 6. ECONOMIC ANALYSIS ................................................................................ 42 6.1 Scope of Economic Analysis............................................................ 42 6.2 Economic Cost-Effectiveness of the OSWTS ................................. 44 Economic Average Unit Cost of Water........................................ 44 Changes in Water Demand........................................................... 46 Construction Costs Over-runs..................................................... 48 iii 6.3 Timing of Investment from Economic Perspective ........................ 49 6.4 Economic Net Present Value............................................................ 51 6.5 Indirect Economic Benefits .............................................................. 52 Mining Projects ............................................................................. 52 Tourism Projects........................................................................... 54 Agriculture Projects...................................................................... 55 Manufacturing Projects ................................................................ 56 6.6 Water Supply as a Critical factor...................................................... 57 7. STAKEHOLDER IMPACT ASSESSMENT ................................................... 59 7.1 Total Consumer Surplus of Water Users......................................... 59 7.2 Employment and Labor Income ....................................................... 62 7.3 Fiscal Impacts.................................................................................... 64 7.4 Cost of Water Re-allocation among Users ...................................... 65 8. RISK ANALYSIS ........................................................................................... 68 8.1 Results of Risk Analysis................................................................... 68 Average Financial Unit Water Costs ........................................... 69 Average Economic Unit Water Costs.......................................... 71 Economic Net Present Values ..................................................... 73 8.2 Summary of Findings........................................................................ 75 9. CONCLUSIONS ............................................................................................ 76 Action Recommendations: ....................................................................... 80 Limitations of Study and Further Research ............................................ 81 APPENDIX A: DEMAND FOR WATER.............................................................. 83 A.1 Water Demand Projections............................................................... 83 A.2 Pietersburg / Polokwane (excluding Rural North) .......................... 84 Pietersburg Water Demand .......................................................... 85 Seshego Water Demand............................................................... 86 Combined Pietersburg and Seshego (Polokwane) .................... 87 A.3 Lebalelo Water User Association..................................................... 88 A.4 Smaller Centers ................................................................................. 91 A.5 Irrigation............................................................................................. 93 A.6 Rural Demands .................................................................................. 93 A.7 Other Possible Users ........................................................................ 99 APPENDIX B: OSWTS COST ESTIMATES..................................................... 103 B.1 Ownership........................................................................................ 103 B.2 Timing of Capital Expenditures...................................................... 104 B.3 Raising of Flag Boshielo Dam ........................................................ 105 B.4 Construction of Rooipoort Dam ..................................................... 107 iv B.5 Construction of Water Transfer Scheme....................................... 112 B.6 Operation and Maintenance Expenses.......................................... 115 APPENDIX C: ECONOMIC CONVERSION FACTORS AND ECONOMIC VALUE OF WATER ............................................................................... 117 C.1 Basic Commodity Conversion Factors.......................................... 117 C.2 Conversion Factors for Labor ........................................................ 121 C.3 Conversion Factors for OSWTS ..................................................... 123 C.4 Creation of Consumer Surplus for Water Users........................... 128 C.5 Water Tariffs and Average Willingness to Pay for Water ............. 133 C.6 Consumer Surplus Estimation ....................................................... 136 APPENDIX D: RISK VARIABLES AND PROBABILITY DISTRIBUTIONS ..... 139 D.1 Selection of Risk Variables............................................................. 139 D.2 Assignment of a Probability Distribution ...................................... 140 Inflation Rate of Rand................................................................. 140 Foreign Exchange Rate, Rand/US$ ........................................... 142 Modeling of Risk Variables ........................................................ 144 v ABSTRACT Provision of the basic water services is a government’s responsibility in many developing countries around the world. As the private sector is either unable to supply the water or it lacks the necessary authority over the natural sources of water, the government has to make arrangements for a reliable water provision. The Northern Province of South Africa faces a water shortage problem in the near future, and in the conditions of water scarcity, the Provincial Government has decided to build a regional bulk water supply system, named “Olifants-Sand Water Transfer Scheme.” The scheme is comprised of three project modules: raising of the existing Flag Boshielo Dam by 5 meters, construction of a new Rooipoort Dam; and construction of Water Transfer Scheme from the Rooipoort Dam to Pietersburg, the provincial capital city. The scheme will be able to relieve the water shortages in the region of one million people for 15-20 years ahead, and to stimulate the mining, agriculture, manufacturing and tourism