Economic evaluation of the “Healthy Water for La Laguna” project

Abstract

Objective: To identify the costs and benefits attributable to the “Healthy Water for La Laguna” project, quantifying and evaluating them throughout their useful life, with the aim of judging the convenience of conducting this project.

Design/methodology/approach: An Economic-Financial Evaluation was conducted determining the main economic indicators: Internal Rate of Return (IRR), Net Present Value (NPV), and Cost-Benefit Rate (C/B R).

Results: The project “Healthy Water for La Laguna” was profitable given the following indicators: Social Net Present Value of $26´819,451,175 in a horizon of evaluation of 34 years considering a discount rate of 10%, an Internal Rate of Return (IRR) of 35.29%, and a Benefit-Cost Rate of 2.8. In the sensitivity analysis, it was determined that the project shows a low sensitivity to the increase in investment and operation costs. However, it was seen that the variable that could have the most significant impact is that of benefits, since a reduction of more than 64.33% would make the Net Present Value (NPV) lower than zero.

Limitations on study/implications: The one limitation found in the study was the lack of information, since some missing data had to be estimated.

Findings/conclusions: It can be concluded that the execution of the project is essential and necessary to achieve an immediate increase in the consumption of drinking water in the locations covered by the project, in addition to serving as a departure point to improve the quality of the water used and to reduce the impacts of overexploitation.