South Australian River Murray Sustainability Project - Cost-Benefit Analysis - Example

SOUTH AUSTRALIAN RIVER MURRAY SUSTAINABILITY PROJECT Cost Benefit Analysis Report ==================================================== Executive Summary Cost-benefit analysis is a procedure for comparing alternative courses of action by reference to the net social benefits that they produce for the community as a whole. It is a technique used to compare the total costs of a programme/project with its benefits, using a common metric (most commonly monetary units). This enables the calculation of the net cost or benefit associated with the programme.  This cost benefit analysis report will be used to evaluate the total anticipated cost of South Australian River Murray Sustainability Project as compared to the total expected benefits in order to determine whether implementation is worthwhile for Australian Government and Commonwealth. The report will look in to the impacts of the National Partnership Agreement on South Australian River Murray Sustainability Project both in economic terms and impact on society’s well being. The project was initiated based on the provisions of the Intergovernmental Agreement on Federal Financial Relations (IGA FFR) read with the Agreement and its Schedules, which provide information in relation to performance reporting and payment arrangements. Abbreviations CBA Cost Benefit Analysis ACTEW Australian Capital Territory Electricity and Water Corporation CBA Cost Benefit Analysis Introduction This is a cost benefit analysis report of the South Australian River Murray Sustainability Program where Commonwealth and South Australia made an agreement and mutually agreed to work together to deliver water reform outcomes in South Australia in the context of implementing the Intergovernmental Agreement on Implementing Water Reform in the Murray -Darling Basin. The Agreement, will contributes to the implementation of the South Australian River Murray Sustainability Program. The program will support South Australia’s contribution to a healthy working Murray -Darling Basin, including a healthy environment, strong communities and a productive economy, through implementation of the Murray-Darling Basin Plan (the Basin Plan) and associated reforms and initiatives This program is funded by the Commonwealth under this Agreement which will be implemented consistently with the objectives and outcomes of all National Agreements and National Partnerships agreed by the Parties. Description of the proposal The role of the Commonwealth in this project is to provide financial contributions to South Australia to support the implementation of this project. It is also supposed to monitor and assess the performance and achievement of the set targets and deliverables at any given stage. This monitoring and evaluation shall ensure outputs are delivered and outcome achieved within the set time lines. Project stakeholders must comply with the Building Code 2013 which is a condition of Australian Government funding. The constructors must meet the requirements of the Fair Work (Building Industry) Act 2012 and are must be accredited by Australian Government Building and Construction Occupational Health and Safety. South Australia on the other hand agrees to deliver outcomes and outputs assigned to South Australia for implementation. They also monitor, assess and review and report the delivery of outputs as set out in the Agreement. South Australia must implement appropriate governance mechanisms to ensure the administration and management of the program is equitable, transparent and robust. They should establishing program guidelines, application documentation and processes, eligibility and assessment criteria, and appeals processes that will allow the State to identify which projects will best meet the objectives and funding elements with reference to value for money. Developing communication and stakeholder engagement, implementation, risk management, compliance management, audit compliance and performance assessment plans and a monitoring and evaluation strategy to support the program. It is South Australia that will ensure eligible applicants have met all Commonwealth conditions placed on any previous Commonwealth funding they may have received. Ensuring that all third party contractual arrangements require successful applicants to comply with all applicable laws and regulations such as planning, environmental, occupational health and safety, building and regulatory approvals. the Environmental Protection and Biodiversity Conservation Act 1999 (Cth) and the Native Title Act 1993 (Cth) and Natural Resources Management Act 2004 (SA) and all applicable Australian Standards must be complied with. Impact chart What are the program objectives? Australian state to deliver $120.0 million grant program in order to improve the overall productivity of River Murray irrigation industry. Assist irrigators who have access entitlement to extract water from the South Australian River Murray Prescribed Watercourse in ode to improve their farms productivity. Establish and implement competitive and transparent distribution process for the industry funding with robust governance and appealing processes. Identify the impacts (costs and benefits) Cost identification is the first step in identifying and quantifying all costs associated with the program. First is the monetary costs to be incurred on project implementation all though the project life. Unit cost $(Million) 2016 2017 2018 2019 Travel expenses 90 17 28 39 Production materials 102 107 112 118 Licenses 7 8 8 9 Salaries and wages 32 39 43 49 Training 12 15 17 19 Start-up fees 120 0 0 0 Monetary Costs to be Incurred Secondly are the non-monetary costs likely to be incurred. The assigned monetary values are assigned as per the current market trends and industry surveys. Unit cost $(Million) 2016 2017 2018 2019 Time 13 3 4 9 Market saturation 14 20 17 26 Imperfect processes 1 2 1 2 Potential risks 4 7 6 11 Penetration uncertainties 2 3 3 4 Influences on one’s reputation 17 2 3 5 Non-Monetary Costs Likely to be Incurred Identifying Benefits the benefits identified and qualified once the program is fully implemented, all the monetary benefits to be experienced upon implementation and thereafter are together with all the non-monetary benefits likely to experience are identified. Monetary benefits Unit benefit $(Million) 2016 2017 2018 2019 Direct profits from services, 36 2 14 8 Increased contributions from investors, 41 11 56 24 Decreased production costs 3 1 4 2 Increased production capabilities 13 4 22 10 Non Monetary Benefits Unit benefit $(Million) 2016 2017 2018 2019 Increased reliability and durability 180 34 42 47 Improved government reputation 204 214 168 142 Greater customer satisfaction 14 16 12 11 Greater market saturation 64 78 65 59 Decreased production times 24 30 26 23 Greater customer base 240 30 48 41 Value the impacts (costs and benefits) There will be an average annual yield of at least 16.8 gigalitres water savings achieved by the Commonwealth and South Australian River Murray Irrigation project. General farm improvement and improved farm water management through the provision of funds for irrigation system improvement, this eventually improve water delivery to crops. Infrastructural improvement through provision of funds for upgrades off-farm irrigation delivery infrastructure. The benefits can be achieved if technical and legal due diligence and assessment by State agency delegated by South Australia to confirm the estimates of water savings, works proposed are properly costed and fit-for purpose and to determine the merit of funding. The projects under the South Australian River Murray Irrigation will return at least 50 per cent of water savings to the Commonwealth at a project value of no more than 2.5 times the prevailing average market price of water access entitlements recovered. Purchase of water access entitlement will be done at the prevailing average market price and subject to the annual limit of funding provided for the element by the Commonwealth. All the purchases will be done according to the South Australian procurement policies and compliance procedures. The program will recover at least 19.2 gigalitres long term average annual yield water to the Commonwealth. This water will be supplied to the Commonwealth in the form of South Australian River Murray Class 3 water access entitlements. There will be decreased in cost of production due to the improvement of and standardization of operation processes and procedures. Evaluate Costs and Benefits The final step when creating a cost benefit analysis is to weigh the costs and benefits to determine if the proposed action is worthwhile. This is achieved by comparing the total costs and total benefits values. The formula used is:- NSB = (B - C)> 0 Where NSB is net social benefits, B is social benefits and C is social costs, in this context prices is set equal to marginal cost. P=MC Conclusion The program will deliver competitively awarded grants to support irrigation systems , farming employment opportunities or economic diversification within the region. . Bibliography Boardman, A.E., D.H. 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