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Impact Assessment and Project Appraisal


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Integrated approach to project feasibility analysis: a


case study
a
Prasanta Kumar Dey
a
Faculty of the Department of Management Studies, University of the West Indies, Cave
Hill Campus, PO Box 64, Bridgetown, Barbados E-mail:

Version of record first published: 20 Feb 2012.

To cite this article: Prasanta Kumar Dey (2001): Integrated approach to project feasibility analysis: a case study, Impact
Assessment and Project Appraisal, 19:3, 235-245

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Impact Assessment and Project Appraisal , volume 19, number 3, September 2001, pages 235–245, Beech Tree Publishing, 10 Watford Close, Guildford, Surrey GU1 2EP, UK

Professional practice

Integrated approach to project feasibility


analysis: a case study

Prasanta Kumar Dey


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ROJECTS TRANSFORM a vision into reality.

P
Feasibility studies of industrial projects consist
of multiple analyses carried out sequentially. Major projects can apply science and tech-
This is time consuming and each analysis nology in a sustainable manner but in many
screens out alternatives based solely on the instances adversely affect their environment. Impact
merits of that analysis. In cross-country petro- assessment determines the socio-economic and envi-
ronmental consequences of proposed projects. Large
leum pipeline project selection, market analysis
industrial projects can affect the socio-economic
determines throughput requirement and supply fabric of nearby populations. Socio-economic m i -
and demand points. Technical analysis identifies pacts can occur at all the four stages of project life
technological options and alternatives for pipe- — pre-construction (planning/policy development);
line routes. Economic and financial analysis de- construction (implementation); operation and main-
rive the least-cost option. The impact assessment tenance; and decommissioning (abandonment)
addresses environmental issues. The impact as- (Ramanathan and Geetha, 1998).
sessment often suggests alternative sites, routes, Cross-country petroleum pipelines are the most
technologies, and/or implementation method- energy-efficient, safe, environmentally friendly, and
ology, necessitating revision of technical and economical means for transporting hydrocarbons
financial analysis. This report suggests an (gas, crude oil, and finished product) over long dis-
integrated approach to feasibility analysis pre- tances within a country and between countries. To-
day, a significant part of a nation’s energy
sented as a case application of a cross-country
requirement is transported through pipelines. The
petroleum pipeline project in India. economy of a country can be heavily dependent on
smooth and uninterrupted operation of these lines
(Dey and Gupta, 2000).
Therefore, it is important to ensure safe and fail-
ure-free operation of these pipelines. While pipelines
Keywords: feasibility analysis; analytic hierarchy process;
are one of the safest means of transporting bulk en-
petroleum pipeline; present value ergy, with failure rates much less than railroads, de-
fects do occur and sometimes have catastrophic
consequences. For example, in 1993, 51 people were
burnt to death when a gas pipeline failed and escap-
ing gas was ignited in Venezuela. In 1994, a 36-inch
pipeline in New Jersey, USA failed, resulting in the
Prasanta Kumar Dey is a member of the Faculty of the Depart- death of one person and injuring more than 50
ment of Management Studies, University of the West Indies, people (US Department of Transportation, 1995).
Cave Hill Campus, PO Box 64, Bridgetown, Barbados; E-mail: Such failures also have been reported in the
deypk@hotmail.com. United Kingdom, Russia, Canada, Pakistan, and

Impact Assessment and Project Appraisal September 2001 1461-5517/01/030235-11 US$ 08.00 © IAIA 2001 235
Integrated approach to project feasibility analysis

India. In 1998, an attempt to pilfer product from a The optimum alternative is selected on the basis
pipeline led to the death of 500 persons (CON- of financial evaluation criteria, such as net present
CAWE, 1994). In addition, disruption of pipeline value and internal rate of return. The environmental
operations can lead to large losses in business (Dey and socio-economic impact assessment is then con-
et al, 1998). ducted on a single selected project to identify means
To avoid failures, pipeline operators choose opti- to mitigate negative environmental impacts.
mal pipeline routes (Dey and Gupta, 1999) and con- The pipeline planners who follow the steps pre-
sider the long-term profitability of each project (Dey sented in Figure 2 encounter the following problems:
et al, 1996). In recent years, social impact assess-
ment (SIA) and environmental impact assessment • A long study time frame because studies are com-
(EIA) have emerged to help ensure a project is both pleted sequentially.
profitable and a contributing agent to the society. • Only one alternative is addressed during impact
Their findings, however, are sometimes ignored by assessment, which may be called upon to justify
the project owner, causing conflict within surround- this alternative generated from financial analysis.
ing populations. This conflict can result in damage • Impact assessment findings often demand altera-
either to the project or to the society. tion of the project site (pipeline route) and use of
a different technology, necessitating revision of
the technical and financial analysis.
Project description • Although sometimes projects get statutory ap-
proval from the regulatory authorities based on
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The project under study is a cross-country petroleum impact assessment reports, there is evidence of
pipeline project in western India. Its length is 1,300 project abandonment at this late stage because of
kilometers plus a 123-kilometer branch line. The public protest.
pipeline is designed carry 5 million metric tons per • Project approval takes time because approving
annum (mmtpa) of throughput. The project includes authorities often ask for additional information,
three pump stations, one pumping/delivery station, necessitating further detailed analysis.
two scraper stations, four delivery stations, and two • Sometimes, the selected projects prove not to be
terminal stations. The project cost was estimated as fully effective in the operations stage because of
US$ 600 million. A detailed description of the pro- large operating and maintenance costs and lack of
ject is available in Dey (1997). The work breakdown expansion opportunities.
structure of the project is shown in Figure 1.
These problems can be resolved by incorporating the
feasibility analyses and impact assessments into an
Customary feasibility analysis process integrated framework with the active involvement of
all the stakeholders. The objective in the project un-
Figure 2 shows the customary cross-country petro- der study was to develop an integrated project sele c-
leum pipeline feasibility analysis process. Rapid tion model that quantified the merits and demerits of
industrial growth calls for the study of many poten- various project alternatives.
tial pipeline projects, which are scrutinized to iden-
tify a few feasible ones for detailed analysis. Market
and demand analysis determines the pipeline route Project analysis and approval processes
and supply–demand points. The technical analysis
assesses a few alternatives with respect to pipe Potential projects are first identified through both
diameter and the number of intermediate stations. top-down and bottom-up approaches that involve

Laying cross-country pipeline

Laying Building and colony Telecommunication CP system Station


pipes construction and SCADA system construction

Laying pipes Laying pipes Laying pipes Laying pipes Laying pipes
in normal across river across vari- in slushy in offshore
terrain ous crossings terrain location

Pump Delivery Scraper Offshore


stations stations stations terminal

Survey Land Statutory Power Decision Material Works Implementation


acquisition clearance supply and detailed procurement contract
engineering

Figure 1. Work breakdown structure of cross-country petroleum pipeline project

236 Impact Assessment and Project Appraisal September 2001


Integrated approach to project feasibility analysis

Needs analysis

Initial screening

Market and demand


analysis

Technical analysis

Alternative projects
analysis

Financial and Project change


economic analysis required

Impact assessment
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Figure 2. Current project feasibility analysis process of cross-country petroleum pipeline

different levels of executives. They consider the and Natural Gas is the ultimate authority for ap-
supply of, and demand for, petroleum products and proving the project in principle and allocating
crude, the organization’s strategic plans, and produc- funds for implementation. The entire analysis and
tivity improvement. Brainstorming and/or the Delphi approval processes, along with communication net-
technique are employed to screening the feasible work among project stakeholders, are shown in
projects. Figure 3.
Next, a project analysis team is formed. Typically
it consists of representatives of a design (civil, ele c-
trical, mechanical, and telecommunication) group, a Project analysis model
planning group, an implementation group, an opera-
tions group, and a finance group. They are selected Figure 4 shows the model for feasibility analysis of a
based on their experience and past performance. cross-country petroleum pipeline used for the pipe-
They form the feasibility study’s core working line project under study. The technical analysis
group. They identify the project stakeholders, de- (TA), the environmental impact assessment (EIA)
termine their concerns, and involve them in the and the socio-economic impact assessment (SEIA)
analysis. Table 1 shows a typical list of stakeholders are conducted simultaneously. These studies solve
along with their requirements and concerns. site selection (pipeline route) problems, as well as a
The project analysis team establishes environ- few technological considerations. The least-cost op-
mental and social impact assessment requirements, tion is then identified through a financial and eco-
based in part on the results of interaction with envi- nomic analysis of a few feasible alternative projects.
ronmental regulators and project-affected people. The analytic hierarchy process (AHP), a multiple
Project stakeholders are active during the identific a- attribute decision-making technique (Saaty, 1980),
tion of alternatives and project selection criteria. was used for the simultaneous technical, environ-
Stakeholders also take part in decision-making, mental, and socio-economic analysis. It was used for
including the development of comparison matrices. as a part of the project analysis model because:
A resulting feasibility report is used by the owner’s
management to decide whether a recommended • the factors that lead to project selection are both
project has potential for implementation and objective and subjective;
organization’s growth. • the factors are conflicting, achievement of one
The feasibility report is submitted to the Ministry factor may sacrifice others;
of Environment and Forest for environmental clear- • some objectivity should be reflected in assessing
ance. The Ministry examines the project with respect subjective factors;
to sustainable development and use of clean tech- • AHP can consider each factor in a manner that is
nology. Considering environmental requirements at flexible and easily understood, and allows consid-
this early stage permits quick approval from the eration of both subjective and objective factors;
Ministry. A quick response can be made to the Min- and
istry’s queries since an environmental analysis is • AHP requires the active participation of deci-
complete and available. The Ministry of Petroleum sion-makers in reaching agreement, and gives

Impact Assessment and Project Appraisal September 2001 237


Integrated approach to project feasibility analysis

Table 1. Project stakeholders, their requirements and concerns

Number Stakeholders Requirements Concerns

1 Project owner Identifying a project that will fulfill the strategic − Not achieving project targets (time, cost
intent of the organization and earn an adequate and quality)
return on Investment Slow approval process of the
environmental ministry and other
statutory bodies, including funding
agencies.
2 Project manager Completing project on time, within budget, and − Lack of information for analysis
with requisite quality Poor team performance
3 Owner’s project planning, Clear directions from feasibility report for − Incomplete information in the feasibility
design and implementation planning, designing and subsequent report
group implementation Lack of detailed survey
Involvement during feasibility analysis Non-availability of statutory clearanc es
during designing and implementing the
facilities
4 Owner’s project feasibility Availability of information − Lack of information
analysis group Ease of analysis and documentation Modeling difficulties
Autonomy in analysis Non-involvement of other stakeholders
Fast approval Delayed responses from consultants
Delayed approval from statutory
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authorities
Delayed approval from government
5 Owner’s operations group Project with trouble-free operations − Project with many problems
Clear operating instructions Unavailability of clear operating
instructions
6 Ministry of Petroleum Sustainable development − Lack of relevant project information in
Political intent the proposal
Project proposal is in line with overall sector Constraints to other development
planning activities
7 Ministry of Environment and Sustainable development − Inadequate consideration of
Forest Proper documentation environmental issues in the project
proposal
Poor documentation
8 Consultants/ contractors/ Clear scope of work − Undefined scope of work
suppliers No intermediate change Frequent scope change
Clear specifications Unclear specifications
Team approach Communication problems
Non-involvement in technology, design
and implementation methodology
selection
9 Project affected people Sustainable development − Effect on environment
Better life Pressure on existing infrastructure
Better compensation if they are affected Deterioration of quality of life
Better employment opportunities

decision-makers a rational basis on which to make intermediate levels. The lowest level comprises the
their decision. decision options.
Once a hierarchy has been constructed, the deci-
Researchers use the analytic hierarchy process in sion-maker begins a prioritization procedure to
various industrial applications. Partovi et al (1990) determine the relative importance of the elements in
used it for operations management decision-making. each level of the hierarchy. The elements in each
Dey et al (1994) used it in managing the risk of pro- level are compared as pairs with respect to their im-
jects. Mian and Christine (1999) used AHP for portance in making the decision under consideration.
evaluation and selection of a private-sector project. A verbal scale is used in AHP that enables the deci-
Meredith and Mantel (2000) described AHP as an sion-maker to incorporate subjectivity, experience,
effective tool for project selection. To the author’s and knowledge in an intuitive and natural way.
knowledge, this project was the first application of After comparison matrices are created, relative
the process for project selection in the petroleum weights are derived for the various elements of each
sector. level with respect to an element in the adjacent up-
Formulating the decision problem in the form of a per level. They are computed as the components of
hierarchical structure is the first step of AHP. In a the normalized eigenvector associated with the larg-
typical hierarchy, the top level reflects the overall est eigenvalue of their comparison matrix. Compos-
objective (focus) of the decision problem. The ele- ite weights are then determined by aggregating the
ments affecting the decision are represented in weights through the hierarchy. This is done by

238 Impact Assessment and Project Appraisal September 2001


Integrated approach to project feasibility analysis

Productivity
Supply-demand Strategic improvement
scenario Plans Project Manager
programs
Project planning
design & implementation
group
Identification of projects
through top-down & bottom-up approach Operations group
Project Analysis
Team
Social requirements Project affected people
Identified
projects Consultants
Environmental
requirement
Contractors / Suppliers
Project
Analysis

W hIs
ether
Feasibility project
Project is capable
capable to
No
Report a c of
h i eachieving
ve business
objectives?
objectives?

W Does
hether
Yes
No project
P r o j e cadhere
t a d h e rto
e tall
o
environmental
all environmental
Management approval
regulations?
regulations?

Yes W hIs
ether Yes
Approval of Ministry
Project
project is
in in
lineline Approval of
withoverall
with overall sector
sector
Ministry of Petroleum
of Environment & Forest plan?
plan?
and Natural Gas
No

Figure 3. Communications among project stakeholders during feasibility study and


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approval processes

following a path from the top of the hierarchy to approval process. The sensitivity utility of AHP pro-
each alternative at the lowest level, and multiplying vided decision-makers with an opportunity to under-
the weights along each segment of the path. The stand the implications of their decision.
outcome of this aggregation is a normalized vector The following methodology was adopted for se-
of the overall weights of the options. The mathe- lecting an optimal project:
matical basis for determining the weights was estab-
lished by Saaty (1980). • Identification of alternative pipeline routes and
For the project under study, the decision-makers creation of a database for each route using a geo-
were petroleum executives having more than 15 graphical information system (GIS) (Montemurro
years of working experience. They established a and Barnett, 1998);
common consensus for the AHP hierarchy through • Identification of factors and sub-factors needed to
group decision-making. Disagreements were re- select an optimal project;
solved by reasoning and collecting more informa- • Creation of the project selection model in an AHP
tion. Their hierarchy contained the details necessary framework, taking into account TA, EIA and SEIA;
to project selection. It gave insight into the whole • Analyzing each factor and sub-factor by compar-
process and a basis for selection to the approving ing them in pairs and analyzing each alternative
authority. A joint meeting (decision-makers and ap- using available data with respect to each
proving authority) could further facilitate the sub-factor;

Market
analysis

Preliminary
design

Technical Environmental
Social
analysis impact assessment
impact assessment

Survey

Financial Economic
analysis analysis

Project selection

Feasibility report

Project approval Statutory approval

Figure 4. Integrated project analysis model

Impact Assessment and Project Appraisal September 2001 239


Integrated approach to project feasibility analysis

Route characteristics
Route characteristics
Length
Length
Augmentation
Augmentation
Operability
Operability
possibility
possibility
Technical
Technical
analysis
Analysis
Expansion capability
Expansion capability
Maintainability
Maintainability
Corrosion
Corrosion
Approachability
Approachability
Pilferage
Pilferage
Constructability
Constructability
Third
Third party
party activities
activities
Effect
Effect during
during failure
failure in
in pipelines
pipelines
Environmental
Environmental
impact Effect
Effect during
during failure
failure ininstations
stations
Impact
assessment
Assessment
Effect during
Effect during normal
normal operations
operations
of pipelines
of pipelines

Effect
Effect during
during normal
normal operations
operations
of
of stations
stations

Effect Compensation
Compensation
Effect during
during construction
construction
Employment
Employment and
&
rehabilitation
rehabilitation
Effect
Effect during
during planning
planning
Socio-economic
Socio economic
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Employment
Employment
assessment
Assessment
Effect of
Effect of construction
construction
Effect during
Effect during activities
activities
construction
construction

Burden on existing
Burden on existing infrastructure
infrastructure
Effect during
Effect during
operations
Operations Employment

Figure 5. Factors and sub-factors for project selection

• Synthesizing the results across the hierarchy to line with demand; a pipeline may need to be aug-
identify the optimal project. mented in the future to cope with a demand to
maximize profit. Therefore, expansion/augmentation
Figure 5 shows the technical, environmental, and capability is one attribute of a properly designed
socio-economic factors identified for the pipeline pipeline. In addition to improving the existing prime
project under study. These factors are described in mover capacity, a pipeline also can be augmented by
the sections that follow. installing more pumping stations along the route and
laying loop lines/parallel lines.

Technical factors Approachability

Technical factors important to selection of pipeline Although a cross-country petroleum pipeline is bur-
routes include: length, operability, approachability, ied underground, the right-of-way should allow for
and constructability. uninterrupted construction, as well as easy access for
operation, inspection, and maintenance personnel. A
Pipeline length pipeline route with good approachability gets an
edge over other routes. An ideal pipeline route is
Pipeline length governs the capacity needs of almost along a railway track or a major highway. However,
all equipment for a pipeline project, as pipeline head the ideal is not always possible because of the long
loss is directly proportional to the length of the pipe- length of pipelines, which may require river cross-
line. Hence, the shorter the pipeline, the less the ings and traveling through forests, deserts, and
capital cost and vice versa. so on.

Operability Constructability

The hydraulic gradient is a major factor in selecting Laying pipeline across state/province or national
prime mover power for pipeline operations as nega- boundaries requires permission from government
tive hydraulic gradient demands a higher prime authorities. Differing stringent safety and environ-
mover power. Similarly, more route diversion causes mental stipulations sometimes are hindrances to
greater friction loss and need for higher prime mover project activities.
power. These result in more capital investment. Another factor in pipeline routing is provisions
A pipeline is designed for specific throughput in for mobilization by the contractor. Distance to

240 Impact Assessment and Project Appraisal September 2001


Integrated approach to project feasibility analysis

market, the availability of power and water, and the untrained operators and so on are the common
availability of skilled and unskilled laborers causes of pipeline failure because of human and
are typical issues related to effective construction operational errors and equipment malfunctions.
activ ities. Computerized control systems considerably reduce
Pipeline construction methods vary greatly with the chance of failure from these factors.
terrain conditions. For example, laying a pipeline
across a river requires horizontal direction drilling
(HDD), while laying a pipeline across a rocky area Socio-economic factors
requires rock trenching. Therefore, location charac-
teristics are a major pipeline cost component. Inap- Before construction begins, a pipeline’s right-of-way
propriate route selection can cause major time and must be acquired. This often passes through agricul-
cost overruns. tural land. Acquisition of agricultural land for indus-
trial purposes involves several issues. Some of the
important ones are compensating the owner for the
Environmental factors land acquired and providing for alternative employ-
ment, alternate accommodation, and other assistance
Pipelines handle hazardous petroleum products. Pro- to the owner.
ject planning must consider the effect on the envi- During construction, the effect must be consid-
ronment of both normal operations and failures. ered of introducing new jobs to the project area and
Pipelines and stations seldom affect the environment of construction activities placing an additional bur-
Downloaded by [Jawaharlal Nehru University] at 06:33 22 October 2012

during its normal operations since pipelines are den on local infrastructure. Substantial construction
buried underground and stations have a dedicated employment can lead to an influx of people into the
water treatment plant and other pollution control impact area. Heavy vehicle movement in the
measures. right-of-way can cause cultivation problems for
Although pipelines are designed with safety fea- many years where pipelines are laid through crop
tures, failure can occur, sometimes resulting in a fields. Construction also can lead to local trans-
release of large quantities of petroleum products into port disruption. Populated areas can suffer from
the environment. If this should happen, a pipeline in pollution.
a remote area can be less of a safety concern than The operational stage of a project covers the en-
one near habitation. The pipelines and stations fail tire life span of the pipeline. Hence, its impacts ex-
because of one, or a combination, of the following tend over a long period of time. However, pipeline
factors: projects seldom generate employment opportunities
at this stage and place few burdens on existing infra-
• corrosion; structure, as the pipeline remains buried. However,
• external interference; agricultural activities remain restricted on the right-
• construction and materials defect; of-way throughout the life of a pipeline.
• acts of God; and
• human and operational error.
Project selection model:
Corrosion, an electro-chemical process that changes
metal back to ore, is one of the major causes of pipe- Figure 6 shows the project selection model in the
line failure. External interference is another leading AHP framework. Level I is the goal — selecting the
cause of failure. It can be malicious (sabotage or best cross-country petroleum pipeline project. Lev-
pilferage) or be caused by other agencies (third-party els II and III are the factors and sub-factors consid-
activity) sharing the same utility corridor. In either ered for selection. Level IV is the alternative
case, a pipeline can be damaged severely. External projects, various feasible pipeline routes.
interference with malicious intent is more common Table 2 shows the database used for each alterna-
in socio-economically deprived areas, while in re- tive route for the project under study. These data
gions with more industrial activity, third-party dam- along with the experience of pipeline operators were
age is common. Poor construction, combined with utilized to apply the AHP model to select the best
inadequate inspections and low-quality materials, pipeline project. The data were analyzed by using
also contributes to pipeline failures. the Expert Choice software package.
All activities, industrial or otherwise, are prone to
natural calamities, but pipelines are especially vul-
nerable. As noted above, a pipeline passes through Results and findings
all types of terrain, including geologically sensitive
areas. Thus earthquakes, landslides, floods, and Table 3 shows the final analysis results and sele c-
other natural disasters are all common reasons for tion. The analysis of the data indicates that alter-
failure. native 4 is the best pipeline route for the project
Inadequate instrumentation, foolproof operating under study, although it is not the shortest. Alterna-
system, a lack of standardized operating procedures, tive 4 outranks the other alternatives with respect

Impact Assessment and Project Appraisal September 2001 241


Integrated approach to project feasibility analysis

Routecharacteristics
Route characteristics
Length
Length

Augmentation
Augmentation
Operability
Operability
possibility
Technical
Technical
analysis
Analysis Maintainability
Maintainability
Expansion capability
Expansion capability

Corrosion
Corrosion
Approachability
Approachability

Route I
Pilferage
Pilferage
Constructability
Constructability
Thirdparty
Third partyactivities
activities
Effect during failure in pipelines
Environmental

Route II
Selecting
Selectingthethe
best cross-country
best cross - country impact Effect during failure in stations
petroleumpipeline
petroleum pipeline assessment
project Effect during normal operations
project
of pipelines

Route III
Effect during normal operations
of stations

Effect during construction Compensation


Compensation

Employment
Employment &and
rehabilitation
rehabilitation

Route IV
Effect
Effectduring
duringplanning
planning
Socio - economic
Socio-economic
Employment
Employment
Assessment
assessment
Effectduring
Effect during Effect of construction
Effect of construction
construction
construction activities
activities

Effectduring
Effect during
operations
Operations Burden on existing
Burden on existinginfrastructure
infrastructure
Employment

Figure 6. AHP model for project selection


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to its operability, maintainability, environment- Financial analysis


friendliness, and impact on society. Figure 7 shows
the results of analysis graphically. The financial analysis was then conducted, consider-
Table 4 shows the life-cycle cost estimate of the ing only a few alternative pipeline diameters. The
project with route alternative 3, the shortest route, least-cost option was selected. This report does not
and with route alternative 4, the optimal route. describe the financial analysis of various design op-
Tables 5-7 show capital and operating costs. The tions since this is a standard practice of all pipeline
present value (PV) of the project with the shortest project planning.
route is much higher than the optimal project. There-
fore, the life-cycle costing (LCC) model also favors
alternative 4. Collecting the information for LCC, Summary and conclusions
however, is time consuming and expensive. In addi-
tion, an estimate of LCC is generally based on many Feasibility analyses of pipeline projects are currently
assumptions. On the other hand, the decision support conducted within a fragmented framework with
system (DSS) using AHP provides a model for pro- many studies occurring prior to impact assessment.
ject selection that relies on the experience of project Because of stronger environmental laws and regula-
staff. It also considers the project life cycle when tions, impact assessment quite often either suggests
selecting the project. substantial changes in the project or abandonment of
Table 2. Pipelines database

Description Route I Route II Route III Route IV


Throughput (mmtpaa) 3 3 3 3
Length (km) 780 1,000 750 800
No of stations b 3 3 3 3
Terrain detail (km)
Normal terrain 430 785 570 770
Slushy terrain 2 5 45 15
Rocky terrain – 1 3 2
Forest terrain – 5 7 2
River crossing 3 4 5 1
Populated area 330 200 120 10
Coal belt area 15 – – –
Soil conditions Less corrosive soil Less corrosive s oil Corrosive soil for slushy Less corrosive soil
terrain
Third-party activity More because of coal belt More because of populated More because of populated –
and populated area area area
Chances of pilferage Higher because of Higher because of Higher because of –
populated area populated area populated area
a
Notes: mmtpa = million metric tons per annum
b
1 originating pumping station, 1 intermediate pump station, 1 terminal delivery station

242 Impact Assessment and Project Appraisal September 2001


Table 3. Project selection data analysis

Factors Weights Sub-factors Weights Sub-factors Weights Normalize Route 1 Route 2 Route 3 Route 4
(i) (ii) (iii) (iv) (v) (vi) weights of (weights) (weights) (weights) (weights)
sub-factors (viii) (ix) (x) (xi)
(vii)

Technical analysis 0.45 Length 0.31 0.1400 0.27 0.1 0.37 0.26
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Operability 0.20 Route characteristics 0.21 0.0190 0.2 0.22 0.3 0.28
Augmentation possibility 0.44 0.0400 0.25 0.36 0.12 0.27
Expansion capability 0.35 0.03100 0.26 0.37 0.08 0.29
Maintainability 0.24 Corrosion 0.6 0.0650 0.23 0.3 0.15 0.32
Pilferage 0.25 0.0270 0.21 0.24 0.25 0.3
Third-party activities 0.15 0.0160 0.21 0.28 0.25 0.26
Approachability 0.1 0.0450 0.23 0.33 0.13 0.31
Constructability 0.15 0.0675 0.21 0.28 0.17 0.34
Environmental im- 0.25 Corrosion 0.41 0.1020 0.23 0.3 0.15 0.32
pact assessment
External interference 0.33 0.0820 0.21 0.28 0.25 0.26
Construction/materials 0.07 0.0175 0.22 0.32 0.18 0.28
defect
Operational defect/ equip- 0.08 0.0200 0.18 0.32 0.15 0.35
ment malfunction
Acts of God 0.11 0.0270 0.20 0.28 0.22 0.3
Socio-economic 0.30 Effect during planning 0.43 Compensation 0.7 0.0900 0.21 0.16 0.33 0.3
impact assessment
Employment and rehabili- 0.3 0.0387 0.14 0.24 0.28 0.34
tation
Effect during construction 0.36 Employment 0.5 0.0540 0.25 0.25 0.15 0.35
Effect of construction ac- 0.5 0.0540 0.12 0.18 0.27 0.43
tivities
Effect during operations 0.21 Employment 0.2 0.0126 0.25 0.25 0.25 0.25
Burden on existing infra- 0.8 0.0500 0.17 0.18 0.3 0.35
structure
Overall weights 0.218 0.241 0.232 0.309
Ranking IV II III I

Impact Assessment and Project Appraisal September 2001 243


Table 4. Life-cycle cost estimate for pipelines (millions of Table 6. Operating cost of optimal route
rupees)

Item description Operating cost per year


Description Shortest route Optimal route (millions of rupees)

Capital cost 3,020 3,120


Operating cost: 0–5 5–10 10–15 15–20
First 5 years 50 paa 30 paa years years years years
Second 5 years 65 paa + 100b 30 paa
Third 5 years 80 paa + 300b 40 paa + 50c Energy 7 7 10 10
Fourth 5 years 85 paa + 300b 40 paa + 75c
Routine inspection 3 3 6 6
Net present value (NPV) –3472.9 –3336.8 Overhead 10 10 12 12
MARR = 15% (assumed)
Purchase of equipment 10 10 12 12
Notes: US $1 = Rupees 46.86 on 20 December 2000 spares and other sundry
a
Normal operation and maintenance cost items
b
Major inspection and maintenance cost in Cost of failure – – – –
subsequent five years that includes additional
patrolling, special arrangement for failure, a water Total 30 30 40 40
logged area, water pollution control and special Cost of augmentation – – 50 75
coating/CP surveillance, intelligent pigging cost,
including cost for loss of production for not being
able to augment the pipeline
• Its aids objective decision-making by quantifying
Downloaded by [Jawaharlal Nehru University] at 06:33 22 October 2012

c
Additional capital cost for augmentation
many subjective factors.
• Both tangible and intangible elements can be
included in the AHP hierarchy. Qualitative judg-
it on environmental grounds. Such findings can re- ment and quantitative data can be included in the
sult in substantial revisions to the project pro- priority-setting process.
posal, including new site studies, use of alternate • It is an effective tool for conducting group pla n-
technologies, and alternate implementation method- ning sessions in an analytical and systematic
ologies. This not only increases project feasibility manner.
study time considerably but also the cost and effort • It demands collection of information that is ult i-
of the project’s proponent. mately of use during the detailed engineering
This report has presented an integrated framework stage.
of technical, environmental impact, and social im- • The sensitivity analysis utility of AHP provides
pact assessment for project selection. This model the decision-makers with a sense of the effects of
uses an AHP framework that considers both sub- their decisions.
jective and objective factors. The model has the • It improves communication among project stake-
following advantages: holders and allows consideration of their concerns
in a structured way.
• It allows incorporation of interactive input from • It not only helps in managing a project effectively
the executives of related functional areas. but also helps develop a quality project with a po-
• It integrates technical, financial, and impact as- tential for desired outputs.
sessment with benefits to both the project owner
and affected populations. Table 7. Operating cost of shortest route

Table 5. Capital cost of pipelines construction (millions of


rupees) Item description Operating cost per year
(millions of rupees)

Item description Optimal route Shortest route


(800 km) (750 km) 0–5 5–10 10–15 15–20
years years years years
Pipes 160 155
Survey 45 40 Energy 5 5 10 10
Routine inspection 10 10 6 6
Coating 80 77.5
Overhead 10 10 12 12
Laying 600 580
Cathodic protection 50 47.5 Purchase of equipment 15 15 12 12
spares and other sundry
Building 102 102 items
Pumping units 250 250 Additional inspection 10 15 10 15
Telecommunication 370 350 Cost of failure – 10 30 30
Others 23 23 Total 50 65 80 85
Total 3,120 3,020 Cost of augmentation – – – –

244 Impact Assessment and Project Appraisal September 2001


Integrated approach to project feasibility analysis

Routecharacteristics
Route characteristics
Length
Length
(0.31) (0.21)
Augmentation
Augmentation
Operability
Operability
(0.20) possibility
possibility
Technical
Technical
(0.44)
analysis
Analysis Maintainability
Maintainability
(0.45) (0.24) Expansion capability
Expansion capability
(0.35)
Corrosion
Corrosion
Approachability
Approachability

(0.218)
Route I
(0.60)
(0.10)
Pilferage
Pilferage
Constructability
Constructability (0.25)
(0.15)
Third party
partyactivities
activities
Effect during failure in pipelines (0.15)
Environmental (0.41)

Route II
Selecting
Selectingthethe

(0.241)
best cross-country
best cross -country impact Effect during failure in stations
petroleumpipeline
petroleum pipeline assessment (0.33)
project Effect during normal operations
project (0.25) of pipelines
(0.07)

Route III
Effect during normal operations

(0.232)
of stations
(0.08)
Effect during construction Compensation
Compensation
(0.11) (0.7)
Employment
Employment &and
rehabilitation
rehabilitation

Route IV
Effect
Effectduring
duringplanning (0.3)

(0.309)
planning
Socio-economic
Socio - economic
(0.43) Employment
Employment
Assessment
(0.30) (0.5)
Effect during
Effect during Effect of construction
Effect of construction
construction
construction activities
activities
(0.36) (0.5)
Effect during
Effect during
operations
Operations Employment
Burden on existing infrastructure
(0.21) (0.2)
Burden on existing infrastructure
(0.8)
Downloaded by [Jawaharlal Nehru University] at 06:33 22 October 2012

Figure 7. AHP model for project selection

The model suffers from the limitation of not com- P K Dey and S S Gupta (1999), “Decision support system for
pipeline route selection”, Cost Engineering, 41(10), October,
pletely removing subjectivity from the decision pages 29–35.
model. However, it is an impr ovement over the P K Dey and S S Gupta (2000), “Analytic hierarchy process
present practice. boosts risk analysis objectivity”, Pipeline and Gas Industry
Journal , 83(9), September.
The project under study was successfully com- P K Dey, S O Ogunlana, S S Gupta and M T Tabucanon (1998),
pleted in 1999 without time or cost overruns. The “A risk based maintenance model for cross-country pipelines”,
project has not experienced any reported accidents Cost Engineering, 40(4), April, pages 24–31.
P K Dey, M T Tabucanon and S O Ogunlana (1994), “Planning
or disputes among project stakeholders. The opera- for project control through risk analysis: a case of petroleum
tion of the pipeline is also satisfactory. It achieved pipeline laying project”, International Journal of Project Man-
the target throughput within the couple of months of agement, 12(1), pages 23–33.
P K Dey, M T Tabucanon and S O Ogunlana (1996), “Petroleum
its commissioning. The pipeline is now being ex- pipeline construction planning: a conceptual framework”,
panded for 7.5 mmtpa throughput capacity and the International Journal of Project Management, 14(4), pages
feasibility analysis of the project was initiated at the 231–240.
J R Meredith and S J Mantel (2000), Project Management: A
beginning of 2001. Managerial Approach (John Wiley and Sons, fourth edition).
Although the application of the model was ex- S A Mian and N D Christine (1999), “Decision-making over the
plained through a representative cross-country petro- project life cycle: an analytical hierarchy approach”, Project
Management Journal , 30(1), pages 40–52.
leum pipeline project, it can be applied universally D Montemurro and S Barnett (1998), “GIS-based process helps
in various project selection problems. Considerable trans Canada select best route for Expansion Line”, Oil and
research is required, however, for each applic ation. Gas Journal, 22 June, page 63.
F Y Partovi, J Burton and A Banerjee (1990), “Application analytic
hierarchy process in operations management”, International
Journal of Operations and Production Management, 10(3),
pages 5–19.
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Impact Assessment and Project Appraisal September 2001 245