ECONOMIC VIABILITY OF DESALINATION PROJECTS IN ALGERIA

Abstract. The article considers the main methods and criteria for assessing the effectiveness of investment projects, in particular, the assessment of the economic efficiency of water supply projects in Algeria. As a result of the comparative analysis of the cash flow discounting method, the most efficient one was determined for the purposes of selecting the project in the investment program for the near future.

Keywords: climate change, water supply crisis, methods for assessing economic efficiency, investment project, discounting of cash flows, cost of water production, Algeria.

In Algeria, the drought has raged for over two decades, mainly in the West of the country, and has significantly affected the level of water reservoirs, which reached its minimum levels. The availability of water per capita per year has steadily declined, and the strategic water supply potential has reached its lowest level [1]. Huge losses due to water leaks are identified in distribution networks, which is 40%. But the losses are quite significant in agriculture, which uses 65% of the water mobilized in the country. In early 2002, the Algerian authorities carried out a program to provide drinking water through seawater desalination [1,2]. This option may be premature and very expensive for the country.

In this article, a hypothesis has been put forward that the option of desalination can be transferred to more distant prospects. Water saving can be achieved through: water saving methods for irrigation, domestic equipment, reuse of water consumed by industry. More specifically, with regard to water used for irrigation, the following hypotheses will be put forward:

§ the cost of cubic meter of water produced as a result of desalination of sea water is higher than that of a cubic meter, saved by replacing the technique of gravitational irrigation with drip irrigation techniques.

§ the water savings achieved by replacing gravitational irrigation with a drop will lead to an increase in the economic efficiency of water and will satisfy needs.

One approach to improving the economic efficiency of water resources in the context of sustainable development is integrated water resources management. This approach simultaneously takes into account supply management as well as demand management [3]. In Algeria, water needs that are considered fundamental to the population are poorly met, and the economic and social risks that may be caused by water shortages are important. It is necessary to directly interfere with the state and investment projects in order to overcome the water shortage and thereby overcome the barriers to development. There are several investment projects that produce water at a lower price than the desalination method.

Fundamentally there are two methods for the economic evaluation of water management programs: cost- benefit analysis (CBA) and cost-effectiveness analysis (CEA). Cost-effectiveness analysis allows you to compare programs among themselves, it compares several alternatives. It also measures the results of the program in terms of physical entities, what is just adapted more to the economic evaluation of water management programs [4].

This paper proposes a comparative perspective of the use of cost-effectiveness analysis in two cases of water management in Algeria. In the first case, the orientation of the water strategy on the supply side takes steps to increase its accessibility, in particular, due to the non-traditional way of obtaining water (desalination method of sea water). In the second case, a large water saving project for irrigation is underlined.

For the calculation of costs, the main investments are initial investments, as well as various operating and maintenance costs, operating costs, and renovation costs. All calculations are performed using the base discount rate (discounting), which will compare the various cost elements with the current time value. In order to deduce the actual costs for the new year, it is necessary to take into account inflation rates. By dividing the total economic cost of a discounted project by the expected annual output of water, we get the average annual cost per unit of water [5].

All stations in Algeria produce an annual water volume of 8.1 million m3. Water-retaining desalination plants began to develop gradually from the summer of 2006. All of them began to work in full force in 2007 and therefore our choice was made at this set of stations for reasons of data availability. The change in water production at these stations from 2006 to 2010 is given in (Table 1). Monoblock desalination plants working with output of 60% over 20 years will produce a volume of 91.61 million m3. The average cost per m3 is 68.34 dinars. At the same time there are environmental costs, which are very important. In addition to the impacts associated with the stage of construction of desalination plants (noise and soil transformation), a significant impact

Table 1 - Production and profitability of fresh water in Algeria [6]

on air quality and the marine environment has been recorded. Desalination can lead to disruption of the food chain, as some of these microorganisms can be destroyed during desalination.

The water-saving approach is aimed at reducing physical losses by increasing the efficiency of irrigation by applying modern methods of water saving: drip irrigation. The implementation of this method will be fully covered by the state, so it can be 100% subsidized. How much use of drip irrigation will save water? Irrigation, as practiced (with current methods) requires a water volume of 24.86 million m3. The water volume of almost 12 million m3 is lost. Replacing gravitational irrigation with a drop on 2148 hectares will reduce water consumption from 24.86 million m3 to 15.35 million m3, thus saving 9 million m3. The adoption of drip irrigation implements a saving of 8- 9 million m3, i.е. a volume equal to the amount of desalinated water that will be produced by eight monoblock stations. The average cost per 1 m3 of water saved by taking drip irrigation within 20 years of the project will be 8.59 dinars (based on a 10% discount rate). What is only 1/8 of the cost of water generated in desalination plants is an average of 68.34 dinars per 1 m3.

In addition, in terms of water cost, drip irrigation allows for higher yields, accompanied by a reduction in labor costs.

Algeria is dominated by irrigation methods: 71.3% - gravitational and only 28.7% - drip. Saving water with the help of drip irrigation will double the area of irrigated agricultural land, which will increase the yield by at least 30%. The sensitivity analysis was carried out to determine the effect of a change in the discount rate on the cost of water obtained using both systems (desalination and dropping). For this, the financial toolkit for selecting and justifying risk-based strategies, described in the works of L.A. Mochalova [7, 8, 9]. We can see that the sensitivity to the discount rate of the cost of 1 m3 of water generated by desalination is higher than the sensitivity of the cost of water saved as a result of the introduction of drip irrigation. Indeed, a low discount rate tends to increase the real value of future revenues, and vice versa, high rates - minimize the value of the real value of future income (Fig. 1). It turns out that even at a relatively low discount rate, the cost of water from drip irrigation remains significantly lower than the cost of desalinated water.

Thus, the strategy of water saving in the adoption of the drip irrigation project is economically more interesting than the seawater desalination strategy, formed in 2002. The difference in the aggregate values of these two projects exceeds 5 billion dinars for a period of 20 years. The actions of economic and political figures, which left water supply problems to accumulate, caused the need to solve the water shortage problem with the help of expensive desalination. Many desalination plants have already been commissioned and many contracts have alr eady been signed, but we hope that the rest of the desalination program can be postponed in favor of large-scale drip irrigation.

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