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Integrated approach to project feasibility analysis: a
case studyPrasanta Kumar Dey
a
aFaculty 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, ImpactAssessment and Project Appraisal, 19:3, 235-245
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Impact Assessment and Project AppraisalSeptember 2001 1461-5517/01/030235-11 US$ 08.00 IAIA 2001 235
Impact Assessment and Project Appra isal, volume 19, number 3, September 2001, pages 235245, 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
Feasibility studies of industrial projects consistof multiple analyses carried out sequentially.This is time consuming and each analysisscreens out alternatives based solely on themerits of that analysis. In cross-country petro-leum pipeline project selection, market analysisdetermines throughput requirement and supply
and demand points. Technical analysis identifiestechnological options and alternatives for pipe-line routes. Economic and financial analysis de-rive the least-cost option. The impact assessmentaddresses environmental issues. The impact as-sessment often suggests alternative sites, routes,technologies, and/or implementation method-ology, necessitating revision of technical andfinancial analysis. This report suggests anintegrated approach to feasibility analysis pre-sented as a case application of a cross-countrypetroleum pipeline project in India.
Keywords: feasibility analysis; analytic hierarchy process;petroleum pipeline; present value
Prasanta Kumar Dey is a member of the Faculty of the Depart-ment of Management Studies, University of the West Indies,
Cave Hill Campus, PO Box 64, Bridgetown, Barbados; E-mail:[email protected].
ROJECTS TRANSFORM a vision into reality.Major projects can apply science and tech-nology in a sustainable manner but in many
instances adversely affect their environment. Impactassessment determines the socio-economic and envi-ronmental consequences of proposed projects. Largeindustrial projects can affect the socio-economicfabric of nearby populations. Socio-economic im-
pacts can occur at all the four stages of project life pre-construction (planning/policy development);construction (implementation); operation and main-tenance; and decommissioning (abandonment)(Ramanathan and Geetha, 1998).
Cross-country petroleum pipelines are the mostenergy-efficient, safe, environmentally friendly, andeconomical means for transporting hydrocarbons(gas, crude oil, and finished product) over long dis-tances within a country and between countries. To-day, a significant part of a nations energyrequirement is transported through pipelines. The
economy of a country can be heavily dependent onsmooth 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 pipelinesare one of the safest means of transporting bulk en-ergy, with failure rates much less than railroads, de-fects do occur and sometimes have catastrophicconsequences. For example, in 1993, 51 people wereburnt to death when a gas pipeline failed and escap-ing gas was ignited in Venezuela. In 1994, a 36-inchpipeline in New Jersey, USA failed, resulting in thedeath of one person and injuring more than 50
people (US Department of Transportation, 1995).Such failures also have been reported in the
United Kingdom, Russia, Canada, Pakistan, and
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India. In 1998, an attempt to pilfer product from apipeline led to the death of 500 persons (CON-CAWE, 1994). In addition, disruption of pipelineoperations can lead to large losses in business (Deyet al, 1998).
To avoid failures, pipeline operators choose opti-mal pipeline routes (Dey and Gupta, 1999) and con-sider the long-term profitability of each project (Dey
et al, 1996). In recent years, social impact assess-ment (SIA) and environmental impact assessment(EIA) have emerged to help ensure a project is bothprofitable and a contributing agent to the society.Their findings, however, are sometimes ignored bythe project owner, causing conflict within surround-ing populations. This conflict can result in damageeither to the project or to the society.
Project description
The project under study is a cross-country petroleumpipeline project in western India. Its length is 1,300kilometers plus a 123-kilometer branch line. Thepipeline is designed carry 5 million metric tons perannum (mmtpa) of throughput. The project includesthree pump stations, one pumping/delivery station,two scraper stations, four delivery stations, and twoterminal stations. The project cost was estimated asUS$ 600 million. A detailed description of the pro-ject is available in Dey (1997). The work breakdownstructure of the project is shown in Figure 1.
Customary feasibility analysis process
Figure 2 shows the customary cross-country petro-leum pipeline feasibility analysis process. Rapidindustrial growth calls for the study of many poten-tial pipeline projects, which are scrutinized to iden-tify a few feasible ones for detailed analysis. Marketand demand analysis determines the pipeline routeand supplydemand points. The technical analysisassesses a few alternatives with respect to pipediameter and the number of intermediate stations.
The optimum alternative is selected on the basisof financial evaluation criteria, such as net presentvalue and internal rate of return. The environmentaland socio-economic impact assessment is then con-ducted on a single selected project to identify meansto mitigate negative environmental impacts.
The pipeline planners who follow the steps pre-sented in Figure 2 encounter the following problems:
A long study time frame because studies are com-pleted sequentially.
Only one alternative is addressed during impactassessment, which may be called upon to justifythis alternative generated from financial analysis.
Impact assessment findings often demand altera-tion of the project site (pipeline route) and use ofa different technology, necessitating revision ofthe technical and financial analysis.
Although sometimes projects get statutory ap-proval from the regulatory authorities based onimpact assessment reports, there is evidence ofproject abandonment at this late stage because ofpublic protest.
Project approval takes time because approvingauthorities often ask for additional information,necessitating further detailed analysis.
Sometimes, the selected projects prove not to befully effective in the operations stage because oflarge operating and maintenance costs and lack ofexpansion opportunities.
These problems can be resolved by incorporating thefeasibility analyses and impact assessments into an
integrated framework with the active involvement ofall the stakeholders. The objective in the project un-der study was to develop an integrated project selec-tion model that quantified the merits and demerits ofvarious project alternatives.
Project analysis and approval processes
Potential projects are first identified through bothtop-down and bottom-up approaches that involve
Figure 1. Work breakdown structure of cross-country petroleum pipeline project
Laying cross-country pipeline
Layingpipes
Stationconstruction
Telecommunicationand SCADA system
CP systemBuilding and colonyconstruction
Laying pipesin normal
terrain
Laying pipesacross river
Laying pipesacross vari-
ous crossings
Laying pipesin slushyterrain
Laying pipesin offshore
location
Pump
stations
Delivery
stations
Scraper
stations
Offshore
terminal
Survey Landacquisition
Statutoryclearance
Powersupply
Decisionand detailedengineering
Materialprocurement
Workscontract
Implementation
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different levels of executives. They consider thesupply of, and demand for, petroleum products andcrude, the organizations strategic plans, and produc-tivity improvement. Brainstorming and/or the Delphitechnique are employed to screening the feasibleprojects.
Next, a project analysis team is formed. Typicallyit consists of representatives of a design (civil, elec-trical, mechanical, and telecommunication) group, aplanning group, an implementation group, an opera-
tions group, and a finance group. They are selectedbased on their experience and past performance.They form the feasibility studys core workinggroup. They identify the project stakeholders, de-termine their concerns, and involve them in theanalysis. Table 1 shows a typical list of stakeholdersalong with their requirements and concerns.
The project analysis team establishes environ-mental and social impact assessment requirements,based in part on the results of interaction with envi-ronmental regulators and project-affected people.Project stakeholders are active during the identifica-
tion of alternatives and project selection criteria.Stakeholders also take part in decision-making,including the development of comparison matrices.A resulting feasibility report is used by the ownersmanagement to decide whether a recommendedproject has potential for implementation andorganizations growth.
The feasibility report is submitted to the Ministryof Environment and Forest for environmental clear-ance. The Ministry examines the project with respectto sustainable development and use of clean tech-nology. Considering environmental requirements atthis early stage permits quick approval from the
Ministry. A quick response can be made to the Min-istrys queries since an environmental analysis iscomplete and available. The Ministry of Petroleum
and Natural Gas is the ultimate authority for ap-proving the project in principle and allocatingfunds for implementation. The entire analysis andapproval processes, along with communication net-work among project stakeholders, are shown inFigure 3.
Project analysis model
Figure 4 shows the model for feasibility analysis of across-country petroleum pipeline used for the pipe-line project under study. The technical analysis(TA), the environmental impact assessment (EIA)and the socio-economic impact assessment (SEIA)are conducted simultaneously. These studies solvesite selection (pipeline route) problems, as well as afew technological considerations. The least-cost op-tion is then identified through a financial and eco-nomic analysis of a few feasible alternative projects.
The analytic hierarchy process (AHP), a multipleattribute decision-making technique (Saaty, 1980),
was used for the simultaneous technical, environ-mental, and socio-economic analysis. It was used foras a part of the project analysis model because:
the factors that lead to project selection are bothobjective and subjective;
the factors are conflicting, achievement of onefactor may sacrifice others;
some objectivity should be reflected in assessingsubjective factors;
AHP can consider each factor in a manner that isflexible and easily understood, and allows consid-eration of both subjective and objective factors;
and AHP requires the active participation of deci-
sion-makers in reaching agreement, and gives
Initial screenin
Market and demand
anal sis
Technical analysis
Financial and
economic analysis
Impact assessment
Alternative projects
analysis
Project change
equired
Figure 2. Current project feasibility analysis process of cross-country petroleum pipeline
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Integrated approach to project feasibility analysis
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decision-makers a rational basis on which to maketheir decision.
Researchers use the analytic hierarchy process invarious industrial applications. Partovi et al(1990)used it for operations management decision-making.Dey et al(1994) used it in managing the risk of pro-jects. Mian and Christine (1999) used AHP forevaluation and selection of a private-sector project.Meredith and Mantel (2000) described AHP as aneffective tool for project selection. To the authorsknowledge, this project was the first application ofthe process for project selection in the petroleumsector.
Formulating the decision problem in the form of ahierarchical structure is the first step of AHP. In a
typical hierarchy, the top level reflects the overallobjective (focus) of the decision problem. The ele-ments affecting the decision are represented in
intermediate levels. The lowest level comprises thedecision options.
Once a hierarchy has been constructed, the deci-
sion-maker begins a prioritization procedure todetermine the relative importance of the elements ineach level of the hierarchy. The elements in eachlevel are compared as pairs with respect to their im-portance in making the decision under consideration.A verbal scale is used in AHP that enables the deci-sion-maker to incorporate subjectivity, experience,and knowledge in an intuitive and natural way.
After comparison matrices are created, relativeweights are derived for the various elements of eachlevel with respect to an element in the adjacent up-per level. They are computed as the components ofthe normalized eigenvector associated with the larg-
est eigenvalue of their comparison matrix. Compos-ite weights are then determined by aggregating theweights through the hierarchy. This is done by
Table 1. Project stakeholders, their requirements and concerns
Number Stakeholders Requirements Concerns
1 Project owner Identifying a project that will fulfill the strategicintent of the organization and earn an adequatereturn on Investment
Not achieving project targets (time, costand quality)Slow approval process of theenvironmental ministry and otherstatutory bodies, including fundingagencies.
2 Project manager Completing project on time, within budget, andwith requisite quality
Lack of information for analysisPoor team performance
3 Owners project planning,design and implementationgroup
Clear directions from feasibility report forplanning, designing and subsequentimplementationInvolvement during feasibility analysis
Incomplete information in the feasibilityreportLack of detailed surveyNon-availability of statutory clearanc esduring designing and implementing thefacilities
4 Owners project feasibilityanalysis group
Availability of informationEase of analysis and documentationAutonomy in analysisFast approval
Lack of informationModeling difficultiesNon-involvement of other stakeholdersDelayed responses from consultantsDelayed approval from statutoryauthorities
Delayed approval from government5 Owners operations group Project with trouble-free operations
Clear operating instructions Project with many problems
Unavailability of clear operatinginstructions
6 Ministry of Petroleum Sustainable developmentPolitical intentProject proposal is in line with overall sectorplanning
Lack of relevant project information inthe proposalConstraints to other developmentactivities
7 Ministry of Environment andForest
Sustainable developmentProper documentation
Inadequate consideration ofenvironmental issues in the projectproposalPoor documentation
8 Consultants/ contractors/suppliers
Clear scope of workNo intermediate changeClear specificationsTeam approach
Undefined scope of workFrequent scope changeUnclear specificationsCommunication problemsNon-involvement in technology, designand implementation methodologyselection
9 Project affected people Sustainable developmentBetter lifeBetter compensation if they are affectedBetter employment opportunities
Effect on environmentPressure on existing infrastructureDeterioration of quality of life
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Integrated approach to project feasibility analysis
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following a path from the top of the hierarchy toeach alternative at the lowest level, and multiplyingthe weights along each segment of the path. Theoutcome of this aggregation is a normalized vectorof the overall weights of the options. The mathe-matical basis for determining the weights was estab-lished by Saaty (1980).
For the project under study, the decision-makerswere petroleum executives having more than 15years of working experience. They established acommon consensus for the AHP hierarchy throughgroup decision-making. Disagreements were re-solved by reasoning and collecting more informa-tion. Their hierarchy contained the details necessaryto project selection. It gave insight into the wholeprocess and a basis for selection to the approvingauthority. A joint meeting (decision-makers and ap-proving authority) could further facilitate the
approval process. The sensitivity utility of AHP pro-vided decision-makers with an opportunity to under-stand the implications of their decision.
The following methodology was adopted for se-lecting an optimal project:
Identification of alternative pipeline routes andcreation of a database for each route using a geo-graphical information system (GIS) (Montemurroand Barnett, 1998);
Identification of factors and sub-factors needed toselect an optimal project;
Creation of the project selection model in an AHPframework,takingintoaccountTA,EIAand SEIA;
Analyzing each factor and sub-factor by compar-ing them in pairs and analyzing each alternativeusing available data with respect to eachsub-factor;
Market
Technical
analysis
Environmental
impact assessmentSocial
impact assessment
Financial
analysis
Economic
analysis
Project selection
Feasibility report
Project approval
Preliminary
design
Survey
Statutory approval
analysis
Figure 4. Integrated project analysis model
Supply-demandscenario
StrategicPlans
Productivity
improvementprograms
Identification of projects
through top-down & bottom-up approach
Identifiedprojects
Project
Ana lys is
Feasibility
Report
W hether
Project is capable to
achieve bus iness
objectives?
Management approval
Whether
Projec t adhere to
all environmental
regulat ions?
No
YesNo
Yes
Appro val of Ministry
of Environment & Forest
Whether
Projec t is in l ine
with overall sector
plan?
Appr ova l of
Ministry of Petroleum
and Natural Gas
Yes
No
Project Analysis
Team
Project planning
design & implementation
group
Operations group
Project affected people
Consultants
Contractors / Suppliers
Social requirements
Environmentalrequirement
Project ManagerSupply-demand
scenarioStrategic
Plans
Productivity
improvementprograms
Identification of projects
through top-down & bottom-up approach
Identifiedprojects
Project
Ana lys is
Feasibility
Report
W hether
Project is capable to
achieve bus iness
objectives?
Management approval
Whether
Projec t adhere to
all environmental
regulat ions?
No
YesNo
Yes
Appro val of Ministry
of Environment & Forest
Whether
Projec t is in l ine
with overall sector
plan?
Appr ova l of
Ministry of Petroleum
and Natural Gas
Yes
No
Project Analysis
Team
Project planning
design & implementation
group
Operations group
Project affected people
Consultants
Contractors / Suppliers
Social requirements
Environmentalrequirement
Project Manager
Isproject in line
with overall sectorplan?
Isproject capable
of achievingobjectives?
Doesproject adhere to all
environmental
regulations?
Figure 3. Communications among project stakeholders during feasibility study andapproval processes
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Synthesizing the results across the hierarchy toidentify the optimal project.
Figure 5 shows the technical, environmental, and
socio-economic factors identified for the pipelineproject under study. These factors are described inthe sections that follow.
Technical factors
Technical factors important to selection of pipelineroutes include: length, operability, approachability,and constructability.
Pipeline length
Pipeline length governs the capacity needs of almostall equipment for a pipeline project, as pipeline headloss is directly proportional to the length of the pipe-line. Hence, the shorter the pipeline, the less thecapital cost and vice versa.
Operability
The hydraulic gradient is a major factor in selectingprime mover power for pipeline operations as nega-tive hydraulic gradient demands a higher primemover power. Similarly, more route diversion causes
greater friction loss and need for higher prime moverpower. These result in more capital investment.
A pipeline is designed for specific throughput in
line with demand; a pipeline may need to be aug-mented in the future to cope with a demand tomaximize profit. Therefore, expansion/augmentationcapability is one attribute of a properly designed
pipeline. In addition to improving the existing primemover capacity, a pipeline also can be augmented byinstalling more pumping stations along the route andlaying loop lines/parallel lines.
Approachability
Although a cross-country petroleum pipeline is bur-ied underground, the right-of-way should allow foruninterrupted construction, as well as easy access foroperation, inspection, and maintenance personnel. Apipeline route with good approachability gets an
edge over other routes. An ideal pipeline route isalong a railway track or a major highway. However,the ideal is not always possible because of the longlength of pipelines, which may require river cross-ings and traveling through forests, deserts, andso on.
Constructability
Laying pipeline across state/province or nationalboundaries requires permission from governmentauthorities. Differing stringent safety and environ-mental stipulations sometimes are hindrances to
project activities.Another factor in pipeline routing is provisions
for mobilization by the contractor. Distance to
Employment
Technical
Analysis
Environmental
Impact
Assessment
Socio-economic
Assessment
Length
Operability
Maintainability
Approachability
Constructability
Effect during failure in pipelines
Effect during failure in stations
Effect during normal operations
of pipelines
Effect during normal operations
of stations
Effect during construction
Effect during planning
Effect during
construction
Effect during
Operations
Route characteristics
Augmentation
possibility
Expansion capability
Corrosion
Pilferage
Third party activities
Compensation
Employment &
rehabilitation
Employment
Effect of constructionactivities
Burden on existing infrastructure
Employment
Technical
analysis
Environmental
impact
assessment
Socio-economic
assessment
Length
Operability
Maintainability
Approachability
Constructability
Effect during failure in pipelines
Effect during failure in stations
Effect during normal operations
of pipelines
Effect during normal operations
of stations
Effect during construction
Effect during planning
Effect during
construction
Effect during
operations
Route characteristics
Augmentation
possibility
Expansion capability
Corrosion
Pilferage
Third party activities
Compensation
Employment and
rehabilitation
Employment
Effect of constructionactivities
Burden on existing infrastructure
Figure 5. Factors and sub-factors for project selection
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Integrated approach to project feasibility analysis
Impact Assessment and Project Appraisal September 2001 241
market, the availability of power and water, and theavailability of skilled and unskilled laborersare typical issues related to effective constructionactivities.
Pipeline construction methods vary greatly withterrain conditions. For example, laying a pipelineacross a river requires horizontal direction drilling(HDD), while laying a pipeline across a rocky area
requires rock trenching. Therefore, location charac-teristics are a major pipeline cost component. Inap-propriate route selection can cause major time andcost overruns.
Environmental factors
Pipelines handle hazardous petroleum products. Pro-ject planning must consider the effect on the envi-ronment of both normal operations and failures.Pipelines and stations seldom affect the environmentduring its normal operations since pipelines areburied underground and stations have a dedicatedwater treatment plant and other pollution controlmeasures.
Although pipelines are designed with safety fea-tures, failure can occur, sometimes resulting in arelease of large quantities of petroleum products intothe environment. If this should happen, a pipeline ina remote area can be less of a safety concern thanone near habitation. The pipelines and stations failbecause of one, or a combination, of the followingfactors:
corrosion; external interference; construction and materials defect; acts of God; and human and operational error.
Corrosion, an electro-chemical process that changesmetal back to ore, is one of the major causes of pipe-line failure. External interference is another leadingcause of failure. It can be malicious (sabotage orpilferage) or be caused by other agencies (third-partyactivity) sharing the same utility corridor. In either
case, a pipeline can be damaged severely. Externalinterference with malicious intent is more commonin socio-economically deprived areas, while in re-gions with more industrial activity, third-party dam-age is common. Poor construction, combined withinadequate inspections and low-quality materials,also contributes to pipeline failures.
All activities, industrial or otherwise, are prone tonatural calamities, but pipelines are especially vul-nerable. As noted above, a pipeline passes throughall types of terrain, including geologically sensitiveareas. Thus earthquakes, landslides, floods, andother natural disasters are all common reasons for
failure.Inadequate instrumentation, foolproof operating
system, a lack of standardized operating procedures,
untrained operators and so on are the commoncauses of pipeline failure because of human andoperational errors and equipment malfunctions.Computerized control systems considerably reducethe chance of failure from these factors.
Socio-economic factors
Before construction begins, a pipelines right-of-waymust be acquired. This often passes through agricul-tural land. Acquisition of agricultural land for indus-trial purposes involves several issues. Some of theimportant ones are compensating the owner for theland acquired and providing for alternative employ-ment, alternate accommodation, and other assistanceto the owner.
During construction, the effect must be consid-ered of introducing new jobs to the project area andof construction activities placing an additional bur-den on local infrastructure. Substantial constructionemployment can lead to an influx of people into theimpact area. Heavy vehicle movement in theright-of-way can cause cultivation problems formany years where pipelines are laid through cropfields. Construction also can lead to local trans-port disruption. Populated areas can suffer frompollution.
The operational stage of a project covers the en-tire life span of the pipeline. Hence, its impacts ex-tend over a long period of time. However, pipelineprojects seldom generate employment opportunitiesat this stage and place few burdens on existing infra-
structure, as the pipeline remains buried. However,agricultural activities remain restricted on the right-of-way throughout the life of a pipeline.
Project selection model:
Figure 6 shows the project selection model in theAHP framework. Level I is the goal selecting thebest cross-country petroleum pipeline project. Lev-els II and III are the factors and sub-factors consid-ered for selection. Level IV is the alternative
projects, various feasible pipeline routes.Table 2 shows the database used for each alterna-tive route for the project under study. These dataalong with the experience of pipeline operators wereutilized to apply the AHP model to select the bestpipeline project. The data were analyzed by usingthe Expert Choice software package.
Results and findings
Table 3 shows the final analysis results and sele c-tion. The analysis of the data indicates that alter-
native 4 is the best pipeline route for the projectunder study, although it is not the shortest. Alterna-tive 4 outranks the other alternatives with respect
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to its operability, maintainability, environment-friendliness, and impact on society. Figure 7 showsthe results of analysis graphically.
Table 4 shows the life-cycle cost estimate of theproject with route alternative 3, the shortest route,and with route alternative 4, the optimal route.
Tables 5-7 show capital and operating costs. Thepresent value (PV) of the project with the shortestroute is much higher than the optimal project. There-fore, the life-cycle costing (LCC) model also favorsalternative 4. Collecting the information for LCC,however, is time consuming and expensive. In addi-
tion, an estimate of LCC is generally based on manyassumptions. On the other hand, the decision supportsystem (DSS) using AHP provides a model for pro-ject selection that relies on the experience of projectstaff. It also considers the project life cycle whenselecting the project.
Financial analysis
The financial analysis was then conducted, consider-ing only a few alternative pipeline diameters. Theleast-cost option was selected. This report does notdescribe the financial analysis of various design op-tions since this is a standard practice of all pipelineproject planning.
Summary and conclusions
Feasibility analyses of pipeline projects are currentlyconducted within a fragmented framework withmany studies occurring prior to impact assessment.Because of stronger environmental laws and regula-tions, impact assessment quite often either suggestssubstantial changes in the project or abandonment of
Selecting thebes t cros s-countrypet rol eum pi pel ine
projec t
TechnicalAnalysis
Socio -economicAssessment
Length
Operability
Maintainability
Approachability
Constructability
Effect during planning
Effect during
construction
Effect during Operations
Route characteristics
Augmentationpossib ility
Expansion capability
Corrosion
Pilferage
Third party activities
Compensation
Employment &
rehabilitation
Employment
Effect of construction
activities
Burden on existing infrastructure
Technical
analysis
Length
Operability
Maintainability
Appr oacha bilit y
operations
possibility
Corrosion
Pilferage
Effect of construction
activities
RouteI
RouteII
RouteIII
RouteIV
Environmental impact
assessment
Effect during failure in pipelines
Effect during failure in stations
Effect during normal operations
of pipelines
Effect during normal operations
of stat ions
Effect during construction
Employment
Constructability
Selecting thebest cross-country
petroleum pipeline
project
Effect during planning
Effect during
construction
Effect during
Burden on existing infrastructure
Employment
rehabilitation
Employment and
Compensation
Third party activities
Expansion capability
Augm ent atio n
Route characteristics
assessment
Socio-economic
Figure 6. AHP model for project selection
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 terrainSlushy terrainRocky terrainForest terrainRiver crossingPopulated areaCoal belt area
43023
33015
7855154
200
57045375
120
77015221
10
Soil conditions Less corrosive soil Less corrosive s oil Corrosive soil for slushyterrain
Less corrosive soil
Third-party activity More because of coal beltand populated area
More because of populatedarea
More because of populatedarea
Chances of pilferage Higher because of
populated area
Higher because of
populated area
Higher because of
populated area
Notes: a mmtpa = million metric tons per annumb 1 originating pumping station, 1 intermediate pump station, 1 terminal delivery station
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Impact Assessment and Project Appraisal September 2001 243
Table 3. Project selection data analysis
Factors(i)
Weights(ii)
Sub-factors(iii)
Weights(iv)
Sub-factors(v)
Weights(vi)
Normalize
weights ofsub-factors
(vii)
Route 1
(weights)(viii)
Route 2
(weights)(ix)
Route 3
(weights)(x)
Route 4
(weights)(xi)
Length 0.31 0.1400 0.27 0.1 0.37 0.26
Route characterist ics 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
Operability 0.20
Expansion capability 0.35 0.03100 0.26 0.37 0.08 0.29
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
Maintainability 0.24
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
Technical analysis 0.45
Constructability 0.15 0.0675 0.21 0.28 0.17 0.34
Corrosion 0.41 0.1020 0.23 0.3 0.15 0.32
External interference 0.33 0.0820 0.21 0.28 0.25 0.26
Construction/materialsdefect
0.07 0.0175 0.22 0.32 0.18 0.28
Operational defect/ equip-ment malfunction
0.08 0.0200 0.18 0.32 0.15 0.35
Environmental im-pact assessment
0.25
Acts of God 0.11 0.0270 0.20 0.28 0.22 0.3
Compensation 0.7 0.0900 0.21 0.16 0.33 0.3Effect during planning 0.43
Employment and rehabili-tation
0.3 0.0387 0.14 0.24 0.28 0.34
Employment 0.5 0.0540 0.25 0.25 0.15 0.35Effect during construction 0.36
Effect of construction ac-tivities
0.5 0.0540 0.12 0.18 0.27 0.43
Employment 0.2 0.0126 0.25 0.25 0.25 0.25
Socio-economicimpact assessment
0.30
Effect during operations 0.21
Burden on existing infra-structure
0.8 0.0500 0.17 0.18 0.3 0.35
Overall weights 0.218 0.241 0.232 0.309
Ranking IV II III I
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Impact Assessment and Project Appraisal September 2001244
it on environmental grounds. Such findings can re-sult in substantial revisions to the project pro-posal, including new site studies, use of alternatetechnologies, and alternate implementation method-ologies. This not only increases project feasibilitystudy time considerably but also the cost and effortof the projects proponent.
This report has presented an integrated frameworkof technical, environmental impact, and social im-pact assessment for project selection. This model
uses an AHP framework that considers both sub-jective and objective factors. The model has thefollowing advantages:
It allows incorporation of interactive input fromthe executives of related functional areas.
It integrates technical, financial, and impact as-sessment with benefits to both the project ownerand affected populations.
Its aids objective decision-making by quantifyingmany subjective factors.
Both tangible and intangible elements can beincluded in the AHP hierarchy. Qualitative judg-ment and quantitative data can be included in thepriority-setting process.
It is an effective tool for conducting group plan-ning sessions in an analytical and systematicmanner.
It demands collection of information that is ult i-mately of use during the detailed engineeringstage.
The sensitivity analysis utility of AHP providesthe decision-makers with a sense of the effects of
their decisions. It improves communication among project stake-
holders and allows consideration of their concernsin a structured way.
It not only helps in managing a project effectivelybut also helps develop a quality project with a po-tential for desired outputs.
Table 5. Capital cost of pipelines construction (millions ofrupees)
Item description Optimal route(800 km)
Shortest route(750 km)
Pipes 160 155
Survey 45 40
Coating 80 77.5
Laying 600 580
Cathodic protection 50 47.5
Building 102 102
Pumping units 250 250
Telecommunication 370 350
Others 23 23
Total 3,120 3,020
Table 7. Operating cost of shortest route
Operating cost per year(millions of rupees)
Item description
05
years
510
years
1015
years
1520
years
Energy 5 5 10 10
Routine inspection 10 10 6 6
Overhead 10 10 12 12
Purchase of equipmentspares and other sundryitems
15 15 12 12
Additional inspection 10 15 10 15
Cost of failure 10 30 30
Total 50 65 80 85
Cost of augmentation
Table 6. Operating cost of optimal route
Operating cost per year(millions of rupees)
Item description
05years
510years
1015years
1520years
Energy 7 7 10 10Routine inspection 3 3 6 6
Overhead 10 10 12 12
Purchase of equipmentspares and other sundryitems
10 10 12 12
Cost of failure
Total 30 30 40 40
Cost of augmentation 50 75
Table 4. Life-cycle cost estimate for pipelines (millions ofrupees)
Description Shortest route Optimal route
Capital cost 3,020 3,120
Operating cost:First 5 yearsSecond 5 years
Third 5 yearsFourth 5 years
50 paa65 paa + 100b
80 paa
+ 300b
85 paa + 300b
30 paa30 paa
40 paa
+ 50c
40 paa + 75c
Net present value (NPV)MARR = 15% (assumed)
3472.9 3336.8
Notes : US $1 = Rupees 46.86 on 20 December 2000a Normal operation and maintenance costb Major inspection and maintenance cost in
subsequent five years that includes additionalpatrolling, special arrangement for failure, a waterlogged area, water pollution control and specialcoating/CP surveillance, intelligent pigging cost,including cost for loss of production for not beingable to augment the pipeline
c Additional capital cost for augmentation
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Integrated approach to project feasibility analysis
Impact Assessment and Project Appraisal September 2001 245
The model suffers from the limitation of not com-pletely removing subjectivity from the decisionmodel. However, it is an improvement over thepresent practice.
The project under study was successfully com-pleted in 1999 without time or cost overruns. Theproject has not experienced any reported accidentsor disputes among project stakeholders. The opera-tion of the pipeline is also satisfactory. It achievedthe target throughput within the couple of months of
its commissioning. The pipeline is now being ex-panded for 7.5 mmtpa throughput capacity and thefeasibility analysis of the project was initiated at thebeginning of 2001.
Although the application of the model was ex-plained through a representative cross-country petro-leum pipeline project, it can be applied universallyin various project selection problems. Considerableresearch is required, however, for each application.
References
CONCAWE, Conservation of Clean Air and Water, Europe(1994),Annual Report(CONCAWE, Brussels).
P K Dey (1997), Symbiosis of Organisational Re-engineering andRisk Management for Effective Implementation of Large-scaleConstruction Project, Doctoral thesis, Jadavpur University.
P K Dey and S S Gupta (1999), Decision support system forpipeline route selection, Cost Engineering, 41(10), October,pages 2935.
P K Dey and S S Gupta (2000), Analytic hierarchy processboosts risk analysis objectivity, Pipeline and Gas IndustryJournal, 83(9), September.
P K Dey, S O Ogunlana, S S Gupta and M T Tabucanon (1998),A risk based maintenance model for cross-country pipelines,Cost Engineering, 40(4), April, pages 2431.
P K Dey, M T Tabucanon and S O Ogunlana (1994), Planningfor project control through risk analysis: a case of petroleumpipeline laying project, International Journal of Project Man-agement, 12(1), pages 2333.
P K Dey, M T Tabucanon and S O Ogunlana (1996), Petroleumpipeline construction planning: a conceptual framework,International Journal of Project Management, 14(4), pages231240.
J R Meredith and S J Mantel (2000), Project Management: AManagerial Approach (John Wiley and Sons, fourth edition).
S A Mian and N D Christine (1999), Decision-making over theproject life cycle: an analytical hierarchy approach, ProjectManagement Journal, 30(1), pages 4052.
D Montemurro and S Barnett (1998), GIS-based process helpstrans Canada select best route for Expansion Line, Oil andGas Journal, 22 June, page 63.
F Y Partovi, J Burton and A Banerjee (1990), Application analytichierarchy process in operations management, InternationalJournal of Operations and Production Management, 10(3),pages 519.
R Ramanathan and S Geetha (1998), Socio-economic impact
assessment of industrial projects in India, Impact Assessmentand Project Appraisal, 16(1), pages 2732.
T L Saaty (1980), The Analytic Hierarchy Process (McGraw Hill,New York).
US Department of Transportation (1995), Pipeline Safety Regula-tion (US Department of Transportation, Washington DC).
Figure 7. AHP model for project selection
Selecting the best cross-country
petroleum pipelineproject
TechnicalAnalysis
Socio- economicAssessment
Length
Operability
Maintainability
Approachability
Constructability
Effect during planning
Effect duringconstruction
Effect duringOperations
Route characteristics
Augmentation possibility
Expansion capability
Corrosion
Pilferage
Third partyactivities
Compensation
Employment &
rehabilitation
Employment
Effect of construction
activities
Burden on existing infrastructure
Technicalanalysis
Length
Operability
Maintainability
Approachabilit
operations
possibility
Corrosion
Pilferage
Effect of construction
activities
RouteI
(0.2
18)
RouteII
0.2
41
RouteIII
(0.2
32)
RouteIV
0.3
09
Environmentalimpact
Effect during failure in pipelines
Effect during failure in stations
Effect during normal operationsof pipelines
Effect during normal operationsof stations
Effect during construction
Employment
Constructability
Selecting thebest cross-country
petroleum pipelineproject
Effect during planning
Effect duringconstruction
Effect during
Burden on existing infrastructure
Employment
rehabilitation
Employment and
Compensation
Third party activities
Expansion capability
Augmentation
Route characteristics
assessment
Socio-economic
(0.31)
(0.20)
(0.24)
0.10
.
(0.41)
(0.33)
(0.07)
(0.08)
(0.11)
(0.43)
(0.36)
(0.21)
(0.45)
0.25
(0.30)
.
(0.44)
(0.35)
.
0.25
(0.15)
(0.7)
(0.3)
(0.5)
0.5
(0.2)
(0.8)