Risk Analyses for Riau Regional Water Supply Projects (SPAM), Indonesia

Abstract

This paper investigated to what extend risk analyses may play its role in the development of feasibility study of Riau regional water supply projects (regional SPAM). This SPAM services coverage area may cover 4 (four) regions in Riau province such as; Rokan Hulu regency, Rokan Hilir, Bengkalis and Dumai. The capacity of this SPAM is 500 l/second. Total financing required for development of this SPAM was approximately Rp. 344 billion. Project finance will be obtained from budget sharing scheme from APBN (Rp. 140 billion or 41%), APBD (Rp. 62 billion or 18%), and the private sector (Rp. 141 billion or 41%). Three stages of risk analyses have been applied in this paper, such as; (i) risk identification, (ii) risk assessment, and (iii) risk mitigation. Based on the simulation result, it was identified that the initial project NPV was in the rage of -Rp. 6.68 billion up to Rp. 18.01 billion. The mean value of the projected NPV was Rp. 6.27 billion. This project is considered to be risky to proceed, as there is 90% probability the projected NPV < Rp. 0. After risk mitigation procedure will be applied, there is a mean value of the project NPV is Rp. 9.9 billion (increase by 30% from the initial NPV). Four significant risk variables affected NPV performance are identified as follow; (i) engineering cost for constructing water treatment plant and facilities, (ii) cost of pipelines installation and accessories, (ii) electricity costs, and (iv) chemical cost expenditure. A reduction of technical uncertainties including design changes; redundant of engineering risk costs, introduction of energy efficient technology during project operation may reduce electricity and chemical costs. Hence, based on the simulation results, it is confirmed that, the risk analyses procedure may improve regional SPAM regional technical and economy performances (e.i. NPV parameters).