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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

P


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Integrated approach to project feasibility analysis

Impact Assessment and Project Appraisal September 2001236

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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Impact Assessment and Project Appraisal September 2001 237

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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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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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


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




of pipelines


of stations



Effect during

construction

Effect during

operations


Augmentation

possibility


Corrosion

Pilferage


Compensation

Employment and

rehabilitation

Employment

Effect of constructionactivities


Figure 5. Factors and sub-factors for project selection


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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

construction

Effect during Operations


Augmentationpossib ility


Corrosion

Pilferage


Compensation

Employment &

rehabilitation

Employment

Effect of construction

activities


Technical

analysis

Length

Operability

Maintainability

Appr oacha bilit y

operations

possibility

Corrosion

Pilferage


activities

RouteI

RouteII

RouteIII

RouteIV

Environmental impact

assessment




of pipelines


of stat ions


Employment

Constructability

Selecting thebest cross-country

petroleum pipeline

project


Effect during

construction

Effect during


Employment

rehabilitation

Employment and

Compensation



Augm ent atio n


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


10/12


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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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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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 duringconstruction

Effect duringOperations


Augmentation possibility


Corrosion

Pilferage

Third partyactivities

Compensation

Employment &

rehabilitation

Employment


activities


Technicalanalysis

Length

Operability

Maintainability

Approachabilit

operations

possibility

Corrosion

Pilferage


activities

RouteI

(0.2

18)

RouteII

0.2

41

RouteIII

(0.2

32)

RouteIV

0.3

09

Environmentalimpact



Effect during normal operationsof pipelines

Effect during normal operationsof stations


Employment

Constructability

Selecting thebest cross-country

petroleum pipelineproject


Effect duringconstruction

Effect during


Employment

rehabilitation

Employment and

Compensation



Augmentation


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)

Documents

Impact 32 Assessment 32 and 32 Project 32 Appraisal