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Integrated approach to project feasibility analysis: a

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

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 Impact Assessment and Project Appraisal , volume 19, number 3, September 2001, pages 235–245, Beech Tree Publishing, 10 Watford Close, Guildford, Surrey GU1 2EP, UK
Professional practice
Integrated approach to project feasibility
analysis: a case study
Prasanta Kumar Dey
Downloaded by [Jawaharlal Nehru University] at 06:33 22 October 2012
Feasibility studies of industrial projects consist
of multiple analyses carried out sequentially.
This is time consuming and each analysis
screens out alternatives based solely on the
merits of that analysis. In cross-country petro-
leum pipeline project selection, market analysis
determines throughput requirement and supply
and demand points. Technical analysis identifies
technological options and alternatives for pipe-
line routes. Economic and financial analysis de-
rive the least-cost option. The impact assessment
addresses environmental issues. The impact as-
sessment often suggests alternative sites, routes,
technologies, and/or implementation method-
ology, necessitating revision of technical and
financial analysis. This report suggests an
integrated approach to feasibility analysis pre-
sented as a case application of a cross-country
petroleum 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:
deypk@hotmail.com.
Impact Assessment and Project Appraisal September 2001
ROJECTS TRANSFORM a vision into reality.
P
Major projects can apply science and tech-
nology in a sustainable manner but in many
instances adversely affect their environment. Impact
assessment determines the socio-economic and envi-
ronmental consequences of proposed projects. Large
industrial projects can affect the socio-economic
fabric of nearby populations. Socio-economic m i -
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 most
energy-efficient, safe, environmentally friendly, and
economical 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 nation’s energy
requirement is transported through pipelines. The
economy of a country can be heavily dependent on
smooth and uninterrupted operation of these lines
(Dey and Gupta, 2000).
Therefore, it is important to ensure safe and fail-
ure-free operation of these pipelines. While pipelines
are one of the safest means of transporting bulk en-
ergy, with failure rates much less than railroads, de-
fects do occur and sometimes have catastrophic
consequences. For example, in 1993, 51 people were
burnt to death when a gas pipeline failed and escap-
ing gas was ignited in Venezuela. In 1994, a 36-inch
pipeline in New Jersey, USA failed, resulting in the
death 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
1461-5517/01/030235-11 US$ 08.00 © IAIA 2001 235
 Integrated approach to project feasibility analysis
India. In 1998, an attempt to pilfer product from a
pipeline led to the death of 500 persons (CON-
CAWE, 1994). In addition, disruption of pipeline
operations can lead to large losses in business (Dey
et 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 both
profitable and a contributing agent to the society.
Their findings, however, are sometimes ignored by
the project owner, causing conflict within surround-
ing populations. This conflict can result in damage
either to the project or to the society.
Project description
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The project under study is a cross-country petroleum
pipeline project in western India. Its length is 1,300
kilometers plus a 123-kilometer branch line. The
pipeline is designed carry 5 million metric tons per
annum (mmtpa) of throughput. The project includes
three pump stations, one pumping/delivery station,
two scraper stations, four delivery stations, and two
terminal stations. The project cost was estimated as
US$ 600 million. A detailed description of the pro-
ject is available in Dey (1997). The work breakdown
structure 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. Rapid
industrial growth calls for the study of many poten-
tial pipeline projects, which are scrutinized to iden-
tify a few feasible ones for detailed analysis. Market
and demand analysis determines the pipeline route
and supply–demand points. The technical analysis
assesses a few alternatives with respect to pipe
diameter and the number of intermediate stations.
Laying cross-country pipeline
Laying Building and colony
pipes construction
Laying pipes Laying pipes Laying pipes
in normal across river across vari-
terrain ous crossings
Survey Land Statutory
acquisition clearance
Figure 1. Work breakdown structure of cross-country petroleum pipeline project
236
The optimum alternative is selected on the basis
of financial evaluation criteria, such as net present
value and internal rate of return. The environmental
and socio-economic impact assessment is then con-
ducted on a single selected project to identify means
to 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 impact
assessment, which may be called upon to justify
this alternative generated from financial analysis.
• Impact assessment findings often demand altera-
tion of the project site (pipeline route) and use of
a different technology, necessitating revision of
the technical and financial analysis.
• Although sometimes projects get statutory ap-
proval from the regulatory authorities based on
impact assessment reports, there is evidence of
project abandonment at this late stage because of
public protest.
• Project approval takes time because approving
authorities often ask for additional information,
necessitating further detailed analysis.
• Sometimes, the selected projects prove not to be
fully effective in the operations stage because of
large operating and maintenance costs and lack of
expansion opportunities.
These problems can be resolved by incorporating the
feasibility analyses and impact assessments into an
integrated framework with the active involvement of
all the stakeholders. The objective in the project un-
der study was to develop an integrated project sele c-
tion model that quantified the merits and demerits of
various project alternatives.
Project analysis and approval processes
Potential projects are first identified through both
top-down and bottom-up approaches that involve
Telecommunication CP system Station
and SCADA system construction
Laying pipes Laying pipes
in slushy in offshore
terrain location
Pump Delivery Scraper Offshore
stations stations stations terminal
Power Decision Material Works Implementation
supply and detailed procurement contract
engineering
Impact Assessment and Project Appraisal September 2001
 Integrated approach to project feasibility analysis

Needs analysis

Initial screening

Market and demand

analysis

Technical analysis

Alternative projects
analysis

Financial and Project change

economic analysis required

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

different levels of executives. They consider the
supply of, and demand for, petroleum products and
crude, the organization’s strategic plans, and produc-
tivity improvement. Brainstorming and/or the Delphi
technique are employed to screening the feasible
projects.
Next, a project analysis team is formed. Typically
it consists of representatives of a design (civil, ele c-
trical, mechanical, and telecommunication) group, a
planning group, an implementation group, an opera-
tions group, and a finance group. They are selected
based on their experience and past performance.
They form the feasibility study’s core working
group. They identify the project stakeholders, de-
termine their concerns, and involve them in the
analysis. Table 1 shows a typical list of stakeholders
along 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 identific a-
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 owner’s
management to decide whether a recommended
project has potential for implementation and
organization’s growth.
The feasibility report is submitted to the Ministry
of Environment and Forest for environmental clear-
ance. The Ministry examines the project with respect
to sustainable development and use of clean tech-
nology. Considering environmental requirements at
this early stage permits quick approval from the
Ministry. A quick response can be made to the Min-
istry’s queries since an environmental analysis is
complete and available. The Ministry of Petroleum
and Natural Gas is the ultimate authority for ap-
proving the project in principle and allocating
funds for implementation. The entire analysis and
approval processes, along with communication net-
work among project stakeholders, are shown in
Figure 3.
Project analysis model
Figure 4 shows the model for feasibility analysis of a
cross-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 solve
site selection (pipeline route) problems, as well as a
few 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 multiple
attribute decision-making technique (Saaty, 1980),
was used for the simultaneous technical, environ-
mental, and socio-economic analysis. It was used for
as a part of the project analysis model because:
• the factors that lead to project selection are both
objective and subjective;
• the factors are conflicting, achievement of one
factor may sacrifice others;
• some objectivity should be reflected in assessing
subjective factors;
• AHP can consider each factor in a manner that is
flexible 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

Impact Assessment and Project Appraisal September 2001 237

 Integrated approach to project feasibility analysis

Table 1. Project stakeholders, their requirements and concerns

Number Stakeholders Requirements Concerns

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

decision-makers a rational basis on which to make
their decision.
Researchers use the analytic hierarchy process in
various 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 for
evaluation and selection of a private-sector project.
Meredith and Mantel (2000) described AHP as an
effective tool for project selection. To the author’s
knowledge, this project was the first application of
the process for project selection in the petroleum
sector.
Formulating the decision problem in the form of a
hierarchical structure is the first step of AHP. In a
typical hierarchy, the top level reflects the overall
objective (focus) of the decision problem. The ele-
ments affecting the decision are represented in
intermediate levels. The lowest level comprises the
decision options.
Once a hierarchy has been constructed, the deci-
sion-maker begins a prioritization procedure to
determine the relative importance of the elements in
each level of the hierarchy. The elements in each
level 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, relative
weights are derived for the various elements of each
level with respect to an element in the adjacent up-
per level. They are computed as the components of
the normalized eigenvector associated with the larg-
est eigenvalue of their comparison matrix. Compos-
ite weights are then determined by aggregating the
weights through the hierarchy. This is done by

238 Impact Assessment and Project Appraisal September 2001

 Integrated approach to project feasibility analysis

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

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

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

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

Figure 3. Communications among project stakeholders during feasibility study and

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approval processes

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

Market
analysis

Preliminary
design

Technical Environmental
Social
analysis impact assessment
impact assessment

Survey

Financial Economic
analysis analysis

Project selection

Feasibility report

Project approval Statutory approval

Figure 4. Integrated project analysis model

Impact Assessment and Project Appraisal September 2001 239

 Integrated approach to project feasibility analysis

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

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

Effect Compensation
Compensation
Effect during
during construction
construction
Employment
Employment and
&
rehabilitation
rehabilitation
Effect
Effect during
during planning
planning
Socio-economic
Socio economic
Downloaded by [Jawaharlal Nehru University] at 06:33 22 October 2012

Employment
Employment
assessment
Assessment
Effect of
Effect of construction
construction
Effect during
Effect during activities
activities
construction
construction

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

Figure 5. Factors and sub-factors for project selection

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

Technical factors Approachability

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

Operability Constructability

The hydraulic gradient is a major factor in selecting
prime mover power for pipeline operations as nega-
tive hydraulic gradient demands a higher prime
mover power. Similarly, more route diversion causes
greater friction loss and need for higher prime mover
power. These result in more capital investment.
A pipeline is designed for specific throughput in
Laying pipeline across state/province or national
boundaries requires permission from government
authorities. 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

240 Impact Assessment and Project Appraisal September 2001


market, the availability of power and water, and the
availability of skilled and unskilled laborers
are typical issues related to effective construction
activ ities.
Pipeline construction methods vary greatly with
terrain conditions. For example, laying a pipeline
across 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 and
cost 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 environment
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during its normal operations since pipelines are
buried underground and stations have a dedicated
water treatment plant and other pollution control
measures.
Although pipelines are designed with safety fea-
tures, failure can occur, sometimes resulting in a
release of large quantities of petroleum products into
the environment. If this should happen, a pipeline in
a remote area can be less of a safety concern than
one near habitation. The pipelines and stations fail
because of one, or a combination, of the following
factors:
• corrosion;
• external interference;
• construction and materials defect;
• acts of God; and
• human and operational error.
Corrosion, an electro-chemical process that changes
metal back to ore, is one of the major causes of pipe-
line failure. External interference is another leading
cause of failure. It can be malicious (sabotage or
pilferage) or be caused by other agencies (third-party
activity) sharing the same utility corridor. In either
case, a pipeline can be damaged severely. External
interference with malicious intent is more common
in socio-economically deprived areas, while in re-
gions with more industrial activity, third-party dam-
age is common. Poor construction, combined with
inadequate inspections and low-quality materials,
also contributes to pipeline failures.
All activities, industrial or otherwise, are prone to
natural calamities, but pipelines are especially vul-
nerable. As noted above, a pipeline passes through
all types of terrain, including geologically sensitive
areas. Thus earthquakes, landslides, floods, and
other natural disasters are all common reasons for
failure.
Inadequate instrumentation, foolproof operating
system, a lack of standardized operating procedures,
Impact Assessment and Project Appraisal September 2001
Integrated approach to project feasibility analysis
untrained operators and so on are the common
causes of pipeline failure because of human and
operational errors and equipment malfunctions.
Computerized control systems considerably reduce
the chance of failure from these factors.
Socio-economic factors
Before construction begins, a pipeline’s right-of-way
must be acquired. This often passes through agricul-
tural land. Acquisition of agricultural land for indus-
trial purposes involves several issues. Some of the
important ones are compensating the owner for the
land acquired and providing for alternative employ-
ment, alternate accommodation, and other assistance
to the owner.
During construction, the effect must be consid-
ered of introducing new jobs to the project area and
of construction activities placing an additional bur-
den on local infrastructure. Substantial construction
employment can lead to an influx of people into the
impact area. Heavy vehicle movement in the
right-of-way can cause cultivation problems for
many years where pipelines are laid through crop
fields. Construction also can lead to local trans-
port disruption. Populated areas can suffer from
pollution.
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, pipeline
projects seldom generate employment opportunities
at 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 the
AHP framework. Level I is the goal — selecting the
best 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 data
along with the experience of pipeline operators were
utilized to apply the AHP model to select the best
pipeline project. The data were analyzed by using
the 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 project
under study, although it is not the shortest. Alterna-
tive 4 outranks the other alternatives with respect
241
 Integrated approach to project feasibility analysis

Routecharacteristics
Route characteristics
Length
Length

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

Corrosion
Corrosion
Approachability
Approachability

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

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

Route III
Effect during normal operations
of stations

Effect during construction Compensation

Compensation

Employment
Employment &and
rehabilitation
rehabilitation

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

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

Figure 6. AHP model for project selection

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to its operability, maintainability, environment- Financial analysis

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

Description Route I Route II Route III Route IV

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

242 Impact Assessment and Project Appraisal September 2001

 Table 3. Project selection data analysis

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

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

Impact Assessment and Project Appraisal September 2001 243

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

Item description Operating cost per year

Description Shortest route Optimal route (millions of rupees)

Capital cost 3,020 3,120

Operating cost: 0–5 5–10 10–15 15–20
First 5 years 50 paa 30 paa years years years years
Second 5 years 65 paa + 100b 30 paa
Third 5 years 80 paa + 300b 40 paa + 50c Energy 7 7 10 10
Fourth 5 years 85 paa + 300b 40 paa + 75c
Routine inspection 3 3 6 6
Net present value (NPV) –3472.9 –3336.8 Overhead 10 10 12 12
MARR = 15% (assumed)
Purchase of equipment 10 10 12 12
Notes: US $1 = Rupees 46.86 on 20 December 2000 spares and other sundry
a
Normal operation and maintenance cost items
b
Major inspection and maintenance cost in Cost of failure – – – –
subsequent five years that includes additional
patrolling, special arrangement for failure, a water Total 30 30 40 40
logged area, water pollution control and special Cost of augmentation – – 50 75
coating/CP surveillance, intelligent pigging cost,
including cost for loss of production for not being
able to augment the pipeline
• Its aids objective decision-making by quantifying
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c
Additional capital cost for augmentation
it on environmental grounds. Such findings can re-
sult in substantial revisions to the project pro-
posal, including new site studies, use of alternate
technologies, and alternate implementation method-
ologies. This not only increases project feasibility
study time considerably but also the cost and effort
of the project’s proponent.
This report has presented an integrated framework
of 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 the
following advantages:
• It allows incorporation of interactive input from
the executives of related functional areas.
• It integrates technical, financial, and impact as-
sessment with benefits to both the project owner
and affected populations.
many subjective factors.
• Both tangible and intangible elements can be
included in the AHP hierarchy. Qualitative judg-
ment and quantitative data can be included in the
priority-setting process.
• It is an effective tool for conducting group pla n-
ning sessions in an analytical and systematic
manner.
• It demands collection of information that is ult i-
mately of use during the detailed engineering
stage.
• The sensitivity analysis utility of AHP provides
the decision-makers with a sense of the effects of
their decisions.
• It improves communication among project stake-
holders and allows consideration of their concerns
in a structured way.
• It not only helps in managing a project effectively
but also helps develop a quality project with a po-
tential for desired outputs.
Table 7. Operating cost of shortest route

Table 5. Capital cost of pipelines construction (millions of

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

Item description Optimal route Shortest route

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

244 Impact Assessment and Project Appraisal September 2001

 Integrated approach to project feasibility analysis

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

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

Route II
Selecting
Selectingthethe

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

Route III
Effect during normal operations

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

Route IV
Effect
Effectduring
duringplanning (0.3)

(0.309)
planning
Socio-economic
Socio - economic
(0.43) Employment
Employment
Assessment
(0.30) (0.5)
Effect during
Effect during Effect of construction
Effect of construction
construction
construction activities
activities
(0.36) (0.5)
Effect during
Effect during
operations
Operations Employment
Burden on existing infrastructure
(0.21) (0.2)
Burden on existing infrastructure
(0.8)
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Figure 7. AHP model for project selection

The model suffers from the limitation of not com-
pletely removing subjectivity from the decision
model. However, it is an impr ovement over the
present practice.
The project under study was successfully com-
pleted in 1999 without time or cost overruns. The
project has not experienced any reported accidents
or disputes among project stakeholders. The opera-
tion of the pipeline is also satisfactory. It achieved
the target throughput within the couple of months of
its commissioning. The pipeline is now being ex-
panded for 7.5 mmtpa throughput capacity and the
feasibility analysis of the project was initiated at the
beginning of 2001.
Although the application of the model was ex-
plained through a representative cross-country petro-
leum pipeline project, it can be applied universally
in various project selection problems. Considerable
research is required, however, for each applic ation.
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Impact Assessment and Project Appraisal September 2001 245