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202.? 92AP
Infrastructure and Urban Development
Department
The World Bank
October 1992
WPS 1005
An Approach
to the Economic Analysis
of Water Supply Projects
Laszlo Lovei
A simplified method aimed at improving the quality of economic
analysis on water supply projects.
Policy Research Woiking Papers disseminate the findings of work in progress and encourage the exchange of ideas among B ank staff and
all others interested in developmcni issues. These papers carry ihc names of the authois, reflect only their views, and should be used and
cited accordingly. The findings, interpretations, and conclusions are the authors' own. They should not be attributed I
its Board of Directors, its management, or any of its member countries. o ~7 C\ A o I "7
iLO L' f- — Ji fiy I I 2S 7 1
WPS 1005
This paper— a product of the Infrastructure, Energy, and Environment Division, Europe and Central Asia
Country Department III — is part of a larger effort in the Bank to improve operational practice and raise
the quality of projects in the water and sanitation sector. Copies of the paper are available free from the
World Bank, 1818 H Street NW, Washington DC 20433. Please contact Man Dhokai, room S12-005,
extension 33970 (October 1992, 37 pages).
Development economists are increasingly water supply projects; reviews the method of
concerned about the correct approach to eco- economic analysis applied in 21 recently ap-
nomic analysis of projects. By looking for a proved Bank projects; and describes a simplified
compromise between theory (which identifies method that was tested in practice and found to
ideals) and practice (which deals within the improve substantially the quality of economic
bounds of time and resource constraints), Lovei analysis in the sector.
focuses on potential guidelines for economic
appraisals of water supply projects. This new method relies on standardized and
rigorous use of information that is routinely
He summarizes theory and the current World available during the preparation of water supply
Bank guidelines on the economic analysis of projects.
The Policy Research Working Paper Series disseminates the findings of work under way in the B ank. An objective of the series
is to get these findings out quickly, even if presentations are less than fully polished. The findings, interpretations, and
conclusions in these papers do not necessarily represent official Bank policy.
Produced by the Policy Research Dissemination Center
An Approach to the Economic Analysis
of Water Supply Projects
by
Laszlo Lovei
Laszlo Lovei is an economist in the Infrastructure, Energy and Environment Division
of Country Department EC3 of the World Bank. The author would like to thank Ian
Bartlett, Colin Gannon, Christian Gomez, Luis Gutierrez, Lars Jeurling, Mike Gam,
Chris Shugart, and Dale Whittington for their comments on earlier versions of the
paper and the ECOWAT programs.
Table of Contents
1. Summary 3
2. Theory and Guidelines 3
3. Current Practice at the World Bank 4
4. A Proposal for Improvement 7
References 14
Annex 1: Staff Appraisal Reports Reviewed 15
Annex 2: Numerical Example 16
Annex 3: Introduction to EC0WAT1 17
Mathematical Formulas of ECO WATl ; 25
Annex 4: Introduction to EC0WAT2 28
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