**Annex** 3: **Introduction to** ECOWAT1

The following section shows a printed version of ECOWATI, a program designed to carry out economic analysis of small water supply projects in Indonesia. ECOWAT1 is a Lotus 123 working file, which contains subroutines--so-called macros--making the calculations convenient and helping you to print the results in a standard format.

Determining the economic viability of a project requires affirmative answers to two questions. Is the present value of net benefits (NPV) of the project positive?, and Is the present value of net benefits at least as high as the NPV of any mutually exclusive project alternative? Looking at a new piped water supply system or at the extension of an already existing system, the supplied quantity of water as a result of the implemented project can be divided into two parts: one part replaces the previous source and quantity of water use (wells, springs, rivers) and the other part is a net increase in water consumption. Benefit from the replacement part is equal to the cost savings (actual payments plus own labor) of consumers who no longer need to use other sources of water supply. Benefit from the incremental water use is equal to the consumers' willingness to pay, which can be determined by estimating the area under the consumers' water demand curve. When both parts of the benefits are quantified, the netbenefitsof theprojectcan be calculated by adding them together and subtracting the cost of new water supply. This answers the first question. An affirmative answer to the second question should result from carefulprojectdesign, which requires twoimportant components: to select a least-cost solution for raw water intake, storage and treatment, and to extend the distribution system towards those consumers who, without the project, would have the highest-cost water supply (including the costs of their own labor in carrying the water) from alternative sources.

With few exceptions, ECOWATI only requires data that describe the water supply/demand situation<sup>in</sup> oneparticularyear: thefirstyearafterprojectcompletion. Data input is divided into twoparts: the first part refers<sup>to</sup> the 'WITH' project, the second to the 'WITHOUT' project alternatives. Calculations are based on constant prices and a 10% (real) social rate of interest. ECOWATI is most useful if applied at an early stage of project design. Sensitivity analysis of different design alternatives will help to choose a design that maximizes the expected net economic benefits.

The following pages show what appears on the computer screen when working with ECOWATI. They are not a substitute for the program itself but demonstrate the nature of information required to carry out the analysis. A survey of water use in the project implementation area is the most important requirement before using the program.

As a result of its simplicity, ECOWATI can be used to analyze only small projects (less than two billion rupiah investment cost). Medium-sized or large water supply projects require a more detailed description of water use in the years after implementation.

To **run** the program.

*Load LOTUS 123

"Type _/"_ oSelect FILE, RETRIEVE, ECOWATI.WKI.

Comments are welcome. Please contact Laszlo Lovei at (202) 473-2772.

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