Unit Reference Value: Application in appraising inter-basin water transfer projects

Abstract

Unit Reference Value (URV) is a common measure in South Africa to assess the economic efficiency of proposed water projects. This is a companion article to an earlier one establishing that the current approach of appraisal of inter-basin water transfer projects (IBTs) with significant pumping costs overestimates likely future water transfers and thereby variable operational costs. Those findings are taken further and it is established that the URV, as currently applied, fails as a suitable measure to appraise such IBTs. From rooting URVs in fundamental cost effectiveness analysis theory a revised URV approach is proposed that provides for a conceptual separation between water transfers affecting operating costs and water transfers used as a proxy measure for effectiveness. The prominent effect of the revised URV approach is demonstrated by means of the example of the proposed Thukela Water Project in South Africa.

Keywords: unit reference value, cost effectiveness analysis, inter-basin water transfers, project appraisal