FINANCIAL FEASIBILITY ANALYSIS OF CAPACITY ENHANCEMENT IN WATER TREATMENT PLANTS: A CASE STUDY

• Main Author: Junanto, Teguh
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/85948
• Institution: Institut Teknologi Bandung

PT. KENCANA WATER is a company focused on the provision and processing of clean water. The clean water produced is utilized for community and industrial needs in the city of Cilegon. Increasing population and the expansion and growth of new factories, especially in the petrochemical industry in Cilegon, have significantly raised the demand for clean water. As the main water provider in the Cilegon area, PT. KENCANA WATER must enhance its capacity to ensure a sustainable and reliable supply. Failure to increase the plant's capacity could disrupt water continuity and pressure, affecting water distribution to the community and industrial operations. To address this need, the Capacity Enhancement Project aims to upgrade the existing infrastructure. This project includes increasing capacity and the distribution network, building a new Water Treatment Plant (WTP), and enhancing the reliability of mechanical, electrical, instrumentation, and automation (MEIA) facilities. Such enhancements are expected to not only meet the current demand but also cater to future increases, ensuring longterm sustainability and reliability of water supply in the region. The necessity of this project requires an analysis of the capital budgeting for the capacity enhancement investment. This analysis aims to assess incurred costs and determine the net cash flow generated by the project. To evaluate the financial feasibility of the Capacity Enhancement Project, the following indicators are computed: Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period (PP) and Discounted Payback Period (DPP). The discount rate used is that of Weighted Average Cost of Capital (WACC). Assumptions made include stable economic conditions and consistent water demand growth. Results from the financial feasibility analysis indicate that the Capacity Enhancement Project is financially viable. The project's NPV is valued at Rp.435,591,402, which is positive. The project’s IRR of 28.14%, is higher than its WACC of 8.04%. Lastly, the project's Payback Period is 6.02 years, and the Discounted Payback Period is 6.83 years, both of which are still shorter than the standard payback period of PT. KENCANA WATER, which is 10 years. These results provide strong evidence that the Enhancement Project financially feasible, and will also secure the water supply needs of the Cilegon area effectively.