Economics Assignment: Evaluation of the Carlsbad Desalination Project

This economics assignment analyzes the agreement between the Sun Diego Country Water Authority and the Carlsbad Desalination project. The report details the agreement's terms, including the 30-year water purchase, potential future acquisition, and extension clauses in case of disasters. It assesses the risks for the Authority, highlighting the pre-determined water price, penalties for non-delivery, and water quality requirements. The assignment outlines the Authority's control over the plant's operation and the default options for Poseidon. It also discusses the pros, such as the Authority's control and purchase options, and cons, like the added costs for water and aqueduct modifications. The conclusion suggests that the pros outweigh the cons, making the project favorable for the Authority, as the Authority has various options if Poseidon fails to meet the agreement's objectives. The assignment references key literature to support its analysis.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the University
Name of the Student
Author Note

1ECONOMICS ASSIGNMENT
Major Issues before voting on approval of the project:
Pros:
Agreement Terms: According to the agreement, the Sun Diego Country Water Authority
can buy water from the Carlsbad Desalination project for next 30 years (Mayer, Breun &
Schultmann, 2017). In future, if required, the Authority can also buy the project. The
agreement term can also be extended up to 3 years if any natural disaster occurs.
Risk associated to Project: In this agreement, the Authority does not have any risk fear.
According to the agreement, the Authority will buy water from the project at a pre
determined price level (Fang, C., Marle, F., & Xie, 2017). Hence, if Poseidon will fail to
deliver the mentioned water as it is mentioned in the agreement, then Poseidon has to give
money as penalty and other remedies. Until the project cannot pass the acceptance test of the
Authority, the Authority will not pay for water. The Authority can also reject plant water if
Poseidon cannot meet the requirement of water quality.
Underperformance: Poseidon will not get payment from the Authority if it cannot satisfy its
obligation, related to water supply (Pajares & López, 2014). The amount, which Poseidon
will not get for its underperformance is equal to the proportion of its underperformance of
fixed charges.
Control over Plant: The Sun Diego Country Water Authority can control the plan based on
safe operation and maintaining industry standard (Papke-Shields & Boyer-Wright, 2017). The
Authority can operate, manage and maintain this plan.
Default option: Poseidon will be default if some incidents occur. These incidents are like
fails to pass acceptance test, bankruptcy, repeated primary drinking water violation and
supply of water less than 75% in a contract year.

2ECONOMICS ASSIGNMENT
Purchase options: the Authority can buy this plant after 10 years of the project commercial
operation date. The Authority has to pay the amount, which is equal to the outstanding bond
debt and remaining equity return and contractor costs. However, if Poseidon will default then
the Authority can buy the project by paying only the outstanding bond debt.
Cons:
Cost Burden: The Authority has to bear extra costs to buy water from the project. The cost
will comprise the price of water purchase from Poseidon and the cost of aqueduct
modification. A household of four people has to bear more dollars per month to buy water.
Hence, any member of the Authority will vote for this project, as number of pros is
greater than the number of cons. The Authority has many options to purchase the plant if
Poseidon will fail to achieve the objectives of agreement.

3ECONOMICS ASSIGNMENT
Reference:
Fang, C., Marle, F., & Xie, M. (2017). Applying importance measures to risk analysis in
engineering project using a risk network model. IEEE Systems Journal, 11(3), 1548-
1556.
Mayer, C., Breun, P., & Schultmann, F. (2017). Considering risks in early stage investment
planning for emission abatement technologies in large combustion plants. Journal of
cleaner production, 142, 133-144.
Pajares, J., & López, A. (2014). New methodological approaches to project portfolio
management: the role of interactions within projects and portfolios. Procedia-Social
and Behavioral Sciences, 119, 645-652.
Papke-Shields, K. E., & Boyer-Wright, K. M. (2017). Strategic planning characteristics
applied to project management. International Journal of Project Management, 35(2),
169-179.