Wednesday, 13 July 2011

Counting the cost of the disaster of Naval Base / Vasiliko Power station

*****These are very rough estimates done in a day to get a dialogue on the issue. Improvements, suggestions and criticisms are welcome****

This second article is a very rough, “back of the envelope” attempt to understand the monetary cost of the disaster. It is the first such attempt and no doubt better attempts can be made once we know more facts about Vasiliko, and once I have electricity in my office so I can use the internet to collect data.

In order to defray criticism of scaremongering, I have consciously decided to be completely open in how I come to these numbers, and use the lowest possible estimates in order to bias myself against a high cost.

Unfortunately even with such a negative bias I could estimate the cost of the accident at 3.1 billion Euros, well over 18.5% of the whole income of the Economy in 2009. This is huge: it is the largest ever cost suffered by the economy of Cyprus since the 1974 invasion.



Below I will try and explain how I derive each number:
1) Cost to rebuild power station:

We are still unsure of this but there have been suggestions of 1 to 2 billion euro and thus I took the average of these numbers. No doubt we will know this when a full evaluation of the situation is completed.

2) Loss of electricity Value Added (50% of 2009 Value added)
There is no doubt that the production of electricity has been reduced. Thus the gross output of electricity has also been reduced, reducing the total GDP (income) of the economy. In addition the power currently produced by Moni, Dekelia and auxialiary sources, cost much more per MW hour to make than Vasiliko. Hence the created income (i.e. value added) of each unit of electricity is much less.

3) Loss of income through Multiplier due to loss of electricity

The loss of value added has cumulative effects the economy. Each 1 pound placed in the economy created more than 1 pound. Alternatively each 1 pound loss of the economy will reduce the income of the GDP by more than 1 pound. Using the input/output of the Cypriot economy we can then estimate the additional loss for the economy.
4) Lost man-hours

Once again the most conservative estimates were used. I estimated that less than 1/3 of the labour force (I used 100,000) will lose 2 hours of productive work per day for only 12 weeks. I also reduced the lost productivity to just 23 euros an hour. This is a major underestimate and no doubt with more data and and understatement of how long these shortages will be taking place this cost could rise and be as big as the reconstruction of Vasiliko.

5) Diverted resources of police, army, fire-fighters etc.

The diversion of police, army and fire fighters due to traffic duties, helping trapped visitors and gassing peaceful protesters diverts police time. I arbitrarily picked a low number for the overtime and additional work load based on high overtime wages.

6) Reduction of Manufacturing by 1% / 8) Loss of Tourism by 1%

I wish I could do better here by knowing the proportion of cost of electricity to manufacturing. As I do not I just assume a 1% fall in production.

7) Loss of Income through Multiplier due to loss of Manufacturing / 9) Loss of Income through Multiplier due to loss of Tourism

The loss of value added has cumulative effects the economy. Each 1 pound placed in the economy created more than 1 pound. Alternatively each 1 pound loss of the economy will reduce the income of the GDP by more than 1 pound. Using the input/output of the Cypriot economy we can then estimate the additional loss for the economy.

11) Destruction of products 0.005% of retail

Another very difficult estimate – until i have state from companies I arbitrarily said that 2.5% of value added of food retailers is consumed by the cot of wasted products, which is approximately 20% of the retail sector’s value added.

12) Increase in cost due to more petrol imported + imported machinery

This is very speculative. I need more time to look at cost of petrol and of generators but i think this is an underestimate.

2 comments:

Manos said...

Please don't hit me but this might help:

http://www.euklems.net/data/09I/cyp_output_09I.xls

Insane stuff. I hope it's not as bad as you say but of course that's gonna happen.

Alexander Apostolides said...

What a great Idea Mano! thanks! Maybe my hate for Klems data is due to to spurned love.... :-)