Investment Feasibility Analysis of the Drinking Water Supply System (SPAM) Project by PT. XYZ in Cilacap, Central Java

Abstract

This research analyzes the investment feasibility of the Drinking Water Supply System (SPAM) project in Cilacap, Central Java, carried out by PT XYZ under a BOT scheme with Perumdam Tirta Wijaya. The research aims to assess financial feasibility using NPV, IRR, PI, and Payback Period indicators, and to identify key risk factors through sensitivity analysis and Monte Carlo simulation. Using a capital budgeting approach with a WACC of 9.93%, the project yields a positive NPV of IDR 10.5 billion, IRR of 12.72% above WACC, PI of 1.19, and Payback Period of 7.32 years, indicating financial feasibility. The project projects cumulative revenue of IDR 278.14 billion and free cash flow of IDR 94.81 billion. However, risk analysis reveals significant uncertainty, with sensitivity analysis identifying bulk water price and production volume as most critical, and Monte Carlo simulation producing a mean NPV of IDR 2.63 billion with a 39% probability of negative NPV. The study concludes that while the project is financially feasible, active risk management in securing revenue realization is essential. Theoretically, it contributes to infrastructure investment literature by integrating capital budgeting with quantitative risk assessment, while practically offering recommendations for PT XYZ and other investors in managing revenue-related risks and making informed decisions on PPP water infrastructure projects.