Erected Offsite Cost
An estimated erected cost of offsites usually is not available at the early stages of a
project. Estimating the cost of offsites is difficult, but not impossible. Two
approaches are available:
• A gross estimation approach
• An itemized estimation approach
The first approach provides only a very rough estimate and makes use of some
simple but often unreliable guidelines. Essentially, these guidelines dictate that if a
plant is a grassroot facility, the cost of the offsites is about the same as the cost of
the plant within battery limits; if the plant is built on a developed site, the cost of the
offsites is about 30–50 % of the cost of the plant within battery limits. These rules
are good only to show an allowance for offsites, but are inadequate for quantification purposes. The scope of offsites to be built for a grassroot facility can vary
enormously from case to case: tank age, flare, feedwater treatment, steam plant,
power distribution center, cooling water facilities, effluent treatment facilities, road
terminals, rail terminals, marine terminals (jetties, etc.), canteen, shops, administration buildings, etc., just to give a few examples; units in remote locations may
include “offsites” such as workers’ housing, sports, religious and recreational
facilities, etc.
The second approach entails more work, but yields results that, at least, are more
justifiable. In this approach, the various offsites and their capacities are itemized
and cost estimating rules are applied. An example can be found in the guidelines
provided by Chem Systems.
Interest During Construction
This concept is often ignored or overlooked. Unfortunately, it is a significant
amount that greatly contributes to the final erected cost of a unit or complex.
A unit is not built overnight. Expenditures normally accrue over the procurement, fabrication, and construction period that, for a plant of average complexity,
can usually take anywhere from 2 to 4 years. Not knowing further details, 2 years
may be assumed for relatively simple units and 3 years or more for more complex
ones; very simple units may be assumed built in 1–1.5 years.
It is common practice to assume that the cost of the capital expenditures that
accrue over the construction period is covered by a short-term loan on a 100 % debt
basis. This assumption is not unreasonable: even if the funds are provided on an
equity basis, the expenditures represent a short-term opportunity cost that can be
accounted for through the short-term loan concept. It is true that, often, funds are
provided through a long-term loan, but this is of relatively little consequence over
the construction period; assumption of a short-term loan at worst provides for a
more conservative estimate.
How are the capital expenses allocated over the construction period? Unless
actually known, there is no common school of thought as to how construction
costs ought to be spread. Equal shares (i.e., one-third each over a 3-year period)
748
D.S.J. Jones and P.R. Pujado ´
An estimated erected cost of offsites usually is not available at the early stages of a
project. Estimating the cost of offsites is difficult, but not impossible. Two
approaches are available:
• A gross estimation approach
• An itemized estimation approach
The first approach provides only a very rough estimate and makes use of some
simple but often unreliable guidelines. Essentially, these guidelines dictate that if a
plant is a grassroot facility, the cost of the offsites is about the same as the cost of
the plant within battery limits; if the plant is built on a developed site, the cost of the
offsites is about 30–50 % of the cost of the plant within battery limits. These rules
are good only to show an allowance for offsites, but are inadequate for quantification purposes. The scope of offsites to be built for a grassroot facility can vary
enormously from case to case: tank age, flare, feedwater treatment, steam plant,
power distribution center, cooling water facilities, effluent treatment facilities, road
terminals, rail terminals, marine terminals (jetties, etc.), canteen, shops, administration buildings, etc., just to give a few examples; units in remote locations may
include “offsites” such as workers’ housing, sports, religious and recreational
facilities, etc.
The second approach entails more work, but yields results that, at least, are more
justifiable. In this approach, the various offsites and their capacities are itemized
and cost estimating rules are applied. An example can be found in the guidelines
provided by Chem Systems.
Interest During Construction
This concept is often ignored or overlooked. Unfortunately, it is a significant
amount that greatly contributes to the final erected cost of a unit or complex.
A unit is not built overnight. Expenditures normally accrue over the procurement, fabrication, and construction period that, for a plant of average complexity,
can usually take anywhere from 2 to 4 years. Not knowing further details, 2 years
may be assumed for relatively simple units and 3 years or more for more complex
ones; very simple units may be assumed built in 1–1.5 years.
It is common practice to assume that the cost of the capital expenditures that
accrue over the construction period is covered by a short-term loan on a 100 % debt
basis. This assumption is not unreasonable: even if the funds are provided on an
equity basis, the expenditures represent a short-term opportunity cost that can be
accounted for through the short-term loan concept. It is true that, often, funds are
provided through a long-term loan, but this is of relatively little consequence over
the construction period; assumption of a short-term loan at worst provides for a
more conservative estimate.
How are the capital expenses allocated over the construction period? Unless
actually known, there is no common school of thought as to how construction
costs ought to be spread. Equal shares (i.e., one-third each over a 3-year period)
748
D.S.J. Jones and P.R. Pujado ´