Feasibility Study Preparation

Venelina Varbova

www.rec.org

Session OverviewPurpose of the Feasibility Study

The Feasibility Study process according to international standards

The Feasibility Study outline

Discuss the challenges faced by many SEE consultants and local governments in preparing projects

www.rec.org

The Feasibility Study:something we already know

Feasibility study as project plan - assumes the project concept is feasible and maps out the course for project implementation

Focus on engineering aspects – low attention to social, institutional, environmental aspects

Economic and/or financial analysis limited to budgeting exercise and some cash flow

Feasibility analysis as part of the process is missing

www.rec.org

The Feasibility Study:international standards

Feasibility study is the result of feasibility analysis

Convince the reader (financing entity) that the project is worth funding

Document relevant information and aspects regarding the project

Assess whether the project is relevant, viable and implementable

Enable the project proponent to prepare financing application and present the project to sources of financing

www.rec.org

Project Preparation vis-à-vis Project Cycle

Strategic and Sectoral Considerations Design Phase

Feedback loops

Process flow

Project Identification

Project Preparation

Implementation Planning

Project Start-up

Project Execution

Project Sustainability

Implementation Phase

Feasibility Study, EIA,

PSD

Pre-feasibility Study, PPD

PIP

www.rec.org

Overview of FS Contents and Outline

FEASIBILITYSTUDY

Executive Summary (PSD)

I. Introduction

II. Project Strategic Context

III. Technical Analysis

IV. Institutional Assessment

V. Environmental Assessment

VII. Financial and Socio-Economic Analysis

VI. Stakeholder Analysis

VIII. Conclusions

IX. Project Implementation Plan

IX. Appendices

www.rec.org

Project Strategic Context

Strategic goals; priority programs at local/regional level

National policies: National, regional or sectoral goals which the project supports

Project environment issues: policy, legal and regulatory, institutional framework, environmental, etc.

www.rec.org

Technical Assessment Several subsequent assessment levels: Technical assessment of existing services,

physical system, and treatment, and measures for their optimum use

Demand (wastewater flow) analysis and forecasting

Establish gap between the current level service and future demand

Develop technical alternatives for the project required outputs (design, technology, process, scale)

www.rec.org

Technical Assessment - Illustration for scope of wastewater project Wastewater services:

Determine service area and coverage Identify consumers per categories Develop scenarios for future service development

Wastewater system: Description of existing system and facilities Evaluate the system components and its operation

Wastewater treatment: Describe and assess existing facilities Describe and assess present environmental impacts of

untreated wastewater/sludge discharges into surface water bodies

www.rec.org

Financial and Socio-economic Rationale of environmental investment project Purpose of the financial analysis is multiple:

Assessment of project viability and implementability for the municipal utility and the local community and economy

A tool for analyzing, structuring and selecting different project options

Assessment of project returns on overall investment and capital

A tool for identifying appropriate types of project financing

Analysis of project broader socio-economic impact to the community

www.rec.org

Aspects of Feasibility Analysis Input to the financial and socio-economic analysis

Technical Analysis

Institutional Analysis

Social andStakeholder

Analysis

Environmental

Analysis

Economic Analysis

Financial Analysis

Project Feasibility

www.rec.org

Financial Cost-Benefit Analysis of a Project

The unit of analysis is the project, not the company

Evaluates and calculates the project’s financial: Revenues Costs Net benefits (of revenues over the costs)

Project revenues, costs and net benefits are determined on a with-project and without project basis.

www.rec.org

Financial Cost-Benefit Analysis Project Revenues

Only the project contributed revenues, i.e. water/wastewater sales to the utility are estimated:

The project revenues are determined for different groups of users (different tariffs): Households Government/public institutions Commercial/industrial users Other (connection fees)

www.rec.org

Financial Cost-Benefit Analysis Project Costs

1. Investment costs: Capital costs: land, civil works, equipment,

studies Education programs, lab equipment & training, Institutional Development (consulting services,

capacity building programs, M&E of benefits)2. Operation and maintenance costs: labor,

electricity, chemicals, materials, overheads, raw water charges, insurance, etc.

3. Residual values (of project assets at the end of the project life)

www.rec.org

Conclusions of the Financial Analysis

Selection of options and technology Overall project profitability and sustainability Financial impact on the utility Final phasing of investments and priorities Financing Plan and application requirements Tariff setting and proposal to the municipality Responsibility chart Project cash flow skeleton for conducting socio-

economic analysis

www.rec.org

Economic Cost-Benefit Analysis of a Project

Purpose: To assess the project economic worth to the country

Evaluates and calculates the project’s economic benefits and costs to the whole economy in constant economy prices (adjusted financial prices) including external benefits: Environmental benefits Health effects Non-technical losses (UFW)

www.rec.org

Social and Stakeholder Analysis

Local GovernmentConsumersOperator/UtilityVulnerable groupsWider communityFinancier

Ultimately all ventures are about people!

It’s more important to understand the people than the technology: Who gains? Who loses?

Social and distribution analysis of project effects (different beneficiaries)

Poverty Impact Analysis

www.rec.org

Environmental Impact Analysis Assessment of project impacts to physical and also

non-physical environmental aspects:Physical (water, air, land)BiodiversityNuances (noise, odors)SafetyAesthetics, cultural and historical heritage

Two possible levels of assessment:Preliminary (Initial) Environmental ReviewFull Environmental Impact Assessment

www.rec.org

Institutional Analysis

Assessment of legal and institutional framework Relationship and independence of the water

company from the municipality in setting tariffs Capacity of the project entity to: implement,

manage and maintain the project Financial sustainability of the project entity Adequate project management processes,

including procurement and human resources Capacity building programs

www.rec.org

Sensitivity and Risk Analysis

A technique for investigating the impact of changes in project variables

Identify key variables which influence project costs and benefits

Investigate the consequences of likely adverse changes

Identify mitigation actions Qualitative Risk Analysis at the: project level,

sector level and national level

www.rec.org

Summary

The feasibility analysis is an internationally accepted process used to evaluate various project dimensions important for achieving the desired project benefits.

An effective tool for appraising the project from standpoints of all project stakeholders

It is not a waste of time. It significantly reduces the risks in project implementation