Feasibility Study Preparation Venelina Varbova

Session Overview Purpose 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

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

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

Project Preparation vis-à-vis Project Cycle Implementation Phase Design Phase Strategic and Sectoral Considerations Project Identification Project Sustainability Pre-feasibility Study, PPD Project Execution Project Preparation Feasibility Study, EIA, PSD Feedback loops Project Start-up Implementation Planning PIP Process flow

Overview of FS Contents and Outline Executive Summary (PSD) Introduction Project Strategic Context III. Technical Analysis IV. Institutional Assessment FEASIBILITY STUDY V. Environmental Assessment VI. Stakeholder Analysis VII. Financial and Socio-Economic Analysis VIII. Conclusions IX. Project Implementation Plan IX. Appendices

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.

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)

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

Purpose of the financial analysis is multiple: 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

Institutional Analysis Aspects of Feasibility Analysis Input to the financial and socio-economic analysis Technical Analysis Financial Analysis Social and Stakeholder Analysis Project Feasibility Economic Analysis Environmental Analysis Institutional Analysis

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.

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)

Financial Cost-Benefit Analysis Project Costs 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) Operation and maintenance costs: labor, electricity, chemicals, materials, overheads, raw water charges, insurance, etc. Residual values (of project assets at the end of the project life)

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

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) Both have similar features and estimate net benefits based on project incremental input Yet, the concept of financial net benefit is not the same as economic net benefit (commercial viability for the utility vs. real worth to the society) Complementary: For a project to be economically viable, it must be financially sustainable

Social and Stakeholder Analysis Local Government Consumers Operator/Utility Vulnerable groups Wider community Financier 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

Environmental Impact Analysis Assessment of project impacts to physical and also non-physical environmental aspects: Physical (water, air, land) Biodiversity Nuances (noise, odors) Safety Aesthetics, cultural and historical heritage Two possible levels of assessment: Preliminary (Initial) Environmental Review Full Environmental Impact Assessment

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

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

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