Project Selection and Evaluation How to Choose the Right Project Martin Darcy Regional Workshop on Concessions/Public-Private Partnerships Tirana, 11-12 December 2007

The Importance of Selecting Good Projects Capital investment is vital Good projects: create economic benefits and growth create confidence in a country create value for money solutions thus minimising tax-take Bad projects: create ongoing liabilities for many years big projects = big risks failure is often high profile: nationally and internationally can undermine investor confidence in the country can make the good projects unaffordable

How Poor Quality Projects Happen Poor Objective Setting Weak Option Appraisal Inadequate Cost/Benefit Analysis (CBA) Political rather than economic decisions Poor Identification of recurrent costs Under estimation of Capital costs Inability or unwillingness to hire appropriate expertise Fear of peer review Transparent and fair Procurement processes

Something to Remember There is no such thing as a ‘PPP Project’ There are only Public Investment Projects Sometimes Public Investment Projects can be realised through PPP But not always; since PPP is not always suitable.

Issues to Consider 1 Does the proposed project reflect the current policy environment of the government? Is there political support? Are the objectives of the proposed project clear and easy to communicate? Have the project governance arrangements been agreed? Skills and capacity (and funds to pay for it all)

Issue to Consider 2 Have all the options for realising the objectives been identified and evaluated? How do you test the capital cost estimates? How do you identify the recurrent costs? Is the proposed project affordable to the State / to the Ministry’s budget What is the likely impact on the National Debt?

Issues to Consider 3 Have all the Risks to the Project been identified? Have the ‘worst case’ costs been evaluated and considered? What other factors could influence the outcome? Who are the stakeholders in the project? Are project delivery times realistic? Is there likely to be a competitive market to allow a healthy procurement process?