1. Feasibility Study Preparation Venelina Varbova

2. www.rec.org 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

3. 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

4. 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

5. 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

6. www.rec.org Overview of FS Contents and Outline FEASIBILITY STUDY 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

7. 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.

8. 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)

9. 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

10. 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

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

12. 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.

13. 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)

14. www.rec.org 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)

15. 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

16. 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)

17. www.rec.org 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

18. www.rec.org 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

19. 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

20. 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

21. 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