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

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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

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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
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Project Preparation vis--vis Project Cycle

Strategic and Sectoral Considerations

Project Sustainability

Project Identification

Pre-feasibility Study, PPD

Project Execution

Project Preparation

Feasibility Study, EIA, PSD

Feedback loops Process flow

Project Start-up

Implementation Planning PIP

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Overview of FS Contents and Outline

Executive Summary (PSD) I. Introduction

II. Project Strategic Context III. Technical Analysis IV. Institutional Assessment

FEASIBILITY STUDY

V. Environmental Assessment VI. Stakeholder Analysis VII. Financial and SocioEconomic Analysis VIII. Conclusions IX. Project Implementation Plan IX. Appendices
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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.

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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)

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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
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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
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Aspects of Feasibility Analysis

Input to the financial and socio-economic analysis
Technical Analysis

Financial Analysis

Social and Stakeholder Analysis

Project Feasibility
Economic Analysis Institutional Analysis Environmental Analysis

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Financial Cost-Benefit Analysis of a Project

The unit of analysis is the project, not the company Evaluates and calculates the projects 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.

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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)

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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)

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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 socioeconomic analysis
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Economic Cost-Benefit Analysis of a Project

Purpose: To assess the project economic worth to the country Evaluates and calculates the projects 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)

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Social and Stakeholder Analysis

Local Government Consumers Operator/Utility Vulnerable groups Wider community Financier

Ultimately all ventures are about people! Its 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

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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
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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

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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

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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

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