Feasibility Study Preparation Venelina Varbova

1. Feasibility Study Preparation Venelina Varbova

2. 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. 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. 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. 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

6. 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

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

12. 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. 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. Financial Cost-Benefit Analysis Project Costs • Investmentcosts: • 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. 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. 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. 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. 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. 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. 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. 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