PEIP National workshop in Montenegro: developing

environmental infrastructure projects

in the water sector

Feasibility Study Preparation

Venelina VarbovaProject Manager, REC for CEE

www.rec.org

Session Overview

The Feasibility Study process according to international standards

The Feasibility Study structure

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 as a Solution to a ProblemCOMMON APPROACHEnvironmental investment project =

Equipment and construction

ALTERNATIVE APPROACHEnvironmental investment project = Solution

to a problem

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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

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FS Components

Technical Analysis

Institutional Analysis

Social andStakeholder

Analysis

Environmental

Analysis

Economic Analysis

Financial Analysis

Project Feasibility

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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

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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Financial and Socio-economic rationale of environmental investment project Purpose of the financial analysis is

multiple: Assessment the project in terms of costs and

benefits

A tool for assessment of financial and economic viability of the project

A tool for preparing financing plan

A tool for analyzing, structuring and selecting different project options

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Financial cost-benefit analysis of a project Evaluates and calculates the project’s

financial: Revenues Costs Net benefits (of revenues over the costs)

Consultants in the SEE region are knowledgeable in environmental technologies but lack expertise in preparing economic and financial analyses

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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 project’s

economic benefits and costs to the whole economy in constant economy prices (adjusted financial prices) including external benefits:Environmental benefitsHealth effectsNon-technical losses (UFW)

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Social and Stakeholder Analysis

Local GovernmentConsumersOperator/UtilityVulnerable groupsWider community

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

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Environmental Impact Assessment Assessment of project impacts to physical and

also non-physical environmental aspects:Physical (water, air, land)BiodiversityNoise, odorsSafetyAesthetics, cultural and historical heritage

Two possible levels of assessment:Preliminary (Initial) Environmental ReviewFull Environmental Impact Assessment

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Institutional Analysis

Purpose: 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

Many of these aspects are often overlooked in the analysis

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Summary of main challenges in project preparation Analysis and comparison of alternatives Insufficient expertise of SEE consultants in

preparing economic and financial analyses and assessing the human aspects of the projects in terms of stakeholders and institutions

Cooperation of consultants with local governments

Local governments still know little of the market for project financing

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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 results.

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

Capacity building projects need to take account of the major challenges in FS preparation and address them