PEIP National workshop in Montenegro: developing environmental infrastructure projects in the water sector Feasibility Study Preparation Venelina Varbova Project Manager, REC for CEE

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

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

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

Project as a Solution to a Problem COMMON APPROACH Environmental investment project = Equipment and construction ALTERNATIVE APPROACH Environmental investment project = Solution to a problem

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

FS Components Technical Analysis Institutional Analysis Social and Stakeholder Analysis Environmental Analysis Economic Analysis Financial Analysis Project Feasibility

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.

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)

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

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

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)

Social and Stakeholder Analysis  Local Government  Consumers  Operator/Utility  Vulnerable groups  Wider 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

Environmental Impact Assessment  Assessment of project impacts to physical and also non- physical environmental aspects:  Physical (water, air, land)  Biodiversity  Noise, odors  Safety  Aesthetics, cultural and historical heritage  Two possible levels of assessment:  Preliminary (Initial) Environmental Review  Full Environmental Impact Assessment

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

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

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