Feasibility Study as a Basis for Investment Financing Arto Nuorkivi ESCOBALT Project Manager, Finland Kaunas, Dec. 14, 2005

Purpose of Feasibility Study: Link between borrower and financier Financiar may not know anything about the borrower, the city, the project idea, various implications of the project Financier wants to avoid any risk whether financial, public, environmental, social,..

Introduction Project Owner: location, type of business, business volume and development Project Environment City: Where located, Population (time series for past three and coming 10 years), GDP, types of businesses?

Indicative Structure of Feasibility Study

Project Description Project Objectives and Contents What benefits you expect to achieve with the project in energy, water, electricity, staff, maintenance, total costs and heat quality to customers? What is the content of the project? Beneficiaries Who will benefit from the project and why in terms of heating comfort, cost reduction, emission reduction, health improvement? How many they are in each category?

Heat Demand How much is the heat demand: last three years, current year and ten years to come? What are the reasons to increase/decrease ? Market share of DH now and in ten years to come? Assumptions of heat load estimates? Outdoor temperatures in a year needed for heating? Space heating or/and domestic hot water? Heat load parameters: W/m 3 and MWh/m 3 year.

Heat Production and Fuels How is the heat produced and now: fuel, number of sources, produced energy, efficiency, age of heat source(s), flue gas emissions, boiler availability, boiler connection scheme? Is there industrial waste heat available in the project area? Are there any renewable fuels (bio, waste,…) available in the area? Fuel sources, distance and way of transportation, prices, annual costs, sulphur content, ash content? Lime or calcium: availability, price?

Centralized heating Network Network separately for primary and secondary network: length at present, average DN, age, schematic map in A4 or A3 size, water losses in m 3 ? Planned network: average DN, schematic map in A4 or A3 size? Number and type of substations, both group substations and building level substations?

Operation and Maintenance (O&M) Costs of materials and number and costs of people –used for O&M of the existing DH system? –planned for O&M of the new DH system? –used for O&M of the heating system to be eliminated due to the project? Number of damages (interventions, leakages) in the network in past three years? unit cost of repairing a damage in the network on average? Maintenance costs

Project Organization Rights and responsibilities of organization? Names and positions of people in the organization chart? Organization chart of project implementation in A4 size? Organization chart of DH operation and maintenance? Organization chart of the relation of the DH company to the owner? Education level of project staff and DHE staff? Needs of further education?

Tariff Setting How the heat tariff is regulated? What is the level of heat tariff at present? Increases or decreases expected in the next years to come? Plans to revise the tariff system: regulation, structure?

From the customer’s point of view, which other options are available for heating if not DH? What are costs of the options to the customer compared with DH in terms of €/MWh (€/Gcal)? Economic Options to Customer

Social Impacts Poverty: How does the project address poverty alleviation if at all? Gender: How does the project address gender issues if at all (responsibilities and right of females, usually)? Health: How does the project address health issues if at all? Ethnic considerations: How does the project address rights of ethnic people in the region if any at all?

Environmental Assessment Environmental Legislation and Standards Laws and regulations relevant to the project case (local, EU)? Environmental Impacts Flue gas emissions with and without the project for the next 10 years to come? Table of data used for emission calculation? Assumptions used for emission calculation? Environmental measures covered by the project

Financial Analysis Investment costs: foreign and local separately Table of data used for the analysis Assumptions of the analysis A cash flow sheet shall be an annex of the feasibility study Indicative sources of financing Indicative financial rate of return (FRR) Risks and risk management

Financial versus Economic Analysis Financial analysis from the company’s point of view: cash flow of actual cost and benefits with and without the project including taxes Economic analysis from the society’s point of view: cash flow of cost and benefits with and without the project (economic analysis is not always necessary in the feasibility study)

Implementation Arrangements Project organisation Expertise and tasks of the project implementation unit (PIU)? Permissions to proceed Access to land, technical permits, authorizations Procurement Procurement plan with procurement packages with total costs, procurement method, time schedule of procurement process of each package