Developing Environmental Infrastructure Projects in the Water Sector: Feasibility Study Preparation

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

2. 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

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

6. 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

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

8. 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.

9. 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)

10. 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

11. 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

12. 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)

13. 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

14. 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

15. 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

16. 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

17. 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