ORIO Project Plan
Project definition, financial,
commercial and economic analyses
Content presentation
Components project plan
• Project definition
•
• Financial Sustainability •
• Commercial Viability
•
• Economic Viability
Why is it important?
What information is
necessary?
Problems we encounter
Project Definition
• OECD consensus
“The smallest complete productive entity,
physically and technically integrated, that fully
utilises the proposed investment and captures all
finanial benefits that can be attributed to the
investment”
• 3 types of projects
- Greenfield projects
- Extension/ improvement of
existing infrastructure
- Sub-projects but part of 1
national/ regional system
Project Definition: why important and what
information necessary?
Why important?
•
Proper demarcation of the project; what is needed to make it work?
•
The basis for a good financial analyses.
Necessary information:
•
Description of all project components:
ORIO contribution+ local/ other donors
financed components+ existing system
•
Consider entire economic lifetime: also O&M and re-investments
Project definition: problems we encounter
•
Existing infrastructure not or insufficiently incorporated;
•
Components added to the project which are not strictly
necessary to make the project work;
•
Sub-projects insufficiently described;
•
Only eligible costs included, while distinction between ORIO
eligible/ non-eligible costs is irrelevant for project definition;
•
Economic Lifetime; re-investments not included.
Financial viability: why important?
Test shows whether income during lifetime of
project is sufficient to cover costs (O&M,
repayment of loan, interest, re-investments)
Financial viability: which information is
necessary?
•
Investments costs + re-investments
•
Book value/ financial liabilities current system
•
Grant and subsidies
•
Demand analysis
•
Tariff Setting
•
Operational revenues
•
O&M costs specified: fixed and variable costs, units en unitcosts
•
Issues that influence revenues and costs: e.g. leakages, non-payment, etc.
•
Taxes, subsidies
•
Financing costs
Financial Viability: problems we encounter
Missing
No insight into
current system
value
•
Investments costs + re-investments
•
Book value /
•
Grants and subsidies
•
Demand analysis
•
Tariff Setting
•
Operational revenue
•
O&M costs specified: fixed and variable costs, units en unitcosts
•
Things that influence revenues and costs: e.g. leakages, non-payment, etc.
•
Taxes, subsidies
•
Financing costs
financial liabilities current system
Missing, no insight
into capacity
utilization
No insight into user
groups, different
tariff rates
No breakdwon,
no plan after
O&M phase ORIO
Financial viability: problems we encounter
•
Incremental instead of integral
•
Inconsistent information
•
Badly structured excel sheets
•
No mention of sources and explanation of assumptions;
•
Lacking of risk analysis financial viability
•
Lacking of information on how financial shortages are being
covered
Commercial viability: differences with financial
viability
• Hypothetical test, meant to test by objective means
whether public/ORIO financing is justified;
- Input and output prices (market prices or “appropriate
prices”, taking into account the affordability for end-users);
- Entire investment funded though commerical loan;
• 10 year cash flow period.
Commercial viability: what information is
needed and which problems do we encounter?
Necessary information:
• Same items as financial analysis
• Indication whether and why prices are competitive
(not subsidized) and indication appropriate prices
• Afforfability by end-users
No appropriate prices
Economic viability: why important?
Analyses the project from a welfare
perspective:
Do effects and impacts offset costs?
Economic viability: what information is needed
and which problems do we encounter?
Necessary information:
•
Clear + quantified description with & without project
Insufficient
(incremental analysis)
•
Effects and costs quantified in EUR + source
•
Clear distinction direct and indirect effects
No future
scenario without
project
No distinction+
duplications
Questions?