“SUPPORT FOR THE FURTHER APPROXIMATION OF CROATIAN LEGISLATION WITH THE ENVIRONMENTAL ACQUIS”
“SUPPORT FOR THE FURTHER
APPROXIMATION OF CROATIAN LEGISLATION
WITH THE ENVIRONMENTAL ACQUIS”
REPUBLIC OF CROATIA
The European Union CARDS 2004 Programme for Croatia
Contracting Authority: The Central Finance and Contracting Agency, Republic
of Croatia
Beneficiary: Ministry of Environmental Protection, Physical Planning and
Construction, Republic of Croatia
ProjectCycleManagement
ManualforEndRecipientsofEUFundsinthe
EnvironmentalSector
May 2009
Document Control Sheet
Issue No: A
Sign-Off
Name
Date: May 2009
Originator
Checker
NPC - MEPPPC
Reviewer
Michael Betts
Tim Young
Vlatka Lucijaniü-Justiü
Andrzej Gula
Tim Young
Peter Nesteruk
Michael Betts
Signature
Date
Name
Signature
Date
Name
Signature
Date
CFCA – Approver
TABLE OF CONTENTS
INTRODUCTION
1
1.
INSTRUMENT FOR PRE-ACCESSION ASSISTANCE (IPA)
2
1.1
Accession Partnership & Strategic Development Framework
2
1.2
General Overview of IPA
3
1.3
IPA Programming & Documentation
4
1.4
IPA Management and Control
1.4.1 Key IPA Players
1.4.2 IPA Institutional / Operating Structure
7
7
8
1.5
IPA and the Structural / Cohesion Funds
12
2.
PROJECT CYCLE MANAGEMENT (PCM)
14
2.1
Project Cycle Framework
14
2.2
PCM and the Logical Framework Approach
16
2.3
Key Documents & Responsibilities
18
2.4
The Financing Decision
18
3.
IPA APPLICATION REQUIREMENTS
20
3.1
The Application Process
20
3.2
General Requirements
21
3.3
Technical Requirements
22
3.4
Financial and Economic Requirements
22
3.5
Institutional Requirements
24
3.6
Environmental Requirements
24
3.7
Public Consultation and Participation
26
3.8
Special Criteria for Waste Management Projects
26
3.9
Some Lessons Learned from the IPA Application Process in Croatia
28
4.
PROJECT IDENTIFICATION & DEFINITION
29
4.1
Project Identification
29
4.2
Policy & Legal Analysis
30
4.3
Stakeholder Analysis
31
4.4
Problem Analysis
32
4.5
Objectives Analysis
33
4.6
Strategy Development
33
4.7
Project Definition & Terms of Reference
35
5.
PROJECT FEASIBILITY & PREPARATION
37
5.1
Demand Forecasts
37
5.2
Options Assessment
5.2.1 Technical Assessment
5.2.2 Environmental Assessment
5.2.3 Institutional Assessment
38
38
40
40
5.3
Financial Analysis
5.3.1 Methodological and Modelling Assumptions for Financial Analysis
5.3.2 Investment Costs
5.3.3 Operating and Maintenance Costs
5.3.4 Revenues from Sale of By-Products
5.3.5 Affordability Analysis and Tariff Determination
5.3.6 Calculation of the Funding Gap – Determination of the EU Grant
5.3.7 Financing Plan
5.3.8 Financial Viability Analysis, and Calculation of NPV and IRR
43
45
48
50
50
50
52
54
55
5.4
Economic Analysis (ENPV and ERR)
57
5.5
Sensitivity and Risk Analysis
5.5.1 Sensitivity Analysis
5.5.2 Risk Analysis
59
59
61
5.6
Overall Assessment
62
5.7
Implementation Plan
63
6.
PROJECT PROCUREMENT
65
6.1
Key Principles of Public Procurement
65
6.2
Procurement & the Practical Guide
65
6.3
Contract Types & Conditions
6.3.1 Types of Contract
6.3.2 Contract Conditions
66
66
67
6.4
Contract Tendering and Award
6.4.1 Participation and Eligibility Criteria
6.4.2 Procurement Procedures
6.4.3 Selection and Award
68
68
69
71
6.5
Tender Dossiers
72
7.
PROJECT IMPLEMENTATION, MONITORING & REPORTING
73
7.1
Purpose
73
7.2
Implementation Tasks
73
7.3
Contract & Performance Management
73
7.4
Role of the FIDIC Supervising Engineer
75
7.5
Project Monitoring, Evaluation & Reporting
7.5.1 Project Monitoring & Evaluation
7.5.2 Project Reporting
75
77
78
ANNEX A: ANALYTICAL TECHNIQUES FOR PROJECT IDENTIFICATION & FORMULATION
80
ANNEX B: CASE STUDY
89
ANNEX C: PREPARING TERMS OF REFERENCE FOR TECHNICAL ASSISTANCE PROJECTS
FINANCED BY THE EC
109
ANNEX D: OTHER SOURCES OF INVESTMENT FUNDING
114
ANNEX E: CONTENTS OF TENDER DOSSIERS
117
ANNEX F: INDICATIVE CHECK-LIST OF CONTRACT MANAGEMENT ISSUES FOR WASTE
PROJECTS
121
ANNEX G: RESPONSIBILITIES OF THE SUPERVISING ENGINEER IN RELATION TO WORKS
CONTRACTS
124
ANNEX H: GENERAL CHECK-LIST FOR A COHESION FUND APPLICATION
127
ANNEX I: CHECK-LIST FOR THE ECONOMIC AND FINANCIAL ASPECTS OF A CF APPLICATION
139
ANNEX J: ABBREVIATIONS & ACRONYMS
144
ANNEX K: GLOSSARY OF KEY TERMS
147
ANNEX L: FURTHER REFERENCES
158
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
INTRODUCTION
This Manual on Project Cycle Management for End Recipients of EU Funds in the
Environmental Sector (hereafter referred to as "the Manual") has been prepared as a component of
the Technical Assistance project "Support for the Further Approximation of Croatian Legislation with
the Environmental Acquis", a project funded under the European Union CARDS 2004 Programme for
Croatia (Project No: CARDS 2004 2004-0101-0500-010101). The principal beneficiary of the Project
was the Ministry of Environmental Protection, Physical Planning and Construction of the Republic of
Croatia (MEPPPC).
The Project provided support to the Ministry of Environmental Protection Physical Planning and
Construction (MEPPPC) in order to increase Croatia’s capacity to meet EU environmental standards.
In particular, one of the results to be achieved by the Project was to "increase Croatia's national
absorption capacity for environmental investment projects, particularly in relation to the upcoming IPA
(Instrument for Pre-Accession Assistance) funding for waste management."
The Manual is therefore aimed at providing prospective End Recipients of EU funds in the
environmental sector (development agencies; municipalities; municipal enterprises) with a basic
knowledge and understanding of the key requirements and practical considerations involved in
identifying, planning, preparing and implementing major investment projects in the waste
management sector, taking into account the requirements of EU and national policies and legislation
on waste management, IPA rules and procedures, and Croatia's National Waste Management
Strategy and National Waste Management Plan. The Manual is further aimed at assisting Croatia to
prepare for absorbing the much larger funds that will become available following Croatia's accession
to the European Union.
At the request of the MEPPPC, the Manual focuses primarily on the pre-financing stages of the
project cycle, i.e. the stages leading up to the point where a proposed investment project is ready for
submission to the European Commission for potential co-financing. The Manual places particular
emphasis on the financial and economic analysis of projects as these aspects are especially
important for preparing a successful application for EU grant support. It is also designed to assist
applicants in meeting the criteria set out in the application form for IPA funding (and eventually for
financing from the Cohesion Fund) and ensuring that a proposed project complies with the
requirements set out in the respective regulations.
The Manual is structured as follows:
Chapter 1 provides an introduction to the principles of IPA, and the IPA structure, strategy,
objectives, programming and documentation in Croatia.
Chapter 2 presents an overview of Project Cycle Management (PCM) for projects co-financed by
the EU.
Chapter 3 explains the IPA application process and associated requirements, with particular
reference to waste management investment projects.
Chapter 4 describes the key steps involved in identifying and defining an environmental
investment project for potential EU funding.
Chapter 5 describes and explains the steps and essential requirements for undertaking a detailed
project feasibility study, and preparing a project for potential EU funding.
Chapter 6 presents a summary of the project procurement process for investment projects cofinanced by the EU, in particular the various contract types and conditions, tender types and
requirements and preparation of tender dossiers.
Chapter 7 provides an overview of the purpose and essential requirements of project
implementation, monitoring, evaluation and reporting.
Further information and guidance is presented in a series of annexes, covering notably analytical
techniques for project identification and formulation, a case study based on an actual application for
co-financing a waste management project from the EU Cohesion Fund, and the key requirements for
preparing Terms of Reference for later stages of a project.
1
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
1.
INSTRUMENT FOR PRE-ACCESSION ASSISTANCE (IPA)
1.1
Accession Partnership & Strategic Development Framework
At the broadest level, relations between Croatia and the European Union (EU) are governed
by the Stabilisation and Association Agreement (SAA) which is in force since February 2005.
The SAA provides a legal framework for the political dialogue, regional cooperation, the
establishment of the free trade area, alignment to Community law ("acquis communautaire")
in certain areas, cooperation on the Community policies, and the use of EU financial
assistance.
In April 2004, the Council of the European Union adopted the European Partnership with
Croatia, which was updated to the Accession Partnership (AP) in February 2006 in order to
reflect Croatia’s new status as a candidate for EU membership. The Accession Partnership
describes the priorities for each sector in transposing the acquis, the priorities for aid provided
by the European Community, in particular the Instrument for Pre-Accession Assistance (IPA),
and the conditions for grant financing. It is intended to assist Croatia’s authorities in their
efforts to comply with the accession criteria and set out in detail the priorities for preparing for
accession, in particular implementing the Community acquis.
The AP is a flexible instrument, designed to adapt to the progress already made by Croatia
and take account of what still remains to be achieved. In this regard, the various priorities
identified by the AP are defined according to the European Commission's opinion on Croatia's
Application for Membership. The AP is reviewed and revised as necessary in light of the
European Commission’s regular reports on Croatia’s progress in relation to accession.
1
According to the most recently updated AP , the key priorities in the area of environment are
to:
Continue work on transposition and implementation of the EU acquis, with particular
emphasis on waste management, water quality, air quality, nature protection and
integrated pollution prevention and control.
Adopt and implement a comprehensive plan for putting in place the necessary
administrative capacity and required financial resources to implement the environment
acquis.
Increase investments in environmental infrastructure, with particular emphasis on waste
water collection and treatment, drinking water supply and waste management.
Start implementing the Kyoto Protocol.
Ensure integration of environmental protection requirements into the definition and
implementation of other sectoral policies and promote sustainable development.
From the perspective of the Republic of Croatia, the overarching strategy document is the
Strategic Development Framework (SDF) 2 . The SDF defines Croatia’s national economic
goals and the instruments for their implementation in the period between 2006 and 2013, with
the overall aim to achieve prosperity through the development of both a competitive economy
and social cohesion. In the area of environment and sustainable development, the SDF notes
that:
"Waste management and the remediation of existing effects arising from the inadequate
management of waste are of particular importance in the achievement of sustainable
development. It is therefore necessary to establish an integrated system for waste
management, to remediate and close existing and “wild” landfills, and establish centres for
waste management".
1
A copy of the most recent Accession Partnership may be downloaded from
http://www.delhrv.ec.europa.eu/en/static/view/id/14
2
A copy of the Strategic Development Framework may be downloaded from http://www.strategija.hr
2
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
1.2
General Overview of IPA
The Instrument for Pre-Accession Assistance (IPA) was established in July 2006 (Council
Regulation No. 1085 / 2006) 3 . IPA is the European Union's financial instrument for
supporting the pre-accession process during the period 2007-2013, and offers targeted
assistance to countries aspiring to join the EU on the basis of the lessons learnt from previous
external assistance and pre-accession instruments. The aim of IPA is therefore to enhance
the efficiency and coherence of EU aid by means of a single framework, which incorporates
the previous pre-accession and stabilisation and association assistance to candidate
countries and potential candidate countries. IPA replaces the preceding PHARE, ISPA,
SAPARD and CARDS pre-accession instruments.
The IPA beneficiary countries are divided into two categories, depending on their status as
either candidate countries under the accession process or potential candidate countries under
the stabilisation and association process, namely:
Candidate countries (Annex I to the Regulation): Croatia, the Former Yugoslav Republic
of Macedonia, Turkey;
Potential candidate countries (Annex II to the Regulation): Albania, Bosnia and
Herzegovina, Montenegro, Serbia including Kosovo as defined by the United Nations
Security Council Resolution 1244.
The annexes to the Regulation will be amended as and when changes in the status of the
countries occur.
IPA aims to support the candidate countries in:
Policy reform and development.
Adopting EU policies, standards and legislation.
Preparing to implement and manage the Community’s Cohesion Policy effectively.
Preparing for programming, implementation and management of Structural and Cohesion
Funds.
Candidate countries are therefore prepared for full implementation of the acquis at the time of
accession, while potential candidate countries are led to progressively align themselves with
the acquis.
IPA is made up of five components, each covering priorities defined according to the needs of
the beneficiary countries. Two components concern all beneficiary countries:
I.
Support for transition and institution-building, aimed at financing capacity-building
and institution-building;
II. Cross-border cooperation, aimed at supporting the beneficiary countries in the area of
cross-border cooperation between themselves, with the Member States or within the
framework of cross-border or inter-regional actions.
The other three components are aimed at candidate countries only:
III. Regional development, aimed at supporting candidate countries' preparations for the
implementation of the Community's cohesion policy, and in particular for the European
Regional Development Fund and the Cohesion Fund;
IV. Human resources development, which concerns preparation for cohesion policy and
the European Social Fund;
V. Rural development, which concerns preparation for the common agricultural policy and
related policies and for the European Agricultural Fund for Rural Development (EAFRD).
The total IPA budget, for all candidate and potential candidate countries, for the period from
2007 to 2013 is €11,468 million. The nominal IPA allocations for Croatia for the period 2007 to
2011 are shown in Table 1.
3
A copy of the Regulation may be downloaded from http://ec.europa.eu/regional_policy/funds/ipa/index_en.htm
3
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Table 1: Nominal IPA Allocations for Croatia for the Period 2007 to 2011 (€ million)
Component
2007
2008
2009
2010
2011
49.6
45.4
45.6
39.5
40.0
9.7
14.7
15.9
16.2
16.5
III. Regional Development
45.0
47.6
49.7
56.8
58.2
IV. Human Resources Development
11.4
12.7
14.2
15.7
16.0
V. Rural Development
25.5
25.6
25.8
26.0
26.5
141.2
146.0
151.2
154.2
157.2
I.
Transition Assistance & Institution
Building
II. Cross-border cooperation
Totals
The Community contribution under IPA shall not exceed the ceiling of 75 % of the eligible
expenditure at the level at the Priority Axis (see section 1.3 below). In exceptional and duly
justified cases, with regard to the scope of the Priority Axis, this ceiling may reach 85 % 4 .
1.3
IPA Programming & Documentation
The main principles establishing the IPA programme are contained in Commission Regulation
No. 1085 / 2006 (IPA regulation). Detailed rules and procedures for planning, programming
and implementing IPA are contained in Commission Regulation 718 / 2007 (IPA implementing
regulation) 5 . In the context of IPA, programming may be defined as the preparation of a set
of financial, organisational and human interventions that are mobilised to achieve an objective
or set of objectives in a given period. A programme has a specified budget, and a coherent
set of programme objectives are also specified at the outset.
By adopting a programming approach, the intention is to prepare candidate countries for the
management of the Structural and Cohesion Funds upon accession to the EU. Programming
has been a key characteristic of the EU’s Structural Policies since they were reformed in 1988
and is the distinctive difference between IPA Components III and IV (which reflect Structural
Policies practice) and earlier forms of EU assistance to Croatia. An overview of the
programming framework for IPA Component III (Regional Development) is presented in
Figure 1.
The policies and objectives pursued with the assistance of IPA should be consistent with the
amount of assistance that is available and with wider relevant policies. Therefore, the starting
point for programming is to take account of this context. The European Commission prepares
a Multi-annual Indicative Financial Framework (MIFF). The MIFF is based on a rolling threeyear programming cycle. Under normal circumstances, the MIFF for the years N, N+1 and
N+2 is presented in the last quarter of the year N-2 as part of the enlargement package,
representing a proposed financial translation of the political priorities set out within the
package itself. Based on the MIFF, a Multi-annual Indicative Planning Document (MIPD) is
prepared by the Commission for each country in the year N-1. The MIPD sets out the
strategic context within which the MIFF is to be programmed. It provides the Commission's
view of the major areas of intervention and main priorities that the beneficiary country is
expected to articulate in detail in the programming documents.
4
Article 149 of Commission Regulation (EC) No 718/2007 of June 2007 Implementing Council Regulation (EC)
No 1085/2006 Establishing an Instrument for Pre-Accession Assistance (IPA).
5
A copy of the Regulation may be downloaded from http://www.strategija.hr
4
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Figure 1: Programming Framework for IPA Component III
Coherence with Croatia’s own view of its needs, challenges and priorities must be assured
through consultations with the national authorities. The MIPD, like the MIFF, covers a threeyear rolling period with annual reviews and is submitted annually to the IPA Committee for an
opinion.
The programming approach to IPA Components III & IV entails the elaboration of a set of
programming documents: the Strategic Coherence Framework (SCF), which serves as the
overarching reference document for the use of IPA Components III and IV in Croatia, and four
Operational Programmes (OPs), one each for Transport, Environment and Regional
Competitiveness under Component III and one for Human Resource Development under
Component IV.
Taking account of the EU and national policy and financial contexts, the SCF is elaborated for
the full IPA programming period (2007-2013). The OPs are subsequently finalised for three
year periods (in the first instance 2007-2009) and are either to be a) reviewed and extended
by one further year annually up to 2013 or by the year of Croatia’s accession to the Union
(whichever comes first), or b) succeeded by a second generation of OPs for the 2010-2013
period.
The Environmental Protection Operational Programme (EPOP) is intended to support
operations related to waste management, water supply, urban wastewater management and
rehabilitation of contaminated sites and land. 6 As illustrated in Figure 2, the EPOP is divided
into three so-called Priority Axes covering respectively the waste sector (Priority Axis 1),
water sector (Priority Axis 2) and technical assistance (Priority Axis 3).
6
The EPOP and other documents referred to in this section may all be downloaded from http://www.strategija.hr
5
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Figure 2: Overview of the Environmental Protection Operational Programme (EPOP) 2007-2009
The aim of Priority Axis 1 is to support the establishment of an integrated waste management
system by developing waste management infrastructure, notably the development of Waste
Management Centres (WMCs) at County and Regional levels. Activities under this Priority
Axis are designed to improve waste management and assist Croatia in meeting its obligations
related to implementation of the EU environmental acquis governing the management of
waste, in particular:
The Waste Framework Directive (2008/98/EC)
The Waste Landfill Directive (1999/31/EC)
The objectives of this Priority Axis are inter alia to:
Develop waste management infrastructure with a focus on the construction of regional /
county waste management centres (separation of waste by categories, treatment with the
aim to reduce biological component of waste, landfill for final disposal of residues) which
will replace existing landfills;
Remediate and close sites highly polluted by waste; and
Prepare technical documentation (i.e. feasibility studies, environmental impact
assessments, financial and economic analyses, cost-benefit analyses, affordability
studies, preliminary designs, tender documents etc.) that will support a pipeline of
projects for waste management investments.
Besides the transposition and enactment of the relevant EU legislation, the national policy
framework and foundation for efforts aimed at achieving a more sustainable system of waste
management in Croatia is provided by the:
National Environmental Strategy (2002)
National Environmental Action Plan (2002)
National Waste Management Strategy 2007 – 2025 (2005)
National Waste Management Plan 2007 – 2015 (2007)
The operations (major projects) that will be co-financed under Priority Axis 1 will be selected
from the indicative major project list provided in the EPOP.
A major project comprises a series of works, activities or services which is intended, in itself,
to accomplish a definite and indivisible task of a precise economic or technical nature, which
has clearly identified goals and whose total cost exceeds €10 million. For the waste
management sector, the maximum rate of IPA co-financing is set at 75% of eligible project
costs.
6
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
1.4
IPA Management and Control
1.4.1 Key IPA Players
In accordance with the provisions of Commission Regulation No. 718 / 2007, the following
individuals / bodies have been designated / established for the management and control of
IPA:
National IPA Co-ordinator (NIPAC)
Strategic Co-ordinator for the regional development and human resources development
components (SC)
Competent Accrediting Officer (CAO)
National Authorising Officer (NAO)
National Fund (NF)
Operating Structure by IPA component / programme (OS)
Head of Operating Structure (HOS)
Audit Authority (AA)
An explanation of the roles and main responsibilities of the above-mentioned key IPA players
may be found in Annex K.
The main players responsible for managing the implementation of Priority Axis 1 are:
Operational Programme level: Ministry of Environment Protection, Physical Planning and
Construction (MEPPPC).
Priority / Measure level: MEPPPC Directorate for European Union.
Project level: Environment Protection and Energy Efficiency Fund (EPEEF), which serves
as the Implementing Body / Contracting Authority for projects in the waste management
sector.
The contact details for the MEPPPC and EPEEF are shown in Table 2.
Table 2: Contact Details for the MEPPPC and EPEEF
Ministry of Environmental Protection, Physical Planning and Construction:
Ministry of Environmental Protection, Physical Planning and Construction
Directorate for European Union
Ulica Republike Austrije 14,
10 000 Zagreb
dr. Nikola Ružinski, State Secretary (Head of Operating Structure)
Ms. Mira Mediü, MSc, Director of Directorate
Ms. Vlatka Lucijaniü-Justiü, MSc, Head of Department for EU Programmes for Infrastructure
Development
Tel: (01) 3717-165
Fax: (01) 3717-122
E-mail: [email protected]
Website: www.mzopu.hr
Environmental Protection and Energy Efficiency Fund:
Environmental Protection and Energy Efficiency Fund
Ksaver 208,
10 000 Zagreb
Mr. Vinko Mladineo, Director
Ms. Andreja Neral Lamza, Head of Department for Preparation and Implementation of Projects CoFinanced by EU
Tel: + 385 1 53 91800
Fax: + 385 1 53 91840
E-mail: [email protected]
Website: www.fzoeu.hr
7
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
1.4.2 IPA Institutional / Operating Structure
For each IPA component or programme, an Operating Structure is established to deal with
the management and implementation of assistance under the IPA Regulation in accordance
with the principle of sound financial management. The Operating Structure for IPA
Component III b – Environment – is composed of the following bodies:
Ministry of Environmental Protection, Physical Planning and Construction (MEPPPC),
performing the functions of the Body Responsible for the EPOP (OP) and of the Body
Responsible for the Priority / Measure (Priority Axes 1 and 3).
Ministry of Regional Development, Forestry and Water Management, performing the
function of the Body Responsible for Priority / Measure (Priority Axis 2).
Croatian Waters, performing the function of Implementing Body for Priority Axis 2.
Environmental Protection and Energy Efficiency Fund (EPEEF), performing the function
of Implementing Body for Priority Axis 1.
The Central Finance and Contracting Agency for EU Programmes and Projects (CFCA),
performing the function of Implementing Body for Priority Axis 3.
An overview of the institutional / operating structure for the EPOP is shown in Figure 3. All
the bodies within the Operating Structure are ultimately accountable to the MEPPPC which
has overall responsibility for management of the EPOP, and for the execution of their specific
tasks in relation to this Programme. The State Secretary for Environmental Protection of the
MEPPPC acts as the Head of the Operating Structure.
With respect to the MEPPPC's function as the Body responsible for the Priority / Measure,
notably measures falling within Priority Axis 1, the MEPPPC is responsible for / executes the
following tasks:
preparation of the sections/revision of the Operational Programme within their sectoral
area of responsibility; drafting priorities and measures for annual or multi annual
programmes;
supporting the Body Responsible for OP in the identification, for each measure, of the
intended final beneficiaries, the expected selection modalities and possible related
specific selection criteria (Article 155 of IPA Implementing Regulation);
supporting the Body Responsible for OP in the identification, selection and appraisal of
major projects under the OP which will be submitted to the Commission for approval,
within their sectoral area of responsibility;
supporting the Body Responsible for OP in the identification, selection and appraisal of
operations which are not major projects, and which will be implemented by the final
beneficiaries which are national public bodies;
ensuring that operations within their sectoral area of responsibilities are selected for
funding and approved in accordance with criteria applicable to the Operational
programme ;
preparation of monitoring data/reports on the implementation within their sectoral area of
responsibility;
contributing to the preparation of sectoral annual and final implementation reports for the
Sectoral Monitoring Committee on the progress achieved towards the fulfilment of the
objectives of priorities and measures;
supervision of technical implementation of projects in which The Body responsible for the
Priority/Measure is a beneficiary;
conducting a sample check of the tender documentation elaborated by the Implementing
Body, prior to its submission to the ECD for ex-ante approval;
performing institutional on-the-spot check;
preparing Technical Specifications/ToRs in case the Body Responsible for the
Priority/Measure is beneficiary;
8
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
preparing Guidelines for Applicants for projects which shall be selected through Calls for
Proposals, if applicable;
proposing members of the Evaluation Committee;
participation in Project Steering Committees, if applicable;
issuing of approvals for delivered products/ project results (e.g. equipment, reports), if
applicable;
organising the publication of the information (names and addresses) of final beneficiaries
and end recipients, the names of the operations and the amount of funding allocated to
the operations;
administrative check and approval of requests for payment issued by the Implementing
Body;
submission of requests for payment and all supporting documents to the NF;
ensuring that co-financing funds, within their sectoral area of responsibility, are planned
and reserved in the State Budget;
transfer of national co-financing funds from the Treasury account (the State Budget) to
the MF-IB IPA account;
preparation and submission to the Body Responsible for the OP of all necessary
information regarding the procedures and verifications carried out concerning
operations/projects;
setting up of procedures to ensure the retention of all documents ;
ensuring that all relevant information are available to ensure a sufficiently detailed audit
trail at all times;
appointment of a Risk Manager and Irregularity Officer;
setting up of a risk management reporting system;
setting up of an irregularity reporting system;
setting up internal audit system;
ensuring that information, publicity and visibility requirements are respected;
providing support to the Body Responsible for the Operational programme in the
preparation of the Communication Action Plan for the OP and related activities.
9
10
Figure 3: Institutional / Operating Structure for the Environmental Protection Operational Programme (EPOP)
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
In the context of Priority Axis 1, the EPEEF (as the Implementing Body) is directly responsible
for tendering, contracting and payments at the project level, in accordance with the rules and
procedures of the PRAG, FIDIC, EBRD or other international financial institutions (if
applicable), and national legislation, acting as the Contracting Authority and performing the
following specific tasks:
preparation of procurement plan;
preparation of financial report, including cash flow forecast and submission to the NF and
the Body Responsible for Priority/Measure;
planning co-financing funds in its respective budget/financial plan, if applicable;
preparation of contract forecast, procurement notice, shortlist notice etc.;
preparation of tender documentation and verification of TS/ToRs/Guidelines for
Applicants (the last one if applicable);
submitting of tender documentation to ECD for ex-ante approval;
setting up members of the Evaluation Committee (Shortlist Panel);
chairing Evaluation meetings;
preparation of the Evaluation Report (Shortlist Report) and submitting to the ECD for
approval;
preparing and signing the Contract Dossier/ Addendum Dossier upon ex-ante ECD
approval;
preparing Contract Award Notice;
support to the supervision on technical implementation of project/supervision on technical
implementation of project in case that the Implementing Body is the final beneficiary of
the project;
participating in the Project Steering Committee, if applicable;
carrying out on-the-spot checks at the Contractors/end recipients (at project level);
carrying out verifications to ensure that products or services have been delivered, and
that payment requests/invoices issued by the contractors are correct. These verifications
shall cover administrative, financial, technical (if appropriate, see under l) and material
aspects of operations, if appropriate;
preparing requests for funds and submitting them to the Body Responsible for
Priority/Measure;
executing payments to contractors and recovery of funds to the National Fund, as well as
recovery of unduly used funds;
maintaining a separate accounting system or a separate accounting codification;
ensuring that the Body Responsible for Priority/Measure receives all necessary
information on procedures and verifications carried out in relation to project
implementation and payments;
support to the preparation of documents for Sectoral Monitoring Committee on the
progress achieved in the fulfilment of objectives of the Measure;
support to the preparation of sectoral annual reports and the final report on
implementation;
retaining documents necessary to ensure an adequate audit trail;
ensuring compliance with information, publicity and visibility requirements;
appointing a Risk Manager and Irregularity Officer;
irregularity reporting;
reporting on risk management;
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
reporting on internal audit findings;
providing support to the preparation of the Communication Action Plan for the Operational
programme and related activities.
The responsibilities, tasks and relations between the MEPPPC and the EPEEF are regulated
by an official agreement (Operational Agreement for the management and implementation of
the EPOP between bodies of the Operating Structure).
1.5
IPA and the Structural / Cohesion Funds
As envisaged and explained in both of the IPA regulations, a major aim of IPA is to prepare
the beneficiary countries for participation in the Community’s cohesion policy and rural
development instruments after accession to the EU.
The Cohesion Fund (CF) is an instrument aimed at helping EU Member States to reduce
economic and social disparities and to stabilise their economies. It co-finances up to 85% of
eligible expenditure of major projects involving environmental and transport infrastructure.
This helps to strengthen cohesion and solidarity within the EU. Eligibility is restricted to the
less prosperous Member States of the Union whose gross national product (GNP) per capita
is below 90% of the EU-average.
IPA is thus a direct preparation for absorbing those funds which are allocated for eligible
Member States and, since all IPA beneficiary countries are potential members, it is primarily
an instrument directed towards the prospect of EU membership. The rules and procedures for
IPA programming and implementation are similar in most respects to the ways in which EU
funds are managed in the Member States.
A comparison of some of the key features of IPA and the Cohesion Fund is presented in
Table 3. As may be seen, there are very few significant differences and, while there are
some differences applying at the operational level (for example, with regard to eligible costs),
the structures and systems which are being developed for managing and implementing IPA
funds will enable Croatia to access and absorb the much larger funds that will become
available following Croatia's accession to the European Union.
12
8
7
National Strategic Reference Framework (2007-13)
Sector / Regional Operational Programme
7 years; Bulgaria / Romania: 7 Operational Programmes
Maximum co-financing rate: 85% of total eligible project costs
Threshold for Major Projects - €25 for environment / €50M for
transport
Compliance assessment (before intermediate payments)
Decentralised procurement under national public procurement
legislation complying with EU directives
EC Delegation approval not required
Period within which committed funds must be used on programme
level: N+2/3
Eligibility of Expenditures: as defined in Article 3 EC Regulation No.
1084/2006 establishing a Cohesion Fund
Strategic Coherence Framework (2007-13)
Sector / Regional Operational Programme
Initially 3 years; Croatia: 4 Operational Programmes
Maximum co-financing rate: 85% of total eligible project costs 7
Threshold for Major Projects - €10M
Accreditation and conferral (before implementation starts)
Central Procurement
EC Delegation approves all tender documents
Period within which committed funds must be used on programme
level: N+3 8
Eligibility of Expenditures: as defined in Articles 34 and 89 of EC
Regulation No. 718/2007 implementing Council Regulation (EC) No.
1085/2006 establishing an Instrument for Pre-Accession Assistance
(IPA)
13
The N+2 (or N+3) rule is a formula applied in the Cohesion Fund, Structural Funds as well as IPA. According to this formula, the funds that are committed in the year "N" must be
used by the end of second (in case of N+2) or third (in case of N+3) year following year "N". In other words, a portion of the budgetary commitment is automatically de-committed by
the European Commission if it has not been used (or if no payment application has been received) by the end of the second (N+2) or third (N+3) year following the year of the
budgetary commitment.
75% for revenue generating investment projects.
Strategic Coordination (Ministry of Finance, PM office, etc)
Structural / Cohesion Funds
Strategic Coordinator obligatory
IPA
Table 3: Comparative Overview of IPA and the Structural / Cohesion Funds
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
2.
PROJECT CYCLE MANAGEMENT (PCM)
The purpose of this chapter is to provide the reader with a basic understanding of:
2.1
¾
Project Cycle Management (PCM), and how PCM should be applied to the development
and implementation of a project.
¾
How the European Commission (and others) use PCM as a framework for project
planning, implementation and evaluation.
¾
The main stages involved in PCM.
¾
Some of the tools that can be used for PCM.
Project Cycle Framework
In 1992, the European Commission adopted Project Cycle Management (PCM), a set of
project design and management tools based on the Logical Framework Approach (LFA),
which was already widely used by many donors, including several Member States, other
international organisations and the UN family, and used or partly used by many partner
organisations of the EC. Different approaches to PCM have been adopted, for example by
the European Investment Bank (EIB), European Bank for Reconstruction and Development
(EBRD) and the World Bank. But this chapter focuses on the project cycle framework typically
applied to the development and implementation of environmental investment projects cofinanced by the European Union.
The project cycle represents the critical path for managing projects from conception through
to completion. From the point of view of EU-funded projects, the project cycle comprises
several major phases as illustrated in Figure 4.
Figure 4: The Project Cycle for EU-Funded Projects
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
This cycle is based on the following key principles:
Decision-making criteria and procedures are defined at each phase (including key
information requirements and quality assessment criteria).
The phases in the cycle are progressive – each phase should normally be completed in
order for the next to be tackled with success.
Use of the Logical Framework Approach to analyse problems, and work out a suitable
solution, i.e. project intervention / design (see section 2.2 below).
Production of key documentation in each phase, to ensure structured and well-informed
decision-making (see section 2.3 below).
Consulting and involving key stakeholders as far as possible.
Clearly formulating and focussing on the Project Purpose.
Incorporation at the outset of key quality issues into the project design / definition.
New programming and project identification draws on the results of monitoring and
evaluation of existing projects as part of a structured process of feedback and institutional
learning.
Each phase of the cycle is summarised below:
Programming: Programming refers to the establishment of a general strategy or coordinated
group of activities for providing EU assistance in a country or region. Based on an analysis of
the development context, the problems, needs and opportunities, of other players’ actions and
of national and EU capacities, the focus of EU assistance is agreed with the partner country.
The outcome is an agreed intervention strategy and an internal budget allocation / funding
decision by the European Commission, (e.g. the MIPD and EPOP).
Identification: Identification is the starting point for every individual project and, in the context
of the relevant national strategy and sectoral operational programme, should aim to ensure
that the project meets local / regional needs and is consistent with EC and national priorities 9 .
The main activity during this stage is to define the 'core problem' and its underlying causes
which the project aims to address, and then to generate possible project ideas and
alternatives for solving them. The most important questions that the project developer / End
Recipient should consider at the project identification stage are:
What results do you want to achieve?
How will you achieve these results?
What assumptions are you making?
What are the alternatives?
How much will it cost?
Who will pay for it?
Logical Framework Analysis is a useful technique that can help to answer these questions.
Further information and guidance on project identification and definition is provided in Chapter
4 below.
Formulation: During this stage, a comprehensive project proposal is prepared and a detailed
feasibility study carried out to ensure that the project is feasible and capable of delivering
sustainable benefits. The project developer / End Recipient is mainly responsible for ensuring
that the project proposal is completed properly, and that its main components and
assumptions are adequately analysed and tested for their feasibility. The duration of the
formulation stage may vary greatly for different types of project and will be influenced by the
availability / accessibility of required information, the capacity of key project stakeholders and
the degree of political and administrative support provided by local partners. Large scale,
complex investment projects may take many months or even years to formulate fully. Further
9
The general criteria established for the indicative selection of projects for potential IPA co-financing under Priority
Axis 1 are set out in section 3.1 of the EPOP.
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
information and guidance on conducting a feasibility study and preparing a detailed project
proposal is provided in Chapter 5 below.
Implementation: During implementation, the agreed project resources are procured and
used to achieve the project purpose (i.e. the target group(s) receive the planned benefits) and
to support the achievement of the overall policy objectives. The implementation phase of the
project cycle is in many ways the most critical, as it is during this stage that planned benefits
are actually delivered. Progress is monitored and assessed to enable adjustment of the
project to changing circumstances. The Contracting Authority is normally responsible for
project monitoring on the ground (under IPA Priority Axis 1, this is the EPEEF). It is therefore
advisable to consider how a project will be implemented and how monitoring will be
undertaken already during the formulation phase. Further information and guidance on
project procurement, implementation and monitoring is provided in Chapters 6 and 7 below.
Evaluation: The evaluation phase involves a systematic assessment of an on-going or
completed project, its design, implementation and results. The criteria typically applied for
EU-funded projects are:
Relevance: The appropriateness of the project objectives to the problems that it was
supposed to address, and to the physical and policy environment within which it operated.
Efficiency: Whether the project results have been achieved at reasonable cost, i.e. how
well, in terms of quality, quantity and time, the project inputs / means have been
converted into project activities and results.
Effectiveness: An assessment of the contribution made by the results to achievement of
the project purpose, and how assumptions have affected project achievements.
Impact: The effect of the project on its wider environment, and its contribution to the wider
policy or sector objectives.
Sustainability: An assessment of the likelihood of the benefits produced by the project
continuing to flow after external funding has ended (with particular reference to such
factors as ownership of the project by beneficiaries, policy support, economic and
financial factors, socio-cultural aspects, appropriate technology, environmental aspects,
and institutional and management capacity).
These criteria are linked to the Project Logframe (see section 2.2 below). Depending on the
type of project, the evaluation of EU-funded projects is usually undertaken by the responsible
national authorities, the European Commission, or both. However, the Contracting Authority
will be responsible for providing much of the data and information necessary for conducting
project evaluation(s), and should therefore ensure that adequate systems for monitoring and
record-keeping are put in place prior to commencement of the implementation phase.
Audit: During the audit phase, an independent examination and verification of a project is
carried out to ensure that applicable regulations, rules and procedures have been complied
with, and that efficiency, economy and effectiveness criteria are being (or have been) met.
The responsibility for planning, organising and conducting such external audits lies with the
audit bodies of the relevant national authorities and the European Commission.
In practice, the duration and importance of each phase of the cycle will vary for different
projects, depending on their scale and scope and on the specific operating modalities under
which they are set up. For example, a large and complex environmental infrastructure project
may take many years to pass from the identification phase through to the implementation
phase, whereas a project to provide technical assistance may only take a few weeks or
months to commence operations on the ground. Nevertheless, ensuring that adequate time
and sufficient resources are committed in particular to the project identification and
formulation phases is critical to supporting the design, financing and effective implementation
of appropriate and feasible projects.
2.2
PCM and the Logical Framework Approach
The Logical Framework Approach (LFA) is an analytical process and set of tools used to
support project planning and management. LFA is an “aid to thinking”, allowing information to
be analysed and organised in a structured way, so that important questions can be asked,
weaknesses identified and decision-makers can make well-informed decisions.
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Over time, different development and funding agencies have modified the formats,
terminology and tools of the LFA. However, the basic analytical principles have remained the
same. The EC has required the use of LFA as part of its Project Cycle Management system
since 1993. Knowledge of the principles of LFA and their application within PCM is therefore
essential for all those involved in the planning, design and delivery of EU-funded projects.
In the context of PCM, LFA is used:
During the identification phase, to help analyse the existing situation, investigate the
relevance of the proposed project and identify potential objectives and strategies;
During the formulation phase, to support the preparation of an appropriate project plan
with clear objectives, measurable results, a risk management strategy and defined levels
of management responsibility;
During project implementation, to provide a key management tool to support contracting,
operational work planning and monitoring; and
During the evaluation and audit phases, to provide a summary record of what was
planned (objectives, indicators and key assumptions), and thus provide a basis for project
performance and impact assessment.
Developing a Logical Framework (or "Logframe") has two main stages, Analysis and
Planning, which are carried out progressively during the Identification and Formulation phases
of the project cycle. These are summarised in Table 4.
Table 4: The Logical Framework Approach
Analysis Phase
Planning Phase
¾
Stakeholder analysis – identifying &
characterising
potential
major
stakeholders; assessing their roles,
capacities and concerns
¾
Developing a Logical Framework
Matrix - defining the project structure
¾
Problem analysis – identifying key
problems, constraints & opportunities;
determining cause & effect relationships
¾
Activity scheduling – determining the
sequence and dependency of activities;
estimating their duration
¾
Objectives analysis – developing
potential solutions for the identified
problems; identifying means-to-end
relationships
¾
Resource scheduling – derived from
the activity schedule
¾
Strategy analysis & development –
identifying and evaluating different
options for achieving the objectives;
developing and selecting the most
appropriate strategy
The principle documented output of the LFA process is a Logical Framework Matrix which
summarises all the key components of a project. The typical structure of a Logframe Matrix is
shown in Table 5.
It should be noted that, while LFA is a valuable tool for project design, implementation and
evaluation, it is not a substitute for other project tools especially those related to technical,
economic, social and environmental analyses. Likewise, LFA does not replace the need for
professional expertise and experience.
The analytical techniques used in the Analysis Phase of LFA are described in Chapter 4
below, while further information and guidance on the Logical Framework Approach is
provided in Annex A.
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Table 5: Typical Structure of a Logical Framework Matrix
Project Description
Indicators
Source of Verification
Overall Objective – The
project’s contribution to
policy or programme
objectives (impact)
How will the Overall
Objective be measured
including
Quantity,
Quality, and Time?
How will the information
be collected, when and
by whom?
Purpose – Direct benefits
to the target group(s)
How is the Purpose to
be measured including
Quantity, Quality, and
Time?
As above
If the Purpose is achieved,
what assumptions must
hold true to achieve the
Overall Objective?
Results / Outputs –
Tangible products or
services delivered by the
project
How will the Results be
measured
including
Quantity, Quality, and
Time?
As above
If the Results are achieved,
what assumptions must
hold true to achieve the
Purpose?
Activities – Tasks that
have to be undertaken to
deliver
the
desired
results
2.3
Assumptions
If Activities are completed,
what assumptions must
hold true to deliver the
Results?
Key Documents & Responsibilities
The key documents and primary responsibilities associated with the development and
implementation of waste management infrastructure projects co-financed by IPA under
Priority Axis 1 are summarised in Table 6.
2.4
The Financing Decision
The financing decision represents the legal basis and formal commitment of the EU to finance
a project and / or an agreed programme of measures aimed at addressing identified needs
and solving clearly identified problems. The financing decision for major projects is taken by
the European Commission together with the beneficiary country, while the individual projects
are managed and supervised by the responsible Operating Structure / Sectoral Monitoring
Committee(s). In all cases, project proposals / funding applications are submitted by the
Commission to the IPA Committee 10 for its opinion, before a Commission financing decision
is taken.
Key information required to support a financing decision for a major investment project
includes:
Information on the body to be responsible for project implementation;
Information on the nature of the investment and a description of its financial volume and
location;
Results of project feasibility studies, including the financial analysis;
A timetable for the implementation of the project before closure of the related operational
programme;
An assessment of the overall socio-economic balance of the project, based on a costbenefit analysis, including a risk assessment and an assessment of the expected impact
on the sector concerned;
An analysis of the environmental impact of the project; and
A financing plan, showing and justifying the total financial contributions expected and the
planned contribution from the EU and other sources of financing.
These requirements are described further in the following chapters.
10
The IPA Committee is a committee composed of representatives of the Member States and chaired by a
representative of the European Commission.
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Table 6: Key Documents & Responsibilities – Priority Axis 1 (IPA)
Project Cycle Phase
Key Documents
Primary Responsibility
Programming
Financing Agreement
Environmental Protection Operational
Programme (EPOP)
EC / Government of Croatia
MEPPPC
Identification
EPOP / Identification Fiche
Pre-feasibility Study
ToR for Project Formulation Phase
MEPPPC
Prospective IPA End Recipient
Prospective IPA End Recipient
Formulation
Feasibility Study
Cost-Benefit Analysis
Environmental Impact Assessment
Financing Plan
Completed IPA Application Form
Prospective IPA End Recipient
Prospective IPA End Recipient
Prospective IPA End Recipient
Prospective IPA End Recipient
Prospective IPA End Recipient
Procurement Plan
EPEEF
Tender Documents
IPA End Recipient
Tender Dossier
EPEEF
Procurement Procedures
EPEEF
Payment Applications and Orders
EPEEF
Technical Implementation of Service,
Supply & Works Contracts
EPEEF
Contractor's Monthly Report
Contractor
Supervising Engineer's Report
Engineer (FIDIC)
Progress, Financial and Irregularity
Reports
EPEEF
Project Annual Implementation and
Monitoring Reports
EPEEF
Sectoral Implementation Reports
EPOP Operating Structure
Implementation Monitoring Reports
Head of the EPOP Operating
Structure / Sectoral Monitoring
Committee
Evaluation
Evaluation
Interim)
Head of
Structure
Audit
Internal Audit / Irregularity / Risk
Management / Compliance Reports
External Audit Reports
Implementation
Reports
19
(Ex-ante
and
the
EPOP
Operating
Head of the EPOP
Structure
Audit Authority / EC
Operating
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
3.
IPA APPLICATION REQUIREMENTS
The purpose of this chapter is to inform the reader about:
3.1
¾
The process of applying for IPA co-financing of major projects
¾
The general requirements for submitting a major project to the European Commission for
co-financing
¾
The technical, financial, economic, institutional and environmental requirements that must
be met in order to succeed in obtaining EU funding for a major environmental investment
project
¾
The criteria applied specifically to waste management projects
The Application Process
This chapter presents the basic requirements to be met by projects submitted for IPA cofinancing within the framework of the Environmental Protection Operational Programme
(EPOP) 2007 – 2009 for Croatia. Particular attention is given to projects aimed at developing
infrastructure for integrated waste management systems.
The requirements described in this chapter refer only to major projects proposed for cofinancing from IPA. The EPOP (as well as IPA in general) also allows financing of non-major
projects (below 10 million Euro). In line with the IPA implementing regulation, community
assistance is implemented through multi-annual operational programmes. These operational
programmes are drafted by the operating structures. They are finalised in close consultation
with the European Commission and the relevant stakeholders, and approved through a
Commission Decision. According to the IPA implementing regulation, the operational
programme for the regional development component shall contain an indicative list of major
projects, together with their technical and financial characteristics, including expected
financing sources and indicative timetables for their implementation. 11
The indicative list of projects in the water and waste management sectors is included in the
EPOP. The EPOP also presents the key criteria that were applied in drawing up the indicative
list of projects. Inclusion of a project in the indicative list of major projects does not mean that
the project will automatically receive co-financing from IPA resources. The final decision on
project financing is made by the European Commission. All project developers / End
Recipients 12 (i.e. municipal / county / regional companies or other public bodies dealing with
waste management) need to go through the entire application process and ensure the
readiness of the project prior to submitting an application for IPA co-financing.
The application process (for waste management investments) can be divided into the
following stages:
Submission of a detailed feasibility study and an Application Form with all relevant
supporting documentation by the project developer / End Recipient to the Ministry of
Environment Protection, Physical Planning and Construction (MEPPPC). The tasks of the
MEPPPC include inter alia a sound appraisal of major projects prepared by the End
Recipients;
Submission of the project with all the relevant documentation to the European
Commission. If a project is appraised as acceptable, the European Commission will issue
a decision approving each project, which will define the physical infrastructure to be
11
Commission Regulation No 718/2007 of 12 June 2007 implementing Council Regulation (EC) No 1085/2006
establishing an Instrument for Pre-Accession Assistance (IPA)
12
In previous documents, the term “Final Beneficiaries” was used in place of “End Recipients”.
20
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
procured and the eligible expenditure to which the co-financing rate for the Priority Axis
applies. At the end of the approval process, a Bilateral Project Agreement between the
European Commission and the beneficiary country is signed, confirming these elements.
Complementary funding for the planned investments must be ensured from national
funding, external loans and other sources.
The application process is time-consuming. It takes months (or sometimes more than a year)
before a funding decision is made by the European Commission. Bearing in mind the limited
time frame for project implementation resulting from the de-commitment principle, applicants
should ensure that only well-prepared and supported applications are submitted to the
Commission.
Technical Assistance
Project developers / End Recipients (public administrative bodies) may also apply for
Technical Assistance under the IPA EPOP. This can be used for the preparation of IPA
projects (including preparation of project and tender documentation). It should be noted
that within the budget for IPA project funding, it is possible to earmark financial resources
for day-to-day project management, publicity, etc.
3.2
General Requirements
As stated in the implementing regulation, when submitting a major project to the European
Commission the following information shall be provided:
Information on the body to be responsible for implementation;
Information on the nature of the investment and a description of its financial volume and
location;
Results of feasibility studies;
A timetable for the implementation of the project before the closure of the related
operational programme;
An assessment of the overall socio-economic impact of the operation, based on a cost
benefit analysis and including a risk assessment, and an assessment of the expected
impact on the sector concerned, on the socio-economic situation of the beneficiary
country and, where the operation involves the transfer of activities from a region in a
member state, the socio-economic impact on that region;
An analysis of the environmental impact;
A financing plan, showing the total financial contributions expected and the planned
contribution under the IPA Regulation, as well as other Community and other external
funding. The financing plan shall substantiate the required IPA grant contribution through
a financial viability analysis.
The project developer / End Recipient completes a standard application form 13 in English
and submits all the relevant documents listed in the application form:
Feasibility study (summary and full version);
Cost-benefit analysis;
13
Major Project Request for Confirmation of Assistance Under Article 10 of Regulation (EC) No 1085/2006 and
Articles 157 of the Commission Implementation Regulation No 718/2007. Instrument for Pre-Accession Assistance.
Infrastructure Investment. Environment.
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
3.3
EIA non-technical summary;
Declaration by the authority responsible for monitoring sites of nature conservation
importance;
Copies of relevant decisions, permits and other documents with English translation; and
Maps of an appropriate scale.
Technical Requirements
The overall objective of the EPOP is to invest in those projects that will deliver the greatest
impact with the limited resources available in the waste and water sub-sectors, whilst
assisting Croatia to meet its obligations for implementation of the EU environmental acquis
governing the treatment and disposal of waste, the supply of drinking water, collection,
treatment and discharge of waste water; and also to develop the administrative and
management capacity of those institutions responsible for implementing the EPOP. 14 Projects
submitted for IPA co-financing must comply with the principles set out in strategic sectoral
documents (such as the National Waste Management Strategy).
The Strategy of Waste Management of Croatia requires that waste management systems be
implemented in harmony with the following principles (a full list of the principles may be found
in the Strategy itself): 15
3.4
Respect for the waste management hierarchy:
¾
The main priority is to avoid and reduce waste generation, and to reduce the harmful
properties of waste.
¾
If the generation of waste cannot be avoided or reduced, the waste should be reused,
recycled and / or recovered.
¾
Waste that cannot be used in a rational way must be disposed of in an
environmentally-friendly manner.
Use of Best Available Techniques (BAT): based on their cost-effectiveness and
environmental acceptability. Emissions from waste treatment facilities and landfill sites,
which are regulated by special provisions, should be reduced as much as practicable,
and in a manner considered to be most efficient from a technical and economic point of
view.
Independence and proximity: An integrated network of facilities and installations for the
recovery, recycling, treatment and disposal of waste, fully compliant with Croatia's
requirements, must be established. In some specific cases, use will also be made of
facilities and installations situated outside of the Republic of Croatia.
Financial and Economic Requirements
IPA applicants are requested to prepare “an assessment of the overall socio-economic
balance of the operation, based on a cost-benefit analysis and including a risk assessment,
and an assessment of the expected impact on the sector concerned, on the socio-economic
situation of the beneficiary country and, where the operation involves the transfer of activities
from a region in a Member State, the socio-economic impact on that region”.
This requirement is met in the form of a Cost-Benefit Analysis (CBA) for the project,
comprising:
A financial analysis (see section 5.3 of this Manual);
An economic analysis (see section 5.4); and
14
Environmental Operational Programme 2007 – 2009.
2007HR16IPO003. Republic of Croatia; September 2007, p. 52
15
Instrument
for
Pre-Accession
Assistance.
Strategy of Waste Management in the Republic of Croatia; Strategy adopted by the Croatian Parliament on
th
October 14 2005
22
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A sensitivity and risk analysis (see section 5.5).
This CBA should be conducted in line with the following main EC guidelines:
Guide to Cost-Benefit Analysis of Investment Projects - Structural Funds, Cohesion Fund
and Instrument for Pre-Accession; European Commission; Directorate General Regional
Policy; Final Report 16/06/2008 16 ; and
Guidance on the Methodology for Carrying out Cost-Benefit Analysis. Working Document
No. 4; European Commission; Directorate General Regional Policy; August 2006 17 .
The CBA typically forms a significant part of the detailed project feasibility study and must be
attached to the application form (Annex II to the standard IPA application form). The key
findings of the CBA are also reflected in section E of the application form. This section of the
form contains inter alia information on:
Financial Analysis (section E.1 of the application form):
The methodology and specific assumptions applied in the financial analysis (section
E.1.1.);
The main elements and parameters used for the financial analysis, i.e. reference period,
discount rate, investment costs, operating costs, revenues, etc., and the resulting funding
gap (section E.1.2.);
Further main results of the financial analysis (section E.1.3.); and
Revenues generated over the project’s lifetime (section E.1.4.).
Socio-Economic Analysis (section E.2 of the application form):
Description of the methodology used (key assumptions made in valuing costs and
benefits) and the main findings of the socio-economic analysis (section E.2.1.);
Details of the main economic costs and benefits identified in the analysis together with
the values assigned to them (section E.2.2.);
The main input assumptions and outputs of the economic analysis (section E.2.3); and
Employment effects of the project (section E.2.4.).
Risk and Sensitivity Analysis (section E.3 of the application form)
Description of the methodology and summary results (section E.3.1.);
Sensitivity analysis (section E.3.2); and
Risk analysis (section E.3.3.).
Applicants also must present a detailed financing plan for the project. This plan should show
all project-related costs and how these are to be financed. The amount of the IPA grant is
calculated based on the funding gap formula (see section 5.3.6 below). The availability of the
funds to cover the remaining costs (i.e. over and above the IPA grant) must be proven by the
applicant, who must provide "the details of the decision(s) on national public and private
financing, loans, etc." (section D.2.3).
A Financing plan for the project is presented in section H of the application form. All sources
of project co-financing should be reflected in this section. As defined in the National Waste
Management Plan for the Republic of Croatia (2007 – 2015), the Environmental Protection
and Energy Efficiency Fund (EPEEF) plays an important role in co-financing of IPA and (in
future) Cohesion Fund projects. It finances up to 60% of the costs associated with the project
preparation phase (technical documentation, studies etc.). Together with the IPA resources,
the EPEEF finances up to 80% of the eligible construction costs
16
http://ec.europa.eu/regional_policy/sources/docgener/guides/cost/guide2008_en.pdf
17
http://ec.europa.eu/regional_policy/sources/docoffic/2007/working/wd4_cost_en.pdf
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3.5
Institutional Requirements
One of the key pre-conditions for completing the application process successfully is to ensure
rational and economically viable operation of the resulting infrastructure. Project developers /
End Recipients need to demonstrate that adequate institutional arrangements for the
implementation phase have been developed and agreed. As stated in the EPOP, the criteria
applied during the selection process for IPA co-financed investments include the presence of:
An adequate administrative and institutional framework (this, inter alia, will help to ensure
that the “polluter pays principle” is fully observed); and
A rational and economically viable structure for the future operating company.
The following issues are taken into account when examining project institutional readiness:
Has an institution (such as a county / regional waste management company) already
been established?
Will the infrastructure be managed in a different way after the project is completed (i.e.
public management, new concession, or other form of arrangement)?
What will be the ownership structure of the utility company?
Have municipalities participating in the system signed a formal agreement to deliver
waste to the facilities when they open?
Does the project involve a Public Private Partnership (and if so, what will be the division
of tasks and risks between public and private partners)?
Public Private Partnerships (PPP)
PPPs are a form of cooperation between public authorities and businesses with the aim of
carrying out infrastructure projects or providing services which have traditionally been
provided by the public sector. PPPs typically involve complex legal and financial
arrangements.
Before entering into PPP schemes, public authorities should carefully consider all
arguments for and against this form of service provision. If a decision to proceed with a
PPP approach is taken, particular attention should be paid to the distribution of risk and
responsibilities between public and private partners, since any mistakes in this area are
likely critically to undermine the success of, and value for money provided by, the PPP.
Potential benefits of PPPs: acceleration of infrastructure provision, faster
implementation, reduced whole-life costs, more effective allocation of risks, stronger
incentives to perform, improved quality of service, generation of additional revenues and
enhanced public service management.
Potential risks: loss or diminution of control by the public sector, increased costs,
financing costs and risks, excessive profits generated by private companies resulting in
increased user charges, political risks, problems with transparency and accountability,
service unreliability, inability to benefit from competition, decline in service quality or
efficiency, labour relations difficulties.
3.6
Environmental Requirements
Projects submitted for IPA funding must comply with national and EU environmental
legislation and policies. Section F of the Application Form focuses on the project’s
environmental impacts and its contribution to EU environmental policies.
Compliance with the requirements of EU directives relating to Environmental Impact
Assessment (EIA) is one of the key issues to be taken into account during the project
evaluation process. Information on the EIA process must be included in Section F and Annex
III of the Application Form, together with information on the assessment of effects on sites of
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nature conservation importance (the “Natura 2000” network). The following are the main
directives relating to (project-level) EIA and Natura 2000:
Directive 85/337/EEC of 27 June 1985 on the assessment of the effects of certain public
and private projects on the environment
Directive 97/11/EC of 3 March 1997 amending Directive 85/337/EEC
Directive 2003/35/EC of 26 May 2003 alignment to UNECE Aarhus Convention
Directive 79/409/EEC of 2 April 1979 on the conservation of wild birds;
Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild
fauna and flora.
The EIA directive (85/337/EEC) distinguishes between two types of projects:
Projects listed in Annex I of the directive for which conducting an EIA is always
mandatory; and
Projects listed in Annex II of the directive for which conducting EIA depends on the results
of the screening process (and the competent authority decides whether an EIA is
needed or not).
In relation to investments in the waste management sector, the EIA directive provides as
follows:
Waste disposal (and treatment) installations for incineration, chemical treatment or landfill
of hazardous waste are listed in Annex I (9) and, for these investments, an EIA is
mandatory.
Waste disposal (and treatment) installations for incineration, chemical treatment or landfill
of non-hazardous waste in excess of 100 tonnes / day are listed in Annex I (10) and for
these investments an EIA is mandatory.
Installations for the disposal of waste not included in Annex I are included in Annex II
(11)(b). For these investment projects, the screening process is conducted in order to
determine whether an EIA is needed.
When the project falls under Annex I of the EIA Directive, the following documents should be
attached to the application (see section F of the standard Application Form):
A non-technical summary of the Environmental Impact Study carried out for the project;
Information on consultations with competent environmental authorities, indicating in what
way the concerns of the consultees have been taken into account;
Results of the consultations with the public concerned;
Information on trans-boundary consultations with those states affected by the project
needs to be provided, demonstrating that the procedure set out in article 7 of the EIA
directive has been applied. An indication should be provided of how the concerns of the
consultees and the concerned public have been taken into account; and
Evidence that the decision to grant or refuse development consent has been available to
the public by the competent authority.
If the project falls under Annex II of the EIA Directive and, following the screening process an
EIA turned out to be needed, then applicants need to submit the same information and
documentation as listed above. If the screening process concluded that an EIA is not
required, than applicants need to explain the reasons and give the thresholds, criteria or
case-by-case examination carried out in order to reach the conclusion that the project has no
significant environmental effects (section F.3.2.2 of the Application Form).
If the project is not likely to have significant effects on a site of nature conservation
importance, then applicants are required to submit a declaration by the authority responsible
for monitoring sites of nature conservation importance (Annex IV to the Application Form).
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3.7
Public Consultation and Participation
Sound public consultation and participation constitute an integral part of the preparation
process for any investment project. The European Commission verifies whether the
consultation process has been implemented and properly reflected in the application package
submitted to the EC. Neglecting this requirement poses a risk of rejection by the European
Commission. The consultations should be conducted in line with the requirements specified
in the Environmental Impact Assessment (EIA) Directive, Aarhus Convention and EC
guidelines 18 . Applicants need to present evidence that sufficient consultations have been
carried out (i.e. that sufficient time was allowed for the public and other stakeholders to
present their comments; that opinions were properly taken into consideration and answers
were provided; that public hearings took place; that NGOs have been involved in the
consultations, etc.). Usually, the following documents serve as acceptable evidence for public
consultations: official announcements of the consultation process, comments submitted and
answers to the comments, official notes from public hearings, lists of participants that were
consulted, articles in the media, etc.
Adequate timing is a pre-requisite for a sound consultation process as stated in the EIA
directive: "Reasonable time-frames for the different phases shall be provided, allowing
sufficient time for informing the public and for the public concerned to prepare and participate
effectively in environmental decision-making" 19 .
3.8
Special Criteria for Waste Management Projects
Particular criteria and modalities for selecting waste management projects for IPA cofinancing in Croatia are included in the EPOP (Priority Axis 1 - Developing waste
management infrastructure for establishing an integrated waste management system in
Croatia).
The general criteria comprise:
Project maturity: its readiness for implementation;
The scale of projects: projects or project phase(s) should reach an estimated minimum
value of 10 million Euro (smaller projects may be eligible as well, depending on the funds
available and if determined by the relevant measure-related selection criteria; they will be
assessed mainly through criteria concerning environmental benefits, and technical
eligibility and justification, having in mind the total project cost);
Sustainability: projects must comply with EU norms and standards, be coherent with the
sectoral policies of the EU, and must (in the case of waste management centres) be able
to cover (at least) future operating and maintenance costs;
Conformity with the objectives and principles of EU environmental policy;
Protection, maintenance and improvement of environmental quality;
Protection of human health and prudent and rational use of natural resources;
The precautionary principle;
The prevention principle,
The elimination at source principle;
The “polluter pays” principle;
Alignment with EU environmental legislative requirements, with a particular focus on
“investment heavy” directives;
18
For more information on public consultation, see the website on the UNECE Convention on Access to Information,
Public Participation in Decision-making and Access to Justice in Environmental Matters http://www.unece.org/env/pp/
and the DG Environment website http://ec.europa.eu/environment/archives/eia/home.htm
19
Directive 2003/35/EC of the European Parliament and of the Council of 26 May 2003 providing for public
participation in respect of the drawing up of certain plans and programmes relating to the environment, and amending
with regard to public participation and access to justice Council Directives 85/337/EEC and 96/61/EC
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Alignment with priorities set both in national strategic and EU documents; and
Additionallity – that is, that the project would not have gone ahead without EU assistance.
Moreover, the EPOP contains special criteria that are used in the selection process for
investments in the following sub-sectors (measures):
Measure 1.1 – Establishment of new waste management centres at county / regional
levels
Measure 1.2 – Remediation of sites highly polluted by waste (hot spots).
The projects under Measure 1.1 will contribute to meeting the National Waste Management
Strategy goal of establishing up to 21 new waste management centres at county / regional
level and will be ranked according to the following criteria:
Criteria I – waste management systems in coastal counties with islands. There are seven
such counties: Lika-Senj (53,677 population), Sibenik-Knin (112,891), Dubrovnik-Neretva
(122,870), Zadar (162,045), Istria (206,344), Primorje-Gorski kotar (305,505), and SplitDalmatia (463,676).
Criteria II – waste management systems in counties of over 200,001 residents or in other
areas serving over 200,001 users. There are eight such areas, including the capital and
two groups of counties: Zagreb (population 779,145), North-West Croatia (570,460),
Eastern Slavonia (535,274), Split-Dalmatia (463,676), Osijek-Baranja (330,506),
Primorje-Gorski kotar (305,505), Istria (206,344), and Vukovar-Srijem (204,768).
Criteria III – waste management systems in counties from 150,000 to 200,000 residents
or in other areas serving from 150,000 to 200,000 users. There are four such counties:
Zadar (population 162,045), Slavonski Brod-Posavina (176,765), Varazdin (184,769) and
Sisak-Moslavina (185,387).
Criteria IV – waste management systems in counties with up to 150,000 residents or in
other areas serving up to 150,000 users. There are four such counties: Lika-Senj
(53,677), Pozega-Slavonia (85,831), Virovitica-Podravina (93,389) and Karlovac
(141,787).
The viability of projects seeking IPA funding under Measure 1.1 is appraised on the basis of
the following issues:
New waste management centres and waste disposal sites must comply with the National
Waste Management Strategy, National Waste Management Plan 2007 – 2015, county
waste management plans and county spatial plans;
Projects will be in those areas where existing waste landfills create a hazard to
groundwater;
Projects will be in those areas where existing landfills are running out of capacity;
The presence of an adequate administrative and institutional framework (this, inter alia,
will help to ensure that the polluter pays principle is fully observed);
Will the project help to prevent damage to human health or the environment in a sensitive
zone? – projects for new waste management centres should review the choice between
extending the existing waste disposal sites or building new facilities and protecting the
sensitivity of the groundwater or other receptors in the region;
A rational and economically viable structure of the future operating company; and
Distance between the planned / modernised landfill and local towns, in line with the
principle of reducing the amount of waste transported (optimisation of transport costs).
The priority projects under Measure 1.2 should relate to those sites highly polluted by waste
that pose a threat to groundwater and to human health, especially in karst areas, since
ground water provides 90% of drinking water supplies in Croatia. In addition and following the
general selection criteria, priority will be given to projects with the highest level of maturity,
where the damage to the environment from the existing hotspot is most severe, and which will
provide maximum beneficial environmental impact from use of the available funds.
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3.9
Some Lessons Learned from the IPA Application Process in Croatia
Some of the lessons learned during the initial period of preparing applications for IPA funding
in Croatia include:
Insufficient attention is paid to the key requirements of project cycle management (e.g.
limited or non-existent options analysis, least cost analysis omitted in the planning
process);
Difficulties with identifying and acquiring suitable sites for new facilities;
Lack of evidence regarding the availability of financial resources for project co-financing;
The public must be consulted and participate in project preparation;
Inadequate institutional arrangements (e.g. lack of agreements between municipalities
participating in the new system);
County Waste Management Plan not compliant with National Waste Management Plan Incorrect project description;
Inappropriate demand analysis;
Incorrect or insufficient input data used for calculations;
Incorrect estimation of project costs – the approximate costs for all inputs over the whole
life of the project.
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4.
PROJECT IDENTIFICATION & DEFINITION
The purpose of this chapter is to familiarise the reader with:
4.1
¾
The purpose of the project identification stage
¾
The main steps / tasks involved in identifying and defining a major project
¾
Some of the analytical tools which can be used to identify and define a project
¾
The outputs that typically need to be generated during the project identification stage
Project Identification
The purpose of project identification is to:
Identify project ideas / concepts that are consistent with national and EC development
goals and priorities.
Provide a preliminary assessment of the relevance and likely feasibility of these project
ideas / concepts.
Prepare a project description or “identification fiche” which defines the scope, rationale
and objectives of a proposed project in a clear and systematic manner.
Determine the nature and scope of further work required during the detailed project
formulation phase.
Following consultations with prospective End Recipients and other partners, indicative ideas /
concepts for major projects for EU co-financing are incorporated and described in broad
terms in the Operational Programme. Thereafter, it is the responsibility of the prospective
End Recipients (project developers) to define and develop their project ideas / concepts, to
undertake the preliminary assessments and to prepare the documentation required in order to
proceed to the project formulation phase.
The main tasks of the project developer / End Recipient during the project identification phase
are typically to:
Identify and review / analyse the key policy and legislative documents of relevance to the
project – regional, national, EU and international.
Define the wider project objectives and justification for the project, i.e. what is / are the
environmental problem(s) which the project will aim to address?
Define the immediate project objectives, i.e. what is the project directly intended to
achieve?
Define the project outputs – the measurable results after project implementation.
Define the project inputs – these are the resources and activities needed to generate the
project outputs.
Set out the project assumptions.
Complete a Logframe for the project (see section 2.2 and Annex A).
Make a preliminary estimate of project cost – the approximate costs for all inputs over the
whole life of the project.
Prepare a brief but well presented project description (but without trying to cover every
aspect in detail).
Identify the appropriate type and potential sources of project co-financing – local,
national, international.
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Contact potential co-funder(s) in writing and present the project description, together with
the contact details of the project developer's / End Recipient's designated representative.
The key assessments and analyses normally required to ensure the relevance and feasibility
of a project idea / concept are:
Assessment of the policy and legal framework for the project;
Stakeholder analysis, including institutional capacity assessment;
Problem analysis;
Assessment of other on-going and planned initiatives;
Preliminary objectives and strategy analysis;
Preliminary assessment of resource requirements and costs;
Preliminary assessment
arrangements; and
Preliminary assessment of economic / financial, environmental, technical and social
sustainability issues.
of
project
management,
coordination
and
financing
These analyses and assessments should be sufficient to demonstrate convincingly that a
proposed project is:
¾
Relevant: It addresses demonstrated, high priority needs.
¾
Feasible: It is well-designed and likely to deliver tangible and sustainable benefits to the
intended target groups.
¾
Well-Managed: Preparation of the project is being well-managed.
It is therefore important that the process of identifying and defining a project is consistent with
the major analytical elements and outputs of the Logical Framework Approach.
4.2
Policy & Legal Analysis
An essential element of project identification and definition is an analysis of the policy context
and legal framework for the project. This entails a detailed review and analysis of all relevant
policies and legislation (EU and Croatian) currently in force, as well as those which are likely
to enter into force in the foreseeable future.
The body of EU polices and legislation relating to environmental protection is substantial,
complex and continuously evolving. 20 EU directives of particular importance for the planning
and preparation of major municipal waste management infrastructure projects include:
Waste Framework Directive (2008/98/EC)
Waste Landfill Directive (1999/31/EC)
Environmental Impact Assessment (EIA) Directive (85/337/EEC)
Integrated Pollution Prevention and Control (IPPC) Directive (2008/1/EC)
At the national level, the principal policy and legislative instruments relating to waste
management are:
National Environmental Strategy (2002)
Waste Act (2004, 2006)
National Waste Management Strategy (2005)
National Waste Management Plan 2007 – 2015 (2007)
20
Detailed information on current EU policies and legislation relating to environmental protection may be obtained
from http://ec.europa.eu/environment/policy_en.htm
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For the purposes of planning and implementing a major infrastructure project in this sector, it
is vital that all of the specific requirements and practical implications of relevant policies and
legislation are analysed and then taken into account during the project identification and
formulation phases. The extent to which a project contributes to achieving compliance with
EU and national environmental policy goals and legislation is a key factor in assessing and
determining applications for EU grant support.
4.3
Stakeholder Analysis
A stakeholder is any organisation or individual who, directly or indirectly, is influenced by and /
or exerts an influence on the various activities and decisions that take place within a project.
Stakeholders can be either for or against changes in the current situation. Developing and
implementing a major waste management project and related strategy is likely to involve
numerous changes in the existing arrangements for managing wastes, for example:
Legislative changes;
Institutional / organisational changes;
The development and operation of new waste management methods and facilities;
Changes in public behaviour (e.g. attitudes to paying for waste management services).
All these types of change will require cooperation and support from other organisations and
the general public in order to implement successfully. One of the most significant and difficult
challenges is to gain support and approval for the construction of new waste management
facilities such as new treatment facilities and landfill sites. There is always a body of opinion
which will oppose such changes, even if they can be shown to be providing environmental
benefits for the common good. Thus, the fundamental purpose of stakeholder communication
and participation is to identify and then manage stakeholder concerns, expectations and
behaviour in a way that avoids negative or extreme reactions and builds support for a
proposed project.
A stakeholder analysis is the starting point for developing an appropriate strategy for
stakeholder communication and participation in the formulation and implementation of a
project. Stakeholder analysis helps to ensure that:
Resources are appropriately targeted to meet distributional / equity objectives and the
needs of priority target groups.
Project management and coordination arrangements promote stakeholder ownership,
cooperation and participation.
Conflicts of stakeholder interest are recognised and explicitly addressed in the project
concept / definition.
The Logical Framework Approach provides a transparent structure for on-going dialogue
between different stakeholders in a project. However, preparing a sound Logical Framework
with the active participation of appropriate stakeholders is often not easy. Participation
requires the active involvement of stakeholders in the project development and decisionmaking process, and experience suggests that such participation ultimately leads to greater
project effectiveness, ownership, efficiency, transparency, equity and sustainability.
The main steps involved in conducting a stakeholder analysis are to:
Identify all those organisations, groups or individuals who have a significant interest in the
proposed project.
Investigate their respective roles, different interests, relative power and capacity to
participate (strengths and weaknesses).
Identify the extent of cooperation or conflict in the relationships between stakeholders.
Interpret the findings of the analysis and incorporate relevant information into the project
concept / definition.
Stakeholders can be generally divided into one of the following categories:
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Primary stakeholders are those whose interests lie at the heart of the project. They
include potential mainstream providers of environmental services, and target groups /
beneficiaries who are experiencing the problems that the project is aiming to solve and
are usually users of the services.
Secondary stakeholders need to be involved if the project is to achieve its objectives.
This group would include regional / local authorities, statutory agencies (such as
government departments), voluntary groups, private-sector organisations and potential
funders. These stakeholders are where the primary support will come from and usually
where potential project partners can be found.
Tertiary stakeholders may not be closely involved at the beginning but may be important
in the project formulation and implementation phases. These will include policy makers,
practitioners and other organisations working with similar projects and / or target groups.
These stakeholders can be an important for the long-term sustainability of a project.
The key questions which a stakeholder analysis should endeavour to answer are:
What are the stakeholders' expectations of the project?
What benefits is the stakeholder likely to receive?
What resources is the stakeholder willing and able to commit to the project?
What interests does the stakeholder have which may conflict with the project?
How does a stakeholder regard other categories of stakeholders?
What other tasks and activities do stakeholders think the project developer / End
Recipient should or should not carry out?
Does the stakeholder have the ability and resources to be a partner?
Some stakeholders will also be important sources of information that can be invaluable in
defining and formulating a project. Stakeholder analysis and problem analysis are closely
connected (see section 4.4 below), and a very cost-effective method of collecting information
from different stakeholders is through a series of project planning workshops, commencing
with a problem analysis workshop for key stakeholders.
4.4
Problem Analysis
Problem analysis is without doubt one of the most valuable analytical tools available for
defining and formulating a project and, if conducted thoroughly with full stakeholder
participation, will greatly enhance the design, quality and beneficial impact of a project. A
common reason for the failure of a project to deliver the expected results and benefits is that
the original project concept failed to identify and address the "core problem" associated with
an existing situation, or recognise its underlying causes and effects.
No problem exists by itself – it is always part of a chain of cause-and-effect relationships. If
the core problem and its underlying causes are not identified correctly, the proposed solution
is unlikely to be either appropriate or effectual. For this reason, it is vital that existing
problems and their underlying causes are identified and expressed in concrete and factual
terms, and not in vague or general terms. The causes are analysed in order to understand
the reasons for the core problem and, thereby, to develop an appropriate solution and related
activities (i.e. a well-conceived and planned project). The effects demonstrate the arguments
(the needs) for implementing the project. Thus, by identifying and defining all of the specific
problems and underlying causes that need to be addressed by the project, a fundamental
logic is introduced into the project definition and formulation process.
Problem analysis involves three main steps:
Definition of the framework and subject of analysis (e.g. waste management in a county
or region);
Identification and analysis of the major problems faced by potential target groups and
beneficiaries;
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Visualisation of the problems and their cause-and-effect relationships in the form of a
problem analysis matrix and / or diagram (“problem tree”).
The basic questions that a problem analysis should endeavour to answer are:
What is the core (main) problem that should be solved with the aid of the project? (Why is
the project needed?)
What are the causes of this problem? (Why does it exist?)
What effects does the problem have? (Why is it important to solve the problem?)
Who is affected by the problem?
Who can contribute to solving the problem?
Further information and advice on problem analysis is provided in Annex A.
A very effective way of undertaking a problem analysis is to conduct one or more problem
analysis workshops with key stakeholders. Besides helping to identify the problems
associated with an existing situation and their underlying causes, such workshops can be a
valuable source of information and also help to build consensus and support amongst
stakeholders for an appropriate and feasible solution and related project activities.
In order to define and formulate a major waste management project, it is essential that a
comprehensive survey and assessment of the significant problems, causes and effects
associated with the existing waste management arrangements in the subject area is
undertaken at an early stage. A check-list for a typical baseline survey and assessment of
the existing waste management situation is shown in Table 7.
4.5
Objectives Analysis
The project objectives describe the situation in the future once identified problems and their
causes have been remedied (i.e. following project implementation). If the problem analysis
has been carried out thoroughly and comprehensively, defining the project objectives is then
a relatively straightforward task. The problems and causes defined in the problem analysis
matrix and / or problem tree are simply transposed (inverted) from negative to positive
conditions in order to create an objectives matrix and / or tree. If necessary, new objectives
may be added where these seem appropriate and necessary in order to achieve the overall
project objective. Likewise, objectives which are unnecessary or clearly unrealistic should be
deleted.
Once completed, the objectives analysis should provide clear answers to the following key
questions:
What is the long-term policy objective or goal to which the project will contribute (the
overall objective in the Logical Framework Matrix)?
What will be achieved as a direct effect of the project (the project purpose)?
Which different components / sub-objectives are required in order to achieve the purpose
and overall objective (results)?
In essence, the objectives describe what the project is expected to achieve in the short,
medium and long run.
4.6
Strategy Development
Strategy development essentially involves consolidating and documenting the findings and
outputs from the preceding analytical steps, and then:
Identifying and selecting appropriate options or alternatives ("the means") for achieving
the overall project objective, purpose and results ("the ends").
Developing an overall strategic framework for the formulation and implementation phases
of the proposed project.
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Table 7: Check-List for a Typical Survey & Assessment of an Existing Waste Management Situation
Regional / Local Characteristics:
¾ Demographic and socio-economic characteristics
¾ Land use and water resources
¾ Environmental characteristics, quality and sensitivity
¾ Existing transportation networks
¾ Nature, distribution and stage of development of commerce and industry
Nature and Scale of Waste-Related Issues:
¾ Sources, types and quantities of wastes
¾ Current health risks / impacts from waste-related pollution
¾ Current impacts of wastes on air and water quality
¾ Extent of land contamination related to existing / past waste management practices
¾ Occurrence of major incidents involving wastes
¾ Adequacy of the existing institutional and organisational arrangements for managing wastes
¾ Current level of activity directed towards resource efficiency, waste minimisation and recycling
¾ Standard / quality of existing waste storage and collection arrangements
¾ Standard / quality of waste transport systems
¾ Quality and adequacy of existing waste processing / treatment facilities
¾ Standard / quality of existing landfill sites
¾ Extent of uncontrolled dumping of wastes
¾ Extent and nature of stockpiling of wastes
Legislation and Enforcement:
¾ Requirements of existing EU and national waste management policies and legislation
¾ Status and anticipated requirements of impending EU and national policies and legislation
¾ Adequacy of the existing regulatory regime
¾ Adequacy of existing monitoring arrangements
¾ Efficacy of the existing arrangements and procedures for enforcement
¾ Current and proposed environmental quality objectives and emission standards
Stakeholder Perceptions and Attitudes:
¾ Stakeholder perceptions and attitudes towards wastes management generally e.g. existing
public concerns and expectations
¾ Is the community willing and able to accept higher financial costs of improved waste
management standards?
¾ Attitudes to the selection and siting of new waste management facilities
¾ Attitudes of business to the goals of improved waste management performance and standards
Economic / Financial Issues and Constraints:
¾ Current arrangements for financing and recovering the costs of wastes management services
and facilities
¾ Scope for private sector involvement in the provision of waste management services and
facilities
¾ Nature and efficacy of any existing economic policy measures / instruments
¾ Are waste producers willing / able to afford the short-run financial costs of moving to higher
waste management standards?
¾ Is the public sector able to finance the transition to higher standards and, if so, to what extent?
¾ Are external sources of finance available in the form of loans and grants?
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In the context of waste management, an option is one discrete process or measure for
managing waste, such as the establishment of a public waste management company to be
responsible for managing municipal waste within a county or region; source segregation and
separate collection of recyclable materials; Mechanical-Biological Waste Treatment (MBT); or
the use of a Design-and-Build contract for procurement of a new waste management facility.
For a waste management project, the process of identifying and selecting appropriate options
usually involves:
¾ Identifying different options for achieving the strategic objectives (institutional, technical,
environmental, organisational, financial, economic, etc.).
¾ Developing and agreeing a set of criteria for initial screening and evaluation of options.
¾ Coarse screening the options identified against the agreed criteria.
¾ Identifying a short-list of options for more detailed analysis / assessment.
¾ Identifying and defining all major components / equipment for the short-listed options.
¾ Defining roles and outline performance requirements for each short-listed option.
¾ Preparing basic cost estimates for each short-listed option.
¾ Conducting a technical / financial / environmental evaluation of short-listed options.
¾ Preparing a sensitivity and risk analysis of short-listed options.
¾ Assessing, comparing and ranking the short-listed options.
¾ Selecting a preferred set of options.
The criteria used for the screening, evaluation and selection of options will depend on local
needs and circumstances but, for example, these might typically include:
Technical feasibility, operational performance, reliability and risks
Contribution to the achievement of strategic policy objectives and legislation
Costs and cost-effectiveness
Revenue generating potential
Financial feasibility and affordability
Other (non-financial) benefits
Scope for, and potential implications of, private sector participation
Potential environmental impacts (positive and negative)
Social acceptability
Long-term sustainability
Multi-Criteria Analysis (MCA) can be a useful tool for selecting a preferred set of options.
Guidance on MCA is provided in Annex A.
Having selected a preferred set of options for achieving the overall project objective, purpose
and results, the final step is to configure these options into an overall strategic framework for
project formulation and implementation. It should be noted that the existence of such a
strategic framework / master plan is an essential pre-requisite for obtaining EU financial
support.
4.7
Project Definition & Terms of Reference
Once the strategic framework for project formulation and implementation is established, it
should then be possible to define the scope, rationale and objectives of a proposed project in
a clear and systematic manner. The key outputs of the project identification and definition
phase are:
Description of the policy and programme context (National and EU);
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Stakeholder analysis;
Problem analysis;
Objectives analysis;
Strategic framework for project development and implementation;
Review of other on-going or planned initiatives;
Preliminary project description – including initial Logframe and indicative resource / cost
estimates;
Indicative project coordination, management (including financial management / control)
and financing arrangements;
Preliminary assessment of economic / financial, environmental, technical and social
sustainability;
Follow-up project work plan / timetable and Terms of Reference for Technical Assistance
(if required) during the detailed project formulation phase.
General guidance on the preparation of Terms of Reference for Technical Assistance to be
financed by the EU is provided in Annex C.
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5.
PROJECT FEASIBILITY & PREPARATION
The purpose of this chapter is to describe and explain the key elements and steps involved in
preparing a waste management project for EU co-financing, in particular:
5.1
¾
Preparation of demand forecasts
¾
Assessment of options
¾
Financial analysis
¾
Economic analysis
¾
Sensitivity and risk analysis
¾
Overall project assessment
¾
Preparation of a project implementation plan
Demand Forecasts
Demand forecasts have key importance for project planning, preparation and implementation.
They provide project developers with the information needed to design the size and the type
of Municipal Solid Waste (MSW) treatment and disposal facilities. Demand forecasts also
have a strong influence on the volume of the revenues predicted to be generated by the
project. The outcomes of demand analysis therefore influence project financial viability and
performance. Inappropriate demand analysis may lead to serious adverse impacts on the
project such as the construction of over-sized facilities, or lower than forecast revenues from
selling energy or recyclables.
Project developers should pay particular attention to forecasts of the following parameters:
MSW generation and collection rates.
Other waste streams relevant to the project (e.g. bulky wastes, green wastes).
Future sales of by-products (e.g. recyclables, compost, thermal or electric energy, RDF
etc.).
Projections of MSW generation and collection rates should be based on historical data for the
area covered by the project. Sometimes detailed statistical information on the volume of MSW
collected and its composition may not be readily available. In such cases, project developers
should use data from similar regions in the country (adjusted of course for the population
served and for other waste producers if possible) and from research conducted by
professional institutions.
Project developers should consider possible changes in consumer behaviour that may have
impacts on MSW generation and composition. It may be appropriate to present separate
projections for rural and urban areas covered by the project. Forecasts should normally
include trends in the generation of:
MSW from households;
MSW from other users (institutional and commercial entities);
Bulky wastes;
Construction and demolition wastes;
Green wastes, etc.
The demand forecasts for MSW collection (as well as for other types of wastes collected /
treated) should be prepared for two scenarios: with and without project implementation (the
same approach is used in financial analysis). The geographic area taken into account in both
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these scenarios is the same (e.g. waste arisings at the level of the county that the waste
management centre will serve). The differences in the scenarios may result from:
An increased percentage of inhabitants with access to regular waste collection services
within the county (e.g. from 85% to 100%);
The volume of waste sent for landfilling (e.g. as a result of the implementation of MSW
separate collection schemes);
Decreased levels of illegal dumping;
Capture of waste from treatment and disposal facilities located outside the geographic
area covered by the project;
Changes in users’ behaviour as a result of demand side-management measures (e.g.
different pricing policies for separately collected and co-mingled MSW).
For most types of waste, generation rates will be the same in the "with" and "without" project
scenarios. For certain types of waste (notably garden waste) however, it may be possible
that the provision of a new or much improved collection service leads to higher waste
generation rates (such as when a householder who previously did not collect grass cuttings at
all begins to collect and dispose of them via a newly-introduced formal collection scheme).
5.2
Options Assessment
As already described in section 4.6 above, the assessment of different options for achieving
the project objectives is a crucial step in defining and preparing a major environmental
investment project. This is an analytical process which is generally performed in stages,
progressively rejecting less suitable or attractive options and arriving at an option (or
combination of options) that provides the greatest benefits to the target group(s) and to the
environment taken as a whole, at an acceptable cost, in both the short and long term. Some
of the key technical, environmental and institutional considerations relating to the assessment
of different options for managing waste are highlighted in the following sub-sections.
5.2.1 Technical Assessment
A key consideration in assessing and comparing the technical feasibility and performance of
different options for managing waste is the so-called Waste Hierarchy. The Waste Hierarchy
(illustrated in Figure 5) is one of the cornerstones of EU and national policy and legislation on
waste management, and represents a key influence on decisions and efforts aimed at
managing wastes in an environmentally-sound and sustainable manner.
Figure 5: The Waste Hierarchy
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This conceptual framework ranks waste management options in order of their environmental
preferability and sustainability. If waste management is to become more sustainable, greater
consideration and weight needs to be given to options located towards the top of the
hierarchy. However, Article 4 of the Directive on Waste (2008/98/EC) states:
When applying the waste hierarchy, Member States shall take measures to encourage the
options that deliver the best overall environmental outcome. This may require specific waste
streams departing from the hierarchy where this is justified by life-cycle thinking on the overall
impacts of the generation and management of such waste.
Therefore, when assessing and comparing waste management options, the waste hierarchy
should be used as a guide rather than being applied rigidly.
Other important concepts and principles of relevance to the identification, technical
assessment and selection of options for managing waste include:
Self-Sufficiency and Proximity principles: EU Member States are required, in
cooperation with other Member States where this is necessary or advisable, to establish
an integrated and adequate network of waste disposal installations and of installations for
the recovery of mixed municipal waste collected from private households, including where
such collection also covers such waste from other producers, taking into account best
available techniques (Article 16, Directive on Waste - 2008/98/EC). This suggests that
most waste should be treated and disposed of in the region where it is generated and as
near as possible to its place of production.
Best Available Techniques (BAT): The most effective and advanced stage in the
development of activities and their methods of operation which indicate the practical
suitability of particular techniques for providing in principle the basis for emission limit
values designed to prevent and, where that is not practicable, generally to reduce
emissions and the impact on the environment as a whole (Article 2, IPPC Directive –
2008/1/EC).
Precautionary principle: Where there is a credible risk to the environment or human
health of acting or not acting with regard to waste, a cost-effective response to the risk
identified should be pursued.
Integration and co-location of facilities: Where possible, opportunities for integrating
and / or co-locating a variety of processes or facilities on a single site should be exploited,
provided this does not give rise to unacceptable, cumulative adverse environmental
impacts.
Security and reliability: Waste management facilities / services must operate reliably in
full conformity with expected technical performance requirements and standards, and with
a level of system redundancy sufficient to cope with unexpected variations in needs and /
or abnormal events. For this reason, it is generally unwise to adopt anything other than
proven technologies and techniques.
Flexibility: Needs and circumstances regarding wastes management can, and almost
certainly will, change over time. Such changes are not always predictable. Likewise,
significant under- (or over-) performance of a facility or service can often have a knock-on
effect in other parts of the waste management system. It is therefore important to retain
as much flexibility as possible, both in terms of technical capacity and the organisational /
contractual arrangements for procuring and managing strategically essential waste
management facilities and services.
Given that new landfill sites and certain other types of facility for receiving and processing
non-inert waste will require permits that meet the requirements of the IPPC Directive
(2008/1/EC), account should also be taken of available guidance on Best Available
Techniques (BAT), including the relevant BAT Reference Documents (BREFs) published by
the European IPPC Bureau 21 . BREFs are designed to demonstrate Best Available
Techniques for each sector covered by the IPPC Directive where:
21
Available from http://eippcb.jrc.ec.europa.eu
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Best means most effective in achieving a high general level of protection of the
environment as a whole;
Available techniques are those developed on a scale which allows implementation in the
relevant industrial sector, under economically and technically viable conditions, taking into
consideration the costs and advantages, whether or not the techniques are used or
produced inside the Member State in question, as long as they are reasonably accessible
to the operator;
Techniques include both the technology used and the way in which the installation is
designed, built, maintained, operated and decommissioned.
5.2.2 Environmental Assessment
Any project for which EU co-financing is sought must:
Make a significant contribution to the objective of environmental sustainability;
Respect the principles of preventive action and that environmental damage should as a
priority be rectified at source; and
Respect the "polluter pays" principle 22 .
As described in section 3.6 above, projects submitted for EU funding must comply with
national and EU environmental legislation and policies and, in particular, with the
requirements of EU directives relating to Environmental Impact Assessment (EIA).
However, while the EIA directives are concerned primarily with the potential effects of
construction works and other site-specific installations on the human, natural and cultural
environment, assessing the extent to which an option (or combination of options) for
managing waste in the future could contribute to environmental sustainability involves
consideration of a broader range of issues. Table 8 provides an indicative list of topics and
issues for consideration when assessing the environmental sustainability of different options
and alternatives for projects in the waste sector.
5.2.3 Institutional Assessment
The institution responsible for project development and execution must have a clear legal
mandate and the organisational capacity to be able to manage the project in a timely, efficient
and sustainable manner, taking into account all future financial, technical and operational
needs. Some of the key institutional questions that need to be addressed include which entity
(or entities) will be responsible for:
Undertaking detailed project planning and design (including site selection / acquisition)?
Providing co-financing?
Organising and managing tenders for works and services?
Overseeing project implementation and reporting to the national authorities and EC?
Setting and collecting tariffs for using the facilities and services?
Operating the resulting infrastructure?
The economies of scale typically associated with modern waste management systems
generally mean that EU-compliant projects need to be organised and implemented at a
regional / county rather than local level. Hence, there is usually a need for an appropriate
institutional structure which may not yet exist. Establishing new institutions can be a long and
politically difficult process, which therefore needs to be initiated at an early stage during
project preparation.
Table 9 provides a generic check list for undertaking an institutional / organisational
assessment.
22
According to the "polluter pays principle", the costs of disposing of waste must be borne by the holder of waste, by
previous holders or by the producers of the product from which the waste came.
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Table 8: Possible Topics & Issues for Assessing the Sustainability of Waste Management Options
Topics
Issues
Sustainable use of resources
¾
Level of materials recycling
Climate change
¾
¾
¾
Greenhouse gas emissions (CO 2 and CH 4 )
Energy efficiency (consumption and generation)
Renewable energy generation
Air quality
¾
Emissions of pollutants (waste facilities and collection /
transport)
Water resources
¾
¾
¾
Discharge of pollutants
Water consumption
Flood risk (including increased risk due to climate
change)
Sustainable waste management
¾
¾
¾
¾
Waste prevention / minimisation
Moving up the waste hierarchy
Minimising disposal
Extent to which the county / region manages its own
wastes
Deliverability (e.g. maturity of technology, market risks,
costs, affordability)
¾
Land and soil
¾
¾
¾
¾
Land contamination
Land take
Use of previously developed land
Use of soils, impact on soil quality (including positive
impact)
Landscape
¾
¾
Impact on landscapes (urban, rural, urban fringe)
Impact on protected areas / green zones
maintaining extent, openness)
Biodiversity
¾
Conservation of biodiversity
Historic environment
¾
¾
Protection of built heritage
Protection of archaeological heritage
Social amenity
¾
¾
Impacts on local amenity (noise, dust, light, vermin,
odour)
Impact on recreational and open spaces
Quality of surroundings
¾
Improving the quality of where people live
Transport
¾
¾
¾
¾
Kilometres travelled by waste
Waste-related traffic congestion
Impact on local infrastructure
Reducing reliance on the car
Health
¾
Impact on human health
Access to services
¾
¾
Good and equitable access to services
Improved access for those most in need
Stakeholder involvement
¾
¾
Opportunities for stakeholder participation
Opportunities for education and awareness raising
Sustainable economic growth
¾
¾
¾
¾
Costs of waste management
Economic benefits of waste minimisation
Inward investment
Number of jobs created
41
(e.g.
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Table 9: Check List for Undertaking an Institutional / Organisational Assessment
Organisational Aspects
Management culture
Organisational structure
Policy-making and planning
Systems, including financial
management and accountability
Human resources management
and development
Issues to be Considered / Assessed
¾
Does the organisation have strong and effective leadership?
¾
Are management well informed of the operations of the organisation?
¾
Is the attention of management adequately divided between internal and external
relations / concerns?
¾
Is there an appropriate balance between delegation of responsibilities and
maintaining overall control of staff performance?
¾
Is there a service-oriented culture?
¾
Are decisions taken in a timely manner?
¾
Are management adequately accountable for their decisions and performance?
¾
Are staff kept sufficiently informed of management decisions?
¾
Is there a learning culture within the organisation?
¾
Is there a description of the structure of the organisation with a division of
authorities, responsibilities and activities for each department, division or unit?
¾
Does the organisation function in line with the formal structure?
¾
Is the decision making structure based on a clear division of responsibilities?
¾
Is the division of responsibilities and tasks clear and understood by staff?
¾
Is there sufficient coordination between departments/units?
¾
Does the organisation have a clearly defined mission statement which is
understood and supported by management and staff?
¾
Is the mission adequately translated into organisational policy, strategies and
plans?
¾
Does the policy and strategy state well-defined and realistic development
objectives?
¾
Is the strategy translated into well-defined annual implementation plans and
operational budgets?
¾
Is there a structured process for monitoring and reviewing the implementation of
operational plans, and adjusting plans in the light of lessons learned?
¾
Has the organisation effectively realised former plans and budgets?
¾
Is there an evaluation capacity within the organisation, and do lessons learned get
fed back into policy making – either formally or informally?
¾
Is there an equal opportunities policy, which ensures non-discrimination on grounds
of gender, race, religion or disability?
¾
Does the organisation have financial and annual reports approved by an
independent auditor? Are these of an adequate quality?
¾
Are experiences of other stakeholders with regard to management of funds by the
organisation satisfactory?
¾
Does the organisation provide regular information of an adequate quality about its
operations and achievements?
¾
Are basic administrative and financial management systems and procedures
documented?
¾
Is there a clear system of work planning and operational monitoring with adequate
involvement of the organisation’s staff?
¾
Are these systems understood and applied by managers and staff?
¾
Are procurement procedures appropriate and applied consistently?
¾
Does the organisation have a human resources management policy, and if so, how
adequate is it?
¾
Do staff have job descriptions / terms of reference, and if so, are these clear and
useful?
¾
Are salaries / staff remuneration appropriate?
¾
Are there appropriate incentives in place to motivate staff?
¾
Is staff performance assessed periodically, and are these systems appropriate and
effective?
¾
What is the status of recruitment procedures?
¾
Is staff turnover at acceptable levels?
¾
Are appropriate training opportunities available for staff?
¾
Is there an organisational policy on gender equality?
¾
Is there an occupational health and safety policy and system in place?
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Delivery of effective, affordable and environmentally sustainable waste management at the
regional / county level requires that the following functions be undertaken by one or more
appropriate regional / county level entities:
Policy: The policy function relates to decisions regarding how a regional or county level entity
will meet its statutory obligation to provide waste management facilities and services in ways
that respect the broader (EU and national) legal and policy framework for waste management
and environmental protection.
Planning: The planning function concerns the definition and detailed specification of the
waste management services that will be provided, the location and development of waste
management facilities and establishment of the management framework required to support
and control the services (including, for example, financing and cost recovery, operational
resources, private sector participation, capacity development).
Operations: The on-going operation of facilities and delivery of waste management services
in accordance with national and regional / county policies and plans.
Compliance: Ensuring that waste management facilities and services comply with relevant
EU and national legislation, as well as local regulations and agreements.
Financial management: This function addresses the financial requirements of a regional /
county waste management system both in terms of investment costs and related financing,
and the recovery of recurrent costs from system users.
Public awareness and stakeholder participation: This function addresses the need to
inform the public and target groups about planned developments in waste management, and
involve key stakeholders in the decision-making process.
Project management: Regional / county waste management projects, such as the
development and operation of a Waste Management Centre, are technically and financially
complex, and sufficient management capacity is thus essential for their effective and timely
execution.
Administrative management: The administrative management function is concerned inter
alia with the organisational capacity, systems and procedures, including monitoring and
record-keeping, required to develop and operate a regional / county waste management
system.
The design of an institutional structure for a regional / county waste management system
therefore needs to consider how each of the above-listed functions will be addressed and
organised.
Whichever institutional set-up is eventually adopted, it is vital that the legal competence and
functional responsibility for municipal waste management is clearly and formally delegated or
assigned to the institution(s) that will be ultimately responsible for project development and
execution by all of the public authorities participating in the project.
5.3
Financial Analysis
Financial analysis is a process undertaken by project developers in order to determine the
financial sustainability and profitability of the proposed project. One of the core objectives of
the financial analysis is to predict and assess the financial performance of the project over a
certain time horizon e.g. 30 years.
The key questions to be asked in financial analysis include:
Will the proposed project be financially profitable for the project developer?
Will the project be financially sustainable over the long term?
In order to answer these questions project developers need to gather data regarding future
costs and revenues generated by the project as well as data on investment and
reinvestment 23 costs. Figure 6 contains a graphical representation of the long-term cost and
revenue forecasts associated with project implementation.
23
Reinvestment costs are the costs of replacing assets (or parts thereof) at the end of their economic lifetime.
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20
09
20
11
20
13
20
15
20
17
20
19
20
21
20
23
20
25
20
27
Figure 6: Project Related Costs and Revenues
6
4
Residual value
Eur million
2
0
Investment and reinvestment
costs
-2
-4
Revenues
-6
-8
Operating and maintenance
costs
-10
-12
* A negative value indicates a cash outflow; a positive value indicates a cash inflow
The techniques for assessment of the financial viability of a project are presented in section
5.3.8. The following indicators are commonly applied to assess financial performance of the
projects co-financed from the EU funds:
Financial Net Present Value on Investment (FNPV/C)
Financial Rate of Return on Investment (FRR/C)
Financial Net Present Value on Own Capital (FNPV/K)
Financial Rate of Return on Own Capital (FRR/K)
In order to calculate these indicators and to be able to quantify project financial performance
over a certain time horizon, it is necessary to understand the concept of discounting. This
concept is described in detail in Annex A.
Section 5.3.8 also describes project financial sustainability. Financial sustainability is
verified by comparing all project inflows (i.e. revenues, sources of project financing) and
outflows (i.e. operation and maintenance costs, investment costs) over the project lifetime.
The project is financially sustainable when its cumulative cash flow is positive at all times.
Only financially sustainable projects can be co-financed from EU funds. 24
An additional objective for undertaking financial analysis for EU-funded revenue-generating
infrastructure projects is to calculate the amount of grant that can be received from EU funds.
Although the maximum rates of support from EU funds are fixed in the Operational
Programmes, e.g. 75% for waste management projects co-financed by IPA in Croatia, 25 the
actual maximum grant for the specific project is calculated using the funding gap
methodology. This methodology is presented in section 5.3.6.
Although financial analysis is frequently out-sourced by project developers (normally public
authorities) to external consultants, the understanding of basic concepts of financial analysis
24
There is however a question as to whether financial sustainability is best assessed in relation to the project
(defined as the difference between the "with" and "without" project scenarios) or in relation to the "with" project
scenario only. In practice, both approaches are required.
25
Environmental Operational Programme 2007 – 2009. Instrument for Pre-Accession Assistance. 2007
HR16IPO003; September 2007; Republic of Croatia; p. 56
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by project developers is of key importance for successful project preparation and
implementation. Project developers have an in-depth understanding of the local situation and
potential barriers to successful implementation and operation of the project. So successful
preparation of financial analysis requires close co-operation between external consultants and
project developers.
The concepts described in this section relate to major elements of the financial analysis of
EU-funded projects, especially with reference to municipal waste management projects. It
should be noted, however, that guidelines developed at EU level, notably Guidance on the
Methodology for Carrying out Cost-Benefit Analysis – Working Document No. 4 and Guide to
Cost-Benefit Analysis of Investment Projects – Structural Funds, Cohesion Fund and
Instrument for Pre-Accession; European Commission; DG Regional Policy (16 June 2008)
rank above the guidelines presented in this Manual.
5.3.1 Methodological and Modelling Assumptions for Financial Analysis
Typically, financial analysis consists of a model developed in a spreadsheet application (e.g.
Excel, OpenOffice org.Calc etc.), and text describing the main assumptions and input data
used in the financial analysis together with its findings. In some of the Member States,
standard spreadsheet tools have been developed by managing authorities in order to support
project developers in preparing the financial analysis. This section presents some of the key
methodological and modelling assumptions that need to be made when conducting financial
analysis.
Methodological assumptions include the following basic features of the financial model:
Time horizon;
Choice between constant and current prices;
Choice of the discount rate;
Identification of the incremental net cash flow;
Choice of currency.
Modelling assumptions include forecasts of (1) macroeconomic indices influencing the results
of the model (e.g. inflation rate, exchange rate predictions, real wage index, index of real
incomes, construction price index, etc.); (2) other indices that influence outcomes of the
model (e.g. demographic trends, rate of MSW generation).
Methodological Assumptions
Time Horizon
Financial analysis is conducted in order to observe the financial impacts resulting from the
project over its lifetime. The time horizon adopted in the analysis (the so-called “reference
period”) should therefore reflect the economically useful life of the project. The European
Commission guidelines suggest a 30-year reference period for environmental projects. 26 In
some of the beneficiary countries, however, more flexible approaches for determining the
project reference period have been recommended. In Poland for instance, Cohesion Fund
and ERDF applicants are advised to apply a time horizon of at least 15 years for investments
in the waste management sector, and at least 25 years for investments in the water supply
and wastewater sector. 27
In interpreting the European Commission’s guidance, it is suggested that project developers
should consider following the principles that the time horizon should match the economic life
of the project’s longest-living assets, or the economic life of the dominant asset type, up to a
maximum of 30 years.
26
The New Programming Period 2007-2013. Guidance on the Methodology for Carrying Out Cost-Benefit Analysis;
Working Document No. 4; European Commission; 08/2006
27
Poland: Guidelines for CF and ERDF Co-Financed Investments in the Environmental Sector in Years 2007 –
2013; JASPERS; December 2006
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Table 10: Reference Period for Waste Management Projects Co-Financed from EU
Funds in some Recent EU Member Countries
Country
Reference Period
Remarks
Bulgaria
No specific guidelines
No specific guidelines
Czech Republic
No specific guidelines
Previous guidelines used a reference period
of 30 years
Poland
At least 15 years (CF);
The reference period can be adjusted
depending on project specific features (in CF
projects);
Uniform reference period applied by
applicants (in some ERDF programmes).
or 30 years (ERDF)
Romania
Between 20 and 30
years
The reference period can be adjusted
depending on specific features of the project.
Constant vs. Current Prices
In the financial analysis, forecasts of revenues and expenditures can be made either in
constant or current prices. Current (also known as “nominal”) prices include the effect of
inflation, whilst constant (or “real”) prices refer to values that are not adjusted for inflation.
Applicants can decide themselves whether to conduct the financial analysis in constant or
current prices.
The use of constant prices is perhaps more common for the financial analyses of EU cofinanced projects. This approach is simpler than using current prices as it does not require
forecasting of the consumer price index; changes in relative prices may however be forecast
(e.g. the rising real cost of labour as real wages increase). In some cases, however,
application of current prices may be more appropriate e.g. when fixed interest rate debt is
proposed for co-financing and hence the inflation rate has a major impact on the effective cost
of this debt. The main benefit of this approach is that it enables the rate of inflation to be
included in the sensitivity and risk analysis of the project (there is little benefit in a nonprobabilistic approach to forecasting inflation, since anything beyond short term inflation
cannot be forecast with any reliability).
Discount Rate
Calculations of financial performance indicators (such as FNPV/C and FNPV/K) and the EU
grant are based on discounted cash flows (see Annex A for more information on
discounting). The European Commission recommends using a 5% discount rate (in real
terms) in financial analysis. If the financial analysis is carried out in current prices, a nominal
discount rate (i.e. adjusted for inflation) should be used.
The relationship between the nominal and real interest rate is described by the Fisher
equation:
(1 n)
(1 r ) u (1 i )
where
n is the nominal rate, r is the real interest rate and i is the rate of inflation.
Example:
If the real interest rate is 4% and the expected inflation rate is 3%, the nominal discount
rate is given by: (1 + n) = (1 + 0.04) x (1+0.03), hence n = 1.0712 – 1 = 7.12% (rounded
to 2 decimal places).
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Incremental Approach
The financial analysis of EU funded projects is conducted based on an incremental net cash
flow technique. 28 Net cash flow refers to the difference between cash inflows and cash
outflows (regardless of whether cash outflows represent an investment or operating cost).
The cash flow projections are presented for each single year of the project reference period.
Incremental net cash flows are determined by comparing net cash flows in the "with project"
and "without project" scenarios. This approach is relevant for projects involving the
expansion, upgrading and modernisation of existing systems (e.g. construction of a new
waste management centre and reorganisation of existing collection services). The "with
project" scenario comprises projections of future revenues and costs assuming
implementation of the EU financed project. The "without project" scenario considers future
revenues and costs assuming that the EU financed project is not implemented. The
investment and reinvestment costs should be presented in both scenarios. The "with project"
scenario includes the investment and re-investment costs related to the EU co-financed
project as well as other modernisation and development investments. The "without project"
scenario includes the investments that would be undertaken if the EU project were not
implemented (taking into account constraints resulting from the limited availability of financial
29
resources). As stated in the CBA guide:
“It is customary in project appraisal practice to consider at least three options: do-nothing
(BAU 30 ), do-minimum and do something. In some cases the first option may produce
‘catastrophic’ effects so that it has to be neglected and the do-minimum option be considered
as the baseline scenario”.
The way of obtaining incremental values is presented in
Table 11, which shows how (for instance) incremental revenues in year X are calculated by
subtracting from the revenues in year X in the "with project" scenario the revenues in year X
in the "without project" scenario. It is worth noting that some Member States require the
calculation of changes in working capital (e.g. Poland), whilst others do not (e.g. Czech
Republic). In principle, the former approach is more rigorous but may require substantially
more work.
For greenfield projects, incremental cash flows are identical to the "with project" scenario
cash flow. A greenfield project is an investment that does not have any link with previously
existing infrastructure e.g. the case of a public authority building a sewage collection and
treatment system when no such system existed before.
Table 11: With and Without Project Scenarios and Incremental Cash Flows
Without Project
With Project
Incremental
Revenue projections (A.1)
Revenue projections (B.1)
B.1 – A.1
Operating and Maintenance
(O&M) cost projections (A.2)
O&M cost projections (B.2)
B.2 – A.2
Investment / reinvestment
costs (A.3)
Investment / reinvestment costs (B.3)
B.3 – A.3
Working capital (A.4)
Working capital (B.4)
B.4 – A.4
28
Guide to Cost-Benefit Analysis of Investment Projects. Structural Funds, Cohesion Fund and Instrument for PreAccession; European Commission; DG Regional Policy; 16/06/2008
29
30
ibid
BAU = business as usual
47
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Modelling Assumptions
Modelling assumptions include forecasts of macroeconomic indices such as exchange rates,
inflation, GDP growth, tax rates e.g. VAT, the interest rate paid on loans, and the index of
changes in real wages. Other parameters that influence outcomes of the financial analysis
should be also taken into account, such as rates of MSW generation, local taxes, etc.
The forecasts should cover the entire time horizon adopted in the financial model.
Frequently, the national authorities responsible for managing EU funds publish the
macroeconomic forecasts to be adopted in the associated financial analyses. If such
forecasts are not available, project developers may use other sources of information (e.g.
National Bank forecasts for inflation etc.), but these are typically only short or medium term in
duration (looking forward 5 years at most) and so long term forecasts (30 years) must then be
made by the project developer.
Modelling assumptions should be explicitly documented and justified in the CBA report.
5.3.2 Investment Costs
Proper estimation of investment costs plays an essential role in project financial analysis,
since these costs influence the financial indicators of the project as well as the level of
support from EU funds. The estimated investment costs should be an output from the project
feasibility study. The calculation of investment costs requires close cooperation between the
engineers and the economists working on the feasibility study, notably to ensure a consistent
and rigorous approach to the treatment of inflation.
Typically, investments in municipal waste management systems comprise:
Up-front investment costs (such as the construction of landfill and MSW treatment
facilities);
Back-end costs (such as site closure and decommissioning of the infrastructure); and
Re-investment costs (undertaken in order to replace assets that have reached the end of
their economic life).
Calculation of financial performance indicators and the funding gap requires project
developers to estimate and present all the investment-related costs incurred during the
project lifetime. As stated in the previous section, investment costs should be assessed for
both the "with project" and "without project" scenarios.
Typical up-front investment costs include:
Land
Equipment (fixed and mobile)
Buildings
Permits and licences
Technical and planning documentation.
It should be noted that investment costs also include working capital, which is defined as the
difference between current assets (e.g. cash, accounts receivable, inventory) and current
liabilities (e.g. short term debt, accounts payable). In some cases, working capital may
constitute a significant part of investment costs, and in such cases it should not be omitted in
the financial analysis.
For EU-funded projects, applicants may include contingencies in eligible project costs (up to
10% of total investment costs excluding contingencies). It should be noted, however, that
contingencies must be excluded from the investment costs used in the financial analysis
(and from calculation of the funding gap).
It may be helpful to consider the following categorisation of investment costs: 31
31
Poland: Guidelines for CF and ERDF co-financed investments in environmental sector in years 2007 – 2013;
JASPERS; December 2006
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Investments in expansion and modernisation, including –
¾
Investments related to the EU co-financed project, and
¾
Other expansion and modernisation investments; and
Investments in replacement of assets, including –
¾
Replacement of EU co-financed infrastructure,
¾
Replacement of infrastructure from other expansion and modernisation investments,
and
¾
Replacement of existing infrastructure.
Residual Value
The residual value of the investment is included in the final year of the project reference
period (i.e. the last year of the forecasts). The residual value is considered as a cash inflow
and reflects the ability of the infrastructure created as part of the project to generate further
net revenues after the end of the reference period. In the case where the reference period
exactly matches the economic lifetime of a given asset, its residual value at the end of
reference period would be zero; when the economic life of the asset is longer than reference
period adopted in the analysis then its residual value would be positive.
There are several approaches to calculation of the residual value. The most rigorous
approach not only defines but also calculates the residual value as the value of net future
revenues generated after the project time horizon. For instance, if the reference period is 25
years and it is assumed that infrastructure constructed as part of the project will be able to
generate revenues for a further 15 years (i.e. for 40 years in total), then the discounted value
of the net revenues over these 15 years would constitute the project’s residual value. The
problem with this approach in practice is that it requires in effect an extension of the reference
period of analysis, since it is necessary to estimate further cash flows to calculate the residual
value – and if this is possible then it may be simpler just to extend the reference period.
In practice therefore the residual value is frequently calculated as the “book value” of the
assets in the last year of the reference period. This value is typically calculated as the
purchase cost minus linear depreciation over the asset’s economic lifetime – see Figure 7.
Let us consider an example where the value of the assets is 20 million EUR at the beginning
of the reference period and the fixed depreciation rate is 2.5% i.e. 0.5 million EUR,
corresponding to an (average) economic lifetime of 1/(0.025) = 40 years. After one year, the
value of the asset will be 19.5 million EUR, after two years 19.0 million EUR, after three years
18.5 million EUR and finally after 20 years 10 million EUR. Therefore, if the reference period
is 20 years, then the residual value of the project’s assets will be 10 million EUR.
Figure 7: Use of Linear Depreciation to Calculate Residual Value
25
Residual value
15
10
5
49
20
29
20
27
20
25
20
23
20
21
20
19
20
17
20
15
20
13
20
11
0
20
09
million EUR
20
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
5.3.3 Operating and Maintenance Costs
Project developers must present projections of future incremental operating and maintenance
(O&M) costs for the entire reference period. These costs are calculated as part of the project
feasibility study. Close cooperation between the project developer and the economic and
engineering teams is indispensable in order to forecast operating and maintenance costs for
the proposed project option as well as for the "without project" scenario.
Operating and maintenance costs are often categorised as either fixed or variable. Fixed
costs are those that do not change with the volume of the service provided. Variable costs by
contrast are volume-related and change depending on the volume of services provided (e.g.
total fuel costs depend on the amount of MSW collected). In practice, life is more complex
and operating and maintenance costs are usually located somewhere in a continuous
spectrum between purely fixed and purely variable costs.
The following elements usually make up the large majority of operating and maintenance
costs:
Labour
Energy and raw materials
Maintenance costs
Administrative / overhead costs
In the discounted cash flow approach to financial analysis, all cost items that do not relate to
cash outflows must be excluded from the projections of operating and maintenance costs,
including:
Depreciation, which reflects the progressive reduction in the value of the assets and does
not relate to any cash payment;
Reserves for future replacement costs as they do not correspond to actual monetary
outflows; and
Contingency reserves.
Projections of operating and maintenance costs exclude financing costs, such as debt service
(repayments of loan principal and interest on the loan). Repayments of loan principal are not
included in the calculation of profitability indicators and the funding gap, since full investment
costs are taken into account in the analysis and inclusion of repayment of principal would be
double-counting. Loan interest is excluded from the analysis since the discount rate used
already expresses the cost of capital. Both of those items (repayment of principal and interest
on any loan) are included in the verification of project financial sustainability.
5.3.4 Revenues from Sale of By-Products
On the top of the revenues collected from users (in the form of local taxes or direct user
charges), additional revenues are typically generated by modern waste management
systems. These are the revenues from sale of by-products such as recyclable materials,
compost and energy. Projections of incremental revenues from sale of by-products should be
presented throughout the project reference period.
In projecting the revenues from sale of by-products, particular attention should be paid to
demand forecasts for those products e.g. demand for recyclable materials or for refusedderived fuel. The financial model incorporates important assumptions regarding the long-term
prices of by-products. The project developer needs to consider whether long term market
demand for by-products can be sustained. When changes in revenues from the sale of byproducts are likely to have significant impacts on financial performance indicators, particular
attention should be paid to sensitivity and risk analysis (see section 5.5 below).
5.3.5 Affordability Analysis and Tariff Determination
Tariffs (user charges) should be set so as to cover the costs of operating the waste
management system as well as to contribute to investment and future reinvestment costs. As
stated in Working Document No. 4:
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
“Ideally, (…) tariffs should at least cover operating and maintenance costs as well as a
significant part of the assets’ depreciation. An adequate tariff structure should be envisaged
attempting to maximise the project’s revenues before public subsidies, while taking
affordability into account”. 32
Full cost recovery means that user charges should cover (a) all operating and maintenance
costs, (b) depreciation of assets, and (c) an adequate return on the capital employed. In the
case where the assets are publicly owned, it may be sufficient to generate a return
commensurate with the costs of any debt finance; private capital will require a return on equity
as well.
Implementation of the full cost recovery principle is often difficult and normally inappropriate
when user charges impose an excessive financial burden on households. When a user
charge is considered to be unacceptable from a social standpoint, it is necessary to adjust it
to an affordable level (see below).
Experience from other countries indicates that rapid and significant growth in user charges
may result in increased illegal dumping and littering. Both factors (i.e. affordability and
potential problems with illegal dumping) should therefore be considered carefully when
planning tariff policy for municipal waste management services.
Affordability
Affordability refers to the ability of households to pay for a public service such as MSW
collection, treatment and disposal. The maximum affordable tariff paid by a household is
commonly expressed as the maximum percentage of household disposable income that can
be spent on MSW management services. This percentage is sometimes known as the
affordability ratio. It should be noted that there are no uniform benchmarks for affordability
ratios applied across EU countries, and the European Commission encourages the
beneficiary countries to adopt their own benchmarks. When taking into account affordability
constraints in tariff design, particular attention should be paid to lower-income households.
In Poland for example, the affordability ratio for MSW services is set at a level of 0.75% of the
median of household disposable income. Household disposable income is measured
annually by the Main Statistical Office (MSO) in Poland based on a statistical survey
conducted on a sample group of 32,000 households. The data for disposable income are
available for municipalities of different sizes: (1) less than 20,000 inhabitants, (2) between
20,000 and 100,000 inhabitants, and (3) more than 100,000 inhabitants. The data are
presented separately for all 16 Polish regions (voivodships). The reason for adopting the
median of disposable income (instead of the mean) as a benchmark for the affordability ratio
is the asymmetric distribution of income, i.e. where a larger number of households in the
population have relatively low incomes and a smaller number of households have relatively
very high incomes.
In Romania, the guidelines for project developers recommend the following steps in
33
conducting an affordability analysis for MSW collection and disposal fees borne by users:
Estimation of the average household income for those households subject to payment of
these fees.
Estimation of the number and income of low-income households based on the lower
deciles of a distribution of income for those households subject to the payment of the
fees.
Verification that the fee payments for the low-income household do not exceed 1.5% of
their household income.
32
The New Programming Period 2007-2013. Guidance on the Methodology for Carrying out Cost-Benefit Analysis;
Working Document No. 4; European Commission; 08/2006; p.16
33
Guidelines for the Cost-Benefit Analysis of Waste Management Projects; prepared in the general context of the
waste management projects included in the Action Plans between JASPERS and the beneficiary Member States.
Romania.
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
In the Czech Republic, so far there are no official benchmarks for affordability ratios regarding
user charges for MSW services, although earlier guidance considered a tariff of 0.7% of mean
household income as the limit of affordability.
One way to make projections of future tariffs for MSW services is as follows:
Calculate the level of user charges required to cover (at least) operating and maintenance
costs as well as depreciation (as well as some return on capital employed if needed); and
Adjust user charges for households so as not to exceed the affordability ratio(s). The
same affordability ratios should be applied for projecting future revenues in the "with" and
"without" project scenarios.
As stated above, rapid increases in user charges should be avoided to prevent illegal disposal
of waste by households (and perhaps also in order to gain political support for the project).
Another aspect relates to the means by which user charges are collected. The payments
may take the form of a uniform waste charge paid on a per capita basis, or they can be linked
to the volumes of waste generated. 34 Each of the approaches has its advantages and
limitations. Whilst the second approach better reflects the user pays principle (or the polluter
pays principle) and encourages the separate collection of recyclables, it also tends to
encourage illegal dumping (since citizens can save money by illegal dumping).
When an affordability constraint exists, project developers should consider a long-term tariff
adjustment path to implement the full cost recovery principle. This adjustment path should
reflect indicators for the growth in household disposable incomes and also a judgement on
the maximum feasible rate of tariff growth.
5.3.6 Calculation of the Funding Gap – Determination of the EU Grant
For revenue generating infrastructure projects, the co-financing rate from EU funds is
determined based on the so called “funding gap” methodology.
Under the IPA regulation, a revenue generating project is defined as “any operation proposed
for pre-accession assistance involving an investment in infrastructure, the use of which is
subject to charges borne directly by users and which generates revenues, or any operation
involving the sale or rent of land or buildings”. 35 Investments in the waste management
sector should involve charges borne by users, and such projects therefore normally qualify for
application of the funding gap formula. 36
Projects that are exempted from application of the funding gap methodology include nonrevenue generating projects or projects for which the revenues do not cover all the operating
and maintenance costs; and (for EU Member States) projects that fall into the category of
state aid. 37
The rationale behind application of the funding gap method is to avoid excessive grant
support to recipients of EU funds. The ceiling for co-financing from EU funds corresponds to
that part of the investment costs that cannot be covered by future net revenues generated by
the project.
Calculation of the co-financing rate is done based on a discounted cash flow (DCF)
methodology over the reference period. In calculating the EU grant, only incremental
revenues and expenditures are taken into account (i.e. those resulting from the difference
between the "with project" and "without project" scenarios).
34
Handbook on the Implementation of Pay-As-You-Throw as Tool for Urban Waste Management; B. Bilitewski,
P.Werner, J.Reichenbach; Dresden University of Technology; 2004
35
Commission Regulation (EC) No 718/2007 of 12 June 2007 implementing Council Regulation (EC) No 1085/2006
establishing an Instrument for Pre-Accession Assistance (IPA); Art. 150
36
There may, however, be some scope for discussion over what is meant by the difference between “charges borne
by users” and “charges borne directly by users”. If waste management services are funded out of a general local tax,
for instance, does this constitute a charge “borne directly by users”?
37
The status of IPA projects subject to state aid rules is not explicitly stated in Commission Regulation (EC) No
718/2007.
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
There are three steps in the calculation of the grant from the EU:
STEP 1
Calculation of the Funding Gap Ratio
STEP 2
Determination of the Decision Amount
STEP 3
Determination of the Amount of EU Grant
Funding Gap Ratio
The funding gap ratio means the percentage of the investment costs that cannot be covered
by future net revenues from the project. It is calculated using the formula:
Funding Gap (R) = (DIC – DNR)/DIC
where:
DIC means discounted investment costs, and
DNR means discounted net revenues (i.e. discounted revenues minus discounted
operating and maintenance costs minus reinvestment costs plus residual value).
Decision Amount
The “decision amount” is the amount to which the co-financing rate defined in an operational
programme is applied. This amount is calculated using the formula:
Decision Amount (DA) = R x EC
where:
R is the funding gap as defined above, and
EC means eligible costs (project-related costs that are eligible for financing from EU
funds by virtue of their nature, i.e. before any consideration of the funding gap constraint
on EU co-financing).
It should be noted that eligible costs are expressed in current prices. Eligible costs take
into account forecast inflation (e.g. in the construction price index) and currency exchange
rates. Ignoring inflation and exchange rate movements may result in the undesirable outcome
where the amount of money received from EU funds turns out to be insufficient to cover the
expected share of project costs.
Amount of EU Grant
The amount of grant (co-financing) from EU funds is calculated using the formula:
EU grant = DA x MaxCRpa
where:
DA is the decision amount as defined above, and
MaxCRpa is the maximum co-financing rate for the given priority axis defined in the
relevant operational programme (e.g. for the waste management sector in Croatia under
the Environmental Protection Operational Programme, the co-financing rate is 75%).
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
5.3.7 Financing Plan
The financing plan must present a coherent picture of the total project costs and all the
sources of finance to be used to cover them. The IPA Implementing Regulation (no.
718/2007) states that:
“When submitting a major project to the Commission, the operating structure shall provide
[inter alia] the financing plan, showing the total financial contributions expected and the
planned contribution under the IPA Regulation, as well as other Community and other
external funding. The financing plan shall substantiate the required IPA grant contribution
through a financial viability analysis”.
Project Costs
Project costs must be presented in the format shown in Table 12, broken down into eligible
and non-eligible costs. Value Added Tax (VAT) must be presented as separate category and
the costs of specific items are presented net of VAT. Under IPA, VAT is always an ineligible
cost; by contrast, for Member States, non-recoverable VAT is eligible.
In the financial model project costs are presented for each year of project implementation.
It should be noted that the costs presented in Table 12 refer solely to the project and should
not include future re-investment costs. The re-investment costs are reflected in cash flow
projections and in the calculation of the financial performance indicators. Nevertheless, they
do not form part of a project co-financed from EU funds.
Sources of Financing
The applicant must provide evidence that sufficient funds will be available to cover all project
related costs indicated in Table 12. Potential sources of project co-financing include:
The EU grant contribution (calculated according to the funding gap formula in the case of
revenue generating projects);
National contribution for project co-financing (e.g. from earmarked environmental
protection funds or from the state budget);
A financial contribution by the beneficiary (e.g. the county and / or municipalities that
expect to benefit from EU funds);
Other (e.g. private sector contribution).
Table 12: Financing Plan Table Presented in the IPA Application Form (Section H.1)
EUR
1.
Planning / design fees
2.
Land purchase
3.
Building and construction
4.
Plant and machinery
5.
Technical assistance
6.
Publicity
7.
Supervision during construction
implementation
8.
Sub-TOTAL
9.
Contingencies 38
Total Project
Costs
(A)
Ineligible
Costs
(B)
Eligible Costs
(C) = (A) – (B)
10. TOTAL
11. VAT
38
Contingencies should not exceed 10% of total investment cost net of contingencies. These contingencies may be
included in the total eligible costs used to calculate the planned EU contribution.
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
The requested contribution from EU funds must be presented as an annual financing plan for
all the years of project implementation. The overall sources of project financing for the project
as a whole must also be provided. For this purpose (Section H.2.2. of the IPA application
form), debt finance (loans) should be attributed to the entity liable for repaying the loan.
Depending on the payment schemes, it may in practice be necessary for project developers
to consider the use of bridging loans. A bridging loan is a short-term loan that allows project
activities to be financed before the payment from EU funds is received in full. In any case,
project developers must carefully consider the real cash flows likely to be associated with
project implementation (including, for instance, the likelihood of a delay in the final payment of
EU funds) and put in place the necessary short and medium-term financing arrangements. It
is not enough just to consider the global financing plan without considering the cash flow
implications and requirements.
5.3.8 Financial Viability Analysis, and Calculation of NPV and IRR
Financial Viability
Whilst the project financing plan (presented in section 5.3.7) presents project costs and
available sources of financing for the implementation phase, financial viability analysis looks
over the entire time horizon in which the assets created by the project are in operation (i.e.
the project reference period).
The main objective of financial viability analysis is to ensure that the entity responsible for
operation of the infrastructure will not face cash flow constraints that may eventually lead to
bankruptcy.
For conducting financial viability analysis it is necessary to make projections of total cash
inflows and outflows connected with the project. The inflows comprise all revenues (e.g.
revenues from user charges, sale of by-products and the funds provided for financing of the
investment itself). The outflows comprise items like operating and maintenance costs,
investment and reinvestment costs, repayment of bank loans and interest paid). The net cash
flow for each year is calculated by deducting total outflows that occur during the year from
annual inflows.
The project is considered financially viable when the cumulative cash flow is positive in each
single year over the reference period. The net cash flow in some of the years may turn out to
be negative (e.g. in 2010 in Table 13). However, as long as the cumulative net cash flow (i.e.
all the available cash at the end of the previous year plus the net cash flow for the current
year) is positive, then the project is considered to be financially sustainable.
Table 13: Example of the Format for a Cash Flow Table
A.
Million EUR
2009
2010
2011
2012
2013
2014
Inflows, e.g.:
100.0
160.0
30.0
40.0
50.0
60.0
0
0
30.0
40.0
50.0
60.0
- funds to finance investment
100.0
160.0
Outflows, e.g.:
90.0
162.4
27.4
31.8
36.2
40.6
0
0
15.0
20.0
25.0
30.0
90.0
160.0
- repayment of loans and interest
0
2.4
12.4
11.8
11.2
10.6
- other
0
0
0
0
0
0
- revenues
B.
- operation and maintenance
- investment
C.
Net cash flow (A) – (B)
10.0
-2.4
2.6
8.2
13.8
19.4
D.
Net cumulative cash flow
10.0
7.6
10.2
18.4
32.2
51.6
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
When verifying project financial sustainability, project developers should distinguish between
two different ways of understanding this concept:
Checking project financial sustainability based on incremental net cash flows (i.e.
inflows related to project implementation minus outflows related to project
implementation); and
Checking the financial sustainability of the beneficiary who will be responsible for
project operation (i.e. total inflows of the beneficiary minus total outflows of the
beneficiary).
The first step of verification (incremental) is a strict requirement of the EC guidelines. In this
step, the project developer should verify that net project revenues allow a “significant part” of
the depreciation of the project assets to be covered; in other words, checking that net project
revenues will generate some funds to cover future reinvestment costs. The second step (not
incremental), however, is of equal or even greater importance. For example, the project may
be financially sustainable (based on incremental cash flow projections) but the beneficiary
may face cash flow problems (when all of its cash flows are taken into account). In this case,
project financial sustainability is of secondary importance as the project beneficiary / operator
risks falling into bankruptcy. It is therefore recommended that a financial sustainability
analysis is conducted both for the project itself and for the beneficiary (operator). 39
Creditworthiness Analysis
Frequently, project beneficiaries decide to incur debt (i.e. to take a bank loan or, for larger
projects, to issue bonds) in order to ensure project co-financing. In such cases, institutions
granting financial assistance may request the project beneficiaries to carry out a
creditworthiness analysis. The purpose of such an analysis is to assess whether the
beneficiary will be able to meet the financial obligations resulting from taking loans or issuing
bonds. Various indicators are used for this type of creditworthiness analysis.
If the project beneficiary is a commercial company, indicators such as Debt Service
Coverage Ratio (DSCR) are used. DSCR is the ratio of net operating income to debt
payments; it represents the ability of the revenue stream linked to the investment to repay the
debt. DSCR is expressed by the formula:
DSCR = Net Operating Income / Total Debt Service.
where net operating income is defined as earnings before interest, taxes, depreciation and
amortisation. A value of more than 1.2 is a minimum requirement applied by many financing
institutions, but higher values are also possible.
If the project beneficiary is a public authority, then the relevant requirements are normally
statutory controls on public finance. Indicators typically used to assess the debt of a public
authority include:
The ratio of total debt to budgetary revenues (e.g. 60%); and
The debt repayment to budgetary revenues ratio (e.g. 15%).
Calculation of Financial Performance Indicators
The calculation of financial performance indicators is an essential part of the financial analysis
of a project, because these indicators provide information about project financial profitability.
In general, EU funds aim to provide support to those projects that are not financially
profitable. The rationale behind this approach is that a financially profitable project does not
require co-financing from the EU funds.
The most important financial performance indicators used for EU-funded projects are:
39
Guidelines Regarding Selected Aspects Related to Preparation of Revenue Generating Investments; National
Strategic Reference Framework Poland 2007 – 2013; Ministry of Regional Development; September 2007 [Wytyczne
w zakresie wybranych zagadnieĔ związanych z przygotowaniem projektów inwestycyjnych, w tym projektów
generujących dochód]
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Net Present Value (NPV) – the present value of project net benefits over the reference
period used; and
Internal Rate of Return (IRR) – the annualised rate of return earned on invested capital.
In order to calculate the financial performance indicators for an EU-funded project, it is
necessary to use forecasts of the incremental costs and revenues associated with project
implementation. An example of how to calculate these financial performance indicators is
included in Annex A.
The IPA application form requires the project developer to use two approaches to the
calculation of a project’s NPV and IRR:
1. Here, total investment costs are taken into account in project cash flows for calculation of
the performance indicators. In such cases, the indicators are referred to as: Financial Net
Present Value on Investment FNPV(C) (or FNPV/C) and Financial Rate of Return on
Investment FRR(C) (or FRR/C). This approach looks at the profitability of the project
before any consideration of how it is financed, i.e. it does not take into account the EU
grant.
2. In the second approach, only that part of the investment costs which is covered from
national sources is taken into account in the project cash flow used for calculating the
performance indicators. In this case, the indicators are referred to as: Financial Net
Present Value on National Capital FNPV(K) (or FNPV/K) and Financial Rate of Return on
National Capital FRR(K) (or FRR/K).
When FNPV(C) is larger than zero, this means that the project is commercially viable and
does not require EU co-financing. 40
5.4
Economic Analysis (ENPV and ERR)
The objective of economic analysis is to evaluate in monetary terms the overall benefits and
costs that a particular project brings to the society. Its purpose is to demonstrate that a
financially unprofitable investment can nevertheless bring overall societal benefits. Both
economic and financial analysis for EU-funded projects is conducted based on projections of
incremental cost and benefits over the project lifetime.
Economic analysis is strictly required by the EC regulations only for major projects i.e. in
the case of IPA, these are investments with total project costs exceeding 10 million EUR, and
for Cohesion Fund and Structural Fund investments in the environment sector these are
investments exceeding 25 million EUR. Therefore, even if such a major project is undertaken
in order to meet the requirements of legislation, it is still obligatory to conduct an economic
analysis.
The economic performance indicators are based on the same techniques applied in financial
analysis, i.e. calculation of NPV and IRR. Since the costs and benefits are viewed from the
wider perspective of society as a whole (and not, as in financial analysis, from the project
investor’s standpoint), a number of corrections need to be introduced:
Fiscal corrections: indirect taxes (e.g. VAT), subsidies and pure transfer payments (e.g.
social security payments) must be excluded from economic analysis.
Corrections for externalities (valuation of non-market impacts): this requires project
developers to undertake the monetary valuation of some non-market benefits (e.g.
benefits from reducing emissions of greenhouse gases from landfill sites).
From market to accounting (shadow) prices: besides fiscal distortions and externalities,
other factors can drive prices away from a competitive market (i.e. efficient) equilibrium:
monopoly regimes, trade barriers, labour regulation, incomplete information, etc. In all
such cases, observed market (i.e. financial) prices are misleading; accounting (shadow)
prices need to be used instead, reflecting the opportunity costs of project inputs and
40
Productive investments under state aid rules constitute an exception to this rule. Such investments tend to have a
positive NPV as this is a pre-requisite for any commercially viable activity.
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consumers’ willingness to pay for outputs. Accounting prices are computed by applying
conversion factors to the financial prices. 41
The EC guidelines recommend using the financial cash flow projections for the calculation of
the financial performance indicators e.g. FNPV(C) as the starting point for making forecasts of
the economic costs and benefits. Some methodologies, however (e.g. water sector projects
in Romania and the Czech Republic), use alternative approaches (the most common is a
resource cost saving approach).
Fiscal Corrections (elimination of transfers)
Transfers (i.e. duties and other taxes) serve as a tool of redistribution of financial resources
between one group and another. Transfers do not correspond to the economic value of the
taxed items; therefore they should not be taken into account in economic analysis.
Externalities and Valuation of Non-Market Impacts
The most challenging part of the economic analysis for MSW investments is to ascribe a
monetary value to the environmental and social benefits and costs associated with project
implementation. Typically, the following economic benefits can be associated with municipal
waste management projects: 42
“Resource cost savings, due to (i) the recovery of recyclable products and the
production of compost and energy; and (ii) the reduction of the total amount of waste
going to final disposal, which extends the economic life of the landfills.
Reduction of visual disamenities, odours and direct health risks, due to (i) the
elimination of uncontrolled dump sites; and (ii) the avoidance or proper collection and
treatment of waste leachate.
Reduction of greenhouse gas emissions, due to (i) the avoidance (or proper collection)
of methane and carbon dioxide emissions, which typically account for 64% and 34% in
volume, respectively, of all gas generated from decomposing waste; and (ii) the
emissions saved when the project results in the generation of heat and / or electricity and
the alternative source for this heat and / or energy implies the use of fossil fuels”.
On the other hand, in some cases municipal waste management projects may trigger some
negative side-effects, e.g. construction of a new landfill may cause a fall in property values
located in the vicinity of the landfill.
All relevant economic benefits and costs of the projects should be identified and monetised.
Project Inputs and Opportunity Cost
The opportunity cost of an input (e.g. land, labour) refers to the benefits forgone by using the
input in the project and not elsewhere. For example, the land that is owned by a public
authority that plans to locate the landfill there could be used for other purposes. For example,
the authorities could develop a leisure centre on the land or could simply sell it and allocate
the money earned for other projects. The opportunity cost of capital amounts to benefits
forgone for using a given input in the next best alternative way. If the input could not be
beneficially used elsewhere, its opportunity costs amounts to zero.
Hence, for some inputs, use of market prices does not correctly express their economic value.
Market prices may not reflect the economic value of the input for several reasons, e.g.
because of the existence of monopolies, occurrence of externalities, or exchange rate
distortions. If strong price distortions exist, it is recommended that shadow prices are used
for the inputs rather than existing market prices. In practical terms, it would be very difficult
for project developers to develop conversion factors from market to shadow prices. It is
41
The New Programming Period 2007-2013. Guidance on the Methodology for Carrying Out Cost-Benefit Analysis;
Working Document No. 4; European Commission; 08/2006
42
Guidelines for the Cost-Benefit Analysis of Waste Management Projects; prepared in the general context of the
waste management projects included in the Action Plans between JASPERS and the beneficiary Member States.
Romania
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
therefore recommended that such conversion factors be prepared on the country level by the
central authorities responsible for management of EU funds. Usually, conversion factors are
used for labour and land. When the market is considered to be competitive (which is a
reasonable assumption for traded inputs sourced within the EU or candidate country), there is
no need to introduce conversion factors.
Calculation of ENPV and ERR
Once the forecasts of project-related economic costs and benefits have been prepared over
the reference period, the same analytical techniques as in the case of financial analysis are
used to compute the economic net present value (ENPV) of the project and its economic
internal rate of return (EIRR). The EC guidelines (Working Document 4) recommend using a
discount rate of 5.5% in real terms for economic analysis (unlike the 5% rate used in financial
analysis). A positive ENPV and an EIRR larger than the social discount rate indicate that the
project is beneficial from an economic standpoint.
The IPA application form also requires a third indicator to be calculated – the benefit-to-cost
ratio. This ratio is calculated as the NPV of the project’s economic benefits divided by the
NPV of its economic costs, and must be greater than one for the project to be acceptable.
5.5
Sensitivity and Risk Analysis
5.5.1 Sensitivity Analysis
The objective of sensitivity analysis is to examine to what extent project financial performance
is influenced when key variables used in the forecasts change.
Examples of variables that may have a significant impact on the outcomes of financial
performance comprise:
Investment costs
Exchange rates
Energy prices
Labour costs
User charges
Demand for, and prices of, by-products of MSW management activities (e.g. energy,
compost, recyclable materials, etc.)
Volume of services (e.g. MSW collected)
Typically, sensitivity analysis is undertaken in order to observe the impacts of changes in
variables on financial performance indicators (ENPV/C, FRR/K, etc.) and project financial
sustainability.
The first step in sensitivity analysis is to identify key project variables (e.g. when fuel costs
represent a significant share of total operating costs, than project developers should select
this item for sensitivity analysis). The investment costs, owing to uncertainty related to the
tendering process, their volume and possible changes resulted from economic trends, are
always subject to sensitivity analysis. The EC Guide to Cost Benefit Analysis includes the
recommendation that a given variable should be considered as a “key” (or “critical”) one when
1% variation (positive or negative) gives rise to a corresponding variation of more than 1%
(one percentage point) in the NPV.
The second step in sensitivity analysis involves a decision regarding the scope of changes in
the variables selected. For instance, the analyst may decide to observe changes in
investment costs ranging from +25% to -25%. It should be noted, however, that observation
of the potential adverse effects is of much greater importance for decision-makers (so they
can think in advance about possible mitigation measures or, in extreme cases, decide to
abandon the project).
The third step in sensitivity analysis involves observing the impacts of changes in variables on
financial performance indicators and project financial sustainability. Figure 8 presents the
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
changes in project NPV when: (1) the labour cost adopted in the model changes by -25% to
25%, and (2) the energy costs change by -25% to 25%.
The sensitivity analysis also involves the calculation of the so-called switching value that
represents a percentage change in the given variable that results in NPV = 0 or IRR equal to
the discount rate. The switching value provides important information for the project developer
as it reflects a break point for the decision-making process. If it is likely that a critical variable
could cross the switching value, this result normally indicates that the investment is risky in
terms of its forecast financial profitability.
Figure 8: Graphical Presentation of the Impacts of Changes
in Project Variables on Project NPV
4000
NPV (thousand EUR)
3500
3000
2500
Labor costs
2000
Energy costs
1500
1000
500
0
-25% -15%
-5%
0%
5%
15%
25%
Table 14 presents a simple example of sensitivity analysis conducted in order to assess how
project financial viability will be influenced when annual revenues generated by the project are
15% lower than forecast in the base case scenario. In this example, 15% lower revenues
collected within the project can cause adverse effects in the form of cash flow difficulties.
Table 14: Illustration of Impacts of Changes in a Project Variable (Revenues)
on Project Financial Sustainability
2009
2010
2011
2012
Basic Scenario (‘000 EUR)
1.
Revenues
115.0
118.0
118.0
118.0
2.
Expenditures (‘000 EUR)
95.0
105.0
105.0
105.0
3.
Cash Flow (‘000 EUR)
20.0
13.0
13.0
13.0
4.
Cumulative Cash Flow (‘000 EUR)
20.0
33.0
46.0
59.0
Scenario: Revenues are 15% Lower than Projected
5.
Revenues (‘000 EUR)
97.8
100.3
100.3
100.3
6.
Expenditures (‘000 EUR)
95.0
105.0
105.0
105.0
7.
Cash Flow (‘000 EUR)
2.8
-4.7
-4.7
-4.7
8.
Cumulative Cash Flow (‘000 EUR)
2.8
-2.0
-6.7
-11.4
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Exchange Rate Losses
When the applicants prepare financial analysis, they base their projections of currency
exchange rates on the most probable values. In some cases, managing authorities provide
their own forecasts for exchange rates that should be applied in the analysis. Nevertheless, it
may turn out that actual exchange rates which occur during project implementation differ
significantly from the values that were used for calculating the EU grant. For instance, strong
appreciation of the local currency compared to the Euro can jeopardize project
implementation as the amount of money available in local currency will be smaller than the
amount assumed in the financial analysis. Exchange rate losses are not eligible costs and
cannot be financed from EU funds. Therefore, the expected exchange rate should be subject
to sensitivity analysis, so that there is sufficient time to undertake mitigation measures (e.g.
consider availability of additional funds to cover potential exchange rate losses, or consider
tendering in Euro to transfer the currency risk to a contractor who should be able to hedge it).
5.5.2 Risk Analysis
Whilst sensitivity analysis is undertaken in order to observe adverse impacts on project
financial performance caused by variations in key variables, risk analysis is conducted to
assess the probability that the changes in key parameters triggering adverse effects will
actually take place.
Risk analysis can be conducted using quantitative or qualitative approaches. The quantitative
approach allows the probability distributions of the financial performance indicators (NPV,
IRR) to be calculated, e.g. the outcome of the risk analysis may reveal that there is an 80%
probability that project NPV will be negative. Typically, the Monte Carlo method (see box
below) is used to compute probability distributions of financial performance indicators. This
method, however, can be used in a meaningful way only when probability distributions for key
variables are known. If there are no reliable historic data for risks and uncertainties of a given
variable, the results of the calculations will be misleading.
The Monte Carlo Method
The Monte Carlo method consists of the repeated random extraction of a set of values for
the critical variables, taken within defined intervals, and then calculating the performance
indices for the project (FRR or NPV) resulting from each set of extracted values. By
repeating this procedure for a large enough number of extractions (generally no more than a
few hundred), the observed outputs of the performance indicators converge to show the
probability distribution of the FRR or NPV. 43
When probability distributions for key variables cannot be obtained, it may be justified to
restrict a risk analysis to a qualitative approach. In such cases, project developers should
assess the probability of changes in key variables that will have adverse effects on project
performance. For example, if sensitivity analysis indicates that lowering user charges by
>15% (compared to the base case scenario) causes FNPV(K) to change from a positive to a
negative value, then it may be appropriate to assess the probability that user charges will be
actually 15% lower that assumed in the model. The project developer may assign a high,
medium or low probability that such a change in a key variable actually takes place. The next
step is then to describe the circumstances that may trigger such a change in the given
variable, and to consider the mitigation measures that can be taken to minimise the
probability of the given change or its impact.
43
Guide to Cost-Benefit Analysis of Investment Projects. Structural Funds, Cohesion Fund and Instrument for PreAccession; European Commission; DG Regional Policy; 16/06/2008
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5.6
Overall Assessment
The final step in the project formulation stage is to consider whether or not the project is
justified and adequately prepared from an environmental, institutional, financial and economic
standpoint and therefore ready for financing. In order to do so, the criteria normally used in
project evaluations can be helpful, namely: relevance, efficiency, effectiveness, impact and
sustainability. Some key questions that need to have been addressed and answered
satisfactorily, and the relevant analytical techniques in each case, are presented in Table 15.
A general Cohesion Fund application check-list is provided in Annex H, while a more detailed
check-list relating specifically to the economic and financial aspects of an application for EU
grant financing is presented in Annex I.
Table 15: Overall Project Assessment – Key Questions and Relevant Analytical Techniques
Criteria
Relevance
Efficiency
Key Questions
Relevant Analytical
Techniques
Is the project consistent with and supportive of
EU and national policies and priorities, and the
reforms and other initiatives being undertaken by
the government?
Have all key stakeholders and target group(s)
been clearly identified and engaged?
Have all key problems and their underlying
causes been identified and thoroughly analysed?
Does the project address the real needs of the
intended target group(s) / beneficiaries?
Does an appropriate overall strategic framework
for the project exist?
Have the lessons learned from previous similar
project been incorporated into the project design
and strategic framework?
Does the project use a minimum of resources
and will these resources be used efficiently?
Are the returns (tangible benefits) of the project
sufficient to justify the proposed investment?
Policy and Legal Analysis
4.2
Stakeholder Analysis
4.3
Problem Analysis
4.4
Objectives Analysis
4.5
Strategy Analysis and
Development
Strategy Analysis and
Development
Options Assessment
Least Cost Analysis
4.6
Financial & Economic Cost
Benefit Analysis
Effectiveness
To what extent is the project likely to fulfil its
purpose?
Financial & Economic Cost
Benefit Analysis
Impact
What are the likely effects of the project on the
national and local economy (economic growth,
government budget, foreign exchange, and
income distribution)?
Will the project make a significant contribution to
environmental sustainability?
Is the project financially viable?
Does the project show a positive economic
return?
Have all relevant risks been identified / assessed
and appropriate mitigation / management
measures put in place?
Are the institutional arrangements for project
implementation and management adequate and
supported by all key stakeholders?
Is there a risk that any of the main institutional
stakeholders will face solvency problems during
implementation of the project?
Will the main stakeholders be able to meet at
least the projected recurrent costs of the project?
Economic Cost Benefit
Analysis
Sustainability
62
Section In
Manual
4.6
5.2
Annex A
5.3
5.4
5.3
5.4
5.4
Environmental Assessment
5.2.2
Financial Viability Analysis
Economic Cost Benefit
Analysis
Risk Analysis
5.3.8
5.4
5.5.2
Stakeholder Analysis
Institutional Assessment
4.3
5.2.3
Stakeholder Analysis
Financial Viability Analysis
4.3
5.3.8
Affordability Analysis
Financial Viability Analysis
5.3.5
5.3.8
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
5.7
Implementation Plan
The implementation plan should be developed and presented in the feasibility study and
forms part of the application form submitted to the EC. This needs to elaborate in
considerable detail all of the tasks and activities which must be undertaken in order to realise
the project objectives. Its primary purpose is to set a realistic timetable for carrying out
project-related tasks and activities (see Table 16). Project developers should carefully
consider potential delays in various project activities, e.g. delays in the tendering process or in
construction works, as well as the requirements of the Defects Notification Period. Overoptimistic assumptions may adversely affect project viability.
Project developers should also be aware of time limits for the implementation of EU-funded
projects (the so-called "N+2" or "N+3" rule – see Table 3 above), which means that delays
against the planned timetable can endanger the funds available at national level.
In order to avoid losing funds both at the project and at the programme level, it is important
that:
Applicants carefully prepare a realistic spending forecast;
Approved operations are ready to start implementation quickly after approval;
Financial aspects are closely monitored during implementation;
Project partners ensure regular, timely and full reporting.
A commonly used technique in the preparation of detailed implementation plans is a Gantt
chart. A Gantt chart is a graphical presentation of the sequence, timing and linkages of key
tasks and activities, including critical decision points and milestones. It is also a useful tool for
subsequently monitoring the progress of project implementation.
Table 16: Project Timetable Applied for IPA / CF Funded Projects
Start Date
(A)
Completion Date
(B)
1.
Feasibility studies:
DD/MM/YYYY
DD/MM/YYYY
2.
Cost-benefit analysis (including financial
analysis):
DD/MM/YYYY
DD/MM/YYYY
3.
Environmental impact assessment:
DD/MM/YYYY
DD/MM/YYYY
4.
Design studies:
DD/MM/YYYY
DD/MM/YYYY
5.
Preparation of Tender documentation:
DD/MM/YYYY
DD/MM/YYYY
6.
Expected launch of tender procedure(s):
DD/MM/YYYY
DD/MM/YYYY
7.
Land acquisition:
DD/MM/YYYY
DD/MM/YYYY
8.
Construction phase / contract:
DD/MM/YYYY
DD/MM/YYYY
9.
Operational phase:
DD/MM/YYYY
DD/MM/YYYY
Source: IPA Application Form – Environment
The project implementation plan should be complemented with a description of the progress
that has been made so far with regard to project implementation. In particular, project
developers should describe project maturity with regard to: 44
44
Major Project. Request for Confirmation of Assistance under Article 10 of the Regulation (EC) No 1085/2006 and
Articles 157 of the Commission Implementation Regulation No. 718/2007 Instrument for Pre-Accession Assistance.
Infrastructure Investment. Environment.
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Technical aspects (e.g. feasibility studies);
Legal and administrative documents (decisions, authorisations, EIA, land acquisition,
invitations to tender, permits etc) that are required for project implementation;
Financial aspects (commitment decisions in respect of national public expenditure, loans
requested or granted, etc. – evidence of such decisions must be provided); and
The current state of works (if any part of the project has already started).
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6.
PROJECT PROCUREMENT
This chapter provides a brief overview of:
6.1
¾
Key principles of public procurement
¾
Procurement rules and procedures for EU-funded investment projects
¾
Contract types and conditions
¾
Principles and criteria for contract tendering and award
¾
Requirements for Tender Dossiers
Key Principles of Public Procurement
The term "procurement" can be defined as the process of acquiring goods, works and / or
services at the optimum possible total cost and in the correct amount and quality.
Procurement starts at the point where a specific need is identified and finishes once the
delivery of the goods, works or services in question has been completed satisfactorily.
There are a number of key principles which should be applied to the procurement of goods,
works or services using public funds:
6.2
Value for Money: “Value for money” is the core principle that underpins the procurement
process so as to ensure that the best available procurement outcome is achieved. “Value
for money” is generally determined by evaluating all proposals for a particular
procurement activity against the applicable evaluation criteria, and assessing all relevant
risks, costs and benefits on a whole-life basis. A decision based on price alone does not
necessarily represent best value for money, and selection of the most economically
advantageous offer or tender (i.e. the tender offering the best price-quality ratio) is much
more likely to achieve Vale for Money.
Open and Effective Competition: The principle of open and effective competition must
be used to achieve efficiency, innovation and choice, and to provide transparency and
probity to the Contracting Authority’s procurement process.
Probity and Ethical Behaviour: The principle of probity and ethical behaviour governs
the conduct of all public procurement activities. All officers with the authority to procure
goods and services on behalf of a Contracting Authority must comply with the required
standards of integrity, probity, professional conduct, and ethical behaviour.
Responsible Financial Management:
The principle of responsible financial
management must be applied to all procurement activities. The funds available within an
existing approved budget, and public funds (Government funds and funds provided by the
European Union), must be used efficiently and effectively to procure goods and services,
and every endeavour must be made to contain the costs of the procurement process
without compromising any of the procurement principles.
Risk Management: The risks associated with procurement activity must be managed so
as to avoid malpractices and unprofessional conduct. Regular risk assessments must be
undertaken, particularly by internal and external auditors, and appropriate risk mitigation
strategies must be developed and implemented.
Procurement & the Practical Guide
There are strict rules governing the procurement of goods, works and services relating to all
external aid projects financed from the European Communities' general budget. These help
to ensure that suitably qualified suppliers, contractors and service providers are chosen
without bias, and that projects are carried out in an efficient manner, with the full transparency
required in the use of public funds. The rules are based on the various regulations which
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govern the use of EU funds. These are comprehensively detailed in the Practical Guide to
Contract Procedures for EC External Actions (PRAG). 45
For major projects co-financed by IPA (and eventually the Cohesion Fund), the responsibility
for procurement rests with the Contracting Authority which, for waste management projects
falling under Priority Axis 1 of the EPOP, is the Environmental Protection and Energy
Efficiency Fund (EPEEF). While End Recipients are normally expected to prepare tender
documents (usually with the assistance of consultants or advisors), the EPEEF is responsible
for compiling Tender Dossiers, managing the procurement process and ensuring compliance
with relevant rules and procedures.
This chapter therefore provides only a brief summary of the main procurement rules and
procedures applying to external aid projects financed from the European Communities'
general budget. Those requiring more detailed information are strongly advised to consult the
PRAG.
6.3
Contract Types & Conditions
6.3.1 Types of Contract
Under PRAG, there are three main types of contract – Service Contracts, Supply Contracts
and Works Contracts. These are described below.
Service Contracts
Service contracts are used to procure such services as insurances, rental of equipment and
vehicles, accounting, market and statistical surveys, sanitation services, counselling,
education, cleaning, catering, guarding and security, publicity, organisation of exhibitions and
meetings, broadcasting and publications, professional training, software development and
website design, monitoring and evaluation, audit, pre-feasibility and feasibility studies,
technical assistance, architectural / engineering design, works supervision, etc.
Study contracts generally specify an outcome, i.e. the contractor must provide a given
product; the technical and operational means by which it achieves the specified outcome are
irrelevant. These are, therefore, lump-sum (global-price) contracts and the contractor will be
paid only if the specified outcome is achieved. Technical assistance contracts (fee-based)
are used where a service provider is called on to play an advisory role, to manage or
supervise a project, or to provide the experts specified in the contract.
Technical assistance contracts often only specify the means, i.e. the contractor is responsible
for performing the tasks entrusted to it in the Terms of Reference and ensuring the quality of
the services provided. Payment for these contracts is dictated by the resources and services
actually provided. The contractor does, however, have a duty of care under the contract: it
must warn the Contracting Authority in good time of anything that might affect the proper
execution of the project.
Some service contracts may, however, combine both types, specifying both the means and
the outcome.
Supply Contracts
Supply Contracts concern the purchasing of any kind of goods: equipment, machinery,
agricultural items, vehicles, software, office furniture, stationery and consumables, fuel, IT
equipment, spare parts, etc.
They can also include the services directly related with the supply such as transport and
delivery, pre-commissioning and training of the users, maintenance, repairs and after sales
services.
45
A copy of the Practical Guide may be obtained from:
http://ec.europa.eu/europeaid/work/procedures/implementation/practical_guide/index_en.htm
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Works Contracts
Works contracts cover either the execution, or both the execution and design, of works or a
work related to one of the activities referred to in Annex I to Directive 2004/18/EC of the
European Parliament and the Council (Budget) or the realisation, by whatever means, of a
work corresponding to the requirements specified by the Contracting Authority. A 'work'
means the outcome of building or civil engineering works taken as a whole that is sufficient of
itself to fulfil an economic or technical function.
This includes the construction or rehabilitation of landfill sites, wastewater treatment plants,
buildings, hangars, warehouses, water towers, wells, rural roads, bridges, hydraulic and
irrigation facilities, pipelines, communications and energy transmission lines and their related
works of preparation of sites and materials, demolition and transport of debris, landscaping
and similar construction works.
6.3.2 Contract Conditions
Generally speaking, all external aid contracts financed by the EU for the provision of services,
goods or works must be based on the standard contract conditions contained in Annexes B8,
C4 or D4 respectively of the PRAG. However, a notable exception concerns the contract
conditions applying to works contracts. In this case, a Contracting Authority can often use, or
request permission to use, one of the forms of contract published by the Fédération
Internationale des Ingénieurs Conseils (FIDIC). The two forms of FIDIC contract widely used
for the procurement of EU-financed works contracts are commonly known as the "Red Book"
and the "Yellow Book".
The FIDIC Red Book provides Conditions of Contract for the construction of building and
engineering works. These are recommended for "building or engineering use designed by the
Employer, or by his representative, the Engineer". Under the usual arrangements for this
type of contract, the contractor constructs the works in accordance with a design provided by
the Employer (Contracting Authority). However, the works may include some elements of
contractor-designed, civil, mechanical, electrical and / or construction works.
Under the Red Book:
The works design is primarily undertaken by the Employer or his Agent;
The works are re-measured during execution;
The Employer appoints an Engineer to administer the Contract on its behalf;
The Engineer has power to vary the works, but not change the contract;
A Dispute Adjudication Board (DAB) is appointed within 28 days of the contract
commencement date and has powers to resolve any disputes and change
“Determinations” made by the Engineer.
The FIDIC Yellow Book provides Conditions of Contract for the design-and-build of electrical
and mechanical plant and for building and engineering works. These are recommended for
"the provision of electrical and mechanical plant, and for the design and execution of building
or engineering works". Under the usual arrangements for this type of contract, the contractor
designs and produces, in accordance with the Employer’s requirements, plant and / or other
works; which may include any combination of civil, mechanical, electrical and / or construction
works.
Under the Yellow Book:
The Employer (Contracting Authority) provides basic data specifying what is required;
Design of the works is provided in detail by the Contractor;
Payment is made on the basis of lump sum price(s) identified by the Contractor;
A Supervising Engineer is (usually) required to administer the Contract on behalf of the
Employer.
The Red Book is the most commonly-used form of FIDIC contract for the provision of works
co-financed by the EU.
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6.4
Contract Tendering and Award
The process of tendering and awarding contracts financed by the EU is subject to certain
restrictions and criteria. These are summarised below.
6.4.1 Participation and Eligibility Criteria
The Nationality Rule
Participation in tender procedures administered by the Contracting Authority is open on equal
terms to all natural and legal persons of the Member States and the States and territories of
regions expressly covered and / or allowed by the Financial Regulation, the basic legislation
or other instruments governing the external aid programme under which the grant is being
financed. Tenderers must state, in the tender, the country of which they are nationals by
presenting the usual proof of nationality under their national legislation.
The Rule of Origin
If the basic act or the other instruments applicable to the programme under which the contract
is financed contain rules of origin for supplies acquired by the Contracting Authority in the
context of the grant, the supplier must state the origin of the supplies.
The supplier must provide a Certificate of Origin issued by the competent authority
recognised in its Country prior to the signature of the contract or when the goods are
delivered or with the first invoice (in any case before the first payment is made). The
Certificate of Origin must be made out by the competent authorities of the country of origin of
the supplies, and must comply with the rules laid down by the relevant Community legislation.
The rule of origin applies to all items tendered and supplied. Therefore, it is insufficient that
only a certain percentage of the goods tendered and supplied or a certain percentage of the
total tender and contract value comply with this requirement.
Exceptions to the Rules on Nationality and Origin
Exceptions to the rule on nationality and origin may be made in some cases. The award of
such derogation is decided on a case-by-case basis by the Commission before the tender
procedure is launched. This is generally the case for patented software and specialised
equipment produced in only one country.
Also, where an agreement on widening the market for procurement of goods or services
applies, the procurement contracts must also be open to nationals of other countries under
the conditions laid down in that agreement.
Grounds for Exclusion from Participation in Procurement
Tenderers will be excluded from participation in procurement procedures if:
a) They are bankrupt or being wound up, are having their affairs administered by the courts,
have entered into an arrangement with creditors, have suspended business activities, are
the subject of proceedings concerning those matters, or are in any analogous situation
arising from a similar procedure provided for in national legislation or regulations;
b) They have been convicted of an offence concerning their professional conduct by a
judgment which has the force of res judicata; (i.e. against which no appeal is possible);
c) They have been guilty of grave professional misconduct proven by any means which the
Contracting Authority can justify;
d) They have not fulfilled obligations relating to the payment of social security contributions
or the payment of taxes in accordance with the legal provisions of the country in which
they are established or with those of the country of the Contracting Authority or those of
the country where the contract is to be performed;
e) They have been the subject of a judgment which has the force of res judicata for fraud,
corruption, involvement in a criminal organisation or any other illegal activity detrimental
to the Communities' financial interests;
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f)
They are currently subject to an administrative penalty referred to in Article 96(1) of the
Financial Regulation.
Tenderers must certify that they are not in one of the situations listed above.
Fair Competition
No contract may be split in an attempt to evade compliance with the competition rules set out
in PRAG. If there is any doubt about how to estimate the value of a contract, the Contracting
Authority must consult the European Commission on the matter before embarking on the
procurement procedure.
To avoid any conflict of interest, any firm or expert participating in the preparation of a project
must be excluded from participating in respective tenders based on this preparatory work.
The time-limits set for the receipt of tenders and requests to participate must be long enough
to allow interested parties a reasonable and appropriate period to prepare and submit their
tenders.
All requests to participate and tenders declared as satisfying the requirements must be
evaluated and ranked by an Evaluation Committee on the basis of the exclusion, selection
and award criteria announced in advance.
6.4.2 Procurement Procedures
The rules for applying the standard procurement procedures for external aid contracts
financed by the EU are summarised in Table 17. They are divided between those for services
(e.g. technical assistance, studies, provision of know-how and training), supplies (i.e.
equipment and materials) and works (i.e. infrastructure and other engineering works).
Once approval for an activity has been granted by the European Commission within a
financing agreement, the Contracting Authority can proceed with tendering and contracting
following these standard procedures. The thresholds given in the table are based on the
maximum budget for the contract in question (including any co-financing). Where contracts
are sub-divided in lots, the value of each lot shall be taken into account when calculating the
overall threshold.
The various tender procedures shown in Table 17 are described below.
Open Tender Procedure
Calls for tender are open where all interested economic operators may submit a tender. The
contract is given maximum publicity through the publication of a notice in the Official Journal
(S series) of the European Union, the official journals of all the ACP States (EDF) on the
EuropeAid website and in any other appropriate media.
Under the open procedure, any natural or legal person wishing to tender receives upon
request the tender dossier (which may have to be paid for), in accordance with the
procedures laid down in the procurement notice. When the tenders received are examined,
the contract is awarded by conducting the selection procedure (i.e. verification of the eligibility
and of the financial, economic, technical and professional capacity of tenderers) and the
procurement procedure (i.e. comparison of tenders), in accordance with the selection and
award criteria (see section 6,4,3 below). No negotiation is allowed.
Restricted Tender Procedure
Calls for tender are restricted where all economic operators may ask to take part but only
candidates satisfying the selection criteria may submit a tender. Under the restricted
procedure, the Contracting Authority invites a limited number of candidates to tender. Before
launching a tender procedure, it will draw up a short-list of candidates selected as a result of
their qualifications. The selection procedure, by which the long-list (all candidates responding
to the published notice) is cut down to a short-list, involves examining responses to a
procurement notice, in which the selection criteria and a general description of the tasks to be
undertaken are set out.
69
Local open tender procedure
€5,000 (EDF)
€5,000,000 but €300 000
(EDF)
1. International open
tender procedure
70
Simplified procedure (EDF)
Competitive negotiated procedure
(BUDGET)
€10,000 (BUDGET)
€300,000 (BUDGET)
> €5,000,000 (EDF)
2. International
restricted tender
procedure (exceptional
cases BUD)
< € 300,000 but >
<€30,000 but > €5,000
Simplified procedure (EDF)
<€60,000 but > €10,000
Competitive negotiated procedure
(BUDGET)
<€ 5,000,000 but
Local open tender procedure
€150,000 but €30,000
(EDF)
<€150,000 but €60,000
(BUDGET)
€5,000,000 (BUDGET)
> €150,000 (EDF)
International open
tender procedure
€150,000 (BUDGET)
1. Framework contracts
2. Competitive negotiated procedure (BUDGET); Simplified
procedure (EDF)
International restricted
tender procedure
Source: Practical Guide to Contract Procedures for EC External Actions (PRAG)
WORKS
SUPPLIES
SERVICES
< €200,000 but > €10,000 (BUDGET) €5,000 (EDF)
€200,000
€5,000
Single tender (EDF)
€10,000
Single tender (BUDGET)
€5,000
Single tender (EDF)
€10,000
Single tender (BUDGET)
€5,000
Single tender (EDF)
€10,000
Single tender (BUDGET)
Table 17: EC Standard Contract Procurement Procedures and Value Thresholds for External Aid Contracts Financed by the EU
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In the second stage of the procedure, the Contracting Authority invites the short-listed
candidates and sends them the tender dossier. In order to ensure fair competition, tenders
must be submitted by the same service provider or consortium which has submitted the
application form on the basis of which it was short-listed and to which the letter of the
invitation to tender is addressed. No change whatsoever in the identity or composition of the
tenderer is permitted unless the Contracting Authority has given its prior approval in writing.
A situation where such approval could be given is e.g. where a merger has taken place
between a short-listed candidate / member of a consortium with another company and where
the new company is found to meet the eligibility and exclusion criteria and does not give rise
to any conflict of interest or unfair competition. The successful tenderer is chosen by the
procurement procedure once the tenders have been analysed in accordance with the
selection and award criteria. No negotiation is allowed.
Competitive Negotiated Tender Procedure
Under the competitive negotiated tender procedure, the Contracting Authority invites tenders
from candidates of its choice. At the end of the procedure, it selects the most economically
advantageous tender in the case of service tenders and the cheapest compliant offer in the
case of supplies or works tenders.
Framework Contracts
A framework contract is an agreement between one or more contracting authorities and one
or more economic operators the purpose of which is to establish the terms governing specific
contracts which may be awarded during a given period, particularly as regards the duration,
subject, price, implementation rules and the quantities envisaged.
The framework contracts established with several economic operators are called multiple
framework contracts, which take the form of separate contracts but concluded in identical
terms. The minimum as well as the maximum number of operators with which the
Contracting Authority intends to conclude contracts must be indicated in the specification.
The minimum number of economic operators may not be less than three.
The duration of such contracts may not exceed four years, save in exceptional cases justified
in particular by the subject of the framework contract. Contracting authorities may not make
undue use of framework contracts or use them in such a way that the purpose or effect is to
prevent, restrict or distort competition.
Specific contracts based on framework contracts shall be awarded in accordance with the
terms of the framework contract and shall also respect the principles of transparency,
proportionality, equal treatment, non-discrimination and of sound competition.
6.4.3 Selection and Award
Key Principles
All contract awards, partially or totally financed by the EU, must respect the principles of
transparency, proportionality, equal treatment and non-discrimination. The basic principle
governing the award of contracts is competitive tendering. The purpose is two-fold:
To ensure the transparency of operations; and
To obtain the desired quality of services, supplies or works at the best possible price.
Other important principles include:
The Contracting Authority must draw up clear and non-discriminatory selection criteria in
every procurement procedure for the purposes of assessing the financial, economic,
technical and professional capacity of tenderers. Before deciding on the appropriate
criteria, the Contracting Authority must consider which proof documents should be
requested for the relevant criteria. For service and supply procedures, only successful
tenderers shall be required to supply proof documents to support the information
submitted in the application / tender submission form before the award of the contract.
For works procedures, the mentioned proofs have to be submitted in accordance with the
tender dossier.
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The Contracting Authority must specify in the procurement notice or in the call for
expressions of interest or the invitation to submit a tender, the references chosen to test
the status and the legal capacity of tenderers or candidates.
A contract may not be awarded to any tenderer which, during the procurement procedure,
was guilty of misrepresentation in supplying the information required by the Contracting
Authority as a condition of participation in the contract procedure, or failed to supply this
information.
Contracts are considered to take effect from the date of signature of the last signatory.
Contracts or contract addenda cannot be awarded retroactively (i.e. after the end of the
execution period) under any circumstances. This means that no disbursements can be
effected and no goods and services provided prior to the signature of the contract and / or
addendum. All contracts must show the true dates of signature of the contracting parties.
Award Criteria
Contracts are awarded on the basis of award criteria applicable to the content of the tender
after the capability of economic operators not excluded from participation has been checked
in accordance with the selection criteria contained in the documents relating to the call for
tenders, in one of the following two ways:
Under the automatic procurement procedure, in which case the contract is awarded to the
tender which, while being in order and satisfying the conditions laid down, quotes the
lowest price;
Under the best-value-for-money procedure (i.e. the most economically advantageous
tender).
The award criteria should be precise, non-discriminatory and not prejudicial to fair
competition.
Service contracts are awarded under the best value-for-money procedure, meaning to the
most economically advantageous tender. Supply and works contracts are usually awarded
according to the principle of the lowest price after the offer has been recognised as being fully
compliant with the tender requirements.
6.5
Tender Dossiers
The responsibility for organising and administering tenders and contracts rests with the
Contracting Authority, including the entire procurement process - from the preparation of
tender dossiers to the awarding and subsequent finalisation of contracts 46 .
A tender dossier is a set of documents compiled by the Contracting Authority and containing
all the information and documentation needed to prepare and submit a tender. Tender
dossiers must contain all the provisions and information necessary for the bidders to present
their offers, for example the procedures to follow, documentation to be provided, award
criteria and their weightings, and provisions relating to sub-contracting.
An overview of the typical contents of tender dossiers for the three main types of contract is
provided in Annex E.
46
Under IPA, for projects falling under Priority Axis 1, this is the responsibility of the EPEEF.
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7.
PROJECT IMPLEMENTATION, MONITORING & REPORTING
This chapter provides a brief overview of:
7.1
¾
The main elements of project implementation
¾
The essential principles of contract and performance management
¾
The main requirements relating to project monitoring, evaluation and reporting
Purpose
The purpose of the implementation phase of the project cycle is to:
Deliver the results, achieve the purpose(s) and contribute effectively to the overall
objective of the project.
Manage the available resources efficiently and cost-effectively.
Monitor and report on progress.
The implementation phase is the most critical in the project cycle, as it is during this stage that
planned benefits are delivered.
7.2
Implementation Tasks
The implementation phase is often seen as the main phase of the project. Moreover, it is
usually the longest phase in the project life cycle and consumes more effort and resources
than any of the other phases. The implementation phase of a major environmental
infrastructure project typically consists of four distinct periods (or sub-phases):
Inception / Mobilisation Period;
Design Period / Construction Period;
Phase-Out / Handover Period; and
Operating Period (after the project has been constructed and handed over).
The main tasks which normally need to be undertaken during each of these periods are
summarised in Table 18.
7.3
Contract & Performance Management
During the project implementation phase, the Contracting Authority (CA) is primarily
concerned with fulfilling two functions:
Contract management: The procedures, resources and organisation required to ensure
that the facilities and / or services contracted for are delivered in full accordance with the
contract.
Performance management: The day-to-day process of assessing whether the facilities
and / or services contracted for are being delivered to the required standards, and
assessing the remedial action required when these standards are not met.
For major infrastructure projects co-financed by the EU, these functions are usually
undertaken by the Contracting Authority with the technical assistance and support of
consultants / advisors and (in the case of IPA) the End Recipient. Sometimes, a dedicated
Project Implementation Unit (PIU) is established for this purpose, headed by an experienced
full-time, resident Manager or Supervising Engineer (under FIDIC-based contracts) procured
by the CA. Where a PIU is established, this is normally intended to supplement rather than
supplant existing local skills and capacities during the Design, Construction and Handover
periods, and also to fit in with existing institutional structures.
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Table 18: Project Implementation Phase - Key Tasks
Inception / Mobilisation Period:
¾
¾
¾
¾
¾
¾
¾
Finalising contracting arrangements 1
Mobilising resources 1
Establishing working relationships with key stakeholders 1, 3
Holding inception meeting(s) / workshop(s) as necessary
1, 3
Reviewing and revising the project plan as necessary 1
Establishing contract management systems1
Establishing monitoring systems 2
Design Period / Construction Period:
¾ Procuring and deploying resources (equipment, personnel, etc) and organising engineering
designs
¾
¾
¾
¾
1
Implementing project activities & delivering planned results / outputs (e.g. facilities construction)
Monitoring and reviewing progress of the project
1
4
Updating the project plan and working methods in the light of experience
1
Reporting on progress 4
Phase-Out / Handover Period:
¾
¾
¾
¾
¾
Commissioning the completed project facilities / infrastructure 3
Handing over facilities and all related responsibilities to the beneficiary / End Recipient 1
Ensuring plans / arrangements for on-going operation and maintenance are in place 3
Ensuring relevant skills are effectively transferred 1, 3
Ensuring recurrent cost requirements are secured 3
Operating Period 3:
¾ Operating and maintaining the completed project facilities / infrastructure, and providing the
related services (e.g. waste treatment and disposal services)
¾ Ensuring that any latent and inherent design and / or construction defects are addressed at an
early stage
¾
¾
¾
¾
Monitoring performance and availability of the facilities against required levels
Monitoring compliance with appropriate regulations and environmental standards
Managing changing conditions
Reporting on operating performance
Responsibilities under IPA:
1 EPEEF
2 Operating Structure
3 End Recipient
4 Shared by all parties
Where the project works are procured using the FIDIC Red Book, the detailed engineering
and architectural designs are prepared prior to the launch of the works tender, i.e. the main
design is a part of the Tender Dossier. The main design is usually prepared by the project
developer / End Recipient itself, but it can be prepared via a service contract under the EUfunded project (in which case it is usually more logical and expedient to follow the FIDIC
Yellow Book procedure). In addition, a Supervising Engineer must be appointed by the CA
(also selected via a tendering procedure).
The contractual arrangements and performance requirements for operating the facilities after
they have been constructed and commissioned should already have been considered and
decided (at least in principle) prior to procurement of the works.
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The specific activities involved in contract and performance management will vary, depending
on which contracting approach is adopted. However, the activities typically undertaken during
the Design / Construction and Operational Periods respectively are summarised in Table 19.
An indicative list of contract management issues relating to the implementation of major
projects in the water and waste management sectors is also provided in Annex F.
7.4
Role of the FIDIC Supervising Engineer
The FIDIC Supervising Engineer plays a key role in ensuring, on behalf of the Contracting
Authority, that the works and related services are delivered in full accordance with the
contract. It is good practice for the Supervising Engineer to be recruited and inducted prior to
contract award so that he / she has a thorough understanding of the contract requirements
and the environment within which he / she will be expected to manage the contract.
Depending on the type and form of contract adopted, the Contracting Authority ("the
Employer") delegates a range of clearly-specified powers and responsibilities to the
Supervising Engineer, including:
Provision of independent advice to the CA;
Participation in the works tendering procedures (review of tender documents, evaluation
and contracting - if required);
Provision of permanent technical supervision of the works;
Continuous checking of the performance of the contractor and its accounting;
Regular implementation of the taking-over of the works or sections thereof;
Participation in the procedures following the technical taking-over.
A more comprehensive description of the role and responsibilities of the Supervising Engineer
in relation to works contracts is presented in Annex G.
In order to function effectively, the Supervising Engineer requires:
Clear delegated authority.
Clear reporting lines to designated representatives of the Contracting Authority and End
Recipient.
A specific budget for carrying out contract management activities.
Approval to procure resources, including additional technical, financial and legal expertise
as and when required, subject to the constraints contained in the relevant budget.
He / she will require appropriate support throughout the period of the contract, and the nature
and level of the support required will evolve and change over time. Given the likely scale and
duration of contracts in the waste management sector, the effective management of contracts
cannot rely on continuity of personnel and must instead involve a structured organisation and
robust system for delivering the necessary skills and expertise over the life of the contract.
7.5
Project Monitoring, Evaluation & Reporting
The functions of project monitoring, evaluation and reporting may be defined as follows:
Monitoring – The systematic and continuous collection, analysis and use of data and
information to support effective management decision-making.
Evaluation – A systematic and independent assessment of an on-going or completed
project, its relevance, design, efficiency, effectiveness, impact and sustainability.
Reporting – Provision of regular reports on physical and financial project progress to
project stakeholders, particularly those providing financial resources to support
implementation.
A summary of these functions is provided below.
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Table 19: Activities Typically Undertaken during the Design / Construction and Operating Periods
Design Period / Construction Period:
¾ Detailed design of the works, carried out in accordance with the Terms of Reference (Red Book) or
Specification (Yellow Book), with particular regard to compliance with applicable standards.
¾ Integration of new facilities into existing operations.
¾ Management of the interfaces between the Contracting Authority and the works contractor, where the
Supervising Engineer may have the role of ensuring that existing facilities and systems can function, for
example, during the construction of new facilities on the same or an adjoining site.
¾ Ensuring that the works are provided in accordance with the contract and Performance Specification.
¾ Ensuring that appropriate guarantees and insurances are in place in accordance with the contract.
¾ Monitoring of the construction work, particularly in relation to non-compliance with the quality assurance
regime for the project.
¾ Monitoring of delays or changes to the construction programme, particularly where these are likely to affect
the commencement date of the Operating Period.
¾ Receiving, checking and authorising invoices for payments under the contract payment mechanism, at the
specified frequency and within the period allowed for payment, if appropriate.
¾ Management of any variations to the works required by the Contracting Authority during the construction
stage, particularly where these impact on the details of design, workmanship or price.
¾ Monitoring and rectifying any design and / or construction defects.
¾ Monitoring of the testing and commissioning stage and the determination of when the new facility is ready
for acceptance and use.
¾ Establishing and maintaining contract management and reporting systems, setting up the monitoring
arrangements and establishing procedures for certification.
¾ Audit of the works contractor to ensure that it meets all necessary obligations in respect of insurance and
indemnities, performance bonds, health and safety procedures and other contractual and statutory
obligations.
Operating Period:
¾ Monitoring the availability of the facility to deliver the required operational performance levels.
¾ Ensuring that the contracted operating services are provided in accordance with the contract and
Performance Specification.
¾ Monitoring compliance with environmental standards and constraints.
¾ Implementation and operation of the direct monitoring system established by the Contracting Authority, in
addition to the analysis of the monitoring data maintained and provided by the operating contractor.
¾ Receiving, checking and authorising invoices for payments under the contract payment mechanism, at the
specified frequency and within the period allowed for payment, if appropriate.
¾ Ensuring that latent and inherent defects are addressed at an early stage during the operating period in
order to keep asset condition up to the specified standards, joint inspection with the contractor of repair and
maintenance obligations, implementation of renewals or other asset upgrading as required by the Contract.
¾ Monitoring compliance with appropriate regulations including health and safety policies, building and fire
regulations and statutory obligations.
¾ Monitoring the implementation of quality management systems, information transfer from the operating
contractor to the Contracting Authority and the updating of records.
¾ Developing performance reports on behalf of the Contracting Authority, covering operating loads, and
performance history, current and projected costs.
¾ Managing changed conditions, considering options for dealing with change, assessing implications,
negotiating alterations in arrangements with the contractor, dealing with any approvals relating to change.
¾ Reviewing the development and maintenance of contingency plans in case of critical failures, loss of power
supply and major changes in load characteristics.
¾ Managing the day-to-day relationship between the Contracting Authority and the operating contractor,
particularly at critical interfaces with other areas of the waste management system.
¾
¾
¾
¾
¾
Dealing with any price variation adjustments (including market benchmarking where appropriate).
Monitoring the revenue generated from third parties where appropriate.
Inspecting the asset register maintained by the contractor.
Dealing with third party and public relations aspects in conjunction with the operating contractor.
Ensuring that insurances and indemnities are maintained in force.
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7.5.1 Project Monitoring & Evaluation
While monitoring and evaluation are both concerned with the collection, analysis and use of
information to support informed decision-making, it is useful to understand the differences
between them in terms of who is responsible, when they occur, why they are carried out and
the level of focus in terms of the Logframe objective hierarchy. This distinction is shown in
Table 20 below.
Table 20: Purpose and Nature of Monitoring, Evaluation and Audit
Monitoring
Evaluation
Audit
Who?
Internal management
responsibility – all levels
Usually incorporates
independent external inputs
Independent external inputs
When?
On-going
Periodic – mid-term, upon
completion, ex-post
Ex-ante (systems reviews),
upon completion
Check progress, take
remedial action, update
plans
Learn broad lessons
applicable to other
programmes/projects, and as
input to policy review
Provide assurance and
accountability to
stakeholders
Why?
Provide accountability
Link to Logframe
Inputs, activities, results
Results, purpose, overall
objective
Provide recommendations
for improvement of current &
future projects
Inputs, activities & results
The project management team must keep track of how the project is progressing in terms of
expenditure, resource use, activities, delivery of results and the management of risks. This is
achieved through monitoring, which is primarily an internal management responsibility,
although it may be complemented by external monitoring inputs. These external monitoring
inputs can be useful in providing objective verification of results, additional technical advice
and a ‘big-picture’ view for senior management.
The use of Logframes and implementation plans are highly recommended as practical and
widely-used tools which directly support effective project management, monitoring and
review. Monitoring may also be complemented by periodic or ad hoc audits.
Regular reviews of monitoring data and information in consultation with key stakeholders
provide an opportunity to reflect on progress, agree on the content of progress reports and
any follow-up actions required. Monitoring during the implementation phase should thus be
seen as a continuous learning and feedback process whereby experience gained is reviewed
and fed back into on-going implementation planning and management.
The aim of evaluation is to "determine the relevance and fulfilment of objectives,
developmental efficiency, effectiveness, impact and sustainability. An evaluation should
provide information that is credible and useful, enabling the incorporation of lessons learned
into the decision-making process of both recipients and donors". 47
The key principles underpinning the approach to evaluation are:
Impartiality and independence of the evaluation process from the programming and
implementation functions;
Credibility of the evaluation, through use of appropriately skilled and independent experts
and the transparency of the evaluation process, including wide dissemination of results;
Participation of stakeholders in the evaluation process, to ensure different perspectives
and views are taken into account; and
47
Review of the DAC Principles for Evaluation of Development Assistance, OECD / DAC, 1998.
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Usefulness of the evaluation findings and recommendations, through timely presentation
of relevant, clear and concise information to decision-makers.
The primary responsibility for initiating and organising evaluations of IPA-financed projects
rests with the Head of the Operating Structure (see section 1.4.2 above).
7.5.2 Project Reporting
Project management must provide reports on physical and financial progress to stakeholders,
particularly those providing financial resources to support implementation. The aim of these
reports should be to:
Inform stakeholders of project progress (against what was planned), constraints
encountered and any significant remedial or supportive action required;
Provide a formal documented record of what has been achieved during the reporting
period, and thus facilitate future reviews or evaluations;
Document any changes in forward plans, including budgetary requirements;
Promote transparency and accountability.
Such reports typically include an Inception Report, Progress Reports, Project Annual Plans
and a Final Report.
Inception Report
The Inception Report is essentially an early planning document setting how the different
activities relate to each other and how they contribute to the aims of the project. The report
should offer a clear description of the planned process and the timeframe within which initial
results will lead to subsequent activities. In addition, the report should include activities
already implemented or under implementation in the inception period. The preparation of the
Inception Report provides an opportunity for the Contracting Authority to review the design in
consultation with other stakeholders, update the first annual work plan to ensure its relevance
and feasibility, and develop / maintain stakeholder commitment to ownership of the project.
This is particularly important in situations where much of the design work has been
undertaken by others, but a significant period of time has elapsed since the design was
completed (in some cases, there may be a gap of more than a year between completing a
feasibility study and securing EU co-financing, and the commencement of project
implementation).
Progress Reports
Project progress reports should be produced on a regular basis. The timescale for these
reports is normally specified in the Project Financing Agreement. The report should contain
details inter alia of:
Work completed during the period under review.
Work currently in progress.
Work remaining to be done.
Any problems or unexpected events which have occurred during the period under review.
Progress of the project in general.
Progress reports have several important functions:
Reassure stakeholders that the project is progressing as anticipated, is proceeding
smoothly and that the required results will be achieved within the expected timeframe.
Provide stakeholders with an appreciation of the work being undertaken by the project.
Give stakeholders an opportunity to review and assess the work of the project and to
request clarifications, provide comments and suggest changes.
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Provide the management team with an opportunity to raise and discuss any problems and
at the same time to forewarn stakeholders of any deviations from the implementation plan
and of any need for corrective actions.
Project Annual Plans
Each annual plan has two basic parts, a review of project progress to date, and an
implementation strategy and work programme for the coming year, incorporating any lessons
learned from the review of progress and providing:
Justification, if required, for the proposed programme of work.
Detailed explanations of the expected outputs and results of the work programme.
The review of progress is a major part of each annual plan (except for the first annual plan).
This analyses and reports on the results of implementation in terms of the planned work,
outputs, outcomes and impacts of each activity undertaken to date. If difficulties arose during
the period, the review analyses the causes and effects of those difficulties, and presents the
options for remedial action, including adjustments to future activity implementation.
The implementation strategy is the proposed overall approach to activity implementation
during the annual plan year. It includes the strategic approach to risk management, to
sustainability, and to monitoring and performance assessment.
The annual plan should include a budget, which is broken down by component and according
to the accounting codes used by the project / programme.
Final Reports
Upon completion of the implementation phase, there is always a requirement for a Final
Report to be prepared and submitted which details the various activities undertaken by the
project providers and a statement of the expenditures incurred.
The purpose of the Final Report is to allow the European Commission to make an
assessment of the conduct of the project and its success or otherwise in meeting its purpose
and objectives, and to make a preliminary assessment of its quality and impact.
The Final Report forms an integral part of the EC’s evaluation framework, contributing both to
the assessment of the project achievements, and to the evaluation of the overall project cycle.
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ANNEX A
ANALYTICAL TECHNIQUES FOR PROJECT IDENTIFICATION &
FORMULATION
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A number of tools can be applied in order to identify and appraise investment projects in the
environment sector (e.g. waste management, wastewater collection and treatment, etc.). Three tools
supporting the decision-making process with regard to environmental investments are presented in
this Annex A:
Multi-Criteria Analysis (MCA);
Least Cost Analysis; and
Problem Analysis.
Financial and economic analyses (cost-benefit analysis) also represent tools that are applied for
project evaluation and appraisal. They are presented in sections 5.3 and 5.4 respectively of this
Manual. This Annex also includes a more detailed presentation of the concept of discounting and
description of basic indicators used in financial and economic analysis (NPV and IRR). As most of
the tools of economic and financial project appraisal are based on discounting, understanding this
concept is of key importance for project developers / End Recipients.
Multi-Criteria Analysis
MCA is an approach aimed at supporting the decision-making process. The key purpose of MCA is to
compare and evaluate various options for resolving complex problems. MCA takes into consideration
a number of criteria and evaluates them in a way that allows a simple synthetic conclusion to emerge
as the result of the evaluation process. MCA techniques can be used to identify a single most
preferred option, to rank options, to short-list a limited number of options for subsequent detailed
appraisal, or simply to distinguish acceptable from unacceptable possibilities. 48
MCA has broad application in evaluating, comparing and ranking various alternative options for waste
management projects. It can be used both in comparing integrated strategies for solid waste
management or in finding solutions for specific elements of the MSW system e.g. finding the most
appropriate location for a sanitary landfill.
The advantage of MCA is that it takes into account a broad number of criteria in project assessment
covering for instance technical, environmental, economic and social aspects. Commonly, MCA
techniques involve comparisons of projects (options) through a scoring and weighting system. The
most preferred options are then those that are characterised by the highest scores.
The scoring and weighting procedures involve the following steps:
Establishing the assessment criteria;
Setting scoring scales for each criterion (e.g. 0 – 10 points);
Assigning relative weightings to the specific criteria (or group of criteria); and
Ranking of the options and making a final choice.
The criteria to be considered can be grouped into different categories e.g. environmental, technical,
economic and social. For example, environmental criteria used in the assessment of various sites for
a new sanitary landfill might include the permeability of soil at the proposed location, distance from
surface waters, and sensitivity of the groundwater table. The economic criteria may include for
instance assessment of the cost-effectiveness of the possible options. When selecting the criteria,
project developers should check whether all relevant criteria have been taken into account and should
avoid applying criteria that are redundant. All the criteria adopted in the MCA must be mutually
independent (i.e. criteria that have the same or similar meaning but are described in a different way
should be avoided).
It is customary to use interval scales for allotting scores for the criteria e.g. a scale from 0 to 100
points can be applied (where 0 reflects the worst possible performance of a given option on the
specific criterion and 100 points represents the best performance). For example, if one of the criteria
for landfill site selection is distance from waste generation sources, a higher score will be given to
sites located closer to the waste generation centres (reflecting their lower transport costs).
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The weightings are assigned to the criteria (or group of criteria) in order to express their relative
importance to the decision-making process (for instance a higher weight can be assigned to
environmental criteria than to economic criteria – or vice versa). It is important that the decisionmakers establishing the scoring and weighting system reach a compromise on the relative importance
of the criteria (i.e. their weightings). Changes in weightings may affect the ranking of project options.
The ranking of options is usually done by multiplying the scores allotted to each criterion for a given
option by the weightings of the criteria (or group of criteria). A simple example for the ranking of
options is presented in Table 21. Each of the options (1, 2, 3) has been allotted a score on the
interval scale from 0 – 10 (marked in yellow). The following weights were assigned to three main
groups of criteria: 0.5 for environmental criteria, 0.2 for technical criteria, and 0.3 for economic criteria,
i.e. in this example, environmental criteria have higher relative importance than economic and
technical criteria.
The total score for each option is obtained by multiplying the sum of scores allotted within the
category by the relative importance (weighting) of this category. For example, in option 1 the sum of
the scores allotted to environmental criteria (i.e. criteria A.1 and A.2) is 2, and the weighting is 0.5.
Hence, the overall weighted score for this category is 1.
In the example presented in Table 21, option 2 produced the highest score. With these weightings,
this option would therefore be preferred. Table 22 presents the same results in terms of the scores
allotted to different criteria, but the weightings for the criteria have been changed to 0.2 for
environmental, 0.3 for technical and 0.5 for economic. It can be seen that changes in the relative
importance of various groups of criteria result in changes in the ranking. In first example (Table 21),
option 2 was preferred, whilst in the second example (Table 22) option one is the most preferable
one.
Since MCA involves a strong element of subjective judgement, the interests and objectivity of those
who develop the MCA scores and weightings play a significant part in the validity and fairness of the
conclusions reached. For this reason, MCA should always be seen only as an aid to decisionmaking, not a means of automating the decision-making process.
Table 21: Ranking of Options in Scoring and Weighting System (Example 1)
Weight
Option 1
Option 2
Option 3
A. Environmental
C. Economic
criteria
B. Technical
0,3
0,5
0,2
Criterion Criterion Criterion Criterion Criterion Criterion
A.1
A.2
B.1
B.2
C.1
C.2
1
1
5
0
10
4
5
3
0
5
9
0
3
4
2
5
0
0
Sum of
weighted
scores
6,20
7,70
4,90
Table 22: Ranking of Options in Scoring and Weighting System (Example 2)
Weight
Option 1
Option 2
Option 3
Sum of
weighted
A. Environmental
scores
criteria
B. Technical
C. Economic
0,2
0,3
0,5
Criterion Criterion Criterion Criterion Criterion Criterion
A.1
A.2
B.1
B.2
C.1
C.2
1
1
5
0
10
4
8,90
5
3
0
5
9
0
7,60
3
4
2
5
0
0
3,50
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Nevertheless, decisions based on MCA have clear advantages compared to an informal decisionmaking process: 49
MCA is open and explicit;
The choice of objectives and criteria that any decision-making group may make are open to
analysis and to change if they are felt to be inappropriate;
The scores and weightings are also explicit and can be developed according to established
techniques. They can also be cross-referenced to other sources of information on relative values,
and amended if necessary;
Measurement of the performance of the options against the criteria can be sub-contracted to
experts, so need not necessarily be left in the hands of the decision-making body itself;
MCA can provide an important means of communication, within the decision-making body and
sometimes, later, between that body and the wider community; and
The scores and weightings used provide an audit trail.
Least Cost Analysis
Least Cost Analysis (LCA) 50 is a tool applied to compare alternative project options and to identify the
most cost-effective one. The authorities responsible for developing the municipal waste management
system may consider various project strategies that would meet the objectives of national and EU
waste-related legislation. These may include for instance: (1) a system involving production of refusederived fuel (RDF) to be incinerated in cement kilns, (2) a system based on a waste-to-energy facility
combusting mixed MSW, (3) a system involving biological stabilisation of the organic content of the
MSW stream before final disposal, and so on.
The most cost-effective option is the one that brings the same outcome as the other options (i.e.
achieves the same quantitative objectives) with the lowest unit costs. In the solid waste management
sector, these unit costs will usually be expressed as unit cost per tonne of MSW subject to treatment
(e.g. Euro / tonne of MSW). For investments in wastewater treatment systems, unit costs may be
expressed as a cost per treatment of one cubic meter of wastewater (e.g. Euro / m3 of wastewater
treated).
LCA allows project developers / End Recipients to observe the long-term financial implications of
project implementation. This is an important feature of LCA, as some options may be more expensive
in terms of investment costs but bring significant savings in the operational phase and hence may turn
out to be more cost-effective.
One of the most widely recognised techniques for comparing project options in LCA is calculation of
the average incremental cost (AIC). 51 AIC is a discounting-based indicator expressed by the following
formula:
t n
AIC
¦
t 0
( IC t NOM t )
(1 r ) t
t n
(OPt )
¦
t
t 0 (1 r )
where,
AIC – Average Incremental Cost
IC t – Investment Costs in year t
NOM t – Net Operating and Maintenance Costs in year t
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51
Not to be confused with the different technique of life-cycle analysis (also known by the acronym LCA).
The same indicator is sometimes also referred to as “dynamic prime cost”.
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OP t – project output in year t (e.g. volume of MSW subject to treatment).
r – discount rate,
n – number of years.
One of the basic features of the AIC is that it applies discounting both to the monetary flows (i.e.
project costs) and to the project output (e.g. expressed in tonnes of MSW).
The average incremental cost provides a useful indication for decision-makers of the average level of
user charges that would satisfy the cost-recovery principle (including the cost of capital as expressed
by the discount rate). The AIC should be calculated over a time horizon that matches the economic
life of the assets created within the investment (e.g. 20 years).
Net operating and maintenance costs should include the revenues (if any) from sales of by-products
(e.g. recyclables, energy or compost) – but never revenues from user charges. The revenues from
sale of by-products increase the cost-effectiveness of the project.
The interpretation of the AIC can be illustrated by the following example:
The AIC for two MSW treatment options producing the same output has been calculated. The AIC for
Option 1 amounts to -60 EUR / tonne of MSW and for Option 2 it is -45 EUR / tonne of MSW. Option
2 is the more cost-effective one and minimises the financial burden on final users.
If project options subject to comparisons in LCA have substantially different non-market costs and
benefits (e.g. external costs), then these should also be taken into account in the LCA.
Problem Analysis
The purpose of problem analysis is to identify and analyse the fundamental problem that a project
aims to solve, and the reasons for its existence. A complex problem is easier to deal with if its causes
and effects are thoroughly analysed. The causes could be divided into several groups of problems or
"clusters". Sometimes this has the effect that, in the end, the project is divided into different subprojects. A problem analysis is sometimes made by drawing a so-called "problem tree" during a
participatory workshop with key stakeholders.
The problem tree is a technique that aims to identify the main problems, their causes and effects. One
of the common ways to draw up a problem tree is to call a participatory workshop (including public
and private entities, NGOs and other stakeholders) where the stakeholders are asked to provide their
judgments regarding the problems relating to the subject, and their causes and effects.
In the problem tree, the causes are the roots of the focal problem, which, in turn, is symbolised by the
trunk of the tree. The effects of the problem form the top of the tree. The concept of the problem tree
is depicted in Figure 9.
Figure 9: Problem Tree
Effects
Focal problems
Focal problems
Causes
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Problem analysis can be also presented in the form of a problem analysis matrix (which is often
simpler and easier to use in practice). Examples of key problems, their principal causes and effects in
municipal solid waste management sector are presented in Table 23.
Table 23: Simplified Example of a Problem Analysis Matrix in the Waste Management Sector
Area of Activity
Key Problems
Principal Causes
Principal Effects
National policy on waste
management (WM) not
sufficiently developed.
Existing policy does not
address all key areas of
performance for waste
management.
No clear basis for
determining priorities,
performance, requirements
or targets.
Existing legislation
governing waste
management inadequate.
Proposed new legislation
not yet implemented.
Required standards for
WM are difficult or
impossible to implement
and enforce.
Waste producers are not
aware of potential
opportunities and benefits
of avoiding wastes.
Information on opportunities
and techniques for waste
avoidance is not generally
available.
The true costs of
environmentally sound
waste management are not
perceived or met by waste
producers.
Resources, including
resources for waste
management are not used
efficiently.
Low quality and market
value of some recyclable
materials.
Without intervention, scope
for further recovery and
recycling of some materials
is severely constrained.
Institutional Framework
Waste avoidance
Limited or not demand for
some recyclable materials.
Segregation and recycling
Requirements for wastes
treatment and disposal are
higher than need to be.
Lack of local market outlets
for some recyclable
materials.
Waste arisings
Data on sources, nature
and quantities of wastes are
inaccurate and/or
unreliable.
Regular monitoring of waste
types and quantities is not
carried out effectively.
Planning, management
and control of waste
management services is
made more difficult.
Waste treatment and
disposal
Wastes are not treated and
disposed of in and
environmentally sound
manner.
Legislation and standards
not effectively enforced.
Pollution of air, water
resources and land.
Discounting, the Discount Rate, NPV and IRR
Discounting
The purpose of discounting is to calculate the current value of future flows of money. Discounting
quantifies the concept of the time value of money. A fixed amount of money, e.g. EUR 10,000
received in ten years’ time, has less value to an investor than EUR 10,000 now. In other words, a
rational investor would normally prefer to receive money now rather than in the future. The time value
of money reflects the return that can be earned on money invested today.
The present value (PV) of a future cash flow is calculated using the formula:
PV
DFt u C t
where,
C t is the cash flow in period t
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DF t is the discount factor in period t
The formula for calculation of the discount factor (DF) for year t is as follows:
DFt
1
1
1
u
u ... u
(1 r1 ) (1 r2 )
(1 rt )
where,
r 1 , r 2 , … r t are the discount rates in period 1, 2, …, and t
Since one discount rate is usually applied throughout the reference period, the formula for calculating
the DF is:
DF
1
(1 r ) t
where,
r is the discount rate,
t is the period for which the discount factor is calculated.
The further away that period t is from the present moment, the lower is the value of the discount factor
obtained.
Discount Rate
The discount rate used in financial analysis normally represents the opportunity cost of capital. The
opportunity cost of capital is the return forgone by investing the capital within the given investment
project and not in any alternative investment. Therefore, when choosing the discount rate the investor
should take into account:
The return (i.e. Interest) on a risk-free investment; and
The risk premium (i.e. the return expected above risk-free investment).
For a private investor, the higher risk associated with an investment should be compensated by a
higher return on that investment. This assumption, however, does not need to hold true for public
sector investments. The primary interest of public authorities is to carry out public tasks in an efficient
way and not necessarily to achieve the maximum possible financial return on invested public capital
(especially in cases where there are affordability constraints in providing a public service).
For investments co-financed from EU funds, EC guidelines (Working Document 4) recommends using
a 5% real discount rate for financial analysis and a 5.5% real discount rate for economic analysis.
Net Present Value
Net Present Value (NPV) is one of the indicators most commonly used to assess project profitability.
NPV compares project inflows (revenues) and outflows (costs) over the time horizon adopted in the
analysis (the reference period). The discount rate applied in calculation of the NPV reflects the
opportunity cost of capital as described above. The NPV is calculated using the formula:
NPV
t n
1
¦ (1 r )
t 0
t
u Ct
where:
C t is net cash flow in year t (i.e. net cash flow is obtained by subtracting from cash inflows the
cash outflows;
r is the discount rate used in analysis.
The investment is considered to be financially profitable when its NPV > 0, and non-profitable when
NPV < 0. When NPV = 0, the investment generates neither gains nor losses.
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In the case of EU-financed infrastructure projects (such as for waste and wastewater management),
the NPV for the investment must be negative. Otherwise, projects are considered to be commercially
viable and therefore do not require support from public grants.
A simple example for calculation of project NPV is presented in Table 24. The reference period for
calculation of the project NPV in this example amounts to 11 years. The investment outlays amount
to 1,000 monetary units. The net cash flow in each year of project operation is obtained by
subtracting from monetary inflows the monetary outflows. In 2009, there are only investment
outflows, so the net cash flow is -1,000. Between 2010 and 2019, the net yearly cash flow amounts to
35 monetary units. The discounted cash flow is obtained by multiplying the net cash flow in a given
year by the discount factor for that year. In this example, the discount rate used to calculate the
discount factors is 5%.
Table 24: Calculation of NPV of the investment (FNPV/C)
2009
Discount Factor (DF) at r=5%
1,000
Investment costs
-1 000
Revenues
0
Expenditures
0
Net Revenues
-1 000
Discounted Net Revenue (V * I)
-1000
Net Present Value (sum of
discounted net cashflow in reference
VII. period)
-730
I.
II.
III.
IV.
V.
VI.
2010
0,952
2011
0,907
2012
0,864
2013
0,823
2014
0,784
2015
0,746
2016
0,711
2017
0,677
2018
0,645
2019
0,614
80
-45
35
33
80
-45
35
32
80
-45
35
30
80
-45
35
29
80
-45
35
27
80
-45
35
26
80
-45
35
25
80
-45
35
24
80
-45
35
23
80
-45
35
21
As presented in the main text, for EU-funded projects two types of NPV are calculated:
The Financial Net Present Value on Investment FNPV(C) (also known as FNPV/C); and
The Financial Net Present Value on National Capital FNPV(K) (also known as FNPV/K).
The difference between these two indicators is that FNP(C) takes into account total investment costs,
and FNPV(K) takes into account only that part of the investment costs that are covered by national
financial resources (i.e. excluding that part of the investment costs covered by the EU grant).
For example, if 55% of the investment costs presented in Table 24 are covered by the EU grant and
45% is financed by public authority, then FNPV(K) would amount to -180 monetary units as presented
in the table below.
Table 25: Calculation of FNPV/K
I.
II.
III.
IV.
V.
VI.
Discount Factor (DF) at r=5%
National resources - investment
Revenues
Expenditures
Net Revenues
Discounted Net Revenue (V * I)
Net Present Value (sum of
discounted net cashflow in reference
VII. period)
2009
1,000
-450
0
0
-450
-450
2010
0,952
2011
0,907
2012
0,864
2013
0,823
2014
0,784
2015
0,746
2016
0,711
2017
0,677
2018
0,645
2019
0,614
80
-45
35
33
80
-45
35
32
80
-45
35
30
80
-45
35
29
80
-45
35
27
80
-45
35
26
80
-45
35
25
80
-45
35
24
80
-45
35
23
80
-45
35
21
-180
The NPV is also calculated as part of the economic analysis of the project. The economic NPV is
referred to as the ENPV. As economic analysis is conducted not from the investor’s standpoint (as in
financial analysis) but from the standpoint of society as a whole, the project’s benefits and costs are
calculated in a different manner (see section 5.4).
As economic analysis examines a project’s overall benefits to society, only those projects that
generate a positive ENPV are acceptable for financing (even if those projects are directed purely
towards compliance with EU legislation).
Internal Rate of Return
The internal rate of return (IRR) of a project is the discount rate for which the project net present value
is equal to 0. In other words, this IRR represents the discount rate at which the present value of
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project outflows (related to the investment and operation phase) is equal to the present value of
project inflows (i.e. revenues). The IRR is the value of r that satisfies the following equation:
NPV
N
Ct
¦ (1 r )
t 0
t
0
In order to calculate the IRR of a project, one should calculate the NPV for various discount rates until
an NPV value close to 0 is obtained. The most convenient way to calculate IRR is to use a computer
spreadsheet program which has an automatic function allowing the calculation of IRR.
For EU funded projects two types of IRR are calculated:
Financial Rate of Return of the Investment FRR(C) (also known as FRR/C); and
Financial Rate of Return of the Capital FRR(K) (also known as FRR/K).
FRR(C) is the discount rate at which FNPV(C) is zero, and FRR(K) is the discount rate at which
FNPV(K) is zero.
For an infrastructure project to justify the contribution of EU funds, both these financial rates of return
should usually be lower than the applied discount rate. A very low or even negative financial rate of
return does not necessarily mean that the project is not in keeping with the objectives of the funds, but
only that it is not viable in the open financial market. 52
IRR is also used in the economic analysis of projects. Since economic analysis is conducted not from
the investor’s standpoint (as in financial analysis) but from the standpoint of society as a whole, the
project benefits and costs are calculated in a different manner (see section 5.4). The IRR indicator
used in economic analysis is referred to as the economic rate of return (ERR). The average ERR for
selected solid waste treatment projects in the programming period 2000–2006 was 28.27%; for water
supply and waste water treatment projects it was 11.33%. 53
52
Guide to Cost-Benefit Analysis of Investment Projects. Structural Funds, Cohesion Fund and Instrument for PreAccession; European Commission; DG Regional Policy; 16/06/2008; p. 40
53
ibid.
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ANNEX B
CASE STUDY
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This Annex presents an edited version of the CF application form for major projects that is applicable
for Member States (as defined in Commission Regulation 1828/2006/EC). The content is fictitious but
is based on a real-life example. The form has been abbreviated in order to reduce its length.
It should be noted, however, that the edited application form presented in this Annex is not an
example of good-practice to be followed by future IPA or Cohesion Fund applicants. On the contrary
– it contains major mistakes and significant omissions made by the applicant. It is the task of the
reader to identify these mistakes / omissions.
In order to benefit from this Case Study, it is suggested that readers first examine and consider the
application form from the position of a public official who has been asked to evaluate the readiness of
the project for support from EU funds, focusing on technical, institutional, financial and environmental
issues (including EIA and Natura 2000).
The key questions which the reader should consider are:
Is the project adequately prepared from an institutional, financial, economic and technical
perspective?
Is the project acceptable in terms of EIA / SEA / Natura 2000?
If you were assessing this project in the European Commission, would you approve the request
for funding?
If not, what additional information would you require from the Member State / applicant
concerned?
Thereafter, the reader may find it useful to compare his or her findings with some of the points listed
at the end of this Annex.
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Commentary on Case Study
Technical Preparation
The technical elements of project seem broadly reasonable (B)
There is some demand forecast i.e. predicted waste arisings (and their treatment / disposal)
(Table 1) – although this raises a number of questions (e.g. is a 100% collection rate really
realistic? Are the capacities of the proposed treatment facilities consistent with the expected
waste arisings?).
It is not clear whether there is an existing Waste Management Plan for the Hradec Region! (C.1
implies there is not, whilst the end of C.2, refers to an “integrated waste management plan”).
The status of the conceptual designs is also not clear (C.2 suggests that they are not - “The
definitive cost estimates will be provided in the conceptual designs”, whilst C.2.4 suggests that
they might be.
Institutional Preparation
“The precise organisation of the waste collection (independently by each municipality or conjointly
by an inter-municipal organisation) will be decided at a later stage” (end of B.2.1) – this is not a
question of detail and should be clearly agreed prior to the submission of the application!
“The municipalities will work together for the determination of the landfill tax so as to guarantee
that the total cost for the waste management is not too different between the municipalities” (end
of B.2.1) – same comment applies.
The section on project revenues (E.1.3) gives a strong impression that tariff policy is not clear and
not agreed.
“The assumption is that the municipalities will move from the present property based tax system
towards a more waste-generation related system”,
“a political decision is needed” (E.1.3).
Financial Preparation
“No official commitment [to co-finance] has yet been given” (A.2, twice within D.2.3.!)
Budget seems uncertain (no conceptual designs yet exist – C.2).
“Some of the measures (e.g. collection and transport of the waste fractions) will be taken and
financed by the municipalities” (C.2) – no evidence that this is realistic.
Table in G.2.1 cannot be replicated on a calculator! (a difference of more than 2000 Euro!) Note:
This is a common problem where calculations are done using spreadsheet programs that
calculate using many decimal places but display much less. Normally the funding gap rate is
rounded to two decimal places.
Total project cost in table G.2.2 has much larger total investment cost than table in G.1! Note:
This appears to be because the applicant has attempted to misinterpret the scope of the project to
include reinvestment and investments over a very long period in order to achieve total costs of
more than 25 m€ (the threshold for an environment sector major project in the Member States).
There are two tables provided in G.1.1 and G.1.2 that make this clear.
Cost Benefit Analysis
Tables in E.1 (financial analysis) look acceptable.
But we know that there is no clear idea of what future tariffs will be, and we have no confidence in
the investment costs so can have no confidence in the cost benefit analysis either (“garbage in,
garbage out”).
Economic analysis: almost all benefits from greenhouse gas reduction, but still giving a very high
rate of return. Note: this result is not atypical for waste management projects of this type.
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There is something at least for risk and sensitivity analysis – the original (unedited) version of the
application form has much more information.
EIA / Strategic Environmental Assessment / Natura 2000
Not clear that correct environmental authorities are mentioned in consultation (F.1). It appears
that the applicant has misunderstood the question that is being asked here – this is not “Who is
the competent authority?” but rather “What other environmental authorities were consulted by the
competent authority?”
The development consent is not the same as the decision from the EIA process! (some confusion
in F.2.1.2 – date of development consent: “22/03/2002: The EIA procedure was finished …” Also
the EIA appears to have been done only for a part of the project (risk of “salami slicing” the project
into smaller parts and potentially ignoring cumulative effects).
Why has no strategic environmental assessment been undertaken? Is there no national waste
management plan? Note: this issue is only relevant for Member States.
The application form does not give much confidence in relation to Natura 2000.
In conclusion, it is clear that this project is very far from the stage where an application should be
submitted. Considerably more work is needed in all areas – technical, institutional and financial. It
should also be noted that the applicant has modified the form substantially in section G.1 (Financing
Plan) in providing two tables in place of the one required. Such modifications to the standard form are
unacceptable.
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ANNEX C
PREPARING TERMS OF REFERENCE FOR TECHNICAL ASSISTANCE
PROJECTS FINANCED BY THE EC
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Purpose
Terms of Reference (TOR) should provide a clear description of:
¾
The rationale for undertaking an assignment or study
¾
The expected methodology and work plan (activities), including timing and duration
¾
The anticipated resource requirements, particularly in terms of personnel; and
¾
Reporting requirements
The Terms of Reference are often a key contractual document against which the performance of
contractors, consultants and / or other stakeholders can be measured.
TOR in the Project Cycle
Terms of Reference are used throughout the project cycle to help specify work which needs to be
carried out or to provide support. When EU funds are being used, they are usually required for:
Pre-feasibility studies
Feasibility and design studies
Appraisal / quality support missions
Implementation contracts
Monitoring and review missions / contracts
Evaluation studies
Other technical advisory / support work required at any stage of the project cycle
Audits
A copy of the standard format for TOR for EU-funded service contracts can be obtained from:
http://ec.europa.eu/europeaid/work/procedures/implementation/services/annexes_standard_documen
ts/index_en.htm
Format and Content of TOR
While the exact content of TOR will vary depending on the scope of the project and the assignment in
question, the following generic format is suggested:
1. Background to the assignment
2. Study / mission objectives
3. Issues to be studied
4. Methodology
5. Expertise required
6. Reporting requirements
7. Work plan and timetable
A brief description of the type of information that might be contained in a TOR is provided in the
following sub-sections. This is provided for guidance only and does not imply that all the issues listed
need to be considered by every study team / mission, or that the work necessarily needs to be
contracted out.
Background to the Assignment
This section should provide an overview of the history behind the assignment and its rationale. It
should clearly establish why the assignment is being carried out and relate it to the wider policy or
programming context. This section could vary in length from a few paragraphs to one or two pages,
and should generally:
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Place the assignment in the context of EC and National strategies, policies and programme
priorities.
State the role of the partner government / other local stakeholders in undertaking the assignment.
Provide a brief history of the project to date. This should allow the reader to understand what
important prior work has been carried out (and by whom), what formal approvals / agreements
have been reached, and the current status of the project in the project cycle.
Study / Mission Objectives
The purpose of the section is to state clearly and concisely what the assignment is expected to
achieve, and who the target audience is, for example:
For a Pre-feasibility Study: To provide decision-makers in the [responsible Contracting Authority]
and the European Commission with sufficient information to justify the acceptance, modification or
rejection of the proposed project idea, and determine the scope of follow-up planning work (i.e. a
feasibility / design study).
For a Feasibility Study: To provide decision-makers in the [responsible Contracting Authority] and
the European Commission with sufficient information to justify the acceptance, modification or
rejection of the project proposal, and if deemed feasible, to provide adequate information on which to
proceed to concluding a financing agreement.
Issues to be Studied
Pre-feasibility Study during the Project Identification Phase: During this phase, the following
issues could be included for study / assessment:
Assess the proposed project’s coherence with relevant EC and National strategies, policies and
programme priorities.
Assess the proposed project’s coherence with the national development policy and sector policies
and expenditure plans.
Identify key stakeholders and target groups, and assess institutional capacity issues and degree
of local ownership.
Identify the key problems to be addressed and development opportunities, and prepare a
preliminary problem analysis.
Identify lessons learned from past experience and analyse the proposed project’s coherence with
current / on-going initiatives.
Analyse and as appropriate re-formulate preliminary project objectives and proposed
implementation strategy.
Analyse and as appropriate formulate proposed management / coordination arrangements.
Analyse and document sustainability issues – including the financial and economic sustainability
of the proposed measure.
Analyse and document cross-cutting issues – including gender, environmental and human rights
implications.
Analyse and document likely resource / cost implications.
Prepare a draft Logframe matrix (as appropriate).
Highlight areas requiring further analysis and provide clear recommendations on the next steps
(including Terms of Reference for a Feasibility / Design Study).
Feasibility / Design Study during the Project Formulation Phase: Building on the work of any
previous studies, the following issues could be further assessed / analysed:
Analyse the proposed project’s coherence with relevant EC and National strategies, policies and
programme priorities.
Analyse the proposed project’s coherence with the national development policy and sector
policies and expenditure plans.
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Identify key stakeholders and target groups, and assess institutional capacity issues and degree
of local ownership.
Prepare a clear and appropriately structured problem analysis.
Analyse lessons learned from past experience and ensure coherence with current / ongoing
initiatives.
Provide a clear analysis of strategy options and justification for the recommended implementation
strategy.
Provide a set of clear and logically coherent project objectives (goal, purpose, outputs) and a set
of indicative activities for delivering each project output.
Provide a Logframe matrix with supporting activity and resource / cost schedules.
Provide a description of the proposed performance measurement (monitoring, review and
evaluation) and accountability system.
Provide a description of the proposed management/coordination arrangements, which
demonstrates how institutional strengthening and local ownership will be effectively supported
Provide an analysis of assumptions / risks and a risk management plan.
Provide an analysis of sustainability issues – including the financial and economic sustainability of
the proposed measure, environmental impact, benefits to target groups and the use of
appropriate technology.
Prepare Terms of Reference for any consultants / TA to be involved in project implementation.
Prepare any other documents as may be required for supporting the preparation / conclusion of a
Financing Agreement.
Methodology
The section on methodology should describe how the study / mission will be carried out, including the
main methods to be used to collect, analyse, record and report information.
This section should therefore include a description of:
Main phases in the study (i.e. preparatory activities, field work, analysis, report drafting, feedback,
editing, report finalisation).
How stakeholders will be involved and participation promoted, including specific target groups.
The location and duration of study activities.
The data / information collection tools that will be used, including any planned surveys,
questionnaires, field observations, reference to administrative records and management reports,
key interviews, etc.
How data will be analysed and recorded.
How and when specific reports will be produced.
Expertise Required
The purpose of this section is to specify the professional requirements of the individual and / or team
who will undertake the assignment. There are two broad approaches to establishing the required
expertise:
A skills or attributes based approach in which the skills and other qualities of the whole team are
specified, but not the exact number of team members or specific composition of the team; and
A duties approach in which individual team members are identified by title and specific duties
specified for each of them.
The attributes approach may be preferred when the outputs of the mission can be clearly specified
and the intention is to contract a team to undertake the task. This then allows tenderers to be
innovative in putting forward a proposed team, methodology, work plan and budget.
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However, if the outputs of the mission cannot be adequately specified (but specific tasks can), or if the
Contracting Authority wishes to maintain more control over the inputs they are ‘buying’ – then a duties
based approach may be preferred. The duties based approach would generally specify:
The exact number of team members and the their required qualifications, experience and other
attributes;
The period of engagement of each team member
The exact duties and responsibilities of each team member; and
The relationship between the each team member, including team leadership roles.
Reporting Requirements
This section of the TOR should clearly specify the reporting requirements, and might include details
of:
The table of contents for the required report (e.g. for a feasibility / design study), including
annexes;
The anticipated length of the report;
The language to be used;
The format or font to be used;
The computer software programmes to be used;
The submission date(s) for drafts and final copies;
To whom the report(s) should be submitted;
The number of copies to be produced, and whether in hard copy / and or electronic form;
Whether or not a (face to face) presentation of the contents of the report is required, when and to
whom;
Responsibilities for report production and presentation
Reference might also be included to relevant EC Guidelines where these provide further guidance
with respect to report formats or other reporting requirements.
Work Plan and Timetable
This section should provide a summary of the anticipated work plan and timetable, based on an
analysis of the issues to be studied, the proposed method and the reporting requirements. This is
best presented in the form of an activity schedule / Gantt chart.
The work plan may be presented in more or less detail depending on whether or not the Contracting
Authority has a clear idea of how the study should be carried out, and to what extent they want
bidders to propose their own methodology, team composition and / or work plan.
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ANNEX D
OTHER SOURCES OF INVESTMENT FUNDING
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Between 2007 and 2009 the IPA allocations for waste management sector amount to 26.35 million
EUR. These resources, however, are insufficient to implement all the necessary projects in the waste
management sector. Therefore, project developers / End Recipients need to ensure additional
sources that allow co-financing of the projects financed with the IPA fund.
Additional sources of investment funding include:
National Funds
Bank loans;
Municipal bonds;
Other foreign aid programmes;
Private financing.
National Funds
Environmental Protection and Energy Efficiency Fund (EPEEF)
The EPEEF supports investments in the preparation, implementation and development of
programmes and projects and similar undertakings in the field of preservation, sustainable use,
protection and improvement of the environment in the waste management sector, including the
remediation and closure of municipal landfills and the establishment and construction of waste
management centres.
According to the Waste Management Plan of the Republic of Croatia for the period 2007 – 2015 (OG
85/2007) up to 60% of the costs involved in preparing the design and technical documentation,
conducting site investigations for waste management centres, and preparing application documents
for IPA co-financing will be co-funded from the EPEEF.
The necessary co-financing for the construction of municipal waste management systems at
county/regional levels will be provided in such a manner that up to 80% of investments in the public
component (i.e. the waste management centre without mechanical-biological treatment) will be
covered by the EPEEF and IPA, with the remaining 20% of the investment being financed from local /
regional self-government budgets.
www.fzoeu.hr
Regional Development Fund
The budget for the activities of the Fund is determined on one-year basis and is related to the national
budget. The budget is allocated according to a quota system by counties, which is calculated on the
basis of the counties’ development level.
The beneficiaries are counties and local governments (towns and municipalities) and other economic
entities (legal and physical persons, tradesmen and others) from the regions of the Republic of
Croatia that are defined by the Act on Areas of Special State Concern, Act on Hilly and Mountainous
Areas and the Act on Islands as well as the other areas with severe development and employment
problems.
The RDF funds are intended to be used for financing infrastructural and economic projects. They
include:
Municipal waste disposal;
Construction and reconstruction of water supply facilities, as well as facilities for drainage and
purification of waste water, and sanitation maintenance.
www.fondrr.hr
Bank Loans (international development banks or commercial banks)
European Bank for Reconstruction and Development (EBRD):
The Bank has a strong pipeline of projects in municipal and environmental infrastructure [in Croatia].
In particular, the Bank has begun preparing water and solid waste projects on a regional basis, as
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these can offer greater efficiency than smaller, local facilities. In addition, the Bank will continue to
prepare projects with cities which will be designed to be eligible for co-financing of IPA funds made
available by the EU.
www.ebrd.com
European Investment Bank (EIB)
The EIB provides lending in the area of infrastructure development. So far most of its lending to
Croatia focused on transport infrastructure. The lending is provided also for environmental sector (e.g.
investments in municipal solid waste). Usually the EIB loans can be up to 50% of eligible project
costs. The financial and economic criteria are the most important criteria for granting a loan. Each
project needs also to be technically and environmentally sound.
www.eib.org
Croatian Bank for Reconstruction and Development (HBOR)
The bank has the Loan Programme for the Financing of Projects of Environmental Protection, Energy
Efficiency and Renewable Energy Resources. The final borrowers are:
Units of local and regional self-government
Utility companies
Companies, craftsmen, other legal entities and natural persons.
The Bank provides support to borrowers either via commercial banks or through direct lending.
www.hbor.hr
The World Bank
Municipal Environmental Infrastructure Project
www.worldbank.hr
Commercial Banks
A number of commercial banks operating in Croatia can provide loan financing to local government
units.
Municipal Bonds
Municipal Bonds are the bonds issued by local government in order to collect financial resources (e.g.
for investment in local infrastructure). This form of project financing is gaining popularity in many
countries in the region.
The local authorities issuing bonds receive funds that are repaid to investors (holding the bonds over
time). The holders of the bonds receive payments over time that includes interest on the invested
capital, and a return of the invested capital itself.
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ANNEX E
CONTENTS OF TENDER DOSSIERS
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Tender Dossier for Service Contracts:
The Tender Dossier must contain all the provisions and information that tenderers who were invited to
tender are required to provide in their tenders: the procedures to follow, the documents to provide,
cases of non-compliance, award criteria and their weightings, stipulations regarding subcontracting,
etc. The Implementing Body / Contracting Authority is responsible for drawing up these documents.
Tender Dossier Content:
a. Instructions to Tenderers
These must indicate:
¾ The type of contract (i.e. Service)
¾ The tender evaluation criteria (and any sub-criteria) and the weightings
¾ The possibility of interviews and the timetable for them
¾ Whether variants are allowed
¾ The proportion of subcontracting which may be authorised
¾ The maximum budget available for the contract
¾ The currency of the tender
b. Draft Contract and Annexes
This includes:
¾ The Conditions of Contract
¾ The Terms of Reference for the project (which give instructions and guidance to the tenderers on
the tenders they will need to submit and to serve as the contractor’s mandate and which will
become an annex of the contract), with a forecast timetable for the contract implementation and
the forecast dates from which the key experts must be available
¾ An overall structure for the Organisation and Methodology to be provided by the tenderer and
which will become an annex of the contract
¾ A standard format for the summary and CVs of key staff, to be included as an annex of the
eventual contract
¾ The format of the budget (for completion by the tenderer) which will become an annex of the
eventual contract
¾ The General Conditions for service contracts
¾ The format to be used by a bank or similar institution to provide a guarantee for the advance
payment under the contract
¾ Any additional contractual information such tax arrangements for contracts funded by the EU
c. Tender Submission Format
¾ The tender must be rejected if the format is not respected.
¾ Tenders must reach the Contracting Authority (CA) at the address, date and time given in the
letter of invitation to tender.
¾ Tenders must be sent in one envelope containing two envelopes separately sealed, one
containing the technical offers and the other the financial offer.
¾ In the tender dossier, a period of validity of tenders for 90 days from the deadlines of the
submission of the tenders is required; therefore the evaluation process must be completed in time
to allow the notification of the successful tenderer within the tender validity period.
¾ In exceptional cases, before the period of validity of the tender expires, the CA may ask tenderers
to extend the period for a specific number of days, which may not exceed 40 days.
¾ The successful tenderer must maintain its tender for a further 60 days from the date of notification
of award.
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Tender Dossier for Supply Contracts:
The Tender Dossier must contain all the provisions and information that tenderers invited to tender
need to present their tenders: the procedures to follow, the documents to provide, cases of noncompliance, the award criteria and their weightings, the stipulations regarding sub-contracting, etc.
The Implementing Body / Contracting Authority is responsible for drawing up these documents.
Given the technical complexity of many supply contracts, the preparation of tender dossier –
particularly the Technical Specifications – may require the assistance of one or more external
technical specialist(s).
Tender Dossier Content:
a. Instructions to Tenderers
These must indicate:
¾ The type of contract (i.e. Supply)
¾ The selection (concerning the tenderer’s capacity to execute similar contracts, and technical
capabilities) and award criteria (to be applied only to technically compliant tenders).
¾ The grid to be used to evaluate the tenders. Given the wide variety of supplies and their technical
nature, the grid must be individually developed for each tender in a YES/NO format to allow clear
assessment whether or not the offer responds to the Technical Specifications
¾ Whether variants are allowed
¾ Whether, and in what proportion, sub-contracting is permitted
¾ The currency of the tender
¾ The format to be used by a bank or similar institution to provide a tender guarantee (1-2% of the
budget available for the contract)
b. Draft Contract and Annexes
This includes:
¾ The Conditions of Contract
¾ The technical annexes, containing any plans and the Technical Specifications (which give
instructions and guidance to the tenderers on the tenders they will need to submit, and to serve
as the contractor’s mandate and which will become an annex of the eventual contract), as well as
a provisional timetable for performance
¾ The format of the budget (for completion by the tenderer)
¾ The General Conditions for supply contracts
¾ The formats to be used by a bank or similar institution to provide guarantees for the advance to
be paid under the contract and the performance guarantee (10% of the contract value)
¾ Any additional contractual information
c. Tender Submission Format
¾ The technical and financial offers must both be submitted in a separate sealed envelope or each
separately packed in an envelope.
¾ The technical offer must satisfy the Technical Specifications in all respects. Variant solutions must
be prepared as a separate offer and can only be considered if a fully responsive technical offer
has also been submitted by the tenderer and allowed in the tender dossiers.
¾ The financial offer must be in the currency requested in Tender Dossier and presented in the
standard format to facilitate comparison of the financial offers. If this format is not respected, the
tender must be rejected.
¾ The period of validity of tenders is fixed at 90 days from the deadline for the submission of
tenders.
¾ In exceptional cases, before the period of validity expires, the Contracting Authority may ask
tenderers to extend the period for a specific number of days, which may not exceed 40 days.
¾ The successful tenderer must maintain its tender for a further 60 days from the date of notification
of award.
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Tender Dossier for Works Contracts:
The Tender Dossier must contain all the provisions and information that tenderers need to present
their tenders: the procedures to follow; the documents to be provided; cases of non-compliance;
award criteria, etc. The Implementing Body / Contracting Authority is responsible for drawing up these
documents.
Tender Dossier Content:
a. Instructions to Tenderers
These must indicate:
¾ The type of contract (i.e. Works)
¾ The selection and award criteria (selection criteria concern the tenderer’s capacity to execute
similar contracts, with particular reference to works executed in recent years. Following selection,
the sole criterion for award is price)
¾ The grid to be used to evaluate the tenders. Given the wide variety of works and their technical
nature, the grid must be individually developed for each tender in a YES / NO format to allow
clear assessment of whether or not the offer responds to the Technical Specifications (which give
instructions and guidance to the tenderers on the tenders they will need to submit, and to serve
as the contractor’s mandate and which will become an annex of the eventual contract)
¾ Whether variants are allowed
¾ Whether, and in what proportion, sub-contracting is permitted
¾ The currency of the tender (Euro)
¾ The format to be used by a bank or similar institution to provide a tender guarantee (1-2% of the
budget available for the contract)
b. Draft Contract and Annexes
This includes:
¾ The General Conditions for the works contract
¾ The specific contract conditions which amplify, supplement or derogate from the General
Conditions
¾ The technical annexes, containing any plans and the Technical Specifications, as well as a
provisional timetable for performance
¾ The format of the Bill Of Quantities / budget (for completion by the tenderer)
¾ The formats to be used by a bank or similar institution to provide guarantees for:
o The advance to be paid under the contract
o Performance (10% of the contract value)
¾ Any additional contractual information
c. Tender Submission Format
¾ The technical and financial offers must both be submitted in a single, sealed envelope or packet.
¾ The technical offer must satisfy the Technical Specifications in all respects. Variant solutions can
only be considered if a fully responsive technical offer has also been submitted by the tenderer.
¾ The financial offer must be in Euro and presented in the standard format to facilitate comparison
of the financial offers. If this format is not respected, the tender must be rejected.
¾ The period of validity of tenders is fixed at 90 days from the deadline for the submission of
tenders.
¾ In exceptional cases, before the period of validity expires, the Contracting Authority may ask
tenderers to extend the period for a specific number of days, which may not exceed 40 days.
¾ The successful tenderer must maintain its tender for a further 60 days from the date of notification
of award.
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ANNEX F
INDICATIVE CHECK-LIST OF CONTRACT MANAGEMENT ISSUES FOR
WASTE PROJECTS
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Phase
Contract
Documentation
Design /
Construction
Category
Contract Management Issues
Capacity
Loads and variations (t/d)
Waste characterisation
Variation range
Modular processes
Design Criteria
Emissions limits
Residues / disposal
Flexibility
Outage (%)
Safety
Emissions control
Plant safety
Auto-shutdown
Equipment standards
Containment of residues
Asset Condition
Proven technology
Fitness for purpose
Maintenance levels
Design life and standards
Workmanship specification
Design / Quality approval
Witness tests
Commissioning tests
Payment
Provisions
Usage values and thresholds
Volume or load capacity
Availability
Environmental emissions
Safety standards
Regulations
Maintenance criteria
Monitoring and
Auditing
Waste delivery (t)
Automatic emissions analysis
Independent audit sampling
Inter-stage data
Residual waste streams (t)
Residue disposal records
Waste diverted (t, %)
System operation data (SCADA)
Records database / GIS
Design Review
Compliance with constraints
Compliance with standards
Compliance with tender
Statutory
Process
Contract
Formalisation
Permits and related conditions
Securities and insurances
Existing
Works/Staff
Possession / security of site
Staff transition / handover
Interim operation of plant
Workmanship
and Materials
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Completed EIS / EIA
Site acquisition (if required)
Development permit
Construction permit
Licence(s) to operate
Other statutory permits/consents
QA plan and implementation
Spot-check for compliance
Equipment approvals/tests
Authority and public interfaces
Commissioning tests
Integration with existing systems
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
Phase
Operation
Category
Contract Management Issues
Monitoring Plan
Availability
Capacity and throughput
Maintenance outage
Flexibility (waste types and
loads)
Commissioning
Performance
Standards
Volume throughput
Satisfy emission standards and
other environmental limits
Residues disposal
Payment
Authorisation
Usage charge
Minimum threshold(s)
Deductions for non-compliance
Bonus (for higher performance)
Inflation index
Repair and
Maintenance
Defects repair/plant renewals
Calibration checks
Asset upgrading
Maintenance records
Contract
Obligations
Health and safety regulations
Securities and insurances
Statutory reporting
Change
Management
Waste regulations change
Emission standards change
Increased loads
Public pressure
Contracting Authority decision
Technological change/upgrade
Energy cost/tax charges
Stakeholder
Management
Contracting Authority staff
Waste collectors / producers
Environmental regulator(s)
Public bodies and general public
Hand-back
Manage hand-back
Potential obsolescence
Upgrade facility
Re-tender service
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Waste reception/acceptance
Waste loads (t/day)
Characterisation
Reception / acceptance records
Site emission data
External cost parameters
Residues (volume, nature)
Troubleshooting
Acceptance tests
Defects completion
Maintenance schedules
Health and safety review
Operator training
Set up records systems
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ANNEX G
RESPONSIBILITIES OF THE SUPERVISING ENGINEER IN RELATION
TO WORKS CONTRACTS
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FIDIC Yellow Book Design Phase:
¾ Examination of designs with permits.
¾ Co-ordination of the tender dossier and the designs.
¾ Making proposals for necessary design modifications and consultation about design modification initiatives,
implementation and recording of the permit procedure, acquisition of necessary permits and permit
modifications.
¾ Organisation, implementation and recording of the necessary design consultations.
¾ Provision of expert control during design phase (for waste management, architectural and specialised
designs).
¾ Preparation of reports for the supporting bodies.
Construction and Hand-Over Period:
¾
¾
¾
¾
Checking the works site reference points and their provision to the contractor.
Handing over administrative and public utility permissions and statements to the contractor.
Take-over of work-site, work place, preparation of minutes for the contractor.
Examination of officially handed-over documents, supervision and formulating opinion about the
modifications and supplements proposed by the contractor.
¾ Review and approval of the design drawings submitted by the contractor (yellow book only).
¾ Preparation of photographic and video records.
¾ Managing engineer’s designs and documents; permanent and continuous follow-up with attention to the
implementation on the basis of the designs, administrative permissions, provisions; qualitative and
quantitative control; in case of defects or alterations, implementing the necessary measures.
¾
¾
¾
¾
Supervision of site records and physical progress, making necessary records in due time.
Checking and approving the reports of the contractor as set forth in the works contract.
Checking the deadlines and internal deadlines defined in the contract.
Continuous control of quality and its proof; making all necessary measures in order to provide first class
quality.
¾ Co-operation with the representatives of the contracting authority, ministries and the organisations
commissioned by the contracting authority; forwarding and presentation of their comments and requests
towards the contractor.
¾ Examination of the justification of supplementary works and variation orders, and if necessary the issuing of
variation orders within the supervising engineer’s scope of authority, and obtaining the approval of the
contracting authority as required.
¾ Checking the works to be covered before covering over.
¾ Participation in the elimination of obstacles arising from the responsibility of the contracting authority.
¾ Facilitation of the organisation of regular on-site consultation meetings, participation in meetings, recording
in the minutes the tasks arisen and problems to be solved, making proposals for resolving problems.
¾
¾
¾
¾
¾
Preparation in technical and financial reports as required by the contracting authority.
Continuous checking of the performance certificates of the contractor and its accounts.
Checking the appropriateness of the works completed and to be accounted for.
The formal and substantial supervision of the invoices (for interim and final invoices) of the contractor.
Making the necessary provisions for the transfer of the amount of approved invoices within deadline,
checking the formal requirements of invoices and that the provisions of the contracting authority and the
European Commission are fulfilled.
¾ Compiling documents for the deliberation of potential invoice discussions; implementation of invoice
consultations.
¾ Arranging the technical taking-over at the time requested by the contractor, inviting all relevant parties.
¾ Checking and supervision of the documents provided by the contractor which constitute the basis for the
(technical and financial) works taking-over procedure.
¾ Taking-over and controlling of quality certificates; the evaluation of the defined quality control on the basis
of quality control results.
¾ Commissioning and evaluation of technically required control examinations, and provision of the
qualification documentation for the contracting authority.
¾ Drawing up the schedule of defects with nominal values, ordering the immediate remedying of defects and
the establishment of the value of amortisation due to non-remediable defects
¾ Quality classification and the establishment of the eventual price decrease.
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¾ Issuing a taking-over certificate, handing over of the facilities taken over from the contractor to the
contracting authority.
¾ Checking the test at completion, authorised recording of the result.
Operating Period:
¾ Monitoring the availability of the facility to deliver the required performance levels.
¾ Ensuring that the contracted services are provided in accordance with the Operational Performance
Specification.
¾ Monitoring compliance with environmental standards and constraints.
¾ Implementation and operation of the direct monitoring system established by the Contracting Authority
itself, in addition to the analysis of the monitoring data maintained and provided by the contractor.
¾ Receiving, checking and authorising invoices for payments under the contract payment mechanism, at the
specified frequency and within the period allowed for payment, if appropriate.
¾ Ensuring that latent and inherent defects are addressed at an early stage in order to keep asset condition
up to the specified standards, joint inspection with the contractor of repair and maintenance obligations,
implementation of renewals or other asset upgrading as required by the Contract.
¾ Monitoring compliance with appropriate regulations including health and safety policies, building and fire
regulations and statutory obligations.
¾ Monitoring the implementation of quality management systems, information transfer from the contractor to
the Contracting Authority and the updating of records.
¾ Developing performance reports on behalf of the Contracting Authority, covering operating loads, and
performance history, current and projected costs.
¾ Managing changed conditions, considering options for dealing with change, assessing implications,
negotiating alterations in arrangements with the contractor, dealing with any approvals relating to change.
¾ Reviewing the development and maintenance of contingency plans in case of critical failures, loss of power
supply and major changes in load characteristics.
¾ Managing the day-to-day relationship between the Contracting Authority and the contractor, particularly at
critical interfaces with other areas of the network.
¾
¾
¾
¾
¾
Dealing with any price variation adjustments (including market benchmarking where appropriate).
Monitoring the revenue generated from third parties where appropriate.
Inspecting the asset register maintained by the contractor.
Dealing with third party and public relations aspects in conjunction with the contractor.
Monitoring that insurances and indemnities are maintained in force.
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ANNEX H
GENERAL CHECK-LIST FOR A COHESION FUND APPLICATION
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The purpose of this general check-list for a Cohesion Fund (CF) application is to enable applicants to:
Review and verify that the application form is complete in all respects; and
Ensure that all the required information has been provided, and that relevant supporting
documentation has been properly prepared and attached to the application.
General Questions:
1.
Has the application form been prepared in the [English] language?
2.
Have all pages in the application been numbered? Is the page
numbering coherent?
3.
Have all the required fields been filled in?
4.
Has the application form been signed by the relevant person(s)?
5.
Have the following documents been attached to the application form:
1. Feasibility study (up-to-date version, prepared in line with the
guidelines for preparation of feasibility studies for the Priority Axis
of the Operational Programme). All financial tables should be
presented in electronic versions (i.e. .xls with active formulae).
2. Declaration of the body responsible for the monitoring of Natura
2000 sites.
3. Map at a scale of 1:100 000 presenting the location of Natura 2000
sites.
4. Documentation relating to the EIA compliant with directives
85/337/EEC and 92/43/EEC for all project tasks (documents listed
in F.3.2.2 of the application form).
5. List of valid building permits.
6. Project implementation schedule (Gantt chart).
7. List of valid location permits.
8. List of tenders to be issued, including beneficiary's declaration that
the tender specification / tender dossier are prepared.
9. Beneficiary’s declaration stating that all contracts in relation to the
project will be carried out in line with the [Law on Public
Procurement].
10. Statement of the beneficiary confirming the availability of financial
resources for project co-financing.
11. Copy of the Municipal Company’s statute with legal documents
confirming registration.
12. The decision of the Municipal Council (or other body establishing
the Municipal Company) confirming the agreement on project
54
VAT is eligible only when the beneficiary is not able to reclaim it.
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Remarks
Not related
No
Yes
A more detailed check-list relating specifically to the economic and financial aspects of an application
for CF grant financing is presented in Annex I.
13.
14.
15.
16.
17.
18.
19.
20.
21.
preparation, submission and implementation.
Map of the project location (recommended scale 1:25 000)
Documents confirming that a Project Implementation Unit has been
established.
Beneficiary’s declaration that VAT is an eligible expense according
to the provisions of the eligibility criteria defined in the scope of the
OP 54 .
Beneficiary’s declaration confirming that expenses included in
eligible costs, and that were incurred by another entity before
submitting the application, meet the requirements of the eligibility
criteria. Beneficiary’s declaration that it accepts responsibility for
the proper management of those expenses.
Beneficiary’s declaration that the project is not co-financed from
other EU instruments.
Declaration of the Municipality that the investment is reflected in the
municipal multi-annual investment programme or municipal multiyear investment budget.
Beneficiary’s declaration that it has the necessary legal rights with
regard to the land designated for the project (ownership, lease,
etc).
Beneficiary’s declaration that all the information contained in the
application form is true and reflects the current legal and actual
status, and that all the documents attached are complete.
Beneficiary’s declaration that the proposed technical solutions are
energy efficient (if applicable).
6.
Have all the annexes attached to the application been signed on each
page by the person authorised to confirm validity of the information
provided in the annexes?
A
ADDRESSES AND REFERENCES
A.1
Has the applicant provided accurate information on the institution /
authority responsible for the application (section A.1 – A.1.6)
A.2
Have all the data enabling precise identification of the organisation
responsible for project implementation been provided?
A.2.1
Is the name of the beneficiary compliant with court registration,
commercial registration or other official documentation confirming
registration?
Have tax identification and commercial registration numbers been
provided?
A.2.2
Has the address of the beneficiary been provided in accordance with
the registration documentation?
A.2.3 –
2.6
Have current contact details for the person(s) designated by the
beneficiary been provided in the application form?
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Remarks
Not related
No
Yes
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B.
PROJECT DETAILS
B.1
Is the project title identical in all the relevant fields?
Remarks
Not related
No
Yes
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Does the title indicate the project’s geographical location?
Does the title indicate the phase of the proposed project?
Does the title conform to the limit on the number of characters (ca. 100
characters)? Is the title a single phrase or expression?
B.2.1
Is the code number provided for the priority theme dimension 44 i.e.
municipal and industrial waste management (in line with Annex II to
Regulation 1828/2006/EC) 55
B.2.2
Is the code number provided relevant for the aid scheme for which the
applicant is applying, i.e. 01 – non-refundable aid
B.2.3
Is the code number provided relevant for the area in which project the
will be implemented? Is this code compliant with Annex II to Regulation
1828/2006/EC?
B.2.4
Is the code number provided relevant for the type of economic activity
that the project focuses on? Is this code compliant with Annex II to
Regulation 1828/2006/EC?
B.2.4.1
Is the code number compliant with the type of economic activity? Is it
included in the list of codes for the types of economic activity NACERev.1 56
B.2.5
Is the code number provided compliant with the project location as
stated in the Regulation of the Council of Ministers on Nomenclature of
Units for Territorial Statistics (NUTS)? 57
B.3.4
Has the field ‘Cohesion Fund’ been marked?
B.3.5
Has the title of the Priority Axis been provided, [i.e. solid waste
management and soil protection]?
B.4a
Does the description present the geographical scope of the project,
project scope and relevant bodies / institutions?
B.4b
Where the project is a phase of an overall project, has a description of
the proposed stages of implementation been provided?
55
Commission Regulation (EC) No 1828/2006 of 8 December 2006 setting out rules for the implementation of
Council Regulation (EC) No 1083/2006 laying down general provisions on the European Regional Development
Fund, the European Social Fund and the Cohesion Fund and of Regulation (EC) No 1080/2006 of the European
Parliament and of the Council on the European Regional Development Fund
56
Nace-Rev.1 – 4 digit code
57
NUTS codes: http://europa.eu.int/comm/eurostat/ramon/nuts/home_regions_en.html.
130
B.4c
Have the reasons and criteria for dividing the project into phases been
explained?
B.4.2a
Does the description of the investment contain information regarding its
technical and technological features, location and related activities?
Is the descriptive part no longer than 3 pages (3 x 1,800 characters)?
B.4.2b
Have output indicators been described and quantified (with regard to
the project works to be carried out)?
B.4.2c
Has the target group (main beneficiaries) of the infrastructure been
indicated?
B.4.2d
If the answer is YES, has the form of PPP been described in detail?
Has detailed information been provided regarding how the
infrastructure will be managed and operated after project completion?
B.4.2e
If the answer is YES, has the information on trans-boundary investment
been provided?
B.4.2f
Has the field NO been marked?
B 5.1
Has an assessment of current infrastructure been presented (together
with project implications on the development of infrastructure)?
Has the current situation been described?
Has the target status been described (in relation to the relevant strategy
or national/regional plans, where applicable)?
Has the project influence on the achievement of the strategic objectives
been described?
B.5.2
Has the project contribution to the achievement of socio-economic
objectives been presented?
B.5.3
Has the applicant described how the project contributes to the
achievement of the priorities of the Operational Programme?
Has the applicant stated what % of total and eligible costs directly
relates to the achievement of the OP’s objectives?
C.
RESULTS OF FEASIBILITY STUDIES
C.1
Has a summary of the demand analysis been presented?
Has the methodology of the demand analysis been described?
Has the methodology for forecasting the number of users of municipal
solid waste management services been presented?
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No
Yes
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Has the method for calculating the predicted waste utilisation rate been
presented?
Has household disposable income been calculated?
Has an affordability analysis been conducted?
Has the methodology for forecasting the demand from other users been
presented (industry, public sector, commerce)?
Does the overall demand assessment include a statement on changes
(if any) in the level of services provided compared to the current status?
C.2
Have alternative project options for meeting strategic policy objectives
and legal requirements been identified?
Have the assumptions for carrying out the options analysis been
presented (including assumptions regarding investment and operating
costs)?
Are the assumptions for comparing different options consistent?
Is the selected project option based on a cost-effectiveness analysis
(i.e. Average Incremental Cost)?
C.3
Have the main findings of the feasibility study been presented? Has a
justification for the selected option been included?
If the feasibility study was financed with EU assistance, has the
required information been presented? Is this information consistent with
section I.1.4?
D.
TIMETABLE
D.1
Has a project timetable been provided, and a summary schedule of the
main categories of works been attached to the application form?
Does the timetable include all relevant phases of the project?
Is the information included in the timetable consistent with the Gantt
chart?
Has a brief description of the main categories of works been attached
to the summary schedule?
D.2
Has progress to date with regard to the technical and financial
components of the project been described?
D.2.1
Has progress with respect to all project components relevant from a
technical standpoint been described?
D.2.2
Has the current status with respect to administrative issues
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No
Yes
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Remarks
Not related
No
Yes
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(authorisations, EIA, land purchase, invitations to tender, etc.) been
described?
D.2.3
Have all the sources of project financing been indicated and described?
Is the information presented in section D.2.3 consistent with the
information presented in section H.2.2 and I.1.3 58 ?
D.2.4
Has project implementation already started? If yes, has the current
status of works been described?
E.
COST-BENEFIT ANALYSIS
E.1
Financial Analysis
E.1.1.
Have the methodology and assumptions used in the analysis been
described?
E.1.2.
Have the main elements and parameters used in the CBA been
presented in the appropriate fields of the application form?
E.1.3
Have the main results of the CBA been presented in the appropriate
fields of the application form?
Has an overall interpretation of the CBA results been presented?
E.1.4.
Have data on the project-related user charges and revenues been
presented?
E.1.4a
Has information on the levels of user charges and the related revenues
been presented (including justification)?
E.1.4b
Has information on the differentiation of the charges between user
groups been provided?
For projects that do not involves user charges: Has the way in which
operating and maintaining costs will be covered been described?
E.2
Socio-Economic Analysis
E.2.1
Has the methodology used for the socio-economic analysis been
presented?
Have the main conclusions from the analysis been presented?
E.2.2
Have quantifiable and non-quantifiable socio-economic benefits and
costs been listed?
E.2.3
Have the parameters and main indicators for the economic analysis
58
A common mistake made by applicants is that information regarding the size of the project (total project costs,
eligible costs) varies in different sections of the application form.
133
been presented?
E.2.4.
Has the project impact on employment been presented?
E.2.5
Have non-quantifiable benefits and costs of the project been
presented?
E.3
Risk and Sensitivity Analysis
E.3.1
Has a brief description of the methodology and summary results been
presented?
E.3.2
Has the scope of variation in project revenues been described?
Have switching values for the variables been calculated?
Has the impact of changes in selected project variables on basic project
parameters been presented?
E.3.3
Have the quantitative outcomes of the risk analysis been presented
F
ANALYSIS OF THE ENVIRONMENTAL IMPACT
F.1
Has it been explained:
- How the project contributes to environmental sustainability?
- How the project respects the principle of preventive action and
ensures that environmental damage is rectified “at source”?
- How the project applies the polluter pays principle?
F.2
Has information on the consultation with the environmental protection
authorities been presented for all relevant investment tasks?
If yes – have the addresses of those authorities been provided?
If information regarding consultations with the environmental protection
authorities has not been presented, has the applicant explained the
reasons for that?
F.3.1.2
If the development consent has been given for the project, has the date
of issuing this consent been provided?
F.3.1.3
If the development consent has NOT been given, has the applicant
provided the date when a formal request for development consent was
submitted to the competent authority or authorities?
F.3.1.4
Has the applicant provided an expected date for the final decision?
Remark: when a decision has not been obtained, the substantive
assessment criteria in this respect have not been met!
F.3.2
Application of Directive 85/337/EEC on the Assessment of the Effects
of Certain Public and Private Projects on the Environment:
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F.3.2.1
Has the applicant indicated whether the project falls under Annex I,
Annex II or is not-covered by the scope of Directive 85/337/EEC?
F.3.2.2
If the project is covered by Annex I of Directive 85/337/EEC, have all
the relevant documents been attached?
F.3.2.3
If the project is covered by Annex II of Directive 85/337/EEC and an
EIA has been carried out, has the applicant attached all the required
documents?
If the project is not covered by Annex II of Directive 85/337/EEC and an
EIA has not been carried out, has a justification been provided (with
regard to project characteristics, location and potential impacts)?
F.3.3
Application of the Strategic Environmental Assessment Directive
2001/42/EC (SEA Directive):
F.3.3.1
If the applicant has indicated that the project does not result from a plan
or programme falling within the scope of the SEA Directive, has an
explanation for that been provided?
If the applicant has indicated that the project results from a plan or
programme falling within the scope of the SEA Directive, has a
reference to the SEA report been provided?
Has a link to the web-page where the non-technical summary of the
SEA report carried out for the plan or programme is published been
provided (or has an electronic version of the document been attached)?
F.4
Assessment of Effects on Natura 2000 Sites:
If the project is likely to have significant negative effects on Natura 2000
sites, have the conclusions of the relevant assessment been provided?
If the project is not expected to have significant negative effects on
Natura 2000 sites, has the applicant attached Annex I, i.e. a declaration
of the authority responsible for monitoring Natura 2000 sites?
Has the declaration been signed by the competent authority?
F.5
Additional Environmental Integration Measures:
Have additional measures been incorporated within the scope of the
project with respect to environmental aspects (such as environmental
audit, environmental management, special monitoring, etc.)?
If additional measures have been incorporated, has the applicant
provided information regarding the activities for integrating
environmental aspects (such as environmental audit, environmental
management, special monitoring, etc.)?
F.6
Where the total project costs include costs for mitigation and/or
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No
Yes
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compensation measures for negative environmental impacts, has the
estimated proportion (%) of these costs in total costs been provided?
Where the total project costs include costs for mitigation and/or
compensation measures for negative environmental impacts, has the
applicant provided a brief explanation?
F.7
Has the applicant explained whether the project is consistent with the
sectoral/integrated plan and programme associated with the
implementation of Community policy or legislation in those areas?
G.
JUSTIFICATION FOR THE PUBLIC CONTRIBUTION
G.1
Has the applicant indicated if the project involves State Aid?
If the project involves State Aid, has the amount of aid been indicated?
Has the reference number of any relevant documentation approving the
aid been provided?
In the case of State Aid falling within the scope of a block exemption,
has the relevant reference number been provided?
If the project is awaiting a decision on notified aid, has the relevant
reference number been provided?
G.2
Has a description of the impact of Community assistance on project
implementation been provided?
H.
FINANCING PLAN
H.1
Have the data for all the cost categories listed in the table been
provided?
Have the data on all eligible costs been provided?
Confirm that table H1 does not contain any calculation errors!
H.2.1
Is the sum of eligible costs in table H.1 (point 12.C) identical with the
sum provided in point H.2.1 of the application form?
Is the funding gap rate presented in table H.2.1.2 the same as the
funding gap rate presented in E.1.2.11?
Is the value in field no 3 of table H.2.1 calculated according to the
formula presented in the table?
Is the co-financing rate in table H.2.1 (point 4) equal to 75%?
H.2.2
Have all the sources of co-financing the total investment costs been
presented?
Is the total investment cost provided in section H.2.2a of the application
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No
Yes
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equal to the value provided in section H.1A, item 12?
H.3
Has an annual financing plan of the Community contribution been
presented?
I.
COMPATIBILITY WITH COMMUNITY POLICIES AND LAW
I.1.1
Has the applicant stated whether it has applied for financial assistance
from other Community sources?
If YES, has the applicant provided details (i.e. EU fund, reference
number, amounts requested/granted, date of sending the application)
I.1.2
Has the applicant indicated if the project is complementary with other
projects financed (planned to be financed) from EU funds?
If YES, have the all the necessary details been provided (reference no,
dates, amounts requested/granted, etc.)?
Has the project’s complementarity with other measures which were, are
or will be co-financed from other Community sources been described?
I.1.3
Has it been indicated whether an application for a loan or equity
support by the EIB/EIF has been submitted?
If yes, have details been provided (relevant financial instrument,
reference numbers, dates, amounts included in the application, granted
amounts, etc.)?
I.1.4
Has it been indicated whether an application has been submitted for
assistance from another Community source for an earlier stage of the
project?
Is the information provided in Section I 1.4 consistent with the data in
Section H.2.2.?
If YES, have the required details been provided (type of financial
instrument, reference numbers, date of application submission,
amounts requested / granted)?
Has it been indicated whether the project is subject to a legal procedure
within the scope of compliance with Community law?
If the project is subject to a legal procedure within the scope of
compliance with Community law, have the required details been
provided (i.e. verifying compliance of the project’s objectives with the
objectives of the Cohesion Fund, compliance with the provisions on
environmental protection, in particular provisions regarding the Natura
2000 programme, correct breakdown of project eligible costs, correct
calculation of the grant)?
I.3
Has information been provided with respect to the proposed measures
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No
Yes
Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
aimed at publicising Community assistance (i.e. type of measure, short
description, estimated costs, duration, etc.)?
Has the information been presented in a tabular form?
Have all the fields in the table been completed?
Are the eligible costs set out in the table consistent with the costs
provided in Table H1, Section 8.C?
I.4
Has it been indicated whether technical assistance provided by
JASPERS contributed to the preparation of any part of the project?
If technical assistance has been provided by JASPERS, have the
project elements where JASPERS had an input been described?
Have the main conclusions and recommendations of the JASPERS
contribution been described, and were these taken into account during
project finalisation?
I.5
Has the table been completed for every contract notice published in the
Official Journal of the European Communities (OJEU)?
If the table was completed, does each reference number actually refer
to the contract notice published in the OJEU (attention – the contract
number should be verified on the website)?
Has an answer been provided to all the questions included in the
check-list presented above?
YES/NO
Are all the answers “yes” or “not related”
YES/NO
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No
Yes
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Project Cycle Management – Manual for End Recipients of EU Funds in the Environmental Sector
ANNEX I
CHECK-LIST FOR THE ECONOMIC AND FINANCIAL ASPECTS OF A
CF APPLICATION
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The application form should be examined within the context of detailed references to the feasibility
study, the Cost-Benefit Analysis (CBA) report and the relevant functioning CBA model (with active
links and formulae). The focus of this check-list is on Sections E1, H1 and H2 of the application form,
these being of particular importance in defining the amount of EU grant.
Application Form Section E: Cost-Benefit Analysis
E.1. Financial Analysis
E1.1
Short Description of Methodology and Specific Assumptions Made
The description properly describes the methodology used and the methodology is consistent with EU
guidance.
All key assumptions on which the analysis and its results depend are properly identified in the text.
Items to check:
The project is properly defined in accordance with the requirements of the OP.
The project is defined on an incremental basis, i.e. as the difference between the system with the
project and the system without the project.
The incremental approach is recognised in terms of incremental investment costs, incremental
operating costs, and incremental revenues and benefits 59 .
All project investment costs over the reference period identified in the feasibility study are properly
reflected in the cash flow analysis, e.g. new landfill cells, cell closure; reinvestment (asset
replacement).
Specific parameters to check:
General:
- The Reference period matches the economic life of the project's longest-life asset (typically
between 20 and 30 years).
- Discount rates (real rate of 5% for financial analysis; real rate of 5.5% for economic analysis).
Statistical (national and territorial) data and justification of projections
- Projections of inflation over the project implementation period.
- Projections of real income growth over the implementation period.
- Projections of currency exchange rates over the implementation period (if applicable).
Cost data and justification of projections
- Unit operating costs are realistic.
- Projections of real increases in construction costs over the implementation period are
realistic.
- Projections of real increases in the costs of other critical project inputs (including energy costs
and labour costs) are realistic.
Municipal sources
- Assumptions regarding per capita water consumption and waste generation are realistic and
based on plausible and defensible data.
- Assumptions regarding waste collection coverage are realistic.
- Assumptions related to waste recycling and recovery are realistic.
- Projected charge collection ratios are realistic.
- Data for current receivables (for water) and for WMC revenue are realistic.
59
However, when the project falls under a pre-existing revenue-generating infrastructure, the application of the
incremental approach may prove to be difficult or even unworkable. In such cases, the Commission suggests that the
method of remaining historical costs is used in the financial analysis. For further information, see Working Document No.
4 Guidance on the Methodology for Carrying out the Cost Benefit Analysis.
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E1.2
Main Elements and Parameters Used for Financial Analysis
The reference period as indicated is the same as that actually used in the analysis.
The financial discount rate is the same as that actually used in the analysis.
The financial discount rate is used properly:
- Has a constant value discount rate been used?
- If yes, has it been used to discount cash flows presented in constant values?
- Has a nominal value discount rate been used?
- If yes, has it been used to discount cash flows presented in nominal values?
The discounting procedure has been applied properly.
Total initial investment costs before discounting have been calculated properly.
Total initial investment costs after discounting have been calculated properly.
Total initial investment costs used to calculate the funding gap rate exclude physical
contingencies (see Working Document 4, English version, page 6).
Depreciation is not included in the cash flows for calculation of the financial indicators (FRR,
FNPV) and the funding gap, as this does not constitute a cash outflow.
Reinvestment costs associated with the initial investment are treated as operating costs in the
grant calculation formula.
Total eligible costs (undiscounted) have been calculated properly.
If physical contingences are included in the eligible cost (WD4, Page 6) they do not exceed 10%
of the total investment cost net of physical contingencies.
The residual value been calculated properly.
The discounted value of the residual value has been calculated properly.
The discounted revenue covers discounted operational costs.
The discounted revenue has been calculated properly.
The discounted operating costs have been calculated properly (including any reinvestment costs).
The discounted net revenue has been calculated properly.
The net revenue is greater than or equal to zero.
The eligible expenditure (discounted investment cost net of physical contingencies minus
discounted net revenue) has been calculated properly.
The funding gap rate has been calculated properly.
The maximum contribution from the Funds has been calculated properly.
E1.3 Main Results of the Financial Analysis
FRR/C and FNPV/C are calculated properly:
- FRR/C < discount rate
- FNPV/C < 0.
FRR/K and FNPV/K are calculated properly on the basis of national capital, excluding the EU
grant and any loans, and including any debt service payments converted to constant year values:
- FRR/C < FRR/K < discount rate
- FNPV/C < FNPV/K < 0
The project is shown to be financially sustainable. Cumulative (undiscounted) net cash flows are
positive over the entire reference period. Net cash flows considered for this purpose take into
account investment costs, all (national and EU) financial resources and net revenues. The
residual value is not taken into account (unless the asset is actually liquidated in the last year of
analysis).
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The project operator (i.e. the company or institution operating the project assets) is shown to be
financially sustainable. Cumulative (undiscounted) net cash flows are positive over the entire
reference period. Net cash flows considered for this purpose take into account all the costs
incurred and revenues received by the operator.
E1.4 Revenue Generated over the Life of the Project
The structure and components of the revenue generation stream have been properly described.
Differentiated tariffs are properly described and are appropriate.
Annual revenue covers annual operating costs.
Charges for waste disposal, water supply, sewerage and wastewater treatment are defined on a
unit basis (e.g. cost/m3; cost per tonne).
Charges are proportional to the quantity of water consumed/treated or waste disposed of.
Supportable reasons are provided if the above is not the case.
Charges are proportional to pollution caused.
Supportable reasons are given if the above is not the case.
Charges conform to the Water Supply and Sewerage Regulation Act.
A detailed affordability analysis has been undertaken and assumptions made about the ability of
users to pay for services are realistic in the context of socio-economic conditions of the project
area.
User charges are close to or equal to the affordability threshold (but no higher); a threshold of
approximately 1% of average regional household income is typically considered as appropriate for
the waste sector.
Charges are not defined to be so low that revenues deliberately cover operational costs only and
do not contribute towards investment cost recovery.
E.2. Socio-Economic Analysis (Economic Analysis)
Note: only applicable to projects exceeding €10 million (excluding VAT).
E.2.1. Provide a Short Description of Methodology
The methodology described conforms to EU requirements.
E.2.2. Details of Main Economic Costs and Benefits
Main economic costs and benefits have been properly calculated and reflected in the table:
- Adjustments to financial prices are made properly.
- External costs and benefits are properly defined, quantified and monetised.
- Resource costs savings are properly defined, quantified and monetised.
- Fiscal distortions are properly identified and adjusted as appropriate.
- Price distortions are identified and adjusted as appropriate.
E.2.3. Main Indicators of the Economic Analysis
Main economic parameters for project justification have been properly calculated:
- Discount rate of 5.5% is used.
- ENPV > 0
- Economic benefit - cost ratio > 1
- EIRR > 5.5% (discount rate)
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E.3. Risk and Sensitivity Analysis
E.3.1 Short Description of Methodology and Summary Results
Methodology is properly described, is appropriate and conforms to the risk and sensitivity analysis
actually undertaken.
E.3.2 Sensitivity Analysis
The sensitivity analysis has been prepared in accordance with the methodology and there is
evidence that its findings have been used in the final definition of the project.
E.3.3 Risk Analysis
The risk analysis has been prepared in accordance with the methodology and there is evidence
that its findings have been used in the final definition of the project.
Application Form Section H: Financing Plan
H.1. Cost Breakdown
Costs are properly divided between eligible and ineligible costs.
Each of the cost categories has been reported in accordance with the guidelines and with the
footnotes contained in the table:
- Planning/design fees, technical assistance and supervision do not represent more than 10%
of total building and construction costs.
- Price corrections are incorporated either in each individual cost item or are consolidated in a
separate line for total price adjustment (in which case individual cost items are shown in
constant values).
H.2. Total Planned Resources and Planned Contribution from the Funds
The sources of funds and planned contribution from the Funds have been properly documented.
H.2.1. Community Contribution Calculation
The table is consistent with earlier tables E1.2 and H1.
The correct co-financing rate for the priority axis has been used.
The EU contribution has been calculated properly.
H.2.2. Sources of Co-financing
Co-financing requirements have been identified to cover investment costs not covered by the EU
grant.
National co-financing resources are shown between their sources (central government, municipal
own funds, EMEPA).
Loans are identified properly with evidence provided of agreements reached for the raising of
such loans.
These items are shown in nominal values (i.e., after price adjustments).
H.3. Annual Financing Plan of Community Contribution
Drawdown period for the EU grant is consistent with any guidelines set out in the call for
proposals.
The plan amounts are shown in nominal values.
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ANNEX J
ABBREVIATIONS & ACRONYMS
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AA
AIC
AP
BAT
BoQ
BPEO
BREF
CA
CARDS
CBA
CC
CEA
CF
CFCA
CODEF
DA
DAB
DCF
DIC
DNR
DSCR
EBRD
EC
ECD
EDF
EEA
EIA
EIB
EIRR
ENPV
EPEEF
EPOP
ER
ERDF
ERR
ESF
EU
EUR
FDR
FIDIC
FIRR
FRR/C
FRR/K
FNPV
FNPV/C
FNPV/K
FRR
IB
Audit Authority
Average Incremental Cost
Accession Partnership
Best Available Techniques
Bill of Quantities
Best Practicable Environmental Option
BAT Reference Document
Contracting Authority
Community Assistance for Reconstruction, Development and Stabilization
Cost-Benefit Analysis
Candidate Country
Cost-Effectiveness Analysis
Cohesion Fund
Central Finance and Contracting Agency for EU Programmes and Projects
Central Office for Development Strategy and Coordination of EU Funds
Decision Amount
Dispute Adjudication Board
Discounted Cash Flow
Discounted Investment Costs
Discounted Net Revenue
Debt Service Coverage Ratio
European Bank for Reconstruction and Development
European Commission
European Commission Delegation
European Development Fund
European Environment Agency
Environmental Impact Assessment
European Investment Bank
Economic Internal Rate of Return
Economic Net Present Value
Environmental Protection and Energy Efficiency Fund
Environmental Protection Operational Programme
End Recipient
European Regional Development Fund
Economic Rate of Return
European Social Fund
European Union
Euro
Financial Discount Rate
French - Fédération Internationale des Ingénieurs-Conseils - International Federation
of Consulting Engineers
Financial Internal Rate of Return
Financial Rate of Return without Community assistance
Financial Rate of Return with Community assistance
Financial Net Present Value
Financial Net Present Value without Community assistance
Financial Net Present Value with Community assistance
Financial Rate of Return
Implementing Body
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IFI
IPA
IPPC
IRR
ISPA
ITT
IWG
LCA
LRMC
MA
MRDFWM
MBT
MCA
MEPPPC
MIFF
MIPD
MS
MSW
NAO
NES
NF
NGO
NIPAC
NPV
NUTS
O&M
OP
OS
PA
PCC
PIU
PPP
PRAG
RDF
RWMC
SAA
SAPARD
SCF
SDF
SDR
SEA
SER
SF
SWOT
TA
TOR
VAT
WMC
International Financial Institution
Instrument for Pre-Accession Assistance
Integrated Pollution Prevention and Control
Internal Rate of Return
Instrument for Structural Policies for Pre-Accession
Instructions to Tenderers
Inter-Ministerial Working Group
Least Cost Analysis
Long Run Marginal Cost
Managing Authority
Ministry of Regional Development, Forestry and Water Management
Mechanical Biological Treatment
Multi-Criteria Analysis
Ministry of Environmental Protection, Physical Planning and Construction
Multi-Annual Financial Framework
Multi-Annual Indicative Planning Document
Member State
Municipal Solid Waste
National Authorising Officer
National Environmental Strategy
National Fund
Non-Governmental Organization
National IPA Coordinator
Net Present Value
French - Nomenclature des Unités Territoriales Statistiques - Nomenclature of
Territorial Units for Statistics
Operating and Maintenance
Operational Programme
Operating Structure
Priority Axes
Potential Candidate Country
Project Implementation Unit
Public Private Partnership
Practical Guide to Contract Procedures for EC External Actions
Refuse Derived Fuel
Regional Waste Management Centre
Stabilisation and Association Agreement
Special Accession Programme for Agriculture and Rural Development
Strategic Coherence Framework
Strategic Development Framework for 2006-2013
Social Discount Rate
Strategic Environmental Assessment
Shadow Exchange Rate
Structural Funds
Strengths-Weaknesses-Opportunities-Threats
Technical Assistance
Terms of Reference
Value Added Tax
Waste Management Centre
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ANNEX K
GLOSSARY OF KEY TERMS
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Accounting Period: The interval between successive entries in an account. In project analysis, the
accounting period is generally one year, but it could be any other convenient time period.
Accounting Prices: The economic opportunity cost to society of goods or services, which is
sometimes different from actual market prices and from regulated tariffs. They are used in economic
analysis to better reflect the real costs of inputs to society, and the real benefits of the outputs. Often
used as a synonym for shadow prices.
Accounting Unit: The unit of account that makes it possible to add and subtract unlike items. The
Euro is the unit of account for the appraisal of EU financed projects.
Accreditation: Where specific persons have been given responsibility for an activity in relation to the
management, implementation and control of programmes, the Beneficiary Country shall enable such
persons to exercise the duties associated with that responsibility, including in cases where there is no
hierarchical link between them and the bodies participating in that activity. The Beneficiary Country
shall, in particular, provide those persons with the authority to establish, through formal working
arrangements between them and the bodies concerned:
¾
An appropriate system for the exchange of information, including the power to require information
and a right of access to documents and staff on the spot if necessary;
¾
The standards to be met;
¾
The procedures to be followed
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 11.
Acquis Communautaire or Acquis: The Community acquis is the body of common rights and
obligations which bind all the Member States together within the European Union. Applicant countries
have to accept the acquis before they can join the Union. Derogations from the acquis are granted
only in exceptional circumstances and are limited in scope. To integrate into the European Union,
applicant countries will have to transpose the acquis into their national legislation and implement it
from the moment of their accession.
Appraisal: An examination of the merit and acceptability of a proposed policy or investment project
based on an analysis of its economic, financial, environmental and other effects. Policy / project
appraisal is sometimes called ex ante evaluation.
Assets: Property functioning as a store of value from which economic benefits may be derived by
holding them or using them over a period of time. “Tangible” assets may either be financial (e.g. cash
or government securities) or physical (e.g. buildings, roads, vehicles, equipment, etc.). Assets may
also be “intangible” such as copyright or mineral exploitation rights.
Assumptions: External factors which could affect the progress or success of the project, but over
which the project manager has no direct control. They form the 4th column of the Logframe, and are
formulated in a positive way. If formulated as negative statements, assumptions become ‘risks’.
Audit: An expert examination of legal and financial compliance or performance, carried out either
internally to satisfy the requirements of management (internal audit), or by an external audit entity to
meet contractual or statutory obligations (external audit).
Audit Authority: An audit authority, functionally independent from all actors in the management and
control systems (of IPA) and complying with internationally accepted audit standards, shall be
designated by the beneficiary country. The audit authority shall be responsible for verifying the
effective and sound functioning of the management and control systems.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 29
Beneficiary: In relation to the Cohesion Fund, a Beneficiary is defined as "An operator, body or firm,
whether public or private, responsible for initiating or initiating and implementing operations. In the
context of aid schemes under Article 87 of the Treaty [establishing the European Community],
beneficiaries are public or private firms carrying out an individual project and receiving public aid".
Council Regulation (EC) No 1083/2006 laying down provisions on the ERDF, ESF and CF, Article
2(4).
Beneficiary Countries: The Beneficiary Countries are:
¾
Candidate Countries: Croatia, Turkey, the Former Yugoslav Republic of Macedonia
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¾
Potential Candidate Countries: Albania, Bosnia, Montenegro, Serbia, including Kosovo (as
defined in UNSCR 1244).
Regulation (EC) No 1085/2006, Annexes 1 and 2.
Benefits: The positive advantages or outcomes of a project which justify its implementation. Benefits
may be measurable / tangible or unquantifiable / intangible.
Benefit-Cost Ratio: The net present value of project benefits divided by the net present value of
project costs. A project is accepted if the benefit-cost ratio is equal to or greater than one. It is used to
accept independent projects, but it may give incorrect rankings and often cannot be used for choosing
among mutually exclusive alternatives.
Budgetary Commitment: A budgetary commitment corresponds to the amount of the legal
commitment, which shall take the form of a Financing Agreement with the Beneficiary Country
concerned. Such commitment shall be adopted on the basis of financing decisions adopting annual
programmes.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 39.
Business-as-usual Scenario: A reference scenario which assumes that future evolution is an
extension of the current trends. See also ‘do nothing scenario’.
Candidate Country: Applicant countries for European Union membership are granted Candidate
Country status from the day their application is officially accepted by the European Council.
Capital (capital assets): A stock of physical or financial assets.
Cash Flow: Cash flow refers to the flow of money to or from a firm or economic agent. Income is a
positive cash flow and expenses are negative cash flows.
Centralised and Decentralised Management – Transitional Approach: Under the Transitional
arrangements, an Operating Structure is set up in each CC/PCC, which is mainly in charge of
programming and implementation. The CC/PCC Operating Structures set up a Joint Technical
Secretariat. However, there are differences, according to the management model chosen:
¾
Centralised management: The Operating Structure is in charge of programme implementation
with the exclusion of tendering, contracting and payments, which are the responsibility of the
Commission (EC Delegation, as Contracting Authority).
¾
Decentralised management: The EC Delegation plays no formal role; the Operating Structure
includes an Implementing Agency led by a Programme Authorising Officer who is nominated by
the National Authorising Officer. The Implementing Agency is the Contracting Authority and thus
responsible for “tendering and contracting, payments accounting and financial reporting aspects
of the procurement of services, supplies, works and grants for the part the cross-border
programme concerning the respective country”.
Regulation (EC) No 718/2007 (IPA Implementing Regulation)
Commitment: A formal decision taken by the European Commission to set aside a certain amount of
money for a particular purpose. No expenditure can be incurred in excess of the authorised
commitment.
Community Contribution: The part of the eligible expenditure which is financed by the Community.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 2(9).
Competent Accrediting Officer: The Competent Accrediting Officer is to be appointed by the
Beneficiary Country. He / she is responsible for issuing, monitoring and suspending or withdrawing
the accreditation of the National Authorising Officer and the National Fund.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 24.
Competitive Tender: A procurement process whereby several organisations are invited to prepare
proposals to provide a particular project or service on the basis of quality and price.
Constant Prices: Prices that have been deflated by an appropriate price index based on prices
prevailing in a given base year. They should be distinguished from current or nominal prices.
Consumer Surplus: The value consumers receive over and above what they actually have to pay.
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Contract: An agreement, between two or more persons or entities, with specific, legally-binding terms
and an undertaking to provide services, supplies and / or works in return for a financial consideration.
Contract Manager: An expression commonly used to refer to the person responsible for the day-today management and administration of a contract to provide services, supplies and / or works (see
also Supervising Engineer).
Contracting Authority: Under transitional arrangements, the Contracting Authority in each CC / PCC
may be:
¾
The Operating Structure, in particular its Implementing Agency, in the case of decentralised
management;
¾
The European Commission in the case of centralised management.
The Contracting Authority is responsible for awarding grants, tendering, contracting and payments.
Contractor: Any natural or legal person or public entity or consortium of such persons and / or bodies
with whom the Contracting Authority enters into a contract following a procedure for the tendering and
award of a contract. The successful tenderer, once parties have signed a contract.
Conversion Factor: The factor that converts the domestic market price or value of a good or
production factor to an accounting price.
Cost-Benefit Analysis: A systematic, quantitative appraisal of a public or private project to determine
whether, or to what extent, that project is worthwhile from a social perspective. Cost-benefit analysis
differs from a straightforward financial analysis in that it considers all gains (benefits) and losses
(costs) to social agents. CBA usually implies the use of accounting prices.
Cost-Effectiveness Analysis: An examination of the cost and the outcomes of alternative means of
accomplishing an objective, in order to select the one with the highest effectiveness relative to its
cost. Also used to compare options for which major outputs can be identified but not valued. Costeffectiveness indicators include the cost per unit of output, or units of output per unit of cost, and are
aimed at identifying the least costly method of achieving a particular outcome or objective.
Current Prices (Nominal Prices): Prices as actually observed at a given time. They refer to prices
that include the effects of general inflation and should be contrasted with constant prices.
Cut-off Rate: The rate below which a project is considered unacceptable. It is often taken to be the
opportunity cost of capital. The cut-off rate would be the minimum acceptable internal rate of return for
a project or the discount rate used to calculate the net present value, the net-benefit investment ratio,
or the benefit-cost ratio.
Defects Notification Period: The period of time within which the Contractor is liable for repairing or
remedying any defects notified by, or on behalf of, the Employer (Contracting Authority) – typically
between 12 and 24 months.
Depreciation: The reduction in the value of an asset over time that is brought about through physical
use or obsolescence.
Discounting: The process of adjusting the future values of project inflows and outflows to current
values using a discount rate, i.e. by multiplying the future value by a coefficient that decreases with
time.
Discount Factor: A discount factor is a number that reflects the value in the present of a unit of
money received in the future. A discount factor of 0.95 for money received in a year’s time indicates
that the value of a monetary unit received in a year’s time is worth only 95 cents today. The discount
factor is related to the discount rate through the following equation: 1 = (1+i)n, where i is the rate of
interest (discount rate) and n is the number of years.
Discount Rate: The rate at which future values are discounted to the present. The financial discount
rate and economic discount rate may differ, in the same way that market prices may differ from
accounting prices. The financial discount rate usually represents the cost of capital for the person or
entity calculating the present values.
Do Nothing: The baseline scenario, ‘business as usual’, against which the additional benefits and
costs of the ‘with project scenario’ can be measured (often a synonym for the ‘without project’
scenario).
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Do Minimum: The project option that includes all the necessary realistic level of maintenance costs
and a minimum amount of investment costs or necessary improvements, in order to avoid or delay
serious deterioration or to comply with safety standards.
Do Something: The scenario(s) in which investment projects are considered, different from ‘do
nothing’ and ‘do minimum’ - see above.
Economic Analysis: Analysis that is undertaken using economic values, reflecting the values that
society would be willing to pay for a good or service. In general, economic analysis values all items at
their value in use or their opportunity cost to society (often a border price for tradable items). It has the
same meaning as social cost-benefit analysis.
Economic Cost: The economic cost of an activity or resource is the cost to society of that activity or
resource. Economic costs include the private costs borne directly by economic agents undertaking the
activity, and all other costs borne by other economic agents. For example, the economic costs of
collecting and transporting waste include the costs of fuel and wear and tear on the vehicle borne by
the vehicle operator, plus the additional costs of congestion, borne by other users of the roads, plus
the costs of pollution, borne by society in general.
Economic Impact Analysis: The analysis of the total effects on the level of economic activity
(output, income, employment) associated with an intervention. This kind of analysis focuses on
macroeconomic indicators and forecasts the influence of the project on these indicators. It goes
beyond CBA when very large projects are considered in relatively small economies.
Economic Rate of Return: ERR, the internal rate of return (see definition below) calculated using the
economic values and expressing the socio-economic profitability of a project.
Effectiveness: The contribution made by a project’s results to the achievement of the project
purpose.
Efficiency: The extent to which means and activities are converted into results and the quality of the
results achieved.
Eligible Costs: Any expenses considered as eligible under a Financing Agreement concluded
between a Beneficiary Country and the European Commission. In the case of IPA, eligible costs are
defined in accordance with Article 34 of the IPA Implementing Regulation and Article 19 of The
Framework Agreement between the Commission and Government of the Republic of Croatia, and the
detailed rules on eligible expenditure subsequent to the Financing Agreement.
End Recipient: According to the Operational Agreement for the Management and Implementation of
the Environmental Operational Programme 2007–2009, "An End Recipient is a beneficiary of
Community funding: the limited liability company for waste management in the ownership of local /
regional self-government units for Priority Axis 1, the MEPPPC for Priority Axis 3, and limited liability
utility company for water supply, sewerage and waste water treatment in the ownership of local selfgovernment units for Priority Axis 2". The relationships between an End Recipient and the Final
Beneficiary (Implementing Body) are regulated by a special contract.
Enlargement Package: A set of documents presented each year to the Council and the European
Parliament by the Commission, the strategic and political part of which consists of the revisions,
where appropriate, of the accession partnerships and the European partnerships, the regular reports
established by country and the Commission's strategy paper. A Multi-Annual Indicative Financial
Framework completes the package.
Environmental Impact Assessment: An analysis leading to a statement of the likely direct and
indirect environmental effects of a project and related activities on human beings; fauna, flora, soil,
water, air, climate, landscape; material assets, cultural heritage; and the interaction between those
effects. This would include the forecasting of potential pollution emissions, loss of visual amenity, and
so on.
European Commission: The executive arm of the European Union. It initiates European Union
policy and implements programmes and policies established by the EU legislative and budgetary
authorities.
Ex-ante Evaluation – see Appraisal: Such an evaluation may be used to select the best option for
achieving the project objectives from both a socio-economic and financial point of view (ensuring that,
wherever possible, the objectives are quantified), and to provide a baseline for project monitoring and
subsequent evaluations.
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Expenditures: The cost of goods and services acquired, regardless of the timing of related
payments. Expenditures on goods and services occur at times when buyers incur liabilities to sellers,
i.e. when either (i) the ownership of the goods and services concerned is transferred from the seller to
the new owner; or (b) when delivery of the goods and services is completed to the satisfaction of the
buyer.
Ex-post Evaluation: An evaluation carried out a certain length of time after the implementation or
conclusion of a project or initiative. It consists of describing the impact actually achieved by the project
compared to the overall project objectives and purpose.
Externality: An externality is said to exist when the production or consumption of a good in one
market affects the welfare of a third party without any payment or compensation being made. In
project analysis, an externality is an effect of a project not reflected in its financial flows and
consequently not included in the financial valuation. Externalities may be positive or negative.
Feasibility Study: A study to assess and verify whether a proposed project is likely to meet the
needs of its intended target groups / beneficiaries. The study should design the project in full
operational detail, taking account of all policy, technical, economic, financial, institutional,
management, environmental, socio-cultural, and gender-related aspects. The study should provide
the European Commission and the responsible national authorities with sufficient information to justify
acceptance, modification or rejection of the proposed project for financing.
Final Beneficiary: Body or firm, whether public or private, responsible for initiating or initiating and
implementing operations. In the context of aid schemes, final beneficiaries are public or private firms
carrying out an individual project and receiving public aid.
In the context of IPA, Final Beneficiaries in the implementation of the Operational Programme are the
Operating Structure implementing bodies (see the definition of Implementing Body).
The
Environmental Protection and Energy Efficiency Fund (EPEEF) is the Final Beneficiary for Priority
Axis 1 (see section 1.3 above).
Commission Regulation (EC) No 718/2007 (IPA Implementing Regulation) Article 2(8).
Financial Analysis: An analysis carried out from the point of view of the project developer / operator.
It allows one to 1) verify and guarantee cash balance (verify the financial sustainability), 2) calculate
the indices of financial return on the investment project based on the net time-discounted cash flows,
related exclusively to the economic entity that initiates and implements the project (firm, managing
agency).
Financial Rate of Return: The FRR measures the financial profitability of a project with a pure
number. In some cases, it cannot be calculated in a meaningful way and can be misleading.
Financial Sustainability: The assessment that a project will have sufficient funds to meet its
resource and financial obligations, whether these funds come from user charges or budget sources;
will provide sufficient incentives to maintain the involvement of all project participants; and will be able
to respond to adverse changes in financial conditions.
Financial Sustainability Analysis: An analysis carried out in order to verify that financial resources
are sufficient to cover all financial outflows, year after year, for the entire time horizon of the project.
Financial sustainability is verified if the cumulative net cash flow is never negative during all the years
considered.
Financing Agreement: Annual or multi–annual agreement concluded between the Commission and
the Beneficiary Country, following a Commission financing decision approving the Community
contribution to a programme or an operation falling within the scope of this Regulation.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 2(5).
Framework Contract: A contract concluded between a Contracting Authority and an economic
operator for the purpose of laying down the essential terms governing a series of specific contracts to
be awarded during a given period, in particular as regards the duration, subject, prices, conditions of
performance and the quantities envisaged. The Contracting Authority may also conclude multiple
framework contracts, which are separate contracts with identical terms awarded to a number of
suppliers or service providers.
Goals & Objectives: Both terms are used to describe the desired, measurable results to be achieved
by proposed programmes or projects. “Goals” (or “general objectives”) typically refer to broad results
which may take a number of years to achieve and often involve many people, activities, processes,
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and intermediate achievements. “Objectives” (or “specific objectives”) tend to refer to more specific
results, often precisely measured (time, cost, number, quality) which can usually be accomplished in a
shorter time period, and are often an intermediate step in achieving a broader strategic goal.
Grant: A voluntary capital transfer between government units, or between an international
organisation and a national government (e.g., IPA grants). In addition, a voluntary transfer to a private
organisation or a person is often also called a grant. As a general rule, provided the associated
conditions are met by the beneficiary, such capital transfers are non-repayable. In principle, grant
funding is only available for projects which cannot reasonably be funded on the basis of a loan (e.g.
from a commercial bank) or equity funding, but which are still regarded as important from a national or
international standpoint.
Impact: A generic term for describing the changes or the long term effects on society that can be
attributed to a project and related activities. Impacts should be expressed in the units of measurement
adopted to deal with the objectives to be addressed by the project.
Implementing Body: According to the Operational Agreement for the Management and
Implementation of the Environmental Operational Programme 2007–2009, "The Implementing Body is
an institution, within or under the direct control of the central state administration bodies, responsible
for tendering, contracting, payments and technical implementation of EU pre-accession assistance
projects". The Environmental Protection and Energy Efficiency Fund (EPEEF) is the Implementing
Body responsible for Priority Axis 1 (see section 1.3 above).
In itinere Evaluation (On-going Evaluation): An evaluation carried out at a certain point during
project implementation in order to allow a re-orientation of the activity in case the first results suggest
the need of a readjustment of the project.
Independent Projects: Projects that in principle can all be undertaken at the same time. These
should be distinguished from mutually exclusive projects.
Internal Rate of Return: The discount rate at which a stream of costs and benefits has a Net Present
Value of zero. The Internal Rate of Return is compared with a benchmark in order to evaluate the
performance of a proposed project. The Financial Internal Rate of Return is calculated using financial
values, whereas the Economic Internal Rate of Return is calculated using economic values.
IPA Committee: A committee established in accordance with Article 14(1) of Council Regulation No.
1085 / 2006, composed of representatives of the Member States and chaired by a representative of
the European Commission. It assists the Commission particularly in its task to ensure the
coordination and coherence between assistance granted under the different IPA components.
Logical Framework Analysis (LFA): Also known as Log Frame Analysis and Logical Framework
Approach. A methodology for planning, managing and evaluating programmes and projects, involving
stakeholder analysis, problem analysis, analysis of objectives, analysis of strategies, preparation of a
Logframe matrix and Activity and Resource Schedules. LFA is a development of the 'management by
objectives' approach.
Logframe: A matrix in which a project’s Intervention Logic, Assumptions, Objectively Verifiable
Indicators and Sources of Verification are presented.
Major Project: A project comprising a series of works, activities or services which is intended, in
itself, to accomplish a definite and indivisible task of a precise economic or technical nature, and
which has clearly identified goals and whose total cost exceeds € 10 million (as defined in the IPA
Implementing Regulation).
Market Price: The price at which a good or service is actually exchanged for another good or service
or for money, in which case it is the price relevant for financial analysis.
Monitoring: The systematic examination of the state of advancement of an activity according to a
pre-determined calendar and on the basis of significant and representative indicators.
Multi-annual Indicative Planning Document: The multi-annual indicative planning document shall
ensure the necessary coherence and complementarity between the IPA components in a given
Beneficiary Country. The content of the document is detailed in Regulation (EC) No 718/2007 (IPA
Implementing Regulation), Article 5.
Multi-annual Programme: This is the document describing the implementation of the Multi-annual
Indicative Planning Document. This document must be submitted by the Beneficiary Country and
adopted by the European Commission (IPA Implementing Regulation, Article 6).
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Multi-Criteria Analysis: MCA is an evaluation methodology that considers many objectives by the
attribution of a weight to each measurable objective. In contrast to CBA, which focuses on a unique
criterion (the maximisation of social welfare), Multi-Criteria Analysis is a tool for dealing with a set of
different objectives that cannot be aggregated through shadow prices and welfare weights, as in
standard CBA.
Municipal Waste: Waste from households, as well as other waste which, because of its nature or
composition, is similar to waste from households.
Landfill Directive (1999/31/EC), Article 22.
Mutually Exclusive Projects: Projects that, by their nature, are such that if one is chosen the other
one cannot be undertaken.
National Authorising Officer: The National Authorising Officer is appointed by the Beneficiary
Country (Accrediting Officer). He / she is mainly responsible for the effective functioning of
management and control systems under the IPA Regulation. The detailed list of functions of the
National Authorising Officer is listed in Article 25 of the Implementing Regulation.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 25.
National Fund: The National Fund shall be a body located in a state-level ministry of the Beneficiary
Country with central budgetary competence. The National Fund shall act as a central treasury and be
in charge of tasks relating to the financial management of assistance under the IPA Regulation, under
the responsibility of the National Authorising Officer. It shall in particular be in charge of organising the
bank accounts, requesting funds from the Commission, authorising the transfer of funds received from
the Commission to the Operating Structures or to the final beneficiaries, and the financial reporting to
the Commission.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 26.
National IPA Coordinator: A National IPA Coordinator shall be appointed by the Beneficiary
Country. He/she shall be a high-ranking official in the government or the state administration of the
Beneficiary Country who shall ensure the overall co-ordination of assistance under the IPA
Regulation. He/she shall, in particular:
a. Ensure partnership between the Commission and the Beneficiary Country and a close link
between the general accession process and the use of assistance under the IPA Regulation;
b. Bear overall responsibility for:
c.
¾
The coherence and co-ordination of the programmes provided under this Regulation;
¾
The annual programming for the transition assistance and institution building component at
national level;
¾
The co-ordination of the Beneficiary Country's participation in the relevant cross-border
programmes both with Member States and with other Beneficiary Countries, as well as in the
transnational, interregional or sea basins programmes under other Community instruments.
The National IPA Coordinator may delegate the tasks relating to this coordination to a Crossborder Cooperation Coordinator;
Draw up and, after examination by the IPA Monitoring Committee, submit the IPA annual and final
reports on implementation as defined in Article 61(3) to the Commission with a copy to the
National Authorising Officer
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 22.
Net Present Value (NPV): The sum that results when the discounted value of the expected costs of
an investment are deducted from the discounted value of the expected revenues. Financial Net
Present Value (FNPV). Economic Net Present Value (ENPV).
Net Revenues: The amount remaining after all financial outflows have been subtracted from all
financial inflows.
Operating Structure: The Operating Structure applies in IPA countries under the transitional
approach. In the case of decentralised management, it is responsible for managing and implementing
the part of the programme concerning the participating Candidate Country / Potential Candidate
Country. It is represented in the Joint Monitoring Committee of the programme. It includes
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Implementing Bodies (Contracting Authorities) responsible for awarding grants, tendering, contracting
and payments.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 28
Opportunity Cost: The value of a resource in its best alternative use. For a financial analysis, the
opportunity cost of a purchased input is always its market price. In economic analysis, the opportunity
cost of a purchased input is its marginal social value in its best non-project alternative use for
intermediate goods and services, or its value in use (as measured by willingness-to-pay) if it is a final
good or service.
Performance Indicators: A variable or set of variables that allow the verification of changes in a
project or show results relative to specified targets.
Polluter Pays Principle: The now widely-accepted principle that the polluter should bear the costs of
pollution prevention and control measures.
Pre-Feasibility Study: Preliminary assessment of project viability that usually takes place in the
identification phase of the Project Cycle. Pre-feasibility studies generally cover the same subjects as
feasibility studies, but do so in much less detail.
Priority Axis: One of the priorities of the strategy in an Operational Programme comprising a group
of operations which are related and have specific measurable goals.
Potential Candidate Country: Countries that may apply for membership of the European Union.
Problem Analysis: A structured analysis of the negative aspects of a situation in order to establish
their causes and effects.
Procurement: The process of acquiring goods, works and / or services at the optimum possible total
cost and in the correct amount and quality.
Programme: A coordinated group of activities intended to contribute towards achieving an identifiable
set of policy objectives (e.g. achieving compliance with certain environmental standards).
Project: A series of activities aimed at bringing about clearly specified objectives within a defined
time-period and with a defined budget. Used mainly in this Manual to refer to a proposed investment
upon which resources (costs) are expended (incurred) to create capital assets that will produce
benefits over an extended period of time. It can also be thought of as the smallest operational element
prepared and implemented as a discrete component of a plan or operational programme.
Project Analysis: The analytical framework for the evaluation of a project’s feasibility and
performance. It includes analyses of the context, the objectives, technical aspects, demand forecasts,
financial and economic costs and benefits. Project analysis is needed to determine if, given the
alternatives, a proposed project will sufficiently advance the objectives of the entity from whose
standpoint the analysis is being undertaken to justify the project.
Project Beneficiary / Beneficiaries: An expression commonly used to refer to those stakeholders or
entities deriving some benefit or advantage from an activity or project. The project beneficiary is not
necessarily the party that receives or manages the funds for a project (see also Beneficiary and Final
Beneficiary).
Project Cycle: A sequence or series of necessary and pre-defined activities carried out for the
realisation of a project. For EU-funded investment projects, the project cycle is typically separated into
the following phases: Programming, Identification, Formulation, Implementation, Evaluation, Audit.
Project Developer:
formulating a project.
The entity having the primary responsibility for identifying, defining and
Project Manager (or Project Director): The person responsible for the day-to-day management of a
project in accordance with an agreed specification / Terms of Reference, work plan and budget.
Public Expenditure: Any public contribution to the financing of operations whose origin is the
European Community or the budget of the public authorities of the Beneficiary Country, and any
contribution to the financing of operations whose origin is the budget of public law bodies or
associations of one or more regional or local authorities or public law bodies.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 2(11)
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Public Private Partnership: A partnership between the public sector and the private sector for the
purpose of delivering a project or a service traditionally provided by the public sector.
Public Sector Comparator: The lowest cost (including all capital and operating costs and share of
overheads) achievable by the public sector in order to deliver the required project / service outcomes.
This is used as a benchmark for assessing the potential value for money of private sector bids.
Real Rates: Rates adjusted to exclude changes in general or consumption price levels.
Relative Prices: The exchange value of two goods, given by the ratio between the quantity
exchanged and their nominal prices.
Residual Value: The Net Present Value of project assets at the end of the final year of the period
selected for evaluation analysis (project horizon).
Resources: The inputs needed to undertake a project, generally including funds, people, equipment,
facilities, raw materials, and possibly other physical elements such as land and water.
Revenue-Generating Project: A project proposed for pre-accession assistance involving an
investment in infrastructure, the use of which is subject to charges borne directly by users and which
generates revenues, or any operation involving the sale or rent of land or buildings (as defined in the
IPA Implementing Regulation).
Risk Analysis: An analysis of the probability that changes in major quantifiable variables relating to a
project will actually occur. Although risk analysis provides a better basis than sensitivity analysis for
judging the riskiness of an individual project or the relative riskiness of alternative projects, it does
nothing to diminish the risks themselves. It helps, however, to identify risk prevention and mitigation
measures.
Scenario Analysis: A variant of sensitivity analysis that studies the combined impact of determined
sets of values assumed by the critical variables. It is not a substitute for an item-by-item sensitivity
analysis.
Sensitivity Analysis: An analytical technique for assessing the extent to which the viability of a
project is influenced by variations in key quantifiable variables. It is carried out by changing each key
variable and then determining the impact of that change on the project outcome.
Service Contract: A contract between a service provider and the Contracting Authority for the
provision of services such as technical assistance or studies.
Shadow Prices: see Accounting Prices
Social Discount Rate: To be contrasted with the financial discount rate. It attempts to reflect the
social view on how the future should be valued against the present.
Socio-Economic Costs and Benefits: Opportunity costs or benefits for the economy as a whole.
They may differ from private costs and benefits to the extent that actual prices differ from accounting
prices.
Stakeholders: Organisations and people with a bona fide interest or involvement in a project, and / or
who are directly or indirectly affected by its results.
Strategic Co-ordinator: The Strategic Co-ordinator is responsible for ensuring the co-ordination of
the regional development and human resources development components of IPA (components III and
IV). The Strategic Co-ordinator is under the responsibly of the National IPA Co-ordinator, and with no
direct involvement in the implementation of components concerned. The Strategic Co-ordinator shall,
in particular:
¾
Co-ordinate assistance granted under the regional development component and the human
resources development component;
¾
Draft the strategic coherence framework;
¾
Ensure co-ordination between sectoral strategies and programmes.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 23.
Supervising Engineer or FIDIC Engineer: Under FIDIC Conditions of Contract, the Supervising
Engineer is a "person appointed by the Employer to act as the Engineer for the purposes of the
Contract and named in the Appendix to Tender, or other person appointed from time to time by the
Employer and notified to the Contractor". According to the Code of Practice of FIDIC, "the Engineer is
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to act with complete independence of judgment in applying the terms of the Contract between the
Employer and the Contractor with impartiality, honesty and professional integrity". In the context of a
Works Contract, the Contracting Authority is "the Employer".
Supply Contact: A contract for the purchase, leasing, rental or hire purchase, with or without option
to buy, of products. A contract for the supply of products and, incidentally, for siting and installation
shall be considered a supply contract.
SWOT Analysis: A technique for identifying the Strengths, Weaknesses, Opportunities and Threats
of a situation as a basis for discussing project objectives. It can be applied to almost any set of
circumstances from the strategic to the local level.
Tender: A written or formal offer to supply goods, perform services or execute works for an agreed
price.
Tender Dossier: A set of documents compiled by the Contracting Authority and containing all the
information and documentation needed to prepare and submit a tender.
Tender Procedure: The overall process of putting a contract out for tender, starting with the
publication of a procurement notice and ending with the award of the tendered contract.
Tenderer: Any natural or legal person, or consortium thereof, submitting a tender with a view to
concluding a contract.
Terms of Reference: A document drawn up by the Contracting Authority setting out its requirements
and / or objectives in respect of the provision of services, specifying, where relevant, the methods and
resources to be used and / or the results to be achieved.
Time Value of Money: The concept that money received in the present is more valuable than money
received in the future. It is the concept underlying discounting.
Total Expenditure: The public expenditure and any private contribution to the financing of
operations.
Regulation (EC) No 718/2007 (IPA Implementing Regulation), Article 2(12)
Waste: Any substance or object which the holder discards or intends or is required to discard –
Waste Framework Directive (2008/98/EC), Article 3.
Waste Management: The collection, transport, recovery and disposal of waste, including the
supervision of such operations and the after-care of disposal sites, and including actions taken as a
dealer or broker – Waste Framework Directive (2008/98/EC), Article 3.
Willingness-to-Pay: The amount consumers are prepared to pay for a final good or service. If a
consumer’s willingness-to-pay for a good exceeds its price, the consumer enjoys a rent (consumer
surplus).
Without Project Scenario: The baseline scenario against which the additional benefits and costs of
the "With Project Scenario" can be measured (e.g. business as usual).
Work Plan (or Work Programme): A detailed plan setting out how a project will be carried-out, and
variously containing: activities; tasks; work packages; GANTT and / or PERT charts; critical-path
analysis; milestones; resources.
Works Contract: A contract covering either the execution, or both the design and execution, of
works or a work related to one of the activities referred to in Annex I to Directive 2004/18/EC or the
realisation, by whatever means, of a work corresponding to the requirements specified by the
Contracting Authority. A 'work' means the outcome of building or civil engineering works taken as a
whole that is sufficient of itself to fulfil an economic or technical function.
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ANNEX L
FURTHER REFERENCES
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Applying Full-Cost Accounting to Solid Waste Management Operations.
Available from: http://www.epa.gov/epawaste/conserve/tools/fca/natdocs.htm
Cost – Benefit Analysis – Concepts and Practice; A. Boardman, D. Greenberg, A. Vining, D. Weimer,
Prentice Hall, Inc.; second edition; 2001.
Cost-Effectiveness Analysis – A Superior Alternative to the Cost-Benefit Analysis of Environmental
Infrastructure Investments; J. Raczka; A paper submitted to the Fifth European Conference on
Evaluation of The Structural Funds “Challenges for Evaluation in an Enlarged Europe”, Budapest,
26/27 June 2003. Available from:
www.ec.europa.eu/regional_policy/sources/docgener/evaluation/evalsed/downloads/sb2_cost_effectiv
eness_analysis.doc
Costs for Municipal Waste Management in the EU; Eunomia Research & Consulting.
Available from: http://ec.europa.eu/environment/waste/studies/index.htm
Development Assistance Committee Evaluation Criteria. Published by the Organisation for Economic
Co-operation and Development (OECD). http://www.oecd.org
Discounted Cash Flow Analysis (DCF) and Average Incremental Cost Analysis (AIC). Available from:
http://www.worldbank.org/urban/solid_wm/erm/Annexes/US%20Sizes/New%20Annex%204D.6.pdf
EC Guidelines ‘Supporting Effective Implementation of EC External Assistance'. Published by the
European Commission and available from:
http://www.europa.eu.int/comm/europeaid/qsm/index_en.htm
Economic Analysis of Options for Managing Biodegradable Municipal Waste; Final Report to the
European Commission; Eunomia Research & Consulting, Scuola Agraria del Parco di Monza, HDRA
Consultants, ZREU and LDK ECO on behalf of ECOTEC Research & Consulting; 2002. Available
from:
http://ec.europa.eu/environment/waste/studies/index.htm
Economic Valuation of Environmental Externalities from Landfill Disposal and Incineration of Waste;
European Commission, DG Environment; 2000. Available from:
http://ec.europa.eu/environment/waste/studies/index.htm
Environmental Protection Operational Programme of the Republic of Croatia, 2007-2009, September
2007. Available from:
http://www.strategija.hr
FIDIC Red Book and FIDIC Yellow Book published by:
Federation Internationale des Ingenieurs-Conseils (FIDIC)
PO Box 86, CH-1000 Lausanne 12, Switzerland.
Tel: +41 21 654 44 11. Fax: +41 21 653 54 32. Email: [email protected]
http://www.fidic.org
Full Cost Accounting Practical Guidance on Converting to FCA; Government Finance Officers
Association under Cooperative Agreement with US EPA; February 2000. Available from:
http://www.epa.gov/epawaste/conserve/tools/fca/natdocs.htm
Guidance on the Methodology for Carrying out Cost-Benefit Analysis; Working Document No. 4;
European Commission; DG Regional Policy; June 2006. Available from:
http://ec.europa.eu/regional_policy/sources/docoffic/working/sf2000_en.htm
Guide to Cost-Benefit Analysis of Investment Projects. Structural Funds, Cohesion Fund and
Instrument for Pre-Accession; European Commission; DG Regional Policy; 16/06/2008. Available
from:
http://ec.europa.eu/regional_policy/sources/docgener/guides/cost/guide2008_en.pdf
Guidelines for the Cost-Benefit Analysis of Waste Management Projects; Guidelines refer to the CBA
for projects in the waste management sector, and have been prepared in the general context of the
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waste management projects included in the Action Plans between JASPERS and the beneficiary
Member States; 2008. Available from:
www.mmediu.ro/proiecte_europene/01_integrare_europeana/02_POS_mediu/02.../Ghid_CBA_deseu
ri-proiect_17.06.08.pdf
Guidelines for the Economic Analysis of Projects; Asian Development Bank. Available from:
http://www.adb.org/Documents/Guidelines/Eco_Analysis/default.asp
Handbook for Appraisal of Environmental Projects Financed from Public Funds; OECD; 2007.
Available from:
http://www.oecd.org/document/52/0,3343,en_2649_34335_34089332_1_1_1_1,00.html
Handbook on the Implementation of Pay-As-You-Throw as a Tool for Urban Waste Management; B.
Bilitewski, P.Werner, J.Reichenbach; Dresden University of Technology; 2004.
How to Compare Costs between In-House and Contracted Services. Available from:
http://www.epa.gov/epawaste/conserve/tools/fca/natdocs.htm
Nordic Guideline for Cost-Benefit Analysis in Waste Management; TemaNord, 2007. Available from:
http://www.norden.org/pub/sk/showpub.asp?pubnr=2007:574
Practical Guide to Contract Procedures for EC External Actions (PRAG). Published by the European
Commission and available from:
http://europa.eu.int/comm/europeaid/tender/gestion/index_en.htm
The Full Cost Analysis Guide for Municipal Waste Managers. Available from:
http://www.epa.gov/epawaste/conserve/tools/fca/natdocs.htm
Using Full Cost Accounting to Enhance Local Waste Reduction and Recycling Programs. Available
from:
http://www.epa.gov/epawaste/conserve/tools/fca/natdocs.htm
Valuation of the External Costs and Benefits to Health and Environment of Waste Management
Options; Final Report for DEFRA by Enviros Consulting Limited in association with EFTEC; December
2004. Available from:
http://www.defra.gov.uk/environment/waste/research/health/pdf/costbenefit-valuation.pdf
Waste Management Options and Climate Change; Office for Official Publications of the European
Communities, 2001. Available from:
http://ec.europa.eu/environment/waste/studies/index.htm
Waste Prevention and Minimisation; Final Report; Commissioned by the European Commission, DG
XI; Oko Institute e.V; July 1999. Available from:
http://ec.europa.eu/environment/waste/studies/index.htm
Useful Websites:
http://www.strategija.hr
http://www.mzopu.hr
http://www.fzoeu.hr
http://ec.europa.eu/environment/waste/index.htm
http://www.defra.gov.uk/environment/waste
http://ec.europa.eu/regional_policy/index_en.htm
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