ORIO Project Plan Project definition, financial, commercial and - - PowerPoint PPT Presentation

ORIO Project Plan

Project definition, financial, commercial and economic analyses

Components project plan

Content presentation

• Project definition
• Financial Sustainability
• Commercial Viability
• Economic Viability
• Why is it important?
• What information is

necessary?

• Problems we encounter

Project Definition

• OECD consensus

“The smallest complete productive entity, physically and technically integrated, that fully utilises the proposed investment and captures all finanial benefits that can be attributed to the investment”

• 3 types of projects
• Greenfield projects
• Extension/ improvement of

existing infrastructure

• Sub-projects but part of 1

national/ regional system

Project Definition: why important and what information necessary?

Why important?

• Proper demarcation of the project; what is needed to make it work?
• The basis for a good financial analyses.

Necessary information:

• Description of all project components:

ORIO contribution+ local/ other donors financed components+ existing system

• Consider entire economic lifetime: also O&M and re-investments

Project definition: problems we encounter

• Existing infrastructure not or insufficiently incorporated;
• Components added to the project which are not strictly

necessary to make the project work;

• Sub-projects insufficiently described;
• Only eligible costs included, while distinction between ORIO

eligible/ non-eligible costs is irrelevant for project definition;

• Economic Lifetime; re-investments not included.

Financial viability: why important? Test shows whether income during lifetime of project is sufficient to cover costs (O&M, repayment of loan, interest, re-investments)

Financial viability: which information is necessary?

• Investments costs + re-investments
• Book value/ financial liabilities current system
• Grant and subsidies
• Demand analysis
• Tariff Setting
• Operational revenues
• O&M costs specified: fixed and variable costs, units en unitcosts
• Issues that influence revenues and costs: e.g. leakages, non-payment, etc.
• Taxes, subsidies
• Financing costs

Financial Viability: problems we encounter

• Investments costs + re-investments
• Book value / financial liabilities current system
• Grants and subsidies
• Demand analysis
• Tariff Setting
• Operational revenue
• O&M costs specified: fixed and variable costs, units en unitcosts
• Things that influence revenues and costs: e.g. leakages, non-payment, etc.
• Taxes, subsidies
• Financing costs

No insight into current system value No insight into user groups, different tariff rates Missing, no insight into capacity utilization Missing No breakdwon, no plan after O&M phase ORIO

Financial viability: problems we encounter

• Incremental instead of integral
• Inconsistent information
• Badly structured excel sheets
• No mention of sources and explanation of assumptions;
• Lacking of risk analysis financial viability
• Lacking of information on how financial shortages are being

covered

Commercial viability: differences with financial viability

• Hypothetical test, meant to test by objective means

whether public/ORIO financing is justified;

• Input and output prices (market prices or “appropriate

prices”, taking into account the affordability for end-users);

• Entire investment funded though commerical loan;
• 10 year cash flow period.

Commercial viability: what information is needed and which problems do we encounter?

Necessary information:

• Same items as financial analysis
• Indication whether and why prices are competitive

(not subsidized) and indication appropriate prices

• Afforfability by end-users

No appropriate prices

Economic viability: why important? Analyses the project from a welfare perspective: Do effects and impacts offset costs?

Economic viability: what information is needed and which problems do we encounter?

Necessary information:

• Clear + quantified description with & without project

(incremental analysis)

• Effects and costs quantified in EUR + source
• Clear distinction direct and indirect effects

No future scenario without project Insufficient No distinction+ duplications

Questions?