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

ORIO Project Plan Project definition, financial, commercial and economic analyses

Content presentation Components project plan Project definition • • Why is it important? Financial Sustainability • • What information is necessary? Commercial Viability • • Problems we encounter Economic Viability •

Project Definition OECD consensus • “The smallest complete productive entity , physically and technically integrated, that fully utilises the proposed investment and captures all finanial benefits that can be attributed to the investment” 3 types of projects • - Greenfield projects - Extension/ improvement of existing infrastructure - Sub-projects but part of 1 national/ regional system

Project Definition: why important and what information necessary? Why important? Proper demarcation of the project; what is needed to make it work? • The basis for a good financial analyses. • Necessary information: Description of all project components: • ORIO contribution+ local/ other donors financed components+ existing system Consider entire economic lifetime: also O&M and re-investments •

Project definition: problems we encounter Existing infrastructure not or insufficiently incorporated; • Components added to the project which are not strictly • necessary to make the project work; Sub-projects insufficiently described; • Only eligible costs included, while distinction between ORIO • eligible/ non-eligible costs is irrelevant for project definition; Economic Lifetime; re-investments not included. •

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

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

Financial Viability: problems we encounter Missing No insight into current system Investments costs + re-investments • value Book value / financial liabilities current system • Grants and subsidies • Missing, no insight into capacity Demand analysis • utilization No insight into user Tariff Setting • groups, different Operational revenue • tariff rates 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 • No breakdwon, Financing costs 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? No future scenario without Necessary information: project Clear + quantified description with & without project • (incremental analysis) Insufficient Effects and costs quantified in EUR + source • Clear distinction direct and indirect effects • No distinction+ duplications

Questions?