4 Meth for C1BA Preparation
Transcript of 4 Meth for C1BA Preparation
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Methodology for CBA preparationSOP Environment
Programming Meeting for water and wastewater projectsin the period 2008-2009
Mamaia, 10-13th July 2008
Massimo Marra
JASPERS Regional Office for Romania and Bulgaria
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JASPERS activities
‘Joint Assistance to Support Projects in European Regions’ Advisory services to MAs and Final Beneficiaries – EC/EIB/EBRD
√ Objectives: increase the capacity of beneficiary countries, supportthem to make best use of EU funding, improve/speed up fundabsorption
JASPERS concentrates on Major Projects :
- Transport and other sectors €50 M > capital cost- Environment €25 M > capital cost
JASPERS priorities are :
- large projects supported by Cohesion Fund and ERDF- other Cohesion Fund projects- other ERDF projects
Horizontal Issues covering more than one country/sector (as CBA)
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What does JASPERS offer?
Assistance from early stages of project through to thedecision to grant assistance
Preparatory work required to deliver a mature project e.g. Advice on conceptual development and project structuring
Advice on project preparation e.g. cost-benefit analysis, financial
analysis, environmental issues, procurementplanning.
Review of documentation: feasibility studies, technicaldesign, tender documents.
Advice on compliance with EU law (environmental,competition and others) and conformity with EU policies
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National CBA Guidelines
Being developed jointly by Romanian Authorities (MESD – MEF)and JASPERS
National CBA Guidelines to be consistent with EC and Romanianrequirements (HG 28/2008)
Valid for ALL projects co-financed by Structural Funds
General CBA Guidance document Rationale and objectives
What is a CBA and why/when perform it (small projects) General methodological Approach (discount rates, reference period, etc.)
Macroeconomic assumptions and data to be used
Valid for all sectors
To be formally embedded in national approval process
Sectoral CBA Guidelines for Water, Transport, SW and Energy Strategic approach and definition of objectives Project identification and demand assessment
Feasibility and Option Analysis
Financial Projections
Economic Analysis
Risk and Sensitivity analysis
Conclusions and presentation of results
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STRUCTURE OF CBASTRUCTURE OF CBASTRUCTURE OF CBASTRUCTURE OF CBA
1. Option and Feasibility Analysis1. Option and Feasibility Analysis1. Option and Feasibility Analysis1. Option and Feasibility AnalysisHow can an objective be achieved? Are the selected optionsfeasible?
2. Financial Analysis2. Financial Analysis2. Financial Analysis2. Financial AnalysisDoes the project need cofinancing?Does the project need cofinancing?Does the project need cofinancing?Does the project need cofinancing? How much money isnecessary to implement the option selected?
3. Economic Analysis3. Economic Analysis3. Economic Analysis3. Economic Analysis
Is the project worth cofinancing?Is the project worth cofinancing?Is the project worth cofinancing?Is the project worth cofinancing? What is the impact on thearea where the project is going to be implemented?
4. Risk Analysis4. Risk Analysis4. Risk Analysis4. Risk AnalysisWhich are the most likely financial and economic results?
CBA mainelementsCBA mainelements
General CBA Structure
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Sequence of CBA – Water/WW projects
Strategic approach and definition of objectives
Project identification and Option Analysis
Financial Projections
Economic Analysis
Risk and Sensitivity analysis
Conclusions and presentation of results
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Strategic approach
Main strategic drivers
Compliance with EC Directives
Improvement of water resource management(Regionalisation)
Expected impact on regional development
Project must be consistent with National policy,
NSRF and SOP priority areas
Project to support the achievement of SOPobjectives
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Definition of Project Objectives
Objective 1 Provide adequate water and sewerage services, at accessible tariffs
Objective 2 Provide adequate drinking water quality in all urban agglomerations
Objective 3 Improve the purity of watercourses
Objective 4 Improve of the level of WWTP sludge management
Objective 5 Create innovative and efficient water management structures
SOP Objectives – Priority Axis 1
Example Project Objectives
Specific Objective Values without project Expected value after
completion
1. Increase in coverage of waterand sewerage services
% of population connected towater supply and sewerage
systems
% of population connected towater supply and sewerage
systems
2. Improvement of quality of
drinking water to meet EU
standards (98/83/EC)
% of population with drinking
water meeting EU standards
% of population with drinking
water meeting EU standards
3. Increase of coverage ofwastewater treatment to meet
Urban WWT Directive
Number of agglomerations withadequate wastewater treatment
Number of agglomerations withadequate wastewater treatment
4. Establish efficient operators
and associated structures
(ROCs, IDAs)
Number of ROC/IDA with
adequate set up and capacity to
manage water/ww systems
Number of ROC/IDA with
adequate set up and capacity to
manage water/ww systems
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Option Analysis and Selection
Assessment of existinginfrastructures
Identification of problems
(How/Why objectives are not met)
Identification of options(What can we do to meet
objectives)
First screening and shortlistMulticriteria analysis
Comparison of retained options(technical and economic)
Selection ofpreferred option
ProjectObjectives
Nationalpolicy and
SOPObjectives
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Financial Analysis
To establish the level of financial self-sufficiency, financialperformance and sustainability of the project
Projections of financial flows of the project for without(baseline) and with project scenarios:
Total planned investment (including residual value)
Revenues (demand evolution and tariff increases)
Operating and maintenance costs (also estimate costsavings)
In local currency and then translation into euros
Reference period typically 30 years Financial discount rate set at 5%
Project impact = Difference between with and withoutscenario
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Establishing scenarios
With Project Without project
Macroeconomic data Shall be valid for all projects (NSRF)
Population dynamics Same in both scenarios
Service levels
Connections and metering rate
Water consumption (domestic¬)
Physical losses & infiltration
O&M costs
Financial performance
EBITDA & EBIT
Cash flows and reserves
Debt service coverage (DSCR)
Tariff development and Affordability
Tariff increase steps Polluter pays Principle!!
Affordability constraints Equity considerations!!
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Project profitability indicators
Incremental cash flows used to determine financialperformance indicators before and after EU grant “before” FNPV/C needs to be
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Only for revenue generating projects (as per Art. 55 ofRegulation 1083/2006
If project revenues do not cover O&M costs, then theproject is not revenue-generating
Calculation based on incremental revenues and costs,and normally using constant euros
Depreciation and contingencies not to be included
See details in Working Document 4: Guidance on the
Methodology for Carrying Out Cost-Benefit Analysis, preparedby the Commission in August 2006
Funding Gap (1)
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Funding gap rate: DIC
DNR DIC R
−
=
Funding
gap
The “funding gap” is the part of the investment cost
which is not going to be paid back by the project netrevenue. The funding-gap rate is the complementaryto 100% of the gross self-financing margin.
* Discounted net revenue = + discounted revenue
– discounted operating costs + discounted residual value
DIC: Discounted Investment cost
DNR: Discounted Net Revenue*
Funding gap
R%
Gross self-financingmargin
(100-R)%
Funding Gap (2)
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Factors to consider in establishing FG
Article 55(2): “Eligible expenditure on revenue-generating projects shall not exceed the
current value of the investment cost less the current value of the net revenue from the
investment over a specific reference period (…)
In the calculation, the managing authority shall take account of the reference period
appropriate to the category of investment concerned, the category of project, the
profitability normally expected of the category of investment concerned, the application
of the polluter-pays principle, and, if appropriate, considerations of equity linked to
the relative prosperity of the Member State concerned.”
Polluter pays principle: Scenario for tariffs should reflect the correct application ofthe Polluter Pays Principle. For Water: WFD 2000/60/EC - Article 9. – “Member States shall take account of the principle of recovery of the costs of water services,including environmental and resource costs , (…) in accordance in particular with the polluter pays principle.”
Affordability (equity): WFD 2000/60/EC - Article 9. – “Member States may in so doing have regard to the social, environmental and economic effects of the recovery […] ". Practically, total charges paid by the users for water and wastewater servicesshould not exceed certain commonly accepted thresholds.
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Tariff setting and Affordability
MESD policy on Affordability: 4% of income for the poorest 10% of households @ per capita 75 litres/day.
Higher tariffs may be required if financial sustainability of ROC isendangered. In these cases, special measures to reduce the financial
burden on the poorest households
Total cost to
be coveredby tariffs(Polluter
Pays)
Rationalefor
FundingGap
Affordability Limit
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Economic Analysis
Identifying benefits
Benefits from improved access to drinking water Benefits from improved quality of bathing and surface waters
(use and non use values)
Resource costs savings
Other benefits difficult to monetise
Adjusting costs
Fiscal corrections
Converting financial prices into economic prices
Add negative externalities
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Project benefits and Negative Externalities
Project Benefits
Type Base for calculation Monetary value Comments
Access to drinking water Nr. Of households inproject service area
148 Euro/household/year(2008 value)
Values for following years ofprojection to be increased byreal GDP growth
Improvement of water bodies
(use value)
Nr. Of people living in the
project service area
20.4 Euro/person/year
(2008 value)
Values for following years of
projection to be increased byreal GDP growth
Improvement of water bodies(non use value)
Nr. Of households inproject service area
0.004 – 0.011
Euro/household/year/KMriver
See Annex
Cost savings to customers –private well
Nr. Of households newlyconnected
315 Euro/household/year
Cost savings to customers –sewage disposal
Nr. Of households newlyconnected
348 Euro/household/year
Cost savings to operator – waterabstraction
Incremental watersavings (in m3)
Water abstraction fee(Apele Romane)
To be detailed in technical FS
Cost savings to operator – energyconsumption
CO2 emission savings (intonnes)
From 25 Euro/tonne in 2010 to45 Euro/tonne in 2030
To be detailed in technical FS.
Negative Externalities
Type Base for calculation Monetary value Comments
Increase in CO2 emission –sludge digestion
CO2 emission (in tonnes) From 25 Euro/tonne in 2010 to45 Euro/tonne in 2030
To be detailed in technical FS.
Increase in CO2 emission –
sludge transportation
CO2 emission (in tonnes) From 25 Euro/tonne in 2010 to
45 Euro/tonne in 2030
To be detailed in technical FS.
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Adjusting Costs
Economic costs (conversion factors):
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Sensitivity and Risk Analysis (1)
Purpose is to assess the robustness of the projectfinancial and economic profitability indicators (FRR/C,FNPV/C, ERR, ENPV)
First, identification of key variables and their impact interms of changes in the profitability indicators
Second, calculate “switching values” for those variablesfor which a variation of 1% results in a variation of more
than 5% in the profitability indicators
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Sensitivity and Risk Analysis (2)
Finally, estimate probability distributions for theprofitability indicators based on the probabilitydistribution of all the key variables (Monte Carlo)
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CBA Conclusions
Standard format for presenting CBA results(Application Form info requirements)
Does the project needs co-financing??
Financial analysis FNPV/C
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THANK [email protected]