Pre-Feasibility Study Guideline

September 2009

CDIA
Cities Development Initiative for Asia

TABLE OF CONTENTS

1 2 3 3.1 3.2 4 5 5.1 5.2 5.3 6

INTRODUCTION DEFINITION OF PFS NECESSITY AND OBJECTIVES OF PFS CDIA Guiding Principles Bridging the gap SCOPE OF PFS KEY STEPS TO UNDERTAKE PFS Initial Consultations Prior Departure to the Project Location Counterpart Consultations Undertaking the Assignment CONTENT OF PFS

3 3 3 3 3 3 4 4 4 5 5 6

Table 1: PFS Checklist

INTRODUCTION

CDIAs key operational principle is to provide services up to pre-feasibility level. This guide has been developed to clarify the term Prefeasibility Study (PFS) and aims to further elucidate the content of PFS primarily for CDIA stakeholders (local governments of medium-sized cities in Asia), and not at least for the consultants who are hired to undertake and implement CDIA supported assignments.

sustainability, ii) Climate change mitigation/adaptation, iii) Urban poverty reduction, and iv) Good urban governance. While it is not possible to make a discernable impact across all these dimensions in every project, CDIA is committed to addressing them as much as possible across all aspects of CDIA operations. Thus, a PFS should always upfront emphasize the relevance the proposed infrastructure has for one or more of these guiding principles.

3.2

Bridging the gap

DEFINITION OF PFS1

A PFS is broadly defined as preparatory studies required to enable funders to have a successful feasibility study carried out for a particular investment opportunity; this generally will comprise investment programming and packaging, initial scoping and costing of identified investment projects, and priority-setting among identified investment projects competing for scarce resources. Typical outputs are descriptions of priority projects for which broad design choices have been made, at a level of detail sufficient for a Terms of Reference for a feasibility study Another way to define PFS is a preliminary study undertaken to determine if it would be worthwhile to proceed to the feasibility study stage2. Hence, a PFS can determine the scope of the probable following feasibility study whether; i) Is it worthwhile to proceed with the feasibility stage? And, ii) What would be the main objective(s) of the feasibility study?

In many cases cities do have some type of urban development strategies and/or masterplan, but have somehow not been able to move forward from these plans. CDIA was created to bridge these urban governance gaps and assist cities to translate their infrastructure needs into projects and programs ready to be financed, including prioritization of investment proposals by providing useful pre-feasibility information. CDIA is cooperating closely with bi-lateral and multi-lateral development banks and agencies. Therefore, the main purpose of PFS is to ensure that there is a solid base for undertaking a feasibility study and to further defining probable following investment projects. The PFS can also be used to identity and highlight certain development issues and assist the cities and local government to identify prioritized sectors to improve the urban situation.

SCOPE OF PFS3

3 3.1

NECESSITY AND OBJECTIVES OF PFS CDIA Guiding Principles

The specific scope and tasks of a PFS will be determined in the Terms of Reference (TOR). Generally a PFS undertaken under CDIA umbrella would include the following:

The guiding principles and operational directions for CDIA are addressing four major principles: i) Urban environmental
3 1 2

a review of technical options and features for the potential project(s);

Reference: CDIA Operational Guidelines BusinessDictionary.com

There are usually more than 1 PFS per CDIA study, hence section 4 will need to be repeated for each sector while the other sections apply to the Project as a whole.

brief assessment of potential economic and social benefits; preliminary assessment of probable development impact objectives of the project(s) in terms of urban environmental improvement, urban poverty reduction, urban governance improvement and social and gender impacts; preliminary assessment of possible adverse environmental and social impacts and how to mitigate by safeguards4, flag these issues for the anticipated Feasibility Study; preliminary estimates of project costs and of financial sustainability; recommend likely implementation and operation arrangements for the potential project(s) including possible public-private partnership (PPP) potential; undertake financial and/or economic analysis based on available information, providing the basis for negotiation with potential financers; flagging of issues to be considered in detail in the ensuring Feasibility Study including review of the process why the specific infrastructure has become a priority.

KEY STEPS TO UNDERTAKE PFS

Depending on the nature of the PFS below are standard steps the study team should take into consideration.

5.1

Initial Consultations Prior Departure to the Project Location

Consult the CDIA nominated Core Management Team member who will supervise the Consultants work, i.e. to ensure that the scope and expectations of the assignment has been correctly understood; Study related programs and activities in the country to establish a sound understanding of the urban development situation being addressed.

5.2

Counterpart Consultations

Counterpart consultations should be seen as a key priority activity. The following steps are recommended:

CDIA has developed ToR templates for consultants in specific areas of work. For example, i) TOR template to undertake PFS(s), and ii) TOR template for urban infrastructure investment planning and programming. These templates will be reviewed and adjusted to specific city circumstances to meet the actual requirements depending on which sector to support.

Safeguarding the environment, Indigenous Peoples and resettled people, i.e. to prevent, minimize, or mitigate harmful environmental impacts, social costs, and marginalization of vulnerable groups that may result from development projects.

Formally validate Steering Committee structure and counterpart contribution; Establish sound working relationship with the city counterpart to strive for efficient team work and good cooperation ensuring that key institutions are at all times engaged in the process of the assignment as equal partners; Thoroughly explain and inform the counterpart when and how many consultants will be present in the city, especially if intermittent inputs are being used. Ideally this is done by providing a tentative staffing schedule and workplan to the counterpart; Undertake field visits to locations of proposed activities to reach a full understanding of the development issues; Together with the counterpart discuss and identify the key issues of the study and agree on how to address those; Identify investments with the counterpart through participatory processes and in partnership with citizens, civil society and private sector,

which are pro-poor focus and mitigate climate change.

5.3

Undertaking the Assignment

As mentioned under Para 4 the TOR should be the guiding instrument for the assignment, however to ensure a successful study the below steps should be taken into account.

Jointly with the counterpart define the geographical scope of the study area; Review of previous studies on the referred development issues, if available; Study the current development issues (e.g. urban planning, land use, urban transport, solid waste, sewage water and drainage etc.) and design within the city; Assess the organizational and institutional issues in the provision of basic urban services (e.g. systems, business processes, stakeholder analysis, internal/external relationships and political economy); Identify possible solutions and measures to improve the urban management situation, including new institutional delivery mechanisms for improved service provision; Identify alternative solutions including assessment of local financing capacity and the likely need for external funding and support, including the role of the private sector; Make use of CDIA developed toolkits and guidelines5, as appropriate; Recommend environmentally and socially responsible techniques and strategies for urban infrastructure investment; Conduct preliminary assessment of probable development impact objectives of the project(s) in terms of urban environmental improvement, urban poverty reduction, urban governance improvement and social and gender impacts;

Conduct preliminary assessment of possible adverse environmental and social impacts and how to mitigate by safeguards, flag these issues for the anticipated Feasibility Study; Conduct preliminary estimates of project costs and of financial sustainability; Recommend likely implementation and operation arrangements for the potential project(s) including possible potential of public-private partnership (PPP); Flag issues to be considered in detail in the anticipated Feasibility Study including review of the process why the specific urban infrastructure has become a priority; Undertake an initial assessment of major risks including political; Throughout the assignment hold regular meetings (besides steering committee meetings) with relevant stakeholders in the counterpart institution and the city administration to update on progress of the study and create ownership; Throughout the assignment discuss with and inform potential funding partners of the progress and likely need for future investments; If applicable, define issues to be addressed in, and further need for data collection and analysis for, a potential Feasibility Study.

CONTENT OF PFS

Depending on the nature of the PFS the content of the report(s) will naturally vary. CDIA has developed a detailed checklist containing the standard requirements and content of a PFS (refer to Table 1 overleaf). Relevant parts shall apply depending on the nature and scope of the PFS.

This PFS Guideline, Project Programming & Prioritisation Toolkit and PPP Manual Quick Start Guide

Table 1: PFS Checklist

1.0 1.1 1.2 EXECUTIVE SUMMARY Objectives Summary of analysis Brief information of project objectives and ( ) background. Summarize the stages of the PFS, brief description of current situation and recommended projects and ( ) strategies including tentative cost estimate.

2.0 2.1 2.2 2.3 3.0 3.1

INTRODUCTION Reporting structure Schedule Consultant(s) and Counterpart(s) Brief introduction to the PFS, objectives of the ( ) report and how it is structured. Indicate the schedule of the study. ( ) Involved consultants(s) and counterpart staff ( )

ANALYSIS OF DEVELOPMENT ISSUES Current situation Indicate Project area, policy and legislation, institutional structure and finance, analysis and overview of the current situation and its impact. Analysis of future requirements and demand analysis, i.e. typically 5 10 years projections and estimates. Stakeholders perceptions of the conditions and how they were obtained. Indicate considered institutional and financial options, public funding versus PPP, point out why the project appears as it does etc. ( )

3.2 3.3 3.4

Development need Stakeholders views Institutional and financial options considered PROJECT IDENTIFICATION

( ) ( ) ( )

4.0

4.1

Recommendations

4.2

Project Descriptions

Studys recommendations and analysis to improve the urban situation. Alternative broad technical ( ) solutions and preliminary design, social-, environmental- and institutional aspects. Project description to include: - Project title - Sector / Sub-sector - Location (maps, photos as required) - Implementing agency - Technical description and aspects - Project benefits and outcomes ( ) - Beneficiaries - Social, poverty, gender impacts - Environmental impacts - Project Costs (US$) - Operation and Maintenance Cost - Recommended implementation schedule - Potential for private investment

- Potential for involvement/contributions 5.0 DEVELOPMENT IMPACT OBJECTIVES

community

5.1

5.2

Preliminary assessment of likely development impact objectives of the project(s) in terms of urban Assessment environmental improvement, urban poverty ( ) reduction, urban governance improvement and social and gender impacts. Preliminary assessment of possible adverse environmental and social impacts and how to mitigate those by safeguards (environment, Adverse Environmental indigenous peoples and resettled people). Flag ( ) and Social Impacts these issues for the anticipated Feasibility Study. (Refer to ADBs checklists on social and environmental assessments) FINANCIAL ANALYSIS Project Costs Preliminary estimates and summary of project costs of identified and prioritized projects. Analysis of the current municipal revenues, recurrent internally generated and other revenue (funds from irregular sources that can vary significantly from year to year). In addition, analysis of grants and loans situation. Analysis of recurrent expenditure, other expenditure (operation & maintenance, possibly electricity etc) and development (capital) expenditure. Preliminary estimates of project costs. Analysis of the current investment situation to derive a financial envelope to finance the identified investment projects. Undertake financial and/or economic analysis of the project. Elaborate various funding scenarios considering potential loans/grants from development banks, possible private investments and government contribution, producing projections of financial statements as required to evaluate viability. (Refer to ADB guidelines on economic and financial analysis) Conclusion remarks of the current investment situation and the affordability to finance identified investment projects. ( )

6.0 6.1

6.2

Municipal revenues

( )

6.3

Municipal expenditure

( )

6.4

Economic and Financial Analysis

( )

6.5

Conclusions

( )

7.0

IMPLEMENTATION ARRANGEMENTS Recommend and elaborate likely implementation Implementation and and operation arrangements for the potential ( ) Operation Arrangements project(s) including possible potential of publicprivate partnership (PPP). Indicate possible

7.1

institutional weaknesses and suggested measures to rectify the situation. 8.0 8.1 RISKS Assessment Initial assessment of the key risks for each proposed ( ) project. Identify the major assumptions which are made for recommended projects. Indicate if there are any circumstances outside the control of the recommended project, if they occurred, would ( ) prevent the achievement of the main objectives. These assumptions would be analyzed further at the feasibility stage. Identify broad risks to both implementation and sustainability. Indicate risk management strategies, ( ) if relevant. To be further developed at the feasibility stage.

8.2

Assumptions

8.3

Risks

9.0 9.1

FORTHCOMING FEASIBILITY STUDY (if required) Further studies Indicate the need and reasons for further studies, if ( ) required. Briefly summarize the requirements to indicate likely data and survey needs, required expertise, study support facilities, locations, and institutions to be ( ) consulted, skills required on the team and time requirements.

9.2

Feasibility requirements

10.0 CONCLUSIONS AND RECOMMENDATIONS 10.1 Conclusions and Recommendations Summarize the conclusions and recommendations from the study. Highlight key issues and suggested ( ) way forward for the local government and/or city.

11.0 APPENDICES 11.1 Appendices To be attached as necessary e.g. data and survey sheets, detailed technical descriptions and costing, ( ) project fiches, key references etc.

Cities Development Initiative for Asia

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