Studiul de Fezabilitate Si Prefezabilitate (Engleza)

8/10/2019 Studiul de Fezabilitate Si Prefezabilitate (Engleza)

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Characteristics of a project

What is a project?

- A project is a very complex human action

combining individual competences and abilities of

a project teams members for achieving a

complex and common objective that is

impossible to be achieved by a single person.

Implementing a project:

Is based on three fundamental moments:

Initial moment: when the decision to conceive the

project is taken by a group of sponsors andpromoters;

Final moment: when the last activity of the project is

completed.

Between initial moment and final moment is calculated

the projectsduration (or life-time).


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Projects characteristics (2)

A. A project is a temporary action: it is usuallybased on temporary market conditions (raw

materials, consumption opportunities,

competition level)

B. A project generates unique results: even a

project could be based on repetitive actions, the

results generated should be completely new.

C. A project it is gradually developed by aproject structure (team, company): any

project is based on successive future processes

with a concrete finality (results generated by the

project)


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Differences between projects and operating activities

Investment activities are submitted to a specific goal;

Business goals could be achieved by:

Operating activities;

Corporate projects;

Project financings (new company)

Common characteristics between operating activities and projects:

Involv es human effor ts ;

The resourc es are l imited;

Both of them are carefu l ly planned, organized, imp lemented and co ntro l led.

Differences between projects and operating activities:

Project is a temporary process generat ing NEW resul ts for the comp anies.


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Factors that generate projects

A new market demand (requirement): a new power

plant, a new facility

Organizational requirements: a group of

companies interested to improve their human

resources creates a training company, improvement

of existing organizational structure for the company;

A specific demand of clients: development of a

treatment plant

A technologic change: a new improved video-game

console

A legal or institutional requirement(ex: a company

producing chemical substances introduces a new

quality management system).


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Type of projects

A. The level of the project:

Corporate level

Local level

National level

Regional level

International level

B. Sector criteria:

Industrial projects

Commercial projects

Cultural projects Ecological projects

Scientific projects

Educational projects

Managerial projects


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Internal factors with impact on the projects

Management

Output Facilities

Organization

Technology

Humanresources

Capital

Businessculture

INTERNAL

FACTORS


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External factors with impact on the projects

Social factors(population, birthrate)

Competition

Political factors

Juridical factors

Resources

Cultural factors

Economicfactors (inflation,

interest rate)

EXTERNAL

FACTORS


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Project life cycle


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Life cycle of a project (ONUDI)

I. Pre-investment phases

Studies for identification of investment opportunities

Pre-feasibility studies

Feasibility studies

Evaluating and decision studies

II. Investment phases

- Negotiation and contracting phase

- Projection phase

- Building phase

- Testing and validating phase

III. Operating phase

Project finance is

involved in all phases


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Investment

decision

Signing the

construction

contract

Construction

Projected

operating

parameters

Normal life-time

end

Cleaning

site

Feasibility

phase

Planning &

Projection

Construction Testing

phase

Operating &

Maintenance

Post-

operating

Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Phase 6


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Project phases (2ndversion)


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Initiating a project

(initial phase)


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Initiating phase of the project

The activities in the initial phase of a project:

Organizing the ini t ia l phase: A management teamis allocated for the project

It is established the possible structure for the project

Initiation efforts are considered to be day-to-day activity of

sponsors and promoters;

Initial studies could be considered as independent corporateprojects.

Analysis of the pro ject (or bus iness):

Project idea is analyzed from commercial and technical perspective;

The promoters and sponsors should identify the potential lenders

(and stakeholders);

Identification of potential security arrangements with clients andsuppliers;

Resources and competences analysis;

Development plan for the project (phases, stages);

Capital and time budgeting for pre-investment phase.


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Initiating phase of the project

Finishing the initiating phase:

If the project will not produce significant benefits for sponsors, end-

users, public users, government the project initiation will end and the

experience will be used in future projects;

If the project is considered to be interesting for stakeholders

pre-feasibility study, feasibility study and organizational chart.


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Prefeasibility study of a project


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Prefeasibility Study Content

Is a written study

Written part of P.S. includes:

a) General data;

b) Projected expenses with initiation of

the project;

c) Technical data about investments;

d) Data about project finance.


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A. General data of a PF study

Has the role to present the general objective ofthe project:

- Project description;

- Name of the PSsauthor (consultant);

- Main responsible with the project (SPV);

- Main investors (sponsors, beneficiaries);

- Location of the project;

- Project opportunity for stakeholders.


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B. Expenses with project

development

This section will include the following

information:

- Total estimated value for the project;

- Expenses allocated for PS and FS;

- Expenses allocated for approvals;

- Expenses with preparation of projectsdocumentation and organization of

auction (instructions, publication).


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D Financing details for the


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D. Financing details for the

project

This section will detail the following information:

Total value of investment:

% sponsors equity funds;

% credits and credits from IFI;

%public funds (governmental funds);

% local funds (municipal funds);

% special funds;

% external credits with sovereign guarantees.


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Feasibility phase of a project


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A. Technical feasibility

- In the initial phase, the project sponsor (s)must undertake extensive efforts toverify the technological process and proposed facilities;

- If the project is based on new or unproven technology, a test or a pilot projectshould be constructed in order to test the feasibility of the project and to try tooptimize the processes involved;

- A wellexecuted project will ensure future expansion of it;

- The technical feasibility is very important when the project will be constructed inextreme environmental conditions (Artic pipelines or North Sea Oil productionfacilities);

- Project sponsorsoften contact outside independent engineering consultants toassist at the design work and to provide an independent opinion about projectstechnical feasibility;

- Long term lenderscan require a confirming opinion from independent expertsconcerning the following aspects:

1. The project can be constructed within the time schedule proposed;

2. Upon completion of construction, the facilities will be capable ofoperating as planned;

3. The construction cost estimates are adequate for completion of theproject.


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Project construction cost

the detailed design plans provide the basis for estimating the total constructioncosts for the project => technical feasibility is the base for construction cost

analysis;

the total construction cost of a project can be diminished with the cost ofadditional infrastructure that can be supported by others (host government withsome form of international financial assistance);

the estimations for construction costs should also include:

additional infrastructure costs (if the host government does notsupport them;

additional costs generated by the evolution of prices forproduction factors (especially when we have projects with a longterm construction period);

additional amounts for possible design errors or unforeseencosts(usually 10% of direct costs)

working capital requirements (especially for interest paymentsduring construction period).


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The time schedule

Project sponsorsor their advisers shouldprepare time scheduledetailing the

activities that must be accomplished before and during the construction period.

The time scheduleshould specify:

1. The time expected to be required to obtain regulatory or

environmental approvals and permits for construction;

2. The time expected to be required to procure all the equipments

you need;

3. The time allocated for preconstruction activities(design work,

ordering the equipments, preparing the site, hiring the necessary

manpower);

The sponsor should examine the critical pathof the construction schedule in orderto minimize the project time-cost and risk of delay.


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B. Economic viability

The critical issue concerning economic viability is whether the net present valueof the project is positive;

NPV will be positive only if the expected present value of the future free cashflow exceeds the expected present value of the projects construction costs;

If the we assume that the project is constructed on schedule and within the budget,the economic viability of the project depends primarily on the values of thefuture project outputs;

To evaluate the marketability of the project outputs the sponsor can realize thefollowing studies:

a projection for demand and supply conditions over the project life;

a marketing study on the competitive products and their cost ofproduction;

an analysis of the expected life-cycle for project output, sales volume andprojected prices;

an analysis of the potential impact of the technical obsolescence.

Another important analysis is about the cost of production that affect the price ofthe projects outputs: operating costs + cost of capital + other costs (delayingcosts, fluctuations in product price).


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C. Creditworthiness for the project

A project has no operating history at the time of its initial debt

financing;

The amount of debt that the project can raise is a function of the

projects expected capacity to support the debt service from the

project future cash flows;

A project credit strength derives from:1. The inherent value of the assetsincluded in the project;

2. The expected profitabilityof the project;

3. The amount of equity project sponsorhave at risk;

4. The creditworthiness of the third parties or sponsors

involved in the project.


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1. Credit derived from the

inherent value of the project

assets

The creditors are interest in:

-adequate proven reserves for raw materials;

-a proven technology to recover these resources;

-an assured market for the outputs;


expected profitability of the

project

- The profitability of the project depends on the

marketability of the outputs and the cost of

production.


amount of equity projectsponsor have at risk

- The debt is direct linked with the equityof the project

(a higher equity participation from the sponsorsensures a higher debt capacity for the project).

4. Credit support derived

indirectly from pledges by

third parties

- Usually the lenders look for two sources of

repayments for their loans:

1. The credit strength of the project entity;2. The collateral value of any assets used for

secure the loan

- In PF there is a third source: the credit strength of

the sponsors and third parties involved in the

project.


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Investor criteria to evaluate a feasibility study (1)

The strength and experience of the project sponsors and the

government department or inter-state currently responsible for the function

(usually the most important criteria)

An important sub-criteria is the experience of the sponsor team

in working together on projects a successful joint track

record reassures the other stakeholders

The investors will also assess the strength and reputation of

the government department currently responsible for the

services

The technical capability of government;

The reputation of sponsors in dealing with other PPP projects

History of fee collectionfor public sponsors


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The project fundamentals and economics are both quantitative and

qualitative.

The value for money in delivering services by the project

The affordability of the services provided by the project

The credit of the project participants is critical, as they must provide

services over an extended period.

Contractual arrangements between the parties stipulate who is

responsible for what.

The potential competition (on toll road projects, for example, the project

company may require the assurance that the government will not build an

alternative road)


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The financial covenants included in the various agreements are important not only

to the investors but also to all stakeholders (a minimum debt-to-equity level,

restriction on the payment of dividends unless certain ratios are met, or a minimumdebt coverage ratio)

Non-financial covenants (a minimum asset maintenance level, restrictions on the

transfer of ownership of the project, and restrictions on the extent and nature of the

services a sponsor may provide)

The added value of the project that a given sponsor may bring to the project may

include synergies and a more efficient or effective method of providing the services

The legislative environment that may be available (tax, labour and property

ownership laws, and the likelihood that these may be revised in the future)

Incentives(reduced tax rates or tax holidays, the ability of foreign investors to

repatriate their initial investment and interest or dividends)


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Feasibility study - template

1. Description of project.

2. Description of sponsor(s).

3. Sponsors' Agreements.

4. Project site.

5. Governmental arrangements.

6. Source of funds.

7. Offtake Agreements.

8. Construction Contract.

9. Management of project.

10.Capital costs.

11.Working capital.

12.Equity sourcing.13.Debt sourcing.

14.Financial projections.

15.Market study.

16.Assumptions.

Studiul de Fezabilitate Si Prefezabilitate (Engleza)

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