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;
2. Credit derived from the
expected profitability of the
project
- The profitability of the project depends on the
marketability of the outputs and the cost of
production.
3. Credit derived from the
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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Investor criteria to evaluate a feasibility study (2)
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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Investor criteria to evaluate a feasibility study (3)
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.