Assessment of Infrastructure Provision
Determination of Infrastructure Provision Needs
I. Review of Service Availability Conditions
- Present a description and review of the problems with respect to the current availability of services or opportunities to provide services that are needed by the community or service users. Ensure that the problems are compiled after a study of factual data or supporting evidence regarding the current availability of services. Analyse the factual data or supporting evidence from demographic studies, socio-economic studies and review of policies and regulations of the sector and related sector development. Also, analyse the factual data or supporting evidence to identify and describe any obstacles or difficulties arising in the condition of provision of existing services. Describe how the factual data or supporting evidence indicates that there could be an opportunity to provide additional services.
- Refer to official documents and/or reports of the service provision to be able to describe the amount of costs incurred for the existing processes. These costs are operations and maintenance (O&M) costs dating back to at least 3 to 5 years. For greenfield projects, derive the costs after reference to existing service businesses located in the same area or around the project location.
- List the existing assets that are being used to provide the current services in the sector. Conduct a review of the existing assets. The review should comprise an understanding of the condition (capacity, utilisation, upkeep, maintenance, usability) of the existing assets as well as asset ownership status i.e., which entity or entities own/s the existing assets, for how long has the ownership been existing, how much of the existing assets does each party own (if there are multiple owners) and describe whether there are encumbrances or challenges or obstacles to current ownership of the service assets (such as site, building, equipment etc.).
II. Review of Impact caused by Service Availability Conditions
- Study and describe the projected demand or potential growth for the project services or infrastructure provision over the project period. For this description, use the existing service availability conditions as a baseline to find out the infrastructure gap.
- List the type of community users and to other relevant stakeholders. List the kinds of impact of existing conditions of services and / or opportunities to provide services to the community as users and to other relevant stakeholders has different kinds of impact. List the kinds of impact and describe the impact on economic, social, financial, or other aspects of existing conditions of services.
III. Review of infrastructure needs
- The previous responses identified the infrastructure need and the existing infrastructure gap. Here, describe the initial indications of the proposed infrastructure that is expected to address the identified infrastructure needs. The response should consider the potential impact on the community as users and other relevant stakeholders identified in the previous responses. The response should also differentiate infrastructure needs based on whether they are greenfield i.e., new infrastructure or brownfield i.e., development / rehabilitation/ revitalisation of existing infrastructure.
- If the proposed infrastructure provision is a greenfield project, describe the study of project identification or location determination. For example, depending on the sector, in a greenfield project, determine that the project location aligns with the necessary spatial plan at the specific government level. Determine that the project location is not geographically located in a dangerous area, the project is not in a location that interferes with the existing other infrastructure provision / service activities, including being on an aircraft landing or take off route or in its proximity, on or around a waste landfill/ transmitting station/ heavy industrial area etc. Also assess whether the project location is easily accessible to the public or is close to the main road and have connectivity of public transportation infrastructure and facilities, communication routes, pedestrians, and disabled routes. Also assess whether there are available public utilities such as water, electricity, drainage, communication lines (fiber, telephone etc.).
- Upon conducting the analysis in the previous response, it may be concluded whether the initial indication of infrastructure needs can be fulfilled either through infrastructure development, improvement of infrastructure capacity, and/or infrastructure maintenance. Describe which of these is applicable to meet the initial indications of infrastructure needs. The description here would form the basis to determine the framework of project options outlined in the project option selection stage.
Preparation of Initial Project Plan
I. Project scoping
- Derive the project form and scope considering the information regarding the identified infrastructure provision needs established in the previous responses.
- The form of a project is the type of infrastructure provision (for example: main building, supporting facilities etc. as per identified needs). The form generally comprises integrated activities including design, construction, financing, asset transfer, and/or asset management transfer. These activities can be integrated with costs, responsibilities, and risks that determine the form of the project.
- The project scope is an indication of project specifics including the range of services or inclusions in the project or the elements of the infrastructure provision/ asset that need to be provided. For example, development, operations, waste disposal, or other things, according to identified needs.
- In practice, the form and scope of this project are interrelated and difficult to separate.
- The project timeline is the expected time plan for the realisation of the proposed infrastructure based on identified needs. This timeline refers to the needs plan owned by the project owner. It does not include the time for construction or procurement. An implementation schedule that comprises the length of the construction process or the length of the procurement process is to be described in the recommendations chapter.
- Derive the indicative project timeline from the information established in the previous responses. An indicative project timeline or duration can also be derived by analysing projects of a similar nature implemented before in similar conditions.
II. Project Requirements and Specifications
- Derive the description of services from the project scope mentioned in the previous response and from the initial project concept, if any, before this PS was developed.
- Identify and describe project-specific requirements and matters, including service indications, minimum service standards/ service level agreements (SLA), and/or output specifications aligning with the project requirements, and requirements based on the needs of the project owner.
III. Potential Market Interest
- Carry out an initial analysis of market potential, interest, availability and capabilities, based on existing needs. Describe whether the project is likely to provide good business opportunities that can potentially attract market interest and create effective and competitive procurement. Describe whether the market has the capability to participate in the development of the proposed infrastructure provision.
- Provide details on the validation of market intellegence based on availability and capabilities of market stakeholders, internal and external data collection, similar projects implemented in the past, and market research, if needed.
IV. Indication of government support
- Describe which kind of government support is required for this KPBU project.
- Government support includes financial and/or non-financial support provided by ministers/institution heads/agency heads/regional heads and/or ministers. Any of these entities are responsible for government affairs in state finance, as per their respective authorities based on statutory regulations to enhance the financial feasibility and effectiveness of a proposed KPBU project. For this they offer financial and /or non-financial support. Examples of Government financial support includes: fiscal contributions, feasibility support, tax incentives, partial construction support, grant, regional incentive fund, special physical allocation fund, special non-physical allocation fund, regional loan and/or regional investment. Non-financial support includes: acceleration of permits, land ownership, technology access, licensing or intellectual property rights.
- Justify the need for government support and how it shall support the KBPU project. Attach inprinciple approval of government support if obtained. Describe what kind of government support is included in the letter of principle approval.
Project Risks Indication
- The PS should provide a risk matrix, which identifies all key risks relevant to the project and contains the information about each risk. The information for the risk matrix is collected from the other parts of the PS (the strategic suitability, determination of infrastructure provision needs, the analysis of user demand, and the project due diligence). The process of risk assessment includes:
- Project risk identification - Risk identification is carried out to determine and understand factors that may prevent, reduce, delay, or enhance the project's outcomes. A general review of potential risks can be useful to identify possible emerging risks potency. Some main and common categories of risks to the project is listed in the PS Generator risk matrix. Identifying these common risks and other more project-specific risks can be done by personnel should possess adequate technical and operational experience. Add rows as required to include risks not included in the matrix.
- Risk assessment of project - The assessment of project risks involves an initial evaluation that considers factors such as the level of risk, as well as the likelihood and consequences of these risks. Risk assessment techniques can range from subjective assessment methods based on experiences in similar projects to computer-based simulations. The choice of risk assessment approach depends on the significance and complexity of the risks and their impacts. However, the emphasis at the PS stage is on using subjective methods for assessment. Detailed assessments can be conducted in the preparation of the pre-feasibility study if needed.
- Risk allocation - If the project implementation can be carried out by parties other than the minister/head of institution/regional head/SoE directorate, efficient risk management requires allocating risks to parties with the best capabilities to handle them. At PS, considerations shall be given to identify which party has the best capability to manage the identified risks.
- Risk mitigation - Mitigation strategies need to be identified to reduce the likelihood of risks occurring or to lessen the consequences if those risks are materialized. Mitigation strategies can be employed to prevent occurrences through project structuring or contingency planning. Mitigation strategies should strive for a balance between potential costs and the risks involved, as well as the costs incurred to prevent or mitigate the risks.
Project Financial Analysis
I. Project cost estimation
- An initial estimation of the project cost includes all relevant costs caused by the project during its expected lifetime (whole-life cost). A sufficient understanding of the project conditions is required (land status, requirements for special equipment, and expected outputs) for undertaking this initial estimation. It includes:
- Estimation of initial capital expenditures, lifecycle costs in the maintenance and operation of the infrastructure based on the early (schematic) design.
- Initial contingency cost for significant risks that may have a material cost impact on the project.
- Costs of measures to prevent or mitigate social and environmental impacts. In this section, describe the key assumptions for project-specific cost estimates based on early (schematic) design. Provide suitable reference projects as comparison to justify costs. The cost estimates should also consider project specific characteristics, such as remote location, difficult site conditions and local availability of inputs (human resources, raw materials, support services, etc.). List the assumptions of the cost estimates (with reference to sources and justifications) and calculations clearly explained.
- The typical capital cost items are listed in the table, add rows as required to include additional cost items. The typical cost items include – land acquisition and resettlement, site preparation, civil construction, plant and machinery (purchase and installation), measures to prevent or mitigate social and environmental impacts, provision for price increases during the construction period, provision for contingencies, etc.
- The typical operations and maintenance cost items are listed in the table, add rows as required to include additional cost items. The typical cost items include – salaries, consumables (chemicals, fuel, power), spare parts, routine & periodic maintenance, replacement investments, third party services, administration, communication, overhead costs, etc.
- Provide initial cost estimates for preparatory studies (design studies, environmental impact analysis, preparation of land acquisition costs, etc),costs for advisory, specialist studies, communication, shifting of utilities, land acquisition, etc. Add rows as required to include additional cost items.
II. Project benefit estimation
- Describe the revenues earned from different aspects of the project (from users, commercial activities, and cash receipts from the minister/institution head/regional head SoE directorate). The estimates and forecasts for revenues must be clearly documented and explained. The sources of data must be indicated, assumptions and calculations must be explained. Assumptions on macroeconomic variables (exchange rates and inflation) should be based on data and forecasts of relevant authoritative institutions.
- In case of revenues from user charges, provide revenue forecasts based on the demand for the project infrastructure service. The demand forecasts include demand volume (initial volume and growth rate), the tariff/ price and, the price elasticity of demand.
- Where relevant, the impact of the quality of the service on the volume of demand and the willingness to pay has been determined.
- User charge revenue is calculated by multiplying the demand volume with applicable tariff.
- The revenue estimates also include adjustments to demand based on annual increase in usage volume and periodic adjustments to tariff in line with inflation and other macroeconomic parameters.
- In case of availability payment, compute the payment required from the minister/institution head/regional head SoE directorate for providing the infrastructure service based on a financial assessment that considers all costs for providing the infrastructure service, returns on the financing mix for the project, etc. The assessment should also include details regarding the project's potential for cash revenue or generating income.
- Detail the cash reciepts based on the potential income streams for the project.
- Cashflow assessment of project’s commercial viability is conducted with a project financing model. This model includes:
- projection of project investment and operating cash flow over the duration of the project;
- modelling of the financing structure, including at least equity, subordinated debt and senior debt;
- projection of financing cash flow on the basis of the financing structure;
- modelling of cash waterfall;
- projection of income statement and balance sheet;
- calculation of key financial ratios, including at least gearing, return to shareholders,
- FIRR, WACC and Debt Service Coverage Ratio (DSCR).
- The financial internal rate of return (FIRR) is the stream of net project cash flows of the project (revenues less expenses). The weighted average cost of capital (WACC) measures the cost of capital (debt and equity), weighted by their proportion and cost. The project is financially feasible if the FIRR exceeds the WACC. If the FIRR is less than the WACC (for example, if the affordable user fee is too low), the project in its current form is unlikely to generate any significant interest from KBPU investors. Therefore, the GCA needs to look for other sources of revenues such as land value capture or other sources of commercial revenues linked to the project. The feasibility should also consider reducing the scope of investment, if there are dispensable investments that might make the project more feasible (for example, smaller capacity or less expensive technology). Finally, the feasibility study should explore different opportunities for public contributions (for example, capital contributions from the GCA during the construction phase to offset the cost of construction or during the operations phase to augment the project revenues stream). Download the generic financial model tool for guidance on conducting the financial analysis.
- List the results from the financial analysis in the table.
- A sensitivity analysis should be carried out to assess the effect of certain project risks on the financial feasibility of the project. The usual sensitivity tests include Increase of construction costs (usually around 20 percent); Increase of operating costs (usually around 10%); Lower demand (typically decreasing revenues by say 10 percent); and Delay of project completion or operation. Assessing sensitivities helps identify key project risks that may need to be mitigated. The PS can address those key risks to make the project more attractive for KBPU. For some risks, the PS can explore guarantees from IIGF to protect the KBPU from the risk, or some part thereof.
III. Indications on fiscal capacity
- Describe the fiscal costs for the minister/institution head/regional head/ SoE directorate based on the above benefit estimation. These include payment under the Availability Scheme or construction grant payments to improve affordability of the project under User Pays Scheme or any other form of fiscal support for enabling the KBPU.
- List the expected annual payments, potential for cash revenue or generating revenue, etc and calculate the present value of the expected payout over the life of the project . Indication of GCA's Fiscal Capacity to Pay Availability Payment (AP) and/or At PS stage, the minister/institution head/regional head/SoE directorate shall identify their fiscal capacity to implement the Infrastructure Provision project. This is done by comparing their fiscal capacity in accordance with regulations and indications of the calculated project's cost-benefit. Through this calculation, the minister/institution head/regional head/SoE directorate is expected to draw preliminary conclusions about their fiscal capacity to fund the project according to their allocation based on the chosen investment return method.
- Provide an assessment of the affordability of project services for users (households, passengers, citizens, patients, and so on). This is typically done through direct willingness to pay surveys with potential users of the service to be provided or estimated by looking at what potential users are spending on alternative services, and so on. However, the minister/institution head/regional head/ SoE directorate may be concerned with ensuring services to certain parts of the population are particularly affordable, or even less expensive, for the poorest, for certain businesses or industry that are important to economic growth. Details of such cross-subsidization through tariff regime may also be included in this section.
IV. Identification of financing scheme
- At PS stage, the minister/institution head/regional head may consider the expected financing scheme for the implementation of the Infrastructure Provision project, including through loans or other sources besides loans such as equity/contractor pre-financing or through other methods according to regulations. These considerations are preliminary indications that will be confirmed again in the pre-feasibility study. Detail the financing scheme being proposed for the project
Project Economic Analysis
I. Economic Project Benefit Estimation
- The economic assessment comprises estimation of the full costs and benefits (financial as well as non-financial) of the project to society as a whole. This helps minister/institution head/regional head/SoE directorate determine whether the project is desirable or not from the viewpoint of the society as a whole. The economic assessment at PS stage includes identification and estimation of costs and benefits of the project, including social and environmental aspects. The economic model tool for conducting economic analysis of the project is part of the generic financial model tool.
- The economic costs and benefits are expressed in constant price level (real values without expected inflation). Economic costs are estimated by including the following:
- the costs of the construction or acquisition of the assets; the costs of mitigating and compensating measures; the loss of the present function of the land that will be occupied by the project (the land acquisition costs may be used as a proxy); the maintenance and operating costs; any other costs that are caused by the project.
- The costs are measured by their economic value or opportunity cost. Where appropriate financial prices have been converted into economic prices or shadow prices. This may for instance be the case for unskilled labour (shadow wage factor) and imported goods that are valued at border prices (shadow exchange rate factor).
- The value of economic benefits are derived from the willingness to pay for the services delivered by the project or the cost savings realised by the users of the project.
- Important costs and benefits for which no reliable quantitative estimates can be made (for lack of data or calculation models) are described in qualitative terms, so that they can be included in the PS.
- Table: Economic costs and benefits
- It is also important to consider a preliminary sensitivity analysis. This is done to anticipate variations in costs and benefits that may occur. Such uncertainty can be addressed through sensitivity analysis, allowing an assessment of how sensitive economic and financial outcomes are to key assumptions in the evaluation. Sensitivity analysis shall be carried out through: identify variables that may have a significant impact on project outcome; identify the likelihood of risks occurring; calculate the impact by considering combinations of best and worst-case scenarios for the variables; identify changes in key assumptions that could reduce net financial or economic benefits, and assess the likelihood of their occurrence.
- Conclusion on economic costs and benefits are established based on the economic net present value or ENPV of the stream of costs and benefits during the lifetime of the project. The future costs and benefits are converted into their present value using the social discount rate.
- The economically preferred project option is determined based on the highest ENPV. If there are important costs and benefits that have not been quantified (because the required data and calculation methods are not available), then these should be considered in addition to the ENPV in the judgement on the preferred alternative.
- For purposes of presentation the internal rate of return of the stream of net benefits (benefits less costs) can be calculated – the is economic internal rate of return or EIRR. The EIRR of the preferred option should exceed the social discount rate
Selection of Infrastructure Provision Method (Qualitative Value for Money)
I. Details on the application of qualitative VFM tool
- Describe the Infrastructure Provision methods considered for the project along with the allocation of risks across the key risks listed in the Tool. Provide details on the data inventory considered for assessment, market validation applied to the data inventory and key factors guiding the evaluation scores. guiding the evaluation scores.
- Describe the results of the qualitative VfM assessment with the scores obtained for the infrastructure provision method. Mention the most suitable Infrastructure Provision method for the implementation of the project.
- Upload relevant images, screen shots of the model with details on the inputs and results
I. Recommendations for infrastructure provision methods
- Based on the result of evaluation of qualitative Value for Money, the minister/institution head/regional head/State-Owned Enterprise directorate shall provide recommendation for the Infrastructure Provision method that received the best assessment.
- If the conclusion identifies PPP as the Infrastructure Provision method applicable to the project, the minister/institution head/regional head/State-Owned Enterprise directorate shall follow up on the Infrastructure Provision in accordance with the activities and stages stipulated in Bappenas Ministerial Regulation no. 7 of 2023.
- Prepare and upload the recommended project PPP structure defining the roles and responsibilities of the public and private sectors. The structure should include key stakeholders and contractual relationships between different stakeholders. Refer to the template on typical PPP contractual relationships across stakeholders involved in the PPP.
- Fill in the table the roles of the private partner and GCA across in different stages of the project.
- Fill in the table the proposed risk allocation of the proposed PPP arrangement.