Feasibility Study

1

• Feasibility Study
• as a Basis for
• Investment Financing
• Arto Nuorkivi
• ESCOBALT Project Manager,
• Finland
• Kaunas, Dec. 14, 2005

2

• Purpose of Feasibility Study
• Link between borrower and financier
• Financiar may not know anything about the
  borrower, the city, the project idea, various
  implications of the project
• Financier wants to avoid any risk whether
  financial, public, environmental, social,..

3

• Introduction
•  Project Owner location, type of business,
  business volume and development
•  
• Project Environment
• City Where located, Population (time series for
  past three and coming 10 years), GDP, types of
  businesses?

4
Indicative Structure of Feasibility Study
5

• Project Description
• Project Objectives and Contents
• What benefits you expect to achieve with the
  project in energy, water, electricity, staff,
  maintenance, total costs and heat quality to
  customers?
• What is the content of the project?
•  Beneficiaries
• Who will benefit from the project and why in
  terms of heating comfort, cost reduction,
  emission reduction, health improvement?
• How many they are in each category?

6

• Heat Demand
• How much is the heat demand last three years,
  current year and ten years to come?
• What are the reasons to increase/decrease ?
• Market share of DH now and in ten years to come?
• Assumptions of heat load estimates?
• Outdoor temperatures in a year needed for
  heating?
• Space heating or/and domestic hot water?
• Heat load parameters W/m3 and MWh/m3 year.
•  

7

• Heat Production and Fuels
• How is the heat produced and now fuel, number of
  sources, produced energy, efficiency, age of heat
  source(s), flue gas emissions, boiler
  availability, boiler connection scheme?
• Is there industrial waste heat available in the
  project area?
• Are there any renewable fuels (bio, waste,)
  available in the area?
• Fuel sources, distance and way of transportation,
  prices, annual costs, sulphur content, ash
  content?
• Lime or calcium availability, price?

8

• Centralized heating Network
• Network separately for primary and secondary
  network length at present, average DN, age,
  schematic map in A4 or A3 size, water losses in
  m3?
• Planned network average DN, schematic map in A4
  or A3 size?
• Number and type of substations, both group
  substations and building level substations?

9

• Operation and Maintenance (OM)
• Costs of materials and number and costs of people
  
• used for OM of the existing DH system?
• planned for OM of the new DH system?
• used for OM of the heating system to be
  eliminated due to the project?
• Number of damages (interventions, leakages) in
  the network in past three years?
• unit cost of repairing a damage in the network on
  average?
• Maintenance costs

10

• Project Organization
•  
• Rights and responsibilities of organization?
• Names and positions of people in the organization
  chart?
• Organization chart of project implementation in
  A4 size?
• Organization chart of DH operation and
  maintenance?
• Organization chart of the relation of the DH
  company to the owner?
• Education level of project staff and DHE staff?
• Needs of further education?

11

• Tariff Setting
• How the heat tariff is regulated?
• What is the level of heat tariff at present?
• Increases or decreases expected in the next years
  to come?
• Plans to revise the tariff system regulation,
  structure?

12
Economic Options to Customer

• From the customers point of view, which other
  options are available for heating if not DH?
• What are costs of the options to the customer
  compared with DH in terms of /MWh (/Gcal)?

13
Social Impacts

• Poverty How does the project address poverty
  alleviation if at all?
•  
• Gender How does the project address gender
  issues if at all (responsibilities and right of
  females, usually)?
•  
• Health How does the project address health
  issues if at all?
•  
• Ethnic considerations How does the project
  address rights of ethnic people in the region if
  any at all?
•  

14
Environmental Assessment

• Environmental Legislation and Standards
• Laws and regulations relevant to the project case
  (local, EU)?
• Environmental Impacts
• Flue gas emissions with and without the project
  for the next 10 years to come?
• Table of data used for emission calculation?
• Assumptions used for emission calculation?
• Environmental measures covered by the project

15
Financial Analysis

• Investment costs foreign and local separately
• Table of data used for the analysis
• Assumptions of the analysis
• A cash flow sheet shall be an annex of the
  feasibility study
• Indicative sources of financing
• Indicative financial rate of return (FRR)
• Risks and risk management

16

• Financial versus Economic Analysis
• Financial analysis from the companys point of
  view cash flow of actual cost and benefits with
  and without the project including taxes
• Economic analysis from the societys point of
  view cash flow of cost and benefits with and
  without the project (economic analysis is not
  always necessary in the feasibility study)

17
Implementation Arrangements

• Project organisation
• Expertise and tasks of the project implementation
  unit (PIU)?
• Permissions to proceed
• Access to land, technical permits, authorizations
• Procurement
• Procurement plan with procurement packages with
  total costs, procurement method, time schedule of
  procurement process of each package