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Project Appraisal: Methods and Procedures

René van ZonneveldSenior Technical AdvisorProjects Directorate, EIB

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Internationalbodies and Recommendationsagreements

European Opinion

External Commission levels

National OpinionGovernment

Start InfoPromoter of repayment to be

of loan suppliedFirst Signature

informal Appraisal of loan Time axiscontact agreement

Prelim. Disburse- Moni- Completion Ex-post Services screening ment(s) toring exercise exercise

by EV Appraisal Loan

Management authorisat. proposal AnnualEIB Committee to Board report

levels Loan Board of approval Report

Directors Specific

Board of RecommendationsGovernors

Poor quality projects includes includes are various loanRemarks: to be ruled out site Technical conditions

at early stage visit Description fulfilled?by technical as annex A

expert

Project Appraisal Process

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Eligibility Legal framework Regional development Policies, public acceptance Rational use of energy,efficiency Licensing, safety Environmental protection Environmental compatibility etc Procurement

Promoter's standing Investment cost Management capability Local and foreign currencies Business strategy Phasing of expenditure Financial robustness Margins for var.contingencies Access to loan securities Cost justification

Market prospects Procurement Demand pattern Techn.characterist./procedures

Degree of competition PROJECT Geographical location Tariff level and structure Promoter's experience Product quality (stage of development at the Co-lender's requirements time of appraisal varies)

Technology and Design Time schedule Viability and performance Preparat.of feasibility studies Adaptation to technic.progress Environmental studies Local-specific requirements Licensing requirements Appropriate technical capacity Time needed for procurement Life expectancy Local conditions (climatic etc)

Economic+financial Environmental compatibility viability Impact analysis,mitigat.measures Cost effectiveness Direct, indir.,long-distance effects Financial intern. rate of return Prevention vs."end-of-pipe"Economic intern. rate of return Compliance with intern.standards Pay-back period etc Least-polluting technology

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KEY ELEMENTS FOR APPRAISAL

EligibilityRegional DevelopmentRational use of energy, efficiencyEnvironmental protectionR&Detc

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KEY ELEMENTS FOR APPRAISAL

Legal FrameworkPolicies, public acceptanceLicensing, safetyEnvironmental compatibilityProcurement

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KEY ELEMENTS FOR APPRAISAL

Promoter’s standingManagement capabilityBusiness strategyFinancial robustnessAccess to loan securities

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KEY ELEMENTS FOR APPRAISAL

Technology and DesignProject DefinitionViability and performanceAdaptation to technical progressLocal-specific requirementsAppropriate technical capacityLife expectancy

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KEY ELEMENTS FOR APPRAISAL

Time SchedulePreparation of feasibility studiesEnvironmental studiesLicensing requirementsTime needed for procurementLocal conditions (climatic, etc)

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KEY ELEMENTS FOR APPRAISAL

ProcurementTechn. characteristics-proceduresGeographical locationPromoter’s experienceCo-lender’s requirements

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KEY ELEMENTS FOR APPRAISAL

ProcurementTo follow: Guide to Procurement

(Febr.2004)Inside EU->EU DirectivesOutside EU-> Main Mechanisms of the EU Directives

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KEY ELEMENTS FOR APPRAISAL

Investment CostLocal and foreign currenciesPhasing of expenditureMargins for var. contingenciesCost justification

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KEY ELEMENTS FOR APPRAISAL

Environmental and Social CompatibilityImpact analysis, mitigation measuresDirect, indirect, long-distance effectsPrevention vs. « end-of-pipe »Compliance with international standardsLeast-polluting technology

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KEY ELEMENTS FOR APPRAISAL

Market prospectsDemand patternDegree of competitionTariff level and structureProduct quality

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KEY ELEMENTS FOR APPRAISAL

Economic+Financial ViabilityCost effectivenessFinancial internal rate of returnEconomic internal rate of returnPay-back period, etc

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Special Issues in Project Preparation, Appraisal, Implementation and Completion

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Special Issues in Project Appraisal, Making Technical Expertise Available

During project preparationFeasibility Studies-ToRFeasibility Studies-CommentsFinancial EngineeringEnvironmental and Social Aspects

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Special Issues in Project Appraisal, Making Technical Expertise Available

During AppraisalReview of Project DesignPhasing of Project ImplementationSupervision MechanismsOptimize Finance PlansOptimize Procurement StrategiesReview of profitability aspects and tariffs

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Special Issues in Project Appraisal, Making Technical Expertise Available

During ImplementationEstablishment of Project Implementation Units; involvement of ConsultantsReview of Procurement Procedures and Evaluation ProcessIdentification of Implementation Difficulties and Remedial Measures

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Special Issues in Project Appraisal, Making Technical Expertise Available

Project CompletionProject Review with PromoterEstablishment of Lessons LearntIdentification of Follow-up projects

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Special Issues in Project Appraisal, Making Technical Expertise Available

Under certain circumstances the EIB could participate in providing technicalassistance

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Special Issues in Project Appraisal, Making Technical Expertise Available

After identification of a feasible project, promoters should involve financiers at an early stage

Detailed project preparation, including review of Carbon Credit IssuesSpecial Requirements on Environment and ProcurementGuaranteesInsuranceRisk MitigationAcceptability of financial and economic profitability levels