Feasability studies for investment zones in Iraq
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Transcript of Feasability studies for investment zones in Iraq
Feasibility Studies for Investment Zones in Iraq 29 April 2013Cairo
Eugene Brennan Head of International Consultancy Group Shannon Development, Ireland.
The Feasibility Study Process
Investment Zone Success
The Hatein Site
A Phased ApproachAdvantages and Disadvantages
Introduction
What is a Feasibility Study?
A Feasibility Study is an analysis of the viability of an idea:
❖ It focuses on helping answer the essential question of “should we proceed with the proposed project idea?”
❖ All activities of the study are directed toward helping answer this question.
Feasibility Study Goal
The Feasibility Study has one primary goal; to demonstrate that the project is
economically viable if it is designed, constructed and operated
in accordance with the concepts set forth in the Study
Laird (2001)
Feasibility Study
❖ A preliminary feasibility study allows you to assess if a project idea is really viable before it has even reached the drawing board.
❖ During the early stages of a project, the feasibility study also serves to test the project vision.
Set out specific scenarios so that they can be studied in-depth
During this process, the number of possible alternatives under consideration is usually reduced
“It is like an exploratory journey … you may take several paths before you reach your destination”
If the initial analysis is negative, it does not mean that the proposal is without merit.
Feasibility Study Methodology
Evaluate Alternatives:
The Feasibility Study Process
Three phases in a Study process:
1. A Concept, or Scoping, Study• To define potential of the project• Eliminate options unlikely to be optimal• Determine if further studies are justified
The Feasibility Study Process
Three phases in a Study process:
2. Pre-Feasibility• Select preferred operating options from
those shortlisted in the Scoping Study• Determine whether or not to commit to the
expenditure requirement and effort of a subsequent full Feasibility Study
• If early findings show that the proposed idea is not feasible, it will save time and money
The Feasibility Study Process
Three phases in a Study process:
3. Full Feasibility Study:
• Used to refine the optimal operating scenario defined by the Pre-Feasibility Study
• Often used to Assist with 3rd party Financing Attraction
• Provides the basis for the decision on whether the project should be pursued…
Prefeasibility Study
Determine what it SHOULD be
Case A
Case B
Case C
Case D
Case E
Ass
ess
an
d r
an
k
Alt
ern
ati
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Is it the
best?
Feasibility Study and Funding
Determine what it WILL be
Detail
InvestorReview
Is it Viable
?
Scoping Study
Determine what it COULD be
DevelopConcepts
Does it
make sense
?
Public-Private Partnerships
Useful Risk-Sharing Instruments
OptionsLand
Development
FinancingOn-Site
DevelopmentOperation and Maintenance
Regulation
Option A:
Government led Model
Government Agency
Government Agency
Government Agency
Government Agency
Government Agency
Option B:
Operating and Managing
Outsourcing Model
Government Agency
Government Agency
Government Agency Private
Operator
Government Agency
Option C;
Concession PPP Model (BOT)
Government Agency
Government Agency
And Private Operator
Private Operator
Private Operator
Government Agency
Option D:
Private Ownership PPP
Model
Private Operator
Private Operator
Private Operator
Private Operator
Government Agency
Comparison of PPP Options
Special Economic ZonesFeatures of Success
Special Economic ZonesFeatures of Success
What does Investment Zone Success Look Like?
Clear legal, regulatory, and institutional structures regulating industrial parks and general investment.
Adequate investor safeguards to protect private property rights
Contemporary international arbitration/mediation mechanisms;
A modern construction code;
Availability of serviced land, facilities, and utilities;
Simple customs administration in exporting parks and zones;
Availability of a land-titling system and real property registration;
Efficient business formation and licensing process;
But is this enough?
Indicators on a country’s laws,
regulations, access to industrial land and dispute arbitration
are helpful.
Indicators on a country’s laws,
regulations, access to industrial land and dispute arbitration
are helpful.
They are essential conditions that need
to be accompanied by other competitive
advantages in order to achieve sustainable
development
They are essential conditions that need
to be accompanied by other competitive
advantages in order to achieve sustainable
development
Special Economic ZonesAdditional RequirementsSpecial Economic Zones
Additional Requirements
Other Elements in SEZ Success.
❖ Participation of Local Governments – Establishment of ‘one stop shop’ facilities.
❖ Economic size of the host country – domestic market and proximity to foreign markets
❖ Natural Resource Availability❖ Potential for Innovation❖ Skilled and Educated Workforce❖ The Quality and Flexibility of the SEZ
Outline the Various Scenarios Examined and the Implications, Strengths and Weaknesses of each
Project Leaders should Test and Challenge the Underlying Assumptions.
One Alternative may Not be Immediately Obvious as the Best Scenario
Feasibility Study Outcomes
Feasibility Study Outcomes
❖ Making the decision to proceed is not always simple
❖ As investigation of alternatives advances, neither a positive nor negative outcome may emerge
❖ Major obstacles may emerge, making a positive recommendation difficult
❖ But, weaknesses can be overcome
❖ The Study will help us to understand the trade-off between risks and rewards
Feasibility Study Outcomes
It is Not the Purpose of the Feasibility Study
to Decide Whether or Not to Proceed with a Project.
One of the most critical decisions in Business Development
The Point of No Return
Once the decision is taken, it is difficult to turn back
The Feasibility Study will be an important information source in making this decision
Go/No-Go Decision
Why undertake a Feasibility Study?
Conducting a feasibility study is a good business practice.
It is an opportunity to examine all of the issues and assessing the probability of
business success.
Why undertake a Feasibility Study?10 Reasons
1. Gives focus to the project
2. Examines and narrows business alternatives
3. Identifies new opportunities through the investigative process.
4. Identifies reasons not to proceed.
5. Enhances the probability of success by addressing risk factors and mitigating factors that could affect the project.
Why undertake a Feasibility Study?10 Reasons
6. Provides quality information for decision making.
7. Provides documentation that the business venture was thoroughly investigated.
8. Helps in securing funding from lending institutions and other monetary sources.
9. Helps to attract equity investment.
10. Helps to inspire confidence.
Feasibility Study
❖ The objective of the proposed feasibility study for Hatein in Iraq is to establish the basis for a world-class investment location, based on good international practice principles and reflecting Iraqi
priorities and conditions.
❖ Feasibility Study Rationale should ask and answer the following key questions:
• Do Iraq’s Strengths Outweigh its Weaknesses?
• Does the Opportunity Offset any Possible Risks?
Profile of theHatein Site
Profile of theHatein Site
The Hatein Site
Site Characteristics:❖ Location:
• In Babel Governorate, 50 Km south of Baghdad Governorate❖ Physical Area:
• 15m sq metres (1,500 hectares or 3,700 acres) enclosed by a concrete wall
❖ Nearest Port• Basra (500 Km)
❖ Road Connections:• To Baghdad-Hilla Main Road: 1.5 Km• To Interstate Highway: 6.5 Km
The Hatein Site
Site Characteristics (Cont’d):
❖ Railway:
• Baghdad – Basra Main line – only rail bed remains
• Approximately 2 Kms of track required to connect the zone to the main line
❖ Existing Buildings:
• Site contains 115 manufacturing and administration buildings – none are serviceable
• Demolition and repair – much rubble on site• Need to explore opportunity to build factory
shells
The Hatein Site
Site Characteristics (Cont’d):❖ Electricity:
• Primary supply from National Grid – connection must be restored
• Transformer close to site with 100 Mw capacity• Site internal grid damaged. Current supply capacity is 63 MVA,
extendable to 100 MVA • Substantial investment required• Gas supply?
❖ Water Network• Supply from 3 pumping stations; 2 on Euphrates;
1 on Iskanderiya River – all belong to Babel Governate• Excess Capacity• Damaged network on site
The Hatein Site
Site Characteristics (Cont’d):
❖ Sewage and Drainage:
• No major issues – system generally intact
❖ Telecommunications:
• Regional Internet and Telecommunications networks (Fibre Optic) are good
• Connection to site from Telecom hub required
The Hatein Site
Site Characteristics (Cont’d):
❖ Residential• Hatein company residential complex
convenient to site in town of Iskanderiya• A 43-acre site available for residential
development located 5 Kms south of the site
Terms of ReferenceFeasibility Study – Pilot Investment Zone - Hatein
❖ Legal Framework as set out in the 2006 Investment Law and subsequent Investment Zone Regulation
❖ Feasibility Study to address:• Commercial Considerations• Physical aspects
❖ The Study should also explore how to engage the Private Sector in managing Investment Zone:• As the key investor• As member of a PPP
Feasibility Study
Main Elements
Main Elements
Many Feasibility Studies are based on TELOS:
❖ T – Technology and System Feasibility❖ E – Economic Feasibility❖ L – Legal Feasibility❖ O – Operational Feasibility❖ S – Schedule Feasibility
Project Implementation
Project TeamProject Implementation
Project Team
Implementation of studies
The project team :❖ A feasibility study should be conducted by a team of experts. ❖ Team members should be selected to cover:
• Industrial economics (preferably covered by the team leader)
• Marketing (dealt with by a market analyst or marketing expert)
• Civil engineering • Environmental Assessment• Process engineering and technology (covered by a specialist in the related industry)
• Mechanical and industrial engineering• Industrial Management, • Industrial financing and accounting (including fiscal aspects)
❖ The team should be assisted by short-term experts such as land surveyors, soil experts, laboratory technicians and sociologists, as required.
Team Leader
❖ The team leader's responsibility, besides his or her role as a
specialist, is to plan ,organize, direct and supervise all activities of the team until the study is finalised.
❖ Ideally, the project promoters should actively participate in the preparation of the study.
❖ In many cases the project is initiated by the promoter,who frequently has also made earlier studies and can therefore be considered a major source of information on the background and history of the project.
❖ During the preparation of the study many decisions (for example, on marketing and production programmes and the selection of alternatives) are to be taken by the promoters.
Development CriteriaIndustrial Parks
Development CriteriaIndustrial Parks
Criteria in the Provision of Industrial Property
❖ Economic Development Criteria• Industrial property is provided as an incentive to
attract investors
❖ Commercial Criteria• The development of industrial
property is undertaken on a commercial basis (for profit)
❖ Clarity of Purpose is Essential
International Investor Requirements
International Investor Requirements
An Investor’s Point of View
What Investors Need
How to Introduce the Private Sector
Gradual process:❖ Outsourcing and contracting ❖ Service Provision ❖ Management contracts with performance fees❖ Concessions❖ Build-Operate-transfer
The Ultimate Objective:❖ Attract Zone Users
The Ultimate Winning quality:❖ Flexibility!
How to Evaluate a Feasibility Study
How to Evaluate a Feasibility Study
Evaluation of Investment Projects
Commercial ProfitabilityNational Profitability
Evaluation of Investment Projects
Commercial ProfitabilityNational Profitability
National Considerations
❖ An investment project undertaken by a country should contribute to the National Income.
❖ ‘Net Value Added’ is often used as a measure. It has two important elements:• Salaries and Wages• Social Surplus
❖ More salaries and wages mean higher employment, higher income per person employed, or both
❖ Higher wage bills mean higher purchasing power of the population and higher National Welfare
Evaluation of Investment Projects National Profitability
❖ While Commercial Profitability assessment is important, so too is the contribution made to the welfare of the society.
❖ National Profitability analysis considers the project’s contribution to national economic and non-economic development objectives.
❖ Important National Considerations include:• Employment• International competitiveness• Distribution and Logistics• Future development of Industry sectors• Foreign exchange Earnings
Full Detailed Feasibility StudiesCan be Expensive
Full Detailed Feasibility StudiesCan be Expensive
Advantages:❖Lower Initial Cost Outlay❖Evidence of a Process Underway❖Opportunity to Refine and Distil developing issues❖Decision Points at the End of Each Stage rather than One Final Outcome❖Master Plan as an Output to create Early Interest
Is it possible to take a staged approach?
Disadvantages:❖May take Longer to Arrive at Ultimate Decision❖Initial Project Champions may Change or Lose interest❖There may be Time Gap Delays between Stages❖Investors May Delay Commitment pending Full Information
❖Other ……?
Is it possible to take a staged approach?
Prefeasibility Study
Determine what it SHOULD be
Case A
Case B
Case C
Case D
Case E
Ass
ess
an
d r
an
k
Alt
ern
ati
ves
Is it the
best?
Feasibility Study and Funding
Determine what it WILL be
Detail
InvestorReview
Is it Viable
?
Scoping Study
Determine what it COULD be
DevelopConcepts
Does it
make sense
?
Consider an Initial Review ❖10 weeks – 6 in Iraq❖2 Professionals Engineer + Economist❖Estimated cost
Initial Review
Feasibility Studies for Investment Zones in Iraq End of Presentation
Eugene Brennan Head of International Consultancy Group Shannon Development, Ireland. Email: [email protected]