Cities Development Initiative for Asia

Pre-Feasibility Study Guideline

September 2009

CDIA

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TABLE OF CONTENTS

1 INTRODUCTION 3

2 DEFINITION OF PFS 3

3 NECESSITY AND OBJECTIVES OF PFS 3

3.1 CDIA Guiding Principles 3

3.2 Bridging the “gap” 3

4 SCOPE OF PFS 3

5 KEY STEPS TO UNDERTAKE PFS 4

5.1 Initial Consultations Prior Departure to the Project Location 4

5.2 Counterpart Consultations 4

5.3 Undertaking the Assignment 5

6 CONTENT OF PFS 5

Table 1: PFS Checklist 6

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1 INTRODUCTION

CDIA’s key operational principle is to provide

services up to pre-feasibility level. This guide

has been developed to clarify the term

“Prefeasibility Study (PFS)” and aims to

further elucidate the content of PFS primarily

for CDIA stakeholders (local governments of

medium-sized cities in Asia), and not at least

for the consultants who are hired to

undertake and implement CDIA supported

assignments.

2 DEFINITION OF PFS1

A PFS is broadly defined as preparatory

studies required to enable funders to have a

successful feasibility study carried out for a

particular investment opportunity; this

generally will comprise investment

programming and packaging, initial scoping

and costing of identified investment projects,

and priority-setting among identified

investment projects competing for scarce

resources. Typical outputs are descriptions of

priority projects for which broad design

choices have been made, at a level of detail

sufficient for a Terms of Reference for a

feasibility study

Another way to define PFS is “a preliminary

study undertaken to determine if it would be

worthwhile to proceed to the feasibility study

stage2.” Hence, a PFS can determine the

scope of the probable following feasibility

study whether; i) Is it worthwhile to proceed

with the feasibility stage? And, ii) What would

be the main objective(s) of the feasibility

study?

3 NECESSITY AND OBJECTIVES OF PFS

3.1 CDIA Guiding Principles

The guiding principles and operational

directions for CDIA are addressing four major

principles: i) Urban environmental

1

Reference: CDIA Operational Guidelines 2

BusinessDictionary.com

sustainability, ii) Climate change

mitigation/adaptation, iii) Urban poverty

reduction, and iv) Good urban governance.

While it is not possible to make a discernable

impact across all these dimensions in every

project, CDIA is committed to addressing

them as much as possible across all aspects of

CDIA operations. Thus, a PFS should always

upfront emphasize the relevance the

proposed infrastructure has for one or more

of these guiding principles.

3.2 Bridging the “gap”

In many cases cities do have some type of

urban development strategies and/or

masterplan, but have somehow not been able

to move forward from these plans. CDIA was

created to bridge these urban governance

“gaps” and assist cities to translate their

infrastructure needs into projects and

programs ready to be financed, including

prioritization of investment proposals by

providing useful pre-feasibility information.

CDIA is cooperating closely with bi-lateral and

multi-lateral development banks and

agencies.

Therefore, the main purpose of PFS is to

ensure that there is a solid base for

undertaking a feasibility study and to further

defining probable following investment

projects. The PFS can also be used to identity

and highlight certain development issues and

assist the cities and local government to

identify prioritized sectors to improve the

urban situation.

4 SCOPE OF PFS3

The specific scope and tasks of a PFS will be

determined in the Terms of Reference (TOR).

Generally a PFS undertaken under CDIA

umbrella would include the following:

• a review of technical options and

features for the potential project(s);

3 There are usually more than 1 PFS per CDIA study,

hence section 4 will need to be repeated for each sector

while the other sections apply to the Project as a whole.

4

• brief assessment of potential economic

and social benefits;

• preliminary assessment of probable

development impact objectives of the

project(s) in terms of urban

environmental improvement, urban

poverty reduction, urban governance

improvement and social and gender

impacts;

• preliminary assessment of possible

adverse environmental and social

impacts and how to mitigate by

safeguards4, flag these issues for the

anticipated Feasibility Study;

• preliminary estimates of project costs

and of financial sustainability;

• recommend likely implementation and

operation arrangements for the

potential project(s) including possible

public-private partnership (PPP)

potential;

• undertake financial and/or economic

analysis based on available information,

providing the basis for negotiation with

potential financers;

• flagging of issues to be considered in

detail in the ensuring Feasibility Study

including review of the process why the

specific infrastructure has become a

priority.

CDIA has developed ToR templates for

consultants in specific areas of work. For

example, i) TOR template to undertake PFS(s),

and ii) TOR template for urban infrastructure

investment planning and programming. These

templates will be reviewed and adjusted to

specific city circumstances to meet the actual

requirements depending on which sector to

support.

4 Safeguarding the environment, Indigenous Peoples

and resettled people, i.e. to prevent, minimize, or

mitigate harmful environmental impacts, social costs,

and marginalization of vulnerable groups that may

result from development projects.

5 KEY STEPS TO UNDERTAKE PFS

Depending on the nature of the PFS below are

standard steps the study team should take

into consideration.

5.1 Initial Consultations Prior

Departure to the Project Location

• Consult the CDIA nominated Core

Management Team member who will

supervise the Consultants work, i.e. to

ensure that the scope and expectations

of the assignment has been correctly

understood;

• Study related programs and activities in

the country to establish a sound

understanding of the urban

development situation being addressed.

5.2 Counterpart Consultations

Counterpart consultations should be seen as a

key priority activity. The following steps are

recommended:

• Formally validate Steering Committee

structure and counterpart contribution;

• Establish sound working relationship

with the city counterpart to strive for

efficient team work and good

cooperation ensuring that key

institutions are at all times engaged in

the process of the assignment as equal

partners;

• Thoroughly explain and inform the

counterpart when and how many

consultants will be present in the city,

especially if intermittent inputs are

being used. Ideally this is done by

providing a tentative staffing schedule

and workplan to the counterpart;

• Undertake field visits to locations of

proposed activities to reach a full

understanding of the development

issues;

• Together with the counterpart discuss

and identify the key issues of the study

and agree on how to address those;

• Identify investments with the

counterpart through participatory

processes and in partnership with

citizens, civil society and private sector,

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which are pro-poor focus and mitigate

climate change.

5.3 Undertaking the Assignment

As mentioned under Para 4 the TOR should be

the guiding instrument for the assignment,

however to ensure a successful study the

below steps should be taken into account.

• Jointly with the counterpart define the

geographical scope of the study area;

• Review of previous studies on the

referred development issues, if

available;

• Study the current development issues

(e.g. urban planning, land use, urban

transport, solid waste, sewage water

and drainage etc.) and design within the

city;

• Assess the organizational and

institutional issues in the provision of

basic urban services (e.g. systems,

business processes, stakeholder

analysis, internal/external relationships

and political economy);

• Identify possible solutions and

measures to improve the urban

management situation, including new

institutional delivery mechanisms for

improved service provision;

• Identify alternative solutions including

assessment of local financing capacity

and the likely need for external funding

and support, including the role of the

private sector;

• Make use of CDIA developed toolkits

and guidelines5, as appropriate;

• Recommend environmentally and

socially responsible techniques and

strategies for urban infrastructure

investment;

• Conduct preliminary assessment of

probable development impact

objectives of the project(s) in terms of

urban environmental improvement,

urban poverty reduction, urban

governance improvement and social

and gender impacts;

5 This PFS Guideline, Project Programming &

Prioritisation Toolkit and PPP Manual Quick Start

Guide

• Conduct preliminary assessment of

possible adverse environmental and

social impacts and how to mitigate by

safeguards, flag these issues for the

anticipated Feasibility Study;

• Conduct preliminary estimates of

project costs and of financial

sustainability;

• Recommend likely implementation and

operation arrangements for the

potential project(s) including possible

potential of public-private partnership

(PPP);

• Flag issues to be considered in detail in

the anticipated Feasibility Study

including review of the process why the

specific urban infrastructure has

become a priority;

• Undertake an initial assessment of

major risks including political;

• Throughout the assignment hold

regular meetings (besides steering

committee meetings) with relevant

stakeholders in the counterpart

institution and the city administration

to update on progress of the study and

create ownership;

• Throughout the assignment discuss with

and inform potential funding partners

of the progress and likely need for

future investments;

• If applicable, define issues to be

addressed in, and further need for data

collection and analysis for, a potential

Feasibility Study.

6 CONTENT OF PFS

Depending on the nature of the PFS the

content of the report(s) will naturally vary.

CDIA has developed a detailed checklist

containing the standard requirements and

content of a PFS (refer to Table 1 overleaf).

Relevant parts shall apply depending on the

nature and scope of the PFS.

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Table 1: PFS Checklist

1.0 EXECUTIVE SUMMARY

1.1 Objectives Brief information of project objectives and

background. ( )

1.2 Summary of analysis

Summarize the stages of the PFS, brief description

of current situation and recommended projects and

strategies including tentative cost estimate.

( )

2.0 INTRODUCTION

2.1 Reporting structure Brief introduction to the PFS, objectives of the

report and how it is structured. ( )

2.2 Schedule Indicate the schedule of the study. ( )

2.3 Consultant(s) and

Counterpart(s) Involved consultants(s) and counterpart staff ( )

3.0 ANALYSIS OF DEVELOPMENT ISSUES

3.1 Current situation

Indicate Project area, policy and legislation,

institutional structure and finance, analysis and

overview of the current situation and its impact.

( )

3.2 Development need

Analysis of future requirements and demand

analysis, i.e. typically 5 – 10 years’ projections and

estimates.

( )

3.3 Stakeholders’ views Stakeholders’ perceptions of the conditions and

how they were obtained. ( )

3.4 Institutional and financial

options considered

Indicate considered institutional and financial

options, public funding versus PPP, point out why

the project appears as it does etc.

( )

4.0 PROJECT IDENTIFICATION

4.1 Recommendations

Study’s recommendations and analysis to improve

the urban situation. Alternative broad technical

solutions and preliminary design, social-,

environmental- and institutional aspects.

( )

4.2 Project Descriptions

Project description to include:

- Project title

- Sector / Sub-sector

- Location (maps, photos as required)

- Implementing agency

- Technical description and aspects

- Project benefits and outcomes

- Beneficiaries

- Social, poverty, gender impacts

- Environmental impacts

- Project Costs (US$)

- Operation and Maintenance Cost

- Recommended implementation schedule

- Potential for private investment

( )

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- Potential for community

involvement/contributions

5.0 DEVELOPMENT IMPACT OBJECTIVES

5.1 Assessment

Preliminary assessment of likely development

impact objectives of the project(s) in terms of urban

environmental improvement, urban poverty

reduction, urban governance improvement and

social and gender impacts.

( )

5.2 Adverse Environmental

and Social Impacts

Preliminary assessment of possible adverse

environmental and social impacts and how to

mitigate those by safeguards (environment,

indigenous peoples and resettled people). Flag

these issues for the anticipated Feasibility Study.

(Refer to ADB’s checklists on social and

environmental assessments)

( )

6.0 FINANCIAL ANALYSIS

6.1 Project Costs Preliminary estimates and summary of project costs

of identified and prioritized projects. ( )

6.2 Municipal revenues

Analysis of the current municipal revenues,

recurrent internally generated and other revenue

(funds from irregular sources that can vary

significantly from year to year). In addition, analysis

of grants and loans situation.

( )

6.3 Municipal expenditure

Analysis of recurrent expenditure, other

expenditure (operation & maintenance, possibly

electricity etc) and development (capital)

expenditure.

( )

6.4 Economic and Financial

Analysis

Preliminary estimates of project costs. Analysis of

the current investment situation to derive a

financial envelope to finance the identified

investment projects. Undertake financial and/or

economic analysis of the project. Elaborate various

funding scenarios considering potential

loans/grants from development banks, possible

private investments and government contribution,

producing projections of financial statements as

required to evaluate viability. (Refer to ADB

guidelines on economic and financial analysis)

( )

6.5 Conclusions

Conclusion remarks of the current investment

situation and the affordability to finance identified

investment projects.

( )

7.0 IMPLEMENTATION ARRANGEMENTS

7.1 Implementation and

Operation Arrangements

Recommend and elaborate likely implementation

and operation arrangements for the potential

project(s) including possible potential of public-

private partnership (PPP). Indicate possible

( )

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institutional weaknesses and suggested measures

to rectify the situation.

8.0 RISKS

8.1 Assessment Initial assessment of the key risks for each proposed

project. ( )

8.2 Assumptions

Identify the major assumptions which are made for

recommended projects. Indicate if there are any

circumstances outside the control of the

recommended project, if they occurred, would

prevent the achievement of the main objectives.

These assumptions would be analyzed further at

the feasibility stage.

( )

8.3 Risks

Identify broad risks to both implementation and

sustainability. Indicate risk management strategies,

if relevant. To be further developed at the feasibility

stage.

( )

9.0 FORTHCOMING FEASIBILITY STUDY (if required)

9.1 Further studies Indicate the need and reasons for further studies, if

required. ( )

9.2 Feasibility study

requirements

Briefly summarize the requirements to indicate

likely data and survey needs, required expertise,

support facilities, locations, and institutions to be

consulted, skills required on the team and time

requirements.

( )

10.0 CONCLUSIONS AND RECOMMENDATIONS

10.1 Conclusions and

Recommendations

Summarize the conclusions and recommendations

from the study. Highlight key issues and suggested

way forward for the local government and/or city.

( )

11.0 APPENDICES

11.1 Appendices

To be attached as necessary e.g. data and survey

sheets, detailed technical descriptions and costing,

project fiches, key references etc.

( )

Cities Development Initiative for Asia

Suite 202-203 Hanston Building, Emerald Ave.,

Ortigas Center, Pasig City 1600,

Metro Manila, Philippines

Phone: +63-2 631-2342 • Fax: +63-2 631-6158

Website: www.cdia.asia

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