PROJECT PREPARATION IN

INFRASTRUCTURE
PROJECTS
(An Overview)

Presented by:

Engr. PELITA V. GALVEZ

OIC Economics Section
Project Preparation Division
Planning Service

17 February 2015
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 Presentation Outline

I. DPWH Project Development Cycle

Project Identification
Project Preparation
Project Implementation
Project Operation and Evaluation

II. Feasibility Study for Infrastructure Projects

Why do we do feasibility studies?

Project Categories
Levels of Feasibility Studies
FS Team Composition
Major Steps in the Conduct of FS
Project Benefits
Evaluation Criteria and Investment Decisions DpwhPs-ppd
 I. DPWH PROJECT
DEVELOPMENT CYCLE

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What is a Project ?

 a projection into the future with certain

objectives in mind

 “… any activity that involves the use of resources

during specific time period for the purpose of
producing a socio-economic return in the forms
of goods or services”

 e.g, roads, irrigation, water supply, etc……

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 DPWH PROJECT DEVELOPMENT CYCLE

Infrastructure Development Process

PROJECT
IDENTIFICATION

MAINTENANCE,

PREPARATION
EVALUATION
OPERATION,

PROJECT
PROJECT
IMPLEMENTATION

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1. Project Identification
 Project is usually identified and prioritized from PMS and
BMS outputs, area development surveys, master plans
and regional development plan, sector and industry
studies, etc. – undertaken by the DPWH and other
concerned entities such as National Economic and
Development Authority (NEDA), Regional Development
Council (RDCs), etc.

 Searching for potential demand satisfying investments

that will be required and subject of a feasibility study

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2. Project Preparation
a) Project Feasibility Study
 Once project is identified, a feasibility study is undertaken.

 This consists of the various investigations and analyses necessary to

determine whether the project is worth carrying out how it is to be
carried out.

 Seeks to find out if and to what degree the project is desirable in

technical, economical, social, environmental, financial, and
operational terms.

 Looks into alternative schemes to attain the project’s objectives

 Determines whether project would generate sufficient benefits to

offset estimated investment and operating costs

 Ascertains which alternatives would yield the largest possible

return

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2. Project Preparation
a) Project Feasibility Study (Cont.)
 Meets conventional feasibility criteria – i.e. appropriate engineering
design and estimates with +/-20% accuracy, and an economic internal
rate of return (EIRR) of at least 15%

 Study must include:

(a) an Environmental Impact Assessment (EIA) based
on which an Environmental Compliance Certificate
(ECC) which must be secured from the DENR;

(b) where necessary, a Resettlement Action Plan (RAP)

to provide for the proper compensation and
relocation of the project-affected persons; and

(c) an endorsement from the RDC that the project is

consistent with the development priorities of the
region

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2. Project Preparation

b) Inclusion in the Medium-Term Infrastructure Program and

Budget

 If the project passes the feasibility criteria, considered for

inclusion in the DPWH medium-term infrastructure
program and budget, provided that it is among the highest
ranked candidate projects that meet the Multi-Criteria
Analysis (MCA) score. MCA considers the following
parameters:
 Project Preparedness (with ICC Approval, Economic
Viability, Environmental Assessment and Social Impact)
Road Network Importance
 Economic and Social Development Policy
 The DPWH medium-term program in turn is integrated into
the overall Philippine Medium Term Public Investment
Program (MTPIP) prepared by NEDA
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 2. Project Preparation

c) Investment Coordination Committee (ICC) Approval

(FAPs)

 ICC screening is done at three levels – namely, NEDA

technical staff, ICC Technical Board, and ICC Cabinet
level

 ICC evaluates the merits of the project in relation to set

criteria (conformance to national priorities, EIRR,
inclusion in the medium term program and budget, etc.)
and, if it finds that the project meets all the
requirements, approves it.

 Project is then elevated to the NEDA Board for

confirmation.

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 2. Project Preparation

d) International Financing Institution (IFI) Appraisal (FAPs)

 Once project is approved by the ICC, the GOP submits it to the IFI for
appraisal and eventual loan financing
 The IFI conducts an appraisal of the project to review and confirm its
feasibility and readiness for implementation: discusses with the
GOP/DPWH the description of the project, its cost, financing to be
made both IFI and GOP, schedule, implementation arrangements
(right-of-way clearance, bidding and contracting procedures, special
project office, etc.) and conditions to be met before final negotiations
(e.g. relocation of informal settlers, etc.)
 Agreements are embodied in Minutes of Discussions/ Memorandum
of Understanding signed by the IFI and GOP representatives, Aide
Memoire/Project Appraisal Document, and serve as basis for the draft
loan negotiation documents.
 The DPWH obtains from the DBM a Forward Obligational Authority
(FOA) to cover the multi-year funding requirements of the project,
including both the proposed loan proceeds and GOP counterpart, as a
prerequisite to loan negotiations and for contracting purposes.
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 2. Project Preparation
e) Loan Negotiations (FAPs)
 Loan negotiations for the project with the IFI are undertaken
by a GOP panel usually chaired by the DOF, and composed of
the DPWH, DBM, and BSP.

 The negotiations discuss and agree on the scope and

description of the project, project cost, cost to be financed
from the loan and the GOP side, schedule of
implementation, arrangements for implementation,
including right of way acquisition and compensation and
relocation of project affected persons, bidding and
contracting procedures for detailed engineering and
construction supervision and for civil works, project
management, actions requiring concurrence or approval of
the IFI, terms of financing and repayment, loan disbursement
procedures, and other relevant terms.

 After the loan is approved by the IFI, the loan agreement is

signed by the GOP and the IFI officials.
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 2. Project Preparation
f) Fund Appropriation (FAPs)

 Based on its medium term infrastructure program and

budget and loan negotiations, the DPWH includes the
project in its proposed annual budget, submitted to the
DBM
 Incorporated in the National Expenditure Program (NEP)
submitted by the President to the Congress for
appropriation of funds under the General Appropriation
Act (GAA) for the following year
 Proposed appropriations for the project in the NEP covers
both the loan proceeds and the GOP counterpart which are
scheduled to be disbursed during the budget year

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 2. Project Preparation
g) Detailed Engineering

 Consists of the various technical surveys and

investigations, such as topographic surveys, soil borings,
and hydrologic surveys, and design operations needed to
define the detailed physical characteristics of the project,
according to accepted engineering standards to an extent
suitable for bidding purposes and with a degree of detail
that will enable estimates of quantities and costs to be
made within plus or minus 10% of the final figures.

 Includes the preparation of bid documents, including

plans, specifications, instructions to bidders, draft contract
terms and conditions, bill of quantities, cost estimates and
price analyses.

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 2. Project Preparation
g) Detailed Engineering

 Parcellary surveys are also undertaken to define the right-

of-way needed and the properties affected.

 For FAPs, Consultants are generally hired to do the

detailed engineering in accordance with the procurement
guidelines of the IFI as stated in the loan agreement.

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 3. Project Implementation

a. Fund Releases
b. Right-of-Way (ROW) Acquisition (Note: often
frontloaded during detailed engineering stage)
c. Bidding and Contracting
d. Construction
e. Completion and Acceptance

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 4. Project Operation and Evaluation

a. Operation and Maintenance (Asset Preservation, and

Project Sustainability)
b. Impact Evaluation or Post-Project Appraisal
 Attempts to assess if and to what extent the
completed facility performs the functions as intended
 Includes an assessment of the actual benefits and cost
arising from the completed project, as against those
assumed or projected during the project study,
covering the technical, economic, social, and
environmental impact.
 The lessons learned will be used to revised or finetune
the parameters, assumptions, and conditions in the
preparation and implementation of the future
projects to improve their planning, implementation,
operation and maintenance, and outcome results.

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Project Development Cycle
Project
Identification

Ex-Post Project
Evaluation
Project
Preparation

Post-Investment Pre-Investment
Phase Phase
Project
Operation and
Maintenance
Project
Appraisal and
Investment Financing

Phase

Project
Implementation

Detailed
Project
Engineering

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Project Identification and Development Process
ENVIRONMENTAL
BOTTOM UP CLEARANCE
PLANNING CERTIFICATE
PROCESS

NEDA/INVESTMENT
AREA COORDINATING
DEVELOPMENT COM APPROVAL
STUDIES

SECTOR/ NEGOTIATING
MASTER PLAN APPRAISAL
STUDIES

PROJECT
IDENTIFICATION FEASIBILITY STUDY
OTHER
DETAILED
OPPORTUNITY
ENGINEERING
STUDIES

PHYSICAL PROJECT
INFRA PLAN APPRAISAL IMPLEMENTATION

REGL. PHYSICAL PROJECT

FRAMEWORK COMPLETION
DEVT. PLANS REPORT

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 II. FEASIBILITY STUDY FOR
INFRASTRUCTURE PROJECTS

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Why do we do feasibility studies?

 Seeks to find out if and to what degree the project is

desirable in technical, economical, social, environmental,
financial, and operational terms.
 Looks into alternative schemes to attain the project’s
objectives
 Determines whether project would generate sufficient
benefits to offset estimated investment and operating
costs
 Ascertains which alternatives would yield the largest
possible return

 Consists of the various investigations and analyses

necessary to determine whether the project is worth
carrying out how it is to be carried out.

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Project Categories

 independent projects

 mutually – exclusive projects

 competing road projects

 complementary projects
 integrated area development projects

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Levels of Feasibility Analysis

 Pre-feasibility Study

 Feasibility Study
 the two are similar differing mainly in the
degree of detail and accuracy involved.

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Pre-feasibility Level

 Alternative ways of carrying-out the project

should be examined at a relatively speedy
and economical manner.

 Alternatives found to be highly unfeasible are

immediately screened out to reduce the
number of solutions to be subjected to the
subsequent detailed F.S.

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Feasibility Study Level

Depending on the results of the

prefeasibility, any of the following
decisions may be taken:

 Reject the project

 Defer conduct of the feasibility study
 Proceed directly to detailed design and
implementation
 Conduct a detailed feasibility study
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A detailed feasibility study is necessary only if the results
of the pre-feasibility analysis indicate any of the
following:

 More detailed information is required to produce more

conclusive results.
 Alternative schemes of the project are nearly of the
same degree feasibility and/or show marginal feasibility.
 New alternative solutions have emerged whose
feasibility need to be ascertained through more detailed
analysis.

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Feasibility Study Team Composition
 Team Leader
 Economists
 General
 Transport
 Agricultural/Development
 Engineers
 Highway
 Bridge/Structural/Drainage
 Materials
 Traffic
 Cost Estimator
 Environmentalist / Sociologist
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MAIN ACTIVITIES IN A FEASIBILITY STUDY
DATA FRAMEWORK

TRAFFIC SURVEYS

TRAFFIC GENERATING SOURCES

TRAFFIC GROWTH RATE

FUTURE HIGHWAY TRAFFIC
(NORMAL)

MODAL SPLIT TRAFFIC ASSIGNMENTS

HIGHWAY INVENTORY
BEFORE-AFTER GENERATED TRAFFIC

VEHICLE OPERATING COSTS

BEFORE-AFTER BENEFITS

IMPROVEMENT AND
ECONOMIC EVALUATION
MAINTENANCE COST REDUCTIONS

ENVIRONMENTAL IMPACT APPRAISAL MULTI-CRITERIA ANALYSIS

SOCIAL IMPACT APPRAISAL FINAL PROJECT PROPOSAL

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Engineering Aspects
 Road Standards (per classification)
 Road Reconnaissance and Inventory
 to include bridge structures, river crossings,

 flooded areas,etc…..

 Topographic Surveys
 topographic maps

 Soils and Materials Investigation

 Material Sources Surveys
 Drainage and Hydrology Survey
 Structural Survey
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Engineering Aspects
 Alternative Improvement/Construction Options
 earthwork estimation

 Pavement design/Gravel Surface Option

 Structure Requirements

 Construction Cost

 unit price analysis

 POW

 RROW

 Design and Supervision Costs

 Salvage Value
 Maintenance Cost
 Implementation Schedule
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 ECONOMIC EVALUATION

COSTS BENEFITS

EVALUATION
ANALYSIS

RESULTS

RECOMMENDATIONS

ENVIRONMENTAL
ASPECTS
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Project Benefits
 Consumer Surplus Benefits
 Normal Traffic Benefits
 Diverted Traffic Benefits
 Generated Traffic Benefits

 Producers Surplus Benefits

 Development Benefits

 Maintenance Cost Savings

 Other Benefits
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 Traffic Categories

• Normal traffic: Existing traffic and growth that would

occur on the same road, with and without the investment

• Diverted traffic: Traffic diverted from another road to the

project road as a result of the investment

• Generated traffic: New traffic induced by the investment

 Consumer’s Surplus Approach:

• Advantages: Simple, cost based, traffic

approach dependent on predicting changes in
traffic

• Disadvantages: May not address critical

factors promoting either rural development
or social access
 Producers Surplus Approach
• Advantages: Draws attention to changes in agricultural
output (key economic activity in rural areas)

• Disadvantages: No reliable way of predicting response

- impact studies give widely different answers

- it could be based on agricultural supply price

elasticity's but this is almost never done; it requires
very careful examination to use.

- For most projects benefits are just invented !

 BENEFITS STREAM COST STREAM

VOC TTC FINANCIAL COST

Transfer
Network Traffic Assignment Cost
W/O W/ Adjustment
OD Volume Project Case Project Case
Shadow
VOC (wo) VOC (w)
TTC (wo) TTC (w) Wage Rate

Benefit Economic Cost

EVALUATION

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 EVALUATION CRITERIA AND
INVESTMENT DECISIONS
1. Net Present Value:
NPV = (B1- C1) + (B2- C2) + ….. (Bn- Cn)
(1 + r) (1 + r)2 (1 + r )n

2. Internal Rate of Return : solve for i, (IRR)

0 = (B1- C1) + (B2- C2) + ….. (Bn- Cn)
(1 + i) (1 + i)2 (1 + i )n

B1, B2 … Bn : Benefits in years 1, 2 … n

C1 C2 Cn : Costs in years 1, 2 …. n
r : Planning discount rate , n : planning time horizon
 Internal Rate of Return
8000

6000 NPV at 12%

Discount Rate
Net Present Value (M$)

4000

2000
NPV = 0 at 15% Internal Rate
Discount Rate
of Reurn
0
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

-2000

-4000
Discount Rate (%)
 EVALUATION CRITERIA AND
INVESTMENT DECISIONS
3. Benefit/Cost Ratio

B0 +. . . + Bn
(1 + i)0 (1 + i)n
B/C =
C0 +. . . + Cn
(1 + i)0 (1 + i)n
 EVALUATION CRITERIA AND
INVESTMENT DECISIONS

In general, proposals are accepted and

recommended for investment if:

• NPV at opportunity cost of capital > or

equal to zero

• IRR > or equal to opportunity cost of

capital or hurdle rate

• BC Ratio > or equal to 1.00

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 Questions and Decisions 1.

• Is the project justified ?- Are benefits greater

than costs?

• Which is the best investment if we have a set of

mutually exclusive alternatives?
• If funds are limited, how should different
schemes be ranked?

• When should the road be built?

 Questions and Decisions 2.

• Are complementary investments required?

• Should stage construction be used?
• What standards should be applied ?
THANK YOU FOR YOUR
KIND ATTENTION

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