Feasability studies for investment zones in Iraq

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Presented at the Special Training Session on Feasibility Studies for Investment Zones, 29 – 30 April 2013, Cairo, Egypt

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Feasability studies for investment zones in Iraq

  1. 1. Feasibility Studies for Investment Zones in Iraq 29 April 2013 Cairo Eugene Brennan Head of International Consultancy Group Shannon Development, Ireland.
  2. 2. Introduction The Feasibility Study Process Investment Zone Success The Hatein Site A Phased Approach Advantages and Disadvantages
  3. 3. What is a Feasibility Study? A Feasibility Study is an analysis of the viability of an idea: y It focuses on helping answer the essential question of “should we proceed with the proposed project idea?” y All activities of the study are directed toward helping answer this question.
  4. 4. 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)
  5. 5. Feasibility Study yA preliminary feasibility study allows you to assess if a project idea is really viable before it has even reached the drawing board. y During the early stages of a project, the feasibility study also serves to test the project vision.
  6. 6. Feasibility Study Methodology Evaluate Alternatives: 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.
  7. 7. 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
  8. 8. 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
  9. 9. 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…
  10. 10. Scoping Study Prefeasibility Study Feasibility Study and Funding Determine what it COULD be Determine what it SHOULD be Determine what it WILL be Develop Concepts Does it make sense ? Case B Case C Case D Case E Assess and rank Alternatives Case A Investor Review Is it the best? Detail Is it Viable ?
  11. 11. Public-Private Partnerships Useful Risk-Sharing Instruments
  12. 12. Comparison of PPP Options Options Land Development Financing On-Site Development Operation 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 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 Private Operator Government Agency
  13. 13. Special Economic Zones Features of Success
  14. 14. What does Investment Zone Success Look Like? Efficient business formation and licensing process; Availability of a land-titling system and real property registration; Simple customs administration in exporting parks and zones; Availability of serviced land, facilities, and utilities; A modern construction code; Contemporary international arbitration/mediation mechanisms; Adequate investor safeguards to protect private property rights Clear legal, regulatory, and institutional structures regulating industrial parks and general investment.
  15. 15. But is this enough? Indicators on a Indicators on a country’s laws, country’s laws, regulations, access to regulations, access to industrial land and industrial land and dispute arbitration dispute arbitration are helpful. are helpful. They are essential They are essential conditions that need conditions that need to be accompanied by to be accompanied by other competitive other competitive advantages in order advantages in order to achieve sustainable to achieve sustainable development development
  16. 16. Special Economic Zones Additional Requirements
  17. 17. Other Elements in SEZ Success. y y y y y y 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
  18. 18. Feasibility Study Outcomes 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
  19. 19. Feasibility Study Outcomes y Making the decision to proceed is not always simple y As investigation of alternatives advances, neither a positive nor negative outcome may emerge y Major obstacles may emerge, making a positive recommendation difficult y But, weaknesses can be overcome y The Study will help us to understand the trade-off between risks and rewards
  20. 20. Feasibility Study Outcomes It is Not the Purpose of the Feasibility Study to Decide Whether or Not to Proceed with a Project.
  21. 21. Go/No-Go Decision 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
  22. 22. 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.
  23. 23. 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.
  24. 24. 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.
  25. 25. Feasibility Study y 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. y 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?
  26. 26. Profile of the Hatein Site
  27. 27. The Hatein Site Site Characteristics: y Location: • In Babel Governorate, 50 Km south of Baghdad Governorate y Physical Area: • 15m sq metres (1,500 hectares or 3,700 acres) enclosed by a concrete wall y Nearest Port • Basra (500 Km) y Road Connections: • To Baghdad-Hilla Main Road: 1.5 Km • To Interstate Highway: 6.5 Km
  28. 28. The Hatein Site Site Characteristics (Cont’d): y Railway: • Baghdad – Basra Main line – only rail bed remains • Approximately 2 Kms of track required to connect the zone to the main line y Existing Buildings: • Site contains 115 manufacturing and administration buildings – none are serviceable
  29. 29. The Hatein Site Site Characteristics (Cont’d): y 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? y 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
  30. 30. The Hatein Site Site Characteristics (Cont’d): y Sewage and Drainage: • No major issues – system generally intact y Telecommunications: • Regional Internet and Telecommunications networks (Fibre Optic) are good • Connection to site from Telecom hub required
  31. 31. The Hatein Site Site Characteristics (Cont’d): y 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
  32. 32. Terms of Reference Feasibility Study – Pilot Investment Zone - Hatein y y Legal Framework as set out in the 2006 Investment Law and subsequent Investment Zone Regulation Feasibility Study to address: • Commercial Considerations • Physical aspects y The Study should also explore how to engage the Private Sector in managing Investment Zone: • As the key investor • As member of a PPP
  33. 33. Feasibility Study Main Elements
  34. 34. Main Elements Many Feasibility Studies are based on TELOS: yT – Technology and System Feasibility y E – Economic Feasibility y L – Legal Feasibility y O – Operational Feasibility y S – Schedule Feasibility
  35. 35. Project Implementation Project Team
  36. 36. Implementation of studies The project team : y A feasibility study should be conducted by a team of experts. y Team members should be selected to cover: • • • • • • • • y 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.
  37. 37. Team Leader y y y y 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.
  38. 38. Development Criteria Industrial Parks
  39. 39. Criteria in the Provision of Industrial Property y Economic Development Criteria • Industrial property is provided as an incentive to attract investors y y Commercial Criteria • The development of industrial property is undertaken on a commercial basis (for profit) Clarity of Purpose is Essential
  40. 40. International Investor Requirements
  41. 41. An Investor’s Point of View What Investors Need
  42. 42. How to Introduce the Private Sector Gradual process: y y y y y Outsourcing and contracting Service Provision Management contracts with performance fees Concessions Build-Operate-transfer The Ultimate Objective: y Attract Zone Users The Ultimate Winning quality: y Flexibility!
  43. 43. How to Evaluate a Feasibility Study
  44. 44. Evaluation of Investment of Projects Commercial Profitability National Profitability
  45. 45. National Considerations y y 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 y y 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
  46. 46. Evaluation of Investment Projects National Profitability y y y 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
  47. 47. Full Detailed Feasibility Studies Can be Expensive
  48. 48. Is it possible to take a staged approach? Advantages: yLower Initial Cost Outlay yEvidence of a Process Underway yOpportunity to Refine and Distil developing issues yDecision Points at the End of Each Stage rather than One Final Outcome yMaster Plan as an Output to create Early Interest
  49. 49. Is it possible to take a staged approach? Disadvantages: yMay take Longer to Arrive at Ultimate Decision yInitial Project Champions may Change or Lose interest yThere may be Time Gap Delays between Stages yInvestors May Delay Commitment pending Full Information yOther ……?
  50. 50. Scoping Study Prefeasibility Study Feasibility Study and Funding Determine what it COULD be Determine what it SHOULD be Determine what it WILL be Develop Concepts Does it make sense ? Case B Case C Case D Case E Assess and rank Alternatives Case A Investor Review Is it the best? Detail Is it Viable ?
  51. 51. Initial Review Consider an Initial Review y10 weeks – 6 in Iraq y2 Professionals Engineer + Economist yEstimated cost
  52. 52. Feasibility Studies for Investment Zones in Iraq End of Presentation Eugene Brennan Head of International Consultancy Group Shannon Development, Ireland. Email: EBrennan1@eircom.net

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