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Project formulation slstl-iesl - 25th oct 2018 - to be published

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Public Lecture presented at the IESL organised jointly by SLSTL and IESL on Infrastructure project formulation and appraisal.

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Project formulation slstl-iesl - 25th oct 2018 - to be published

  1. 1. Wimalasurendra Auditorium Institution of Engineers Sri Lanka 25th October 2018 Eng. Namalie Siyambalapitiya Director Planning Road Development Authority
  2. 2. Contents o Background o Introduction to Project Formulation o Project Formulation – Flow diagram o Project Concept Development o Feasibility Study and Preliminary Design o Detailed Design and Funding Process o Appraisal & Awarding o Issues and problems o Global Phenomenon o Sri Lanka Context RDA/DP/DNS/PF 2
  3. 3. 6% 24% 70% Capital Expenditure - Year 2016 Ministry of Transport and Civil Aviation Ministry of Highways Other All RDA/DP/DNS/PF 3
  4. 4. - 50.00 100.00 150.00 200.00 250.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Rs.Billion GOSL Foreign Total RDA/DP/DNS/PF 4
  5. 5. Definition In general Project Formulation is the systematic development of a project idea for arriving at an investment decision. It has the built-in mechanism of ringing the danger bell at the earliest possible stage of resource utilization. RDA/DP/DNS/PF 5
  6. 6. Legal background(Acts, Rules, Regulations) Policy Regimes (taxes, Duties, Circles) PROJECT Scope (Objectives)Risks People (Society) Purpose (Requirement) Financial Timescale Implementation Project Formulation – Complex Process Processing broad range of activities and resources RDA/DP/DNS/PF 6
  7. 7. Those who do (generally project proponent) PF should have clear objectives/aims and capable to carryout a systematic analysis of project potential with the ultimate objective of arriving at an investment decision. In this process it makes an objective assessment from all possible angles starting from project identification up to its appraisal stage. RDA/DP/DNS/PF 7
  8. 8. In Other Words… Project Formulation is a concise, exact process of a project to set the boundaries or limits of work to be performed by the project proponent during different phases of the project. It gives a distinctive identity of the project and precise meaning of project work/tasks to prevent conflict, confusion, or overlap ensuring sustainability and value for money. RDA/DP/DNS/PF 8
  9. 9. Project Formulation – Flow Chart RDA/DP/DNS/PF 9
  10. 10. Who is responsible?? PF is a process involving the joint efforts of a team of experts at different stages/phases.  Each member of the team should be familiar with the broad/overall strategy, objectives & other ingredients of the project at each stage.  Besides being an expert in her/his area of specialization, she/he should be able to play her/his role in the overall scheme of activities within teamsRDA/DP/DNS/PF 10
  11. 11.  Should capable to understand policy instruments, rules, regulations, laws, good financial and procurement practices etc  More importantly should be honest individuals with high moral values/ integrity, professional / business ethics etc RDA/DP/DNS/PF 11
  12. 12. Can be summarized into,  Project Concept Development  Feasibility Study and Preliminary Design  Detailed Design and Funding Process  Awarding RDA/DP/DNS/PF 12
  13. 13. Project Formulation – Concept Development RDA/DP/DNS/PF 13
  14. 14. Traffic Demand Model (JICA-STRADA)  STRADA is abbreviation of “The System for Traffic Demand Analysis”.  JICA developed it for its technical assistance program in the transport sector in 1997.  RDA Model  Study Area – Whole Island  Zones – 764 Numbers  Transport Modes – 07 Types  Network – All Expressways, All National Roads & Important Non RDA roads. RDA/DP/DNS/PF 14
  15. 15. Present Year LEGEND : Traffic Flow ( Mode: + 1 + 2 + 3 + 4 + 5 + 6 + 7 ) VCR<1.00 VCR<1.20 VCR<1.50 1.50<VCR scale: 1mm =20000(pcu) RDA/DP/DNS/PF 15 Traffic Flow V/C Ratio < 1.00 V/C Ratio < 1.20 V/C Ratio < 1.50 V/C Ratio > 1.50 V/C = Link Traffic Volume / Link Capacity
  16. 16. Future Year LEGEND : Traffic Flow ( Mode: + 1 + 2 + 3 + 4 + 5 + 6 + 7 ) VCR<1.00 VCR<1.20 VCR<1.50 1.50<VCR scale: 1mm =30000(pcu) RDA/DP/DNS/PF 16 Traffic Flow V/C Ratio < 1.00 V/C Ratio < 1.20 V/C Ratio < 1.50 V/C Ratio > 1.50 V/C = Link Traffic Volume / Link Capacity
  17. 17. RDA/DP/DNS/PF 17
  18. 18. Project Concept Development Project Identification Need Assessment Unsolicited proposals with hidden objectives RDA/DP/DNS/PF 18
  19. 19. Obtain Approvals National Planning Department (NPD) Check the compliance with NPPD Inline with other accepted developm ents RDA/DP/DNS/PF 19
  20. 20. Project Formulation – Feasibility Study and Preliminary Design RDA/DP/DNS/PF 20
  21. 21. Feasibility Studies and Preliminary Designs This is the most important phase of the project Clear vision of Project objectives This phase need adequate time Topological Surveys Hydrology studies Geological Investigations Expert knowledge on different aspects RDA/DP/DNS/PF 21
  22. 22. Conducting a feasibility study is an accepted process of examining,  technical  economic  financial / commercial  environment & social  managerial (constructability/ workability) aspects of a project basically to asses the viability of a project. RDA/DP/DNS/PF 22
  23. 23. Salient Factors  Formulation of appropriate Terms of Reference (ToR) for the task (inaccurate documents lead to failures in projects)  Carrying out preliminary investigations, surveys, demand forecasts etc  Consideration/ analysis of adequate number of options (both technical and financial)  Identification of environment and social impacts and possible mitigations  Determination of ERR, B/C ratio, NPV  Obtain project approvals to seek funding (NPD) Feasibility Studies & Project Approvals RDA/DP/DNS/PF 23
  24. 24. In some instances it need to conduct preliminary project analyses (Prefeasibility studies) covering all the aspects mentioned above to find out whether it is worthwhile to take the proposed project for detailed investigation & evaluation and carrying out a Feasibility Study. If not please RDA/DP/DNS/PF 24
  25. 25.  Submission of Basic Information Questionnaire to CEA  Obtaining ToR for EIA in consultation with other project approving agencies  Carry out relevant environment studies/ Conduct EIA process Technical Specifications/ Norms Guidelines All Acts and Enactments, Rules, RegulationsPreparatory work related to Land Acquisition Process Establishing/demarcating project boundaries and identify other needs RDA/DP/DNS/PF 25
  26. 26. Project Formulation – Detailed Design RDA/DP/DNS/PF 26
  27. 27. Carryout detailed design Check the design for its adequacy Incorporate the needs of other relevant sectors Obtain approvals for metal/ gravel quarries etc Accommodate public transport needs (Bus bays, halts, signage etc) Access to railway stations RDA/DP/DNS/PF 27
  28. 28. Analysis of resource requirements Identify material availability Search for alternate material Availability to technical knowhow (Local) Innovative approaches to improve efficiency of tasks Cost cutting techniques Carry out land acquisition process (valuation, compensation, acquisition) Preparation of resettlement action plans Identify and address required environment and other social safe guards Preparation of Bill of Quantities and Project Cost Estimates RDA/DP/DNS/PF 28
  29. 29. Project Formulation – Funding RDA/DP/DNS/PF 29
  30. 30. Forward funding applications to ERD Preparation of bidding docs/ legal documents Approvals/ concurrence from funding agencies Obtain GOSL approval for funding/loan repayment / gap funding etc Check possibilities of PPP RDA/DP/DNS/PF 30
  31. 31. Project Appraisal Process Technical Evaluations Economic Evaluations Due Diligence Funding Missions Project Committees Stakeholder s Environment Compliance Disaster Readiness RDA/DP/DNS/PF 31
  32. 32. During due diligence process lender or investor might discover information you have not disclosed/ not accurate. In such cases financing the particular project will be declined. Due diligence must be performed in accordance with the requirements of targeted investors/lenders for respective projects under consideration. Due Diligence RDA/DP/DNS/PF 32
  33. 33. RDA/DP/DNS/PF 33
  34. 34. Issues and Problems RDA/DP/DNS/PF 34
  35. 35. Common shortcomings identified at various stages of formulation: • Poor preparation • Inadequate/ inferior quality documentation • Bad/ incapable leadership • Failure to define parameters and enforce them • Inaccurate cost estimations • Communication gaps between different level of management. • Institutional culture or ethical misalignment • Disregarding project warning signs RDA/DP/DNS/PF 35
  36. 36. Tax payers all over the world often feel that their hard earned money is not being respected by the governments/ government officials specially with respect to infrastructure development projectsRDA/DP/DNS/PF 36
  37. 37. Global Phenomenon RDA/DP/DNS/PF 37
  38. 38. It was a bad design and maintenance that led to the death of 13 people while injuring another 145. You might remember how the Tacoma Narrows Bridge collapsed in the forties, or how the Silver Bridge in Ohio gave up in 1967, but this happened in 2007 only 11 years ago, a time when 3D simulations and much more advanced construction technologies were available to prevent something like this. Collapse of Mississippi River bridge (I-35W), 2007 Case One RDA/DP/DNS/PF 38
  39. 39. Macedonia may have to pay to fix problems with the ongoing construction of two key stretches of motorway funded by a Chinese loan, after work was temporarily halted due to bad planning. Story as a summary Construction of two highway stretches funded by a Chinese loan of 574 million euros commenced sometime back By 2017, completion was uncertain after work was temporarily halted in order to fix problems with the routes/road trace and the incomplete expropriation (taken over from the owners) of the land. Case Two RDA/DP/DNS/PF 39
  40. 40. Jacques Cartier Champlain Bridge Corporation – Canada Project type : Highway overpass construction Date : Oct 2016 Cost : $11M CAD (Canadian Dollors) https://www.cbc.ca/news/canada/montreal/montreal-highway-15-overpass- torn-down-1.3811421 Synopsis : The city of Montreal has recently completed the demolition of an overpass that was only built a year previously. Having built the new overpass officials found that the positioning of the overpass is not in accordance with a redesign of the road access to the nearby Champlain Bridge that is also under redevelopment. The finalized design of the Champlain Bridge access has resulted in the newly constructed Highway 15 overpass being demolished just 1 year after it was opened to the public. Case Three RDA/DP/DNS/PF 40
  41. 41. The city of Montreal has recently completed the demolition of an overpass that was only built a year previously. The consortium building the new Champlain Bridge is tearing down a Highway 15 overpass that was replaced just 1 year ago because it didn't 'fit in' with plans for the new roadway.RDA/DP/DNS/PF 41
  42. 42. An US-based Project Management Institute (PMI) has released a global report in February 2017 stating that, An average of $97 million for every billion dollars invested wasted globally without achieving its objectives, according to the responses of 187 leading project managers. An average of $108 million wasted for every billion dollars spent on infrastructure in Australia which is more than world average India has the lowest waste of $73 million for every billion dollars, followed by China and the Middle East with $82 million wasted per billion. Where are we In a nut shell RDA/DP/DNS/PF 42
  43. 43. Luckily nobody has developed a National Level Index for Sri Lanka yet to present project success/failure rate However, it is evident that there were many instances that SL has invested huge sum of money on Major infrastructure projects without giving due consideration to accepted norms in Engineering, project formulation and appraisal process or not followed procurement processes and financial regulations. RDA/DP/DNS/PF 43
  44. 44. Sri Lanka Scenario – with emphasis on few cases This has been prepared using the information of recently concluded arbitration cases. (Source: RDA My gratitude to a few Senior Engineers for willingly sharing this information) Additional cost due to contract claims and delays, which could have been avoided by proper planning and project formulation Contract: An agreement between two or more parties; to carryout certain scope of work. Under this agreement both parties undertake certain contractual obligations. If one party is in default of carrying out his certain contractual obligations during contract period or before awarding the contract that could result in incurring financial losses to the other party. Resulting huge economic loss to the country RDA/DP/DNS/PF 44
  45. 45. Most of the additional cost claims are caused in local contracts due to following reasons  Not giving possession of site for the contractor to proceed with work. (In some cases land acquisition has not even initiated by the time of contract award)  Drastic changes of scope due to inadequate investigations, design and errors happened in preliminary work.  Shortcomings in preparation of BOQs.  Issuing of variations for additional work within the contract period without considering additional cost that will incur by the contractors  Delay in payments to the Contractor for completed and certified work due to budgetary constraints  Loss of profit due to reduction of scope RDA/DP/DNS/PF 45
  46. 46. A few situations occurred in RDA projects Overhead Payment to contractors due to delay in possession of site The contract for a section of one of the Expressways built in Sri Lanka had been awarded without completing land acquisition and contract period was 3 years. This section could not be handed over to the Contractor even until end of the original contract period due to legal proceedings initiated by certain land owners. Due to this problem RDA had to change trace and taking over of new land got delayed. The programme of the contractor was also slower than the originally planned. However, the contractor submitted this dispute to arbitration and the arbitration award was Rs. 3.6 billion. Out of this cost of the delay was Rs. 1.8 billion. The contractors legal cost was Rs. 800 million and the balance was the interest for the delayed payment. RDA/DP/DNS/PF 46
  47. 47. 2. Payment of contractor’s overhead during extended time period. The main reason for extending contract period is additional work, required to achieve the original scope of work due to inadequate assessment of existing road condition at the formulation stage. The original contract was Rs. 400 million and the contract period was 15 months. The time period had to be extended by 911 days and the final contract amount was Rs. 1,000 million. The contractor went to arbitration as he didn’t fully recovered his overhead through additional work and arbitration awarded Rs. 1600 million to the contractor. The AG’s Department appealed against the award and the legal ground for appealing against arbitration is very limited. 3. Under a project for Improvement to four lane of one of the National Roads. At the time of award land acquisition required to widening of four lane width has not even been started.RDA/DP/DNS/PF 47
  48. 48. RDA/DP/DNS/PF 48
  49. 49. My email address : tnsiyamb@gmail.com RDA/DP/DNS/PF 49

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