NASC: Technical Appraisal of

Infrastructure Development
Project
(25 Baisakh, 2075)

Ram Krishna Sapkota

Joint Secretary, MoFAGA
 Outline of Discussion
Part One:
• Investment Project Cycle
• Investment Project Appraisal
• Technical Appraisal (components and techniques)
and Associated Aspects and Decision Factors
Part Two:
• Case Study of Rural Connectivity Improvement
Project (RCIP)
• Group Work
 Project

‘The whole complex of

activities for which money will
be spent in expectation of
returns’
 Some Questions
1) Is the multi span bridge soundly designed and engineered? Does it
meet acceptable standards? Will it displace local people in approach
roads? Will it affect the environment in any adverse way? (Technical)
2) Does the borrower have the organization, the management, the
staff, the policies to build an Fast Track and maintain it? If not, what
changes are required to put these into place?(Institutional)
3) Will the benefits of a water supply and sanitation system outweigh
the costs? What will its impact be on family incomes? Will it provide
job opportunities for local people? What is the estimated rate of
return on the investment? (Economic)
4) Is the borrower's financial plan sound? Is the expressway financially
viable? Is the proposed accounting system adequate? Is the
counterpart fund available as promised? (Financial)
Project Appraisal is to find out whether the
project is prima facie acceptable.
 Investment Appraisal
An evaluation of the attractiveness of an investment
proposal, using methods such as average rate of return,
internal rate of return (IRR), net present value (NPV), or
payback period.

Investment appraisal is an integral part of capital

budgeting, and is applicable to areas even where the
returns may not be easily quantifiable such as
personnel, marketing, and training.

http://www.businessdictionary.com/definition/investment-appraisal.html
 Investment Appraisal
Definition
Investment appraisal is a collection of techniques used to
identify the attractiveness of an investment.
https://www.apm.org.uk/body-of-knowledge/delivery/financial-cost-management/investment-
appraisal/

Purpose:
The purpose of investment appraisal is to assess the viability
of project, program or portfolio decisions and the value
they generate.

The primary objective of investment appraisal is to place a

value on benefits so that the costs are justified.
Appraisal for Investment Project Financing

Development
Cooperation
Policy
National Country
Priority Partnership
Areas Strategy

Project
Country Implementation
Environment financing Capacity
depends on
 The project cycle
considers the logical
sequence of events
from project
Project Cycle
identification to ex
post monitoring and
evaluation The World Bank
ADB Project Development

Identification

Evaluation Preparation

Implementation
and Supervision Appraisal

Negotiation and
Board Approval
 Project Cycle
1) The project cycle is the framework used to design,
prepare, implement, and supervise projects.
2) The duration of the project cycle depends on its
nature, size and complexity.
3) Normally, a project requires more than five years in
our context; from the time it is identified until the
time it is completed.
 Project Cycle
Project Identification

Impact Evaluation: Project Preparation

Operation and Project Appraisal and

Maintenance: Approval

Project
Implementation
Project Cycle: WB Financed
Infrastructure Project

Appraisal is
done after
the feasibility
study is
carried out
 The World Bank Project Cycle (Contd.)

1) A six-step process governs the World Bank's approach to

investment lending.
2) It is the Bank's way of making sure that all projects receiving
funding from the bank meet the same set of rigorous
standards.
3) Bank staff work closely with developing country borrowers
throughout the project cycle.
4) The Bank maintains an independent evaluation department
to assess the effectiveness of the projects it supports.
 Project Development Phase
Concept Paper – Why is this investment required?

Project Preparation Team with experts’ inputs (PPTA)

Approach Paper/Technical Paper

CPS,
Project Appraisal Document (DP’s has its own name like PPTA and
PAD, RRP, Project Document etc.) Approval

Negotiation (between GON team and DP)

Board Approval (ADB, The WB)

Financing Agreement between GON and DP (Development

Grant/Loan Agreement)
 Core of Project Appraisal
Focuses on detailed Evaluation of Feasibility
Study
 Project Appraisal – Decision Factors
The appraisal of a project involve the examination of:
1) Technical Feasibility : To determine the suitability of the technology
selected and the adequacy of the technical investigation, and design.
2) Economic Feasibility : To determine the conduciveness of economic
parameters to setting up the project and their impact on the scale of
operations. It also contains Market Demand/Survey providing
rationale for undertaking the Project.
3) Financial Feasibility : To determine the accuracy of cost estimates,
suitability of the envisaged pattern of financing and general
soundness of the capital structure.
4) Commercial Viability : To ascertain the extent of profitability of the
project and its sufficiency in relation to the repayment obligations
pertaining to term finance (eg. Toll Roads).
 Project Appraisal – Decision Factors
5) Managerial Competency : To ascertain that competent HRs are
behind the project to ensure its successful implementation and
efficient management after commencement of commercial
production.
6) Legal Aspects – the value of an investment may enable an
organisation to meet current or future legislation;
7) Environmental Aspects– the impact of the work on the environment
is increasingly a decision factor when considering an investment;
8) Social Safeguards – return on investment could be measured in
terms of ‘quality of life’ or even ‘lives saved’;
9) Operational – benefits may be expressed in terms of ‘increased
customer satisfaction’, ‘higher staff morale’ or ‘competitive
advantage’;
10) Implementation Risks – all organisations are subject to business and
operational risk. An investment decision may be justified because it
reduces risk.
 The WB - Project Appraisal
1) Appraisal gives stakeholders an opportunity to review the project design in
detail and resolve any outstanding questions.
2) The government and the WB review the work done during the identification
and preparation phases and confirm the expected project outcomes, intended
beneficiaries and evaluation tools for monitoring progress.
3) Agreement is reached on the viability of all aspects of the project at this time.
4) The Bank team confirms that all aspects of the project are consistent with all
WB operations requirements and that the government has institutional
arrangements in place to implement the project efficiently.
5) All parties agree on a project timetable and on public disclosure of key
documents and identify any unfinished business required for final Bank
approval.
6) The final steps are assessment of the project's readiness for implementation
and agreement on conditions for effectiveness (agreed upon actions prior to
implementation). The Project Information Document (PID) is updated and
released when the project is approved for funding.
 PROJECT APPRAISAL
Project Appraisal should also contain the following:
1) Particulars of the project along with a copy of the Project Feasibility
Report furnishing details of the technology, construction process,
availability of construction / production materials and labour etc.
2) Estimates of Cost of the project with the detail of component wise costs
3) Details of the proposed means of financing indicating the extent of GON,
beneficiaries and DP’s contribution etc. for the construction and O&M of
the facility.
4) Working Capital requirements at the peak level during the construction
5) Project Implementation Schedule review in the light of actual
implementation; Main stages in the project implementation and whether
the time schedule for construction, erection/installation of P&M, start-
up/trial run, commencement of operation is reasonable &acceptable
6) Quality Assurance – testing /monitoring mechanism to ensure quality of
works
7) Grievance Redressed Mechanism – institutional arrangements to
strengthen project governance
ADB: RRP and PAM
The WB: PAD and Financing Agreement
 Technical Feasibility
1) The main objective of a technical feasibility study is to determine
whether a certain plan of action is feasible technically or not—that
is, will it work?
2) A technical feasibility is applied to all investment projects in order to
better understand if the project can be done “technically” and
whether it can be done “here at the proposed site and now”
3) The assessment identifies, through a professional peer review,
whether the best practices and procedures are used to improve the
delivery of proposed investment.
4) The assessment output becomes a valuable road map for the EA/IA
to identify strategic opportunities that maximize associated due to
the investment.
 Features of Technical Feasibility
Technology and techniques:
1) Do the technology and techniques required to deliver this project exist
locally or globally?
2) Have they been used before? If a new technology or technique is
needed, how confident are we in its success (eg. Otta Seals)?
Technical capacity/skills:
1) Do the necessary skills available locally to design and implement the
project?
2) Have they been used before?
Human and Financial resources:
1) What is the scope of human and financial (budget) resources required
to implement the project?
2) Will the human resources be accessible, and how might costs change
during the life of the project (operational, maintenance, etc.)?
 Technical Appraisal
1) Provides the rationale for the selected technical design or options,
its appropriateness to the requirements, and its conformity with
approved standards and guidelines and relevant international
best practices.
2) Ensures that the ‘project schedule’ does not incorporate
‘concurrency’ to hasten the project.
3) Recommends suitable arrangements for overall project
management, i.e. the systems required for financial management,
procurement, reporting, and monitoring and evaluation.
4) ‘All that glitters is not gold’ - technology from a multinational
does not necessarily mean the most appropriate in the given
context.
 Technical Appraisal
1) The technology and design should be one already tested and
established. The know-how already available within the country and
currently in use should be explored and compared with that envisaged
in the project.
2) It is desirable to find the ‘state-of-the-art’ technology relevant to the
project and weigh and measure the same vis-a-vis the technology
proposed in the project appraised.
3) The aim is to have the best possible know-how (most suitable with the
economic environment) already established with higher grade quality
and productivity, if possible, from the relevant technical collaborator.
4) We are to recognize that project without the latest technology
ultimately leads to obsolescence, higher cost and, as such, extreme
difficulty in withstanding competition. The latest technology may be,
on the other hand, a Costly proposition in the initial stage but
economic in the long run.
 Technical Aspects of Project Appraisal
This is mainly concerned with issues related to
1) Physical scale, layout, location of facilities,
2) Technology used,
3) Cost estimates and their relation to engineering or other data on which they
are based,
4) Proposed procurement arrangements,
5) Procedures for obtaining engineering, architectural or other professional
services,
6) The potential impact on the human and physical environment, and
7) A range of other similar concerns related to the technical adequacy and
soundness of the project.

For instance, in the technical appraisal of an educational project considerations will

have to be given to the curriculum, the number and nature of educational
establishments, their physical facilities (classroom, space, laboratories, libraries,
and equipment), personnel, skills gaps and training requirements, etc.

Source: Project Appraisal and Impact Analysis, University of London

 Components of Technical Appraisal
Whether pre-requisites for the success of project considered?
1) Per capita water demand, adequacy of the water source, Treatment
Technology proposed, Technical Human Resources availability, Water tariff
and O&M Cost etc. – WSS Project,
2) AADT, Right of way and deed transfer, Environmental clearance, Road side
structures, Pavement type, Construction materials availability, Possibility of
traffic diversion during construction , per km cost etc. – Road construction
project
3) Per Ha irrigation water available, construction technology adopted, cash
crop, irrigation service fee and O&M cost – Irrigation service improvement
project
4) Appropriate choices with regard to facility location (alternative alignment,
WS route, reservoir site, Diversion head works site), size, technology (Slow
sand filter vs rapid sand filter; Double Otta seals vs. DBST), process (Gravity
fed vs. pumping fed) etc.
 Technical Appraisal
The cautions in general in this area are:
1) The details of the designs should be thoroughly reviewed to minimize the
technical risk. In technically complex and sensitive designs, all design
proposals should be fully investigated.
2) Innovative design should be distinguished. It may appear safe and less
costly but later on may escalate up to an awkward situation when it is
too late.
3) The appraisal should ensure that the project has minimum of technical
uncertainty and resolve uncertainty, if any, on a priority basis.
4) Technical Design should be simple to understand and implement ; not
have unnecessarily burdensome specifications.
5) Ensure cost effective, technically simple to operate, O&M friendly design
options
6) In-house technical capacity, and outsourcing requirements to construct
and operate the facility
 Techniques of Technical Appraisal

1) Involvement of the tam of experts of different thematic areas

as per the requirements of the proposed project ( for a rural
road project: Public procurement, Institutional, Financial,
Environmental, Social Safeguards, Geo technical, Highway,
Bridge etc.)
2) Assessment of design and cost options (peer review)
3) Stakeholders consultation
4) Field verifications of critical issues
5) Tradeoff between technology choice and affordability
Basis for and Method of Project
Approval

Financial Procedural Rules

Schedule-3
(Relating to Sub-rule (1) of Rule 22)
 (i) Basis for Project Approval
The Competent Authority shall approve a project or program only
on the basis of the following data and information :
1.1 Structure of the project :
• 1.1.1 Objectives of the project
• 1.1.2 Scope of the Project
• 1.1.3 Project execution period (Project Duration)
1.2 Total cost estimate of the project : Rs.
• 1.2.1 Development and construction cost
• 1.2.2 Operational cost
• 1.2.3 Others (If any grant has to be given, specify it).
 (i) Basis for Project Approval (Contd.)
1.3 Source to bear the cost :
• 1.3.1 Government of Nepal
• 1.3.2 External aid: Loan, Grant
1.4 Returns from the project :
• 1.4.1 Support or contribution to the growth of production.
• 1.4.2 Increase in employment
• 1.4.3 Internal returns of the project
• 1.4.4 Other economic and social consideration: Economic, Social
1.5 Economic analysis of the project (IRR, NPV, CEA, MCA etc.)
1.6 Project execution and expenditure schedule (Financing Plan)
1.7 Human resource and major construction materials required to
execute the project
1.8 Project Operation Proposal
(ii) The process and authority to approve
the project
2.1 The Ministry shall seek advice of the NPC as to whether the
proposed project is in consonance with the objective of
national development, sectoral working policy or not and
whether it is included in the approved periodical plan or not.
2.2 Recommendation that the bases of expenditure proposed for
the project works are reasonable on the basis of the prevailing
price, profit, cost expenditure shall have been made by the DG
presenting the project report.
2.3 The concerned Ministry shall, taking into consideration of the
advice of the NPC, approve and execute the project as follows :
(a) In cases where the proposed project is included in the
approved periodic plan and it appears that the project will yield
benefit and incur expenditure as mentioned in that plan and
the NPC has given positive opinion, the concerned Ministry is to
give approval.
(ii) The process and authority to approve
the project (Contd.)
(b) In cases where project which is not included in the approved national
periodic plan or which incurs more financial liability than that set aside
in that plan has to be operated, the opinion of the NPC and the MOF
shall be taken.
(c) If the opinion of the NPC or the MOF be not positive, the concerned
Ministry shall submit a proposal, accompanied by that opinion, to the
Cabinet. It shall be as decided in that respect.
2.4 In submitting the project proposal, a project operation plan on
operation of the project in a smooth and sustainable manner following
the completion of the project shall also have been submitted, along with
the recommendation, by the DG presenting the project report.
2.5 In addition to the above-mentioned bases, such procedures as may be
necessary for the propose of making the project/office disciplined and
strengthened may be made clear by the GON from time to time.

***
 Huge Gap Exists in…..

Project Preparation Project

Quality
Duration

Procurement/
Disbursement Contract
Implementation

Financial Management
 Project Management Issues
1) Obstacles in land acquisition by the land owners.
2) Substantially high demand for land compensation.
3) Very difficult to implement Donors resettlement guidelines
4) Shortage of skilled manpower/professionals in the country: brain
drain.
5) Bilateral Donors‘ interest in direct funding.
6) Continuity of key project staff during project implementation
7) Reluctance of contracting authorities to take legal actions against
the non-performers.
8) Quality of work issue: no field supervision- resulting low quality of
works – value for money?.
9) Frequent shortage of construction materials for development
projects.
 Project Management Issues
10) Lack of strong ownership and mutual accountability in Project
preparation to implementation
11) Inadequate coordination and cooperation among the stakeholders
12) Weak communication with the beneficiaries leading to escalating
demands from the local people.
13) Inconsistency of message from project staff to the beneficiaries
14) Weak transfer/handover of institutional memory; (DPs blame IA
and vice versa)
15) Inadequate follow up, M&E and feed back for closing the loop.
 Case Study: RRP - Rural Connectivity
Improvement Project (RCIP): DUE DILIGENCE
A. Technical
19. DOLIDAR prepared the detailed design of the project roads (388 km) using
its own resources and is compliant with the government’s standards and
specifications for rural roads to improve project readiness.
The project adopted environmentally friendly road construction practices and a
participatory approach in project preparation through transect surveys,
which enhanced the climate-resilience aspect of the design. These practices
emphasize the use of
(i) Existing alignments – proposal is to upgrade the roads;
(ii) Mass-balancing to minimize soil and vegetation disturbance and risk of
erosion;
(iii) Flexible, porous gabions to stabilize steep slopes; and
(iv) Bio-engineering to minimize erosion from exposed soils, while the
participatory approach incorporates local knowledge into the design of
sections that are prone to flooding and erosion.
RRP is the output
of Project
Appraisal
 Class Work
Technical Appraisal of an Infrastructure Development Project
1) Rural Road Improvement Project (RRIP): Province 6 and 7;
project of 5 years period, 1000 km AC surfacing
2) Farmers Managed Irrigation Project (FMIP): 22000 Ha, in 10
Terai and 10 Mid hill districts in 5 years period
3) Rural Water Supply And Sanitation Scheme (RWSSS) in a
community with 1000 households @ 45 lpcd, available water
source is in the middle of the settlement.