FINAL Guidelines Rwanda FS Volume I

Ministry of Finance and Economic Planning
Guidelines for preparation and assessment

of
Feasibility Study Reports
of
Projects at Central Government level
in
Rwanda
Volume 1
METHODOLOGY FOR PROJECT
APPRAISAL
Feasibility Study Guidelines Rwanda

MINECOFIN
Colophon
Status
Final draft
Date
November 2018
Ministry of Finance and Economic Planning

PO Box 158
12 KN 3 Avenue
Kigali
Rwanda
www.minecofin.gov.rw
All rights reserved
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Feasibility Study Guidelines Rwanda ii

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Table of contents
List of tables .............................................................................................................................................. v
List of figures ............................................................................................................................................ vi
List of abbreviations ................................................................................................................................ vii
Glossary of terms....................................................................................................................................... x
1 Executive Summary ........................................................................................................................... 1
1.1 The FS Guide .............................................................................................................................. 1
1.2 Role of project appraisal according to the National Investment Policy .................................... 2
1.3 The Project Development Cycle, entities involved and documents required ........................... 2
1.4 Project Development Cycle for public investment projects: decision points and key outputs 8
1.5 The dimensions of Project’s Feasibility ................................................................................... 11
1.6 Steps of a feasibility study ....................................................................................................... 12
1.7 Project’s Financial versus Economic Feasibility ....................................................................... 14
2 Guiding principles for commissioning, carrying out and assessing feasibility studies .................... 15
2.1 Tendering, commissioning and assessing feasibility studies ................................................... 15
2.2 Choice between different appraisal methodologies ............................................................... 16
2.3 Analytical Framework .............................................................................................................. 20
2.4 The choice of the counterfactual scenario .............................................................................. 24
2.5 Financial versus Economic analysis ......................................................................................... 25
3 Feasibility studies ............................................................................................................................ 28
3.1 Description of the project and its context............................................................................... 29
3.2 Definition of objectives ........................................................................................................... 31
3.3 Identification of the project .................................................................................................... 33
3.3.1 Physical elements and activities ...................................................................................... 33
3.3.2 The body responsible for project implementation ......................................................... 34
3.3.3 Financial beneficiaries and relevant stakeholders .......................................................... 35
3.4 Technical and administrative feasibility, social and environmental assessment.................... 36
3.4.1 Demand Analysis ............................................................................................................. 38
3.4.2 Options analysis............................................................................................................... 39
3.4.3 Social and Environmental considerations, including expropriation and cross-cutting
areas 41
3.4.4 Technical design, cost estimates and implementation schedule .................................... 46
3.4.5 The plan for implementation of the project ................................................................... 49
3.4.6 The plan for operation of the project.............................................................................. 53
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3.5 Financial analysis ..................................................................................................................... 55

3.5.1 Introduction ..................................................................................................................... 55
3.5.2 Methodology ................................................................................................................... 55
3.5.3 Investment cost, replacement costs and residual value ................................................. 58
3.5.4 Operating costs and revenues ......................................................................................... 59
3.5.5 Return on investment...................................................................................................... 61
3.5.6 Financial sustainability .................................................................................................... 62
3.5.7 Project funding and financing ......................................................................................... 65
3.5.8 Financial analysis in CEA .................................................................................................. 66
3.6 Economic analysis.................................................................................................................... 68
3.6.1 Introduction ..................................................................................................................... 69
3.6.2 Corrections for fiscal distortions and conversion from market to shadow prices .......... 70
3.6.3 Evaluation of non-market impacts and correction for externalities ............................... 73
3.6.4 Economic performance ................................................................................................... 76
3.7 Risk assessment ....................................................................................................................... 78
3.7.1 Sensitivity analysis ........................................................................................................... 79
3.7.2 Qualitative risk analysis ................................................................................................... 80
3.7.3 Risk prevention and mitigation ....................................................................................... 82
3.8 CBA/CEA checklist and interpretation of results ..................................................................... 85
3.8.1 Checklist .......................................................................................................................... 85
3.8.2 Interpretation of results .................................................................................................. 88
4 Compiling the Project Profile Data .................................................................................................. 90
List of references ..................................................................................................................................... 92
5 Annexes ....................................................................................................................................... XCIV
Annex A – Indicative reporting format for Concept Note, Pre-Feasibility and Feasibility Studies ..... XCIV
Annex B – Terms of Reference for contracting services for preparation of Feasibility Study Reports .CVII
Annex C – Establishing the discount rate ............................................................................................ CXVI
Annex D – Multi Criteria Analysis ...................................................................................................... CXVIII
Annex E – Bill of Quantities and other forms to prepare estimates for unit price works contracts ..CXXIX
Annex G – Simplified theoretical approach to establishing shadow prices ......................................CXXXII
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List of tables
Table 1-1: Stages in the Project Development Cycle in Rwanda, entities and documents ...............................4
Table 2-1: Documents required and associated to Design Studies .................................................................15
Table 2-2: Sectors indicative applicability for CBA and CEA ............................................................................18
Table 2-3: Example effect of scenario choice on ERR (all amounts in billion FRW except ERRs)....................25
Table 3-1: Feasibility study steps applicable to CBA and CEA .........................................................................29
Table 3-2: Example of presentation of number of jobs created in a project ..................................................49
Table 3-3: Template Project Time-Table .........................................................................................................52
Table 3-4: Suggestions for reference periods per sector ................................................................................57
Table 3-5 Example of operating cost estimate (all amounts in million FRW) .................................................60
Table 3-6: Calculation of the return on investment (billion FRW) ..................................................................62
Table 3-7: Financially unsustainable project (billion FRW) .............................................................................63
Table 3-8: Financially sustainable project (billion FRW) .................................................................................64
Table 3-9 Example of application of conversion factors .................................................................................73
Table 3-10 Various alternatives for SCC (per ton of CO2 emitted) ..................................................................76
Table 3-11: Economic rate of return (FRW billions) ........................................................................................77
Table 3-12: Critical variables example.............................................................................................................79
Table 3-13: Switching values example ............................................................................................................80
Table 3-14: Scenario testing example .............................................................................................................80
Table 3-15: Risk severity classification ............................................................................................................82
Table 3-16: Risk level colouring example ........................................................................................................82
Table 3-17: Risk measures example ................................................................................................................83
Table 3-18: Risk prevention matrix example...................................................................................................84
Table 3-19: CBA/CEA checklist ........................................................................................................................85
Table 4-1: Source of information under Feasibility Study Reports for compiling the PPD .............................90
Table D-0-1: Illustrative incremental cost-benefit comparison of options ................................................ CXXV
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List of figures
Figure 1-1: Process for PPP based procurement of all Projects' categories, step 1 and 2 ................................8
Figure 1-2: Preparation and appraisal for Small Projects outside the PPP Procurement Framework ..............9
Figure 1-3: Preparation and appraisal for Medium Projects outside the PPP Procurement Framework .......10
Figure 1-4: Dimensions of Feasibility ..............................................................................................................11
Figure 1-5: The eight steps of feasibility analysis under the CBA methodology .............................................13
Figure 2-1: Indicative investment decision rules.............................................................................................17
Figure 2-2: Financial versus economic feasibility ............................................................................................26
Figure 3-1: example of Building Planning and Contract Schedule ..................................................................51
Figure 3-2: Financial return on investment and financial sustainability .........................................................64
Figure 3-3: Various ETS and SCC projections in Euro/ton of CO2 ....................................................................75
Figure D-1: Cost-Effectiveness Plane (four quadrant depiction) ............................................................... CXXIV
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List of abbreviations
AADT Annual Average Daily Traffic

AC Asphalt Concrete
ADB Asian Development Bank
ADT Average Daily Traffic
AfDB African Development Bank
B/C-ratio Benefit over Cost ratio
BAU Business As Usual
BoQ Bill of Quantities
CA Contracting Authority
CAPEX Capital Expenditure
CBA Cost-Benefit Analysis
CE Cost per unit of Effectiveness
CEA Cost-Effectiveness Analysis
CF Conversion Factor
CIF Cost Insurance Freight
CPI Consumer Price Index
CSCF Commodity Specific Conversion Factor
D&B Design and Build
DALY Disability Adjusted Life Years
DBST Double Bitumination Surface Treatment
DCF Discounted Cash Flow
DNP Defects Notification Period
EC Effectiveness per unit of Cost
EDPRS Economic Development and Poverty Reduction Strategy
EIA Environmental Impact Assessment
EIB European Investment Bank
EIR Environmental Impact Report
EMP Environmental Management Plan
ENPV Economic Net Present Value
EOCK Economic Opportunity Cost of Capital
ERR (EIRR) Economic (Internal) Rate of Return
ESMP Environmental and Social Management Plan
ETS Emission Trading System
EU European Union
EUR Euro
FDR Financial Discount Rate
FEP Foreign Exchange Premium
FIDIC International Federation of Consulting Engineers (Fédération Internationale Des
Ingénieurs-Conseils)
FNPV Financial Net Present Value
FOB Free on Board
FRR (FIRR) Financial (Internal) Rate of Return
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FRW Rwandan Franc

FS Feasibility Study
FTE Full Time Equivalent
GDP Gross Domestic Product
GHG Green House Gas
GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH
HDM-4 World Bank Highway Design and Maintenance Standards Model 4
HSC2000 International code of safety for High-Speed Craft 2000
IFMIS Integrated Financial Management Information System
IFI International Funding Institute
JV Joint Venture
kWh kilowatt hour
LNG Liquid/Liquefied Natural Gas
LRMC Long Run Marginal Cost
M&E Monitoring & Evaluation
MINECOFIN Ministry of Finance and Economic Planning
MINEDUC Ministry of Education
MININFRA Ministry of Infrastructure
MCA Multi-Criteria Analysis
MW Mega Watt
NGO Non-Governmental Organisation
NISR National Institute of Statistics in Rwanda
NPC Net Present Cost
NPV Net Present Value
NST1 National Strategy for Transformation 1
NTB National Transport Board
O&M Operations & Maintenance (costs)
OPEX Operational Expenditure
PA Public Authority
PBCC Planning and Budgeting Call Circular
PIC Public Investment Committee
PIU Project Implementation Unit
PM (Atmospheric) Particulate Matter
PPD Project Profile Data
PPP Public-Private Partnership
PSDYE Private Sector Development and Youth Employment
RAP Resettlement Action Plan
REG Rwanda Energy Group
REMA Rwanda Environment Management Authority
RMF Rwanda Maintenance Fund
RoH Rule of Half
RTDA Rwanda Transport Development Agency
RURA Rwanda Utilities Regulatory Authority
SCF Standard Conversion Factor
SDR Social Discount Rate
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SEA Strategic Environmental Assessment

SEIA Social and Environmental Impact Assessment
SMART Specific, Measurable, Achievable, Relevant, Time-bound
SSC Social Cost of Carbon (emissions)
SSP Sector Strategic Plans
SPIU Single Project Implementation Unit
TDR Technical Documentation Report
ToR Terms of Reference
TVET Technical and Vocational Education and Training
TWS Total Weighted Score
USD United States Dollar
VAT Value Added Tax
V/C ratio Volume to Capacity ratio
VOC Vehicle Operation Cost
VOSL Value of Statistical Life
VOT Value of Time
VTC Vocational Training Centre
WASAC Water and Sanitation Corporation
WB World Bank
WTA Willingness-to-Accept
WTP Willingness-to-pay
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Glossary of terms
Beneficiary Organisation or party that benefits from a project. The beneficiary can be
the same as the project promoter or financier, but it can also be a third
party.
Benefits-Costs Ratio The B/C-Ratio represents a ratio of the present value of the economic
(B/C-Ratio) benefits stream to the present value of the economic costs stream (net
benefits divided by net costs). A B/C-ratio of 1.0 means that the project
produces net benefits of zero and the present value of benefits and costs
are exactly equal. A B/C-ratio of more than 1.0 indicates that a project is
expected to produce positive net benefits. A B/C-ratio of less than 1.0
indicates a project where the net benefits are negative (the present value
of costs is larger than the present value of benefits).
Business as usual (BAU) Refers to a hypothetical situation and development without
implementation of the project. Also referred to as the without project
situation or counterfactual.
Constant prices Constant prices allow for comparison of prices at different points in time
by removing the expected or measured change in the general price level.
Refers to valuation of transactions, wherein the influence of general price
changes from the base year to the current year has been removed. Also
referred to as real prices.
Conversion factor (CF) The ratio between the economic value and the financial value of a project
output or input. This factor can be used to convert the constant price
financial values of project benefits and costs to economic values.
Cost-benefit analysis Cost-benefit analysis is an economic evaluation technique that analyses
(CBA) the generation of economic benefits and costs from a project or policy
through the comparison of the discounted flows of benefits and costs over
a prescribed time horizon. The following data are needed to complete a
cost-benefit analysis: the number of years to include in the analysis (the
project life or time horizon); the values of project benefits and costs (all
expressed in monetary terms) for each year included in the analysis; and
the discount rate.
Cost-effectiveness Cost-effectiveness analysis evaluates which program or policy creates the
analysis (CEA) desired or anticipated results at the lowest cost; or achieves the highest
impact or output at a given level of costs. Cost-effectiveness analysis is a
technique used in weighing the effectiveness of a project against its cost. It
is similar to a cost-benefit analysis in many important respects, but doesn’t
attempt to monetize all anticipated benefits deriving from the project or
the alternatives considered. Its applicability is constrained by the need to
make comparisons across alternative approaches to delivering roughly
similar bundles of outcomes and benefits.
Counterfactual See business as usual.
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Current prices The value based on prices during the reference year. (Projected future
price values include the effects of expected inflation). Also referred to as
nominal prices.
Defects notification Defects notification period is a period of time for notifying defects in the
period works during which the contractor owes the duty to repair defects of all
type and notwithstanding his own responsibility as to the defective issue.
This period may last from 365 days to up to 2 years and is generally
calculated from the date of completion of the works as certified by the
issue of the taking over certificate.
Discount rate A percentage rate representing the rate at which the value of equivalent
benefits and costs decrease in the future compared to the present. A
discount rate is commonly applied in financial and economic analysis
because it provides a means for converting future costs and benefits into
present value monetary amounts (i.e., their worth today). The principle
behind discounting is the “time value of money:” a Rwandan Franc paid
today is worth more than a Rwandan Franc paid a year into the future
because the person holding the Rwandan Franc can invest it and earn a
return.
Discounting A methodology used to calculate the value, in today’s terms, of costs borne
or income received in the future. To test whether an investment is
financially viable, future income must be discounted so that it can be
measured against the costs. If the present value of the benefits exceeds
the costs, the investment is expected to have a positive return.
Do minimum A do minimum-scenario is often included to test whether (part of) the
project effects could also be realised with a minimal effort.
Economic prices The competitive undistorted demand or supply price for an incremental
unit of a good where distortions include personal income taxes, corporate
income taxes, value-added taxes, excise duties, import duties, and
production subsidies.
Economic (internal) rate An internal rate of return based on economic prices, calculated to express
of return (ERR or EIRR) economic attractiveness of the project. It is analogous to the FRR (or FIRR)
in a cost-benefit analysis but based on economic values instead of financial
prices.
Externality Externalities are costs or benefits arising from an economic activity that
affect others than the agent engaged in the economic activity (or making
the economic decision) and are not reflected fully in market prices. These
are essentially a third party detrimental (or beneficial) effect for which no
price is exacted. Externalities are not reflected in the financial accounts,
but need to be accounted for an economic analysis.
Financial (internal) rate of An internal rate of return based on financial prices, calculated to express
return (FRR or FIRR) financial attractiveness of the project.
Financial sustainability The assessment that a project will have sufficient funds to meet all its
resource and financing obligations, whether these funds come from user
charges or budget sources.
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Impact The broader, long-term change to which the Project contributes at

country, regional or sector level, in the political, social, economic and
environmental global context which will stem from interventions of all
relevant actors and stakeholders.
Incremental approach Characteristic of project appraisal which aims to isolate project effects
from effects that would have taken place without the project too.
Internal rate of return The internal rate of return is the discount rate that would give a proposal a
(IRR) present value of zero. Generally, a project is accepted if the IRR is higher
than the discount rate. However, IRR is not suitable for the ranking of
competing projects since simple comparisons between IRRs may be
misleading if the projects are not the same size. The size of each project
and the discount rate can influence which project is best. In addition,
applying different appraisal techniques to the same basic data may yield
contradictory conclusions.
Market failure Market failure occurs when freely functioning markets fail to deliver an
efficient allocation of resources. The result is a loss of economic welfare,
especially from the point of view of society as a whole. This is usually
because the benefits that the free market confers on individuals or
businesses carrying out a particular activity diverge from the overall
benefits to society. Market failures may often arise in the presence of
information asymmetries, externalities, or public goods.
Monte Carlo analysis Monte Carlo analysis expresses the uncertainty associated with the critical
variables of a model by treating them as random variables drawn from
known distributions. A simulation process is then used to register the
impact of this uncertainty on the projected results.
Net Present Value (NPV) The NPV is a monetary estimate, in today’s term, of the generation of net
benefits over the life of a project. The ‘net’ appellation signifies that both
the costs and benefits of the investment are included. Typically projects
with positive NPV are seen as favourable. On the other hand‚ projects with
negative NPV likely should be rejected because the present value of the
stream of benefits is insufficient to recover the cost of the project.
Generally referred to as FNPV (Financial Net Present Value) in the financial
analysis and ENPV (Economic Net Present Value) in the economic analysis.
Nominal prices See current prices.
Opportunity cost Often described as the benefit foregone from not using a good or resource
in its best alternative use. Opportunity cost is the full cost of an activity,
investment, or purchase, including everything forgone in order to achieve
the activity (or investment or purchase). This includes not only the money
spent in buying (or doing) the “something”, but also the economic benefits
(utility) that were lost because “the beneficiary” bought (or did) that
particular something and thus can no longer buy (or do) something else.
These lost opportunities may represent a significant loss of utility. The
notion of opportunity cost plays a crucial part in ensuring that resources
are being used efficiently.
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Outcome The main medium-term effect of the intervention focusing on behavioural

and institutional changes resulting from the Project.
Output The direct/tangible products (infrastructure, goods and services)
delivered/generated by the Project.
Project appraisal Ex-ante assessment of a project on its merits according to several criteria.
Project promoter Organisation responsible for implementation of the project. Can be the
same as the party that will operate the project or that will be the
beneficiary, but this is not necessarily the case. May refer to the Chief
Budget Manager, too.
Real prices see constant prices.
Retention money Retention money defines the accumulated sums retained by a contracting
authority as a percentage of due payments of works, in order to guarantee
that any defects in the construction shall be remedied during the defect’s
notification period. Alternatively, in order to cover the liability of the works
contractor during the defect’s notification period, the contracting
authority can require a performance guarantee that is a conditional on
default guarantee.
Risk analysis The analysis of project risks associated with the valuation of key project
variables, and the risk associated with the overall project result.
Quantitative risk analysis considers the range of possible values for key
variables and the probability with which they may occur.
Sensitivity analysis The analysis of the possible effects of changes in anticipated project
outcomes and/or uncertainty in the valuation of project inputs or outputs.
Values of key variables are changed one at a time, or in combinations, to
assess the extent to which the overall project result, such as measured by
the economic NPV, would be affected.
Shadow price The true economic value or opportunity cost of an activity (as opposed to
the market price, which might be distorted). Shadow pricing is often used
in cost-benefit analysis, where the purpose of the analysis is to capture the
benefits and costs to society and not market returns. Synonymous with
accounting price and social price.
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1 Executive Summary
1.1 The FS Guide
These Guidelines for Feasibility Studies of projects at Central Government level in Rwanda (FS Guide)
are an initiative of the Ministry of Finance and Economic Planning (MINECOFIN). The objective of
introducing this FS Guide is to improve the quality of feasibility studies for projects submitted for the
annual planning cycle at MINECOFIN, and to harmonise the methodology and structure of feasibility
studies.
The basis for the FS Guide is the EU Guide to Cost-Benefit Analysis of Investment Projects1, as this was
found to be the most comprehensive available guideline for Cost-Benefit Analysis (CBA). Elements of
project appraisal guides from the World Bank (WB)2, the African Development Bank (AfDB)3, the Asian
Development Bank (ADB)4 and the European Investment Bank (EIB)5 have been used in this FS Guide too.
This FS Guide was specifically developed for the Rwandan context and includes 4 case studies from
Rwanda in different sectors (transport, water supply, education, and health). The FS Guide also includes
a detailed methodology for preparation and assessment of Feasibility Study Reports, with methodology
elements that are specific for Rwanda and an explanation of the linkage between the Project Profile Data
(PPD) information that is required under the national planning cycle and the FS Guide. The FS Guide
consists of two volumes. Volume 1: Methodology for Project Appraisal is supplemented by Volume 2:
Case Studies, containing sectoral examples on how applying the appraisal methodology.
Apart from this executive summary (Chapter 1), Volume 1 includes the following chapters:
Chapter 2 on Guiding principles for carrying out feasibility studies. This chapter explains the main
theoretical methodologies and principles which form the basis of feasibility studies and introduces two
main methodologies to verify economic viability of investment projects: The Cost-Benefit Analysis (CBA)
and the Cost-Effectiveness Analysis (CEA). Investment projects, such as power, transport, urban
development and rural irrigation generate economic benefits, most of which can be valued. Therefore,
establishing economic viability requires a full CBA. However, for many social sector projects, some
poverty targeting projects and projects that primarily generate social and environmental benefits,
adequate benefit valuation could be difficult. When this is the case, economic viability of a project can
be assessed based on the CEA and, when appropriate, supplemented by a Multi-Criteria Analysis (MCA).
1
EU Guide to Cost-Benefit Analysis of Investment Projects, Economic Appraisal Tool for Cohesion Policy 2014-2020, European
Commission, Directorate General for Regional and Urban Policy, December 2014
2
Handbook on Economic Analysis of Investment Operations, World Bank, Belli, P. et al, 26 January 1998 and Investment Project
Financing – Economic Analysis Guidance Note, World Bank, 9 April 2013
3
Guidelines for Financial Management and Financial Analysis of Projects, the African Development Bank, 2006
4
Guidelines for the economic analysis of projects, Asian Development Bank, 2017 and Public Investment Criteria: Economic
Internal Rate of Return and Equalizing Discount Rate, Asian Development Bank Report nr 37, Ifzal Ali, November 1986
5
The Economic Appraisal of Investment Projects at the EIB, European Investment Bank, 2013
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Chapter 3 gives a step by step approach to a feasibility study. Each of the 8 steps is explained in detail,
with specific examples for Rwanda and indicators. A Feasibility Study Report shall provide the factual
inputs for defining the appropriate scope of the project and will outline the financial, institutional and
organisational needs for the construction / implementation and operation of a project based on a
consultative process among the different stakeholders.
Chapter 4 provides the Project Planning Document (PPD) template and further explanation on the link
between the PPD and these Guidelines.
Volume 1 includes several annexes: a template Concept Note, indicative contents of Pre-Feasibility
Study Report and Feasibility Study Report, an example of Terms of Reference (ToR) for outsourcing
Feasibility Study Reports, a template Bill of Quantities (BoQ) and more in-depth methodological sections
on discount rates, conversion factors, and Multi Criteria Analysis.
1.2 Role of project appraisal according to the National Investment Policy

One prerequisite for an efficient implementation of investments is a sound preparation process. Project
promoters or investors6 need to undertake a feasibility study to provide the information necessary to
decide whether or not to proceed with a project.
To ensure that projects are adequately prepared to be delivered in time and within budget, specific levels
of appraisal are required. Before a project will be considered for implementation, it will go through a
thorough screening and appraisal process.
Projects submitted for the annual planning cycle need to have a feasibility study if their investment costs
are above 750 million FRW (approximately 1 million USD). Feasibility studies will be used to assess
proposed projects in detail on a quantitative basis requiring comprehensive analysis of market conditions,
technical, social, environmental, financial and economic issues depending on the nature of the project in
order to determine the optimal project design and form of implementation. Requests for feasibility
studies have to be submitted according the 1st Planning and Budgeting Call Circular issued by MINECOFIN
to be screened by the Public Investment Committee.
The necessary scope of work of the studies required with regard to the specific nature of a project at
Central Government level is set out in these guidelines.
1.3 The Project Development Cycle, entities involved and documents required
This document aims to drive institutions of the Central Government level in Rwanda through the ‘Project
Development Cycle’ of new public sector investment projects intended to improve public infrastructure
and provide basic services to the citizens. The project preparation process comprises the entire set of
activities carried out to move a project from conceptualization to implementation.
The primary aim of the project preparation process is to develop a project idea into a well justified and
fully defined project whose benefits for the society can be thoroughly assessed. This involves producing
6 The projectpromoter or investor is generally a public authority, but could theoretically be a private entity too. These guidelines
are written with a public authority acting as project promoter in mind.

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a suite of project documents which demonstrate the potential viability and long-term sustainability of
a public investment project. Project preparation is necessarily conducted in steps associated to decisions
about going to the next step or to eventually give up the investment.
Considering the cost of the studies necessary to fully prepare an investment project prior to technical
approval by the Public Investment Committee (PIC) and the subsequent budget approval, it is crucial
to minimize these costs through staged assessment and analysis, before embarking in the preparation
of a full Feasibility Report. Projects are not all the same – different projects demand different information
to be prepared. For example, some public infrastructure investment projects can be suitable for
partnership with the private sector while others are not. Another possible demarcation is based on the
size of project’s estimated costs: on this basis the Ministry of Finance and Economic Planning
distinguishes between small, medium and major projects as follows:
Small Project: < 750 000 000 FRW
Medium Project: < 15 000 000 000 but > or equal to 750 000 000 FRW
Major Project: > 15 000 000 000 FRW
The preparation process of public investment projects generally starts from the recognition of a public
need that requires an investment to be made. This is the Project Identification stage. Before a decision
on the investment is taken, it will be necessary to go through a number of compulsory steps aiming to
confirm and quantify the needs of the project, identify an optimal solution, investigate the eventual
interest of private investors, and further verify the feasibility and desirability of the investment. This is
done at the project preparation stage.
The outcome of the Project Identification work including results from Project Preparation shall be
presented through a Concept Note. A Concept Note is required for all projects. It defines the project’s
needs and specifies the project’s scope. It also describes the project’s design to ensure that the project
is costed as accurately as possible and can be tendered and implemented in time and according to budget
estimates. The outcome of the Project Preparation work shall be included under various documents,
mainly prefeasibility study and feasibility study and annexes such as Environmental Impact Assessment
(EIA) Report, technical designs etc. The entities potentially involved include:
 The project’s promoter, on turn a central or local level institution;
 One or more private entities in case the project in subject is suitable for development through a
Public-Private- Partnership (PPP).
The following cases should be considered:
 Case A: The project is initiated by a Rwandan Central Level Entity

This case is the subject of this document. Promoters from Rwandan Central Level Entities shall
first screen their projects for suitability under the Public Private Partnership procurement
framework. In case PPP suitability is established, the ‘Public Private Partnership Guidelines’ as
published in the Official Gazette of Rwanda no. 29 bis of 16/07/2018 will apply. In case a project
is not suitable for PPP, these ‘MINECOFIN Guidelines for preparation and assessment of Feasibility
Study Reports of projects at central government in Rwanda (2018)’ will be utilised. Further, the
type and contents of documents to be prepared prior to the final decision on funding will vary

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according to the project value which demarcates public infrastructure investment projects as
SMALL, MEDIUM and MAJOR projects.
 Case B: The project is initiated by a Rwandan Local Administrative Entity

This case is outside the scope of this document. Promoters of local capital investment
development projects should refer to the ‘Rwanda Local Administrative Entities Development
Agency (LODA) Guidelines for Commissioning and Managing Feasibility Studies (August 2015)7’.
1.3.1 Stages in the Project Development Cycle

The following table presents the stages in the Project Development Cycle, the role of central level entities
involved and the documents to be prepared for each project category.
Table 1-1: Stages in the Project Development Cycle in Rwanda, entities and documents
Stages in the Project Role of central level entities involved

Development Cycle Contracting Authority MINECOFIN / PIC
Project identification  Project definition Enabling environment
 Self-assessment
 Concept Note
Independent Review and Small Projects: Concept Note and PPD with request to
Selection MINECOFIN/PIC for investment technical approval 1 Step Screening
 Medium Projects:
-Concept Note and PPD with request to MINECOFIN/PIC to
approve the preparation of Feasibility Study
-Feasibility Study and PPD with request to MINECOFIN/ PIC for
investment technical approval 2 Steps Screening
 Major Projects:
-Pre-Feasibility Study, Concept Note and PPD with request to
MINECOFIN/ PIC to approve the preparation of Feasibility Study
-Feasibility Study and PPD with request to MINECOFIN/ PIC for
investment technical approval
Budget approval
Project Structuring  Developing technical / engineering designs, preparing and Project Finance
launching tender procedures.
Implementation  Award of relevant contracts Monitoring and Budget
 Management of works, supplies and service contracts up to Adjustments
investment finalization
Post-Implementation  Operation of the investment Monitoring and Ex-post
Evaluation
The planning and budgeting processes are regulated by law 12/2013/OL of 12/09/2013. In order to
facilitate proper planning and prioritization across all Ministries and Central Agencies, the Public
Investment Committee (PIC) is the single-entry point for your project regardless of the type of project
and source of financing. The Technical Secretariat, which prepares the PIC meetings, is based in
MINECOFIN within the National Development Planning and Research Department. Documents are
submitted to MINECOFIN in accordance with the First Planning and Budgeting Call Circular (PBCC), by
using the Integrated Financial Management Information System (IFMIS).
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MINECOFIN
1.3.2 Required documents
The National Investment Policy8 demands that all new proposals for project implementation are
submitted for the annual planning cycle with a Project Profile Data Forms (PPD)9 and a Concept Note
which include basic project information. Therefore, PPD and Concept Note are the minimum level of
information required for submission of project proposals for the annual planning cycle.
 For Small Size Projects, PPD and Concept Note shall be submitted jointly with a Basic Conceptual
Study.
 For Medium Size Projects, the PPD must be supplemented by a Feasibility Study Report and its
attachments.
 For Major Projects, the PPD shall be based on a Pre-Feasibility Study Report, Feasibility Study
Report and its attachments.
Project Profile Data (PPD)
The PPD form is regularly updated by MINECOFIN, usually at the beginning of the planning cycle with the
1st Planning and Budgeting Call Circular. Currently, the PPD comprises five sections:
• Contracting Authority and Summary Description
• Project Costs
• Project Financing
• Key Performance Indicators: Outputs and output indicators
• Upload of concept note and annexes (studies/ designs, pre-feasibility study, feasibility study…)
Concept Note (CN)
The minimum contents of a Concept Note are:
Written sections:
• Situation assessment and identification of possible alternative solutions
• Logical framework outlining the Project’s result chain through presentation of overall objective
(impact), specific objectives (outcome(s)), outputs, and activity matrix with details on means (resource
inputs) and costs.
• Justification of the selected technical option
• Conceptual solution for the selected option
• Detailed budget estimates for the project
• Basic implementation plan, milestones
• Identification of Funding and Cost Recovery Options
• Project’s Socio-Economic Impact
• Justification in relation to the National Planning Framework
Annexes:
• Conceptual Study
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MINECOFIN, April 2017 http://www.minecofin.gov.rw/index.php?id=57
9
Starting from planning of FY 2019/20 onwards, IFMIS will be used for entering with Project Profile Data Forms

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In the case of Major Projects, the Concept Note shall have the form of a Separate Executive Summary
of the respective Feasibility Study Report covering the above listed items.
Pre-Feasibility Study (PreFS)
A Pre-Feasibility Study is a preliminary study undertaken to determine, analyse, and select the best
alternative among several relevant project ideas that meet identified neds or problems. Pre-feasibility
assesses a project’s readiness, desirability, viability and most appropriate form of implementation. The
intention is to identify and exclude unsuitable projects from further preparation and assessment, thus,
only if the selected project idea is considered feasible, it will undergo a fully-fledged feasibility study. A
Pre-feasibility study can be carried out internally or outsourced to external experts without prior
screening by the Public Investment Committee.
The minimum contents of a Pre-Feasibility Study are:

Written sections:
• Situation assessment and need for the investment
• Presentation of scenarios and technical-economical options for the
investment
• Location(s) characteristics, technical and functional data of the
investment
• Social, environmental, institutional and implementation aspects
• Investment costs compared with similar investment
• Operational and maintenance costs compared with similar investment
• Feasible solutions to realise the investment
• Proposals of a limited number of options that shall be analysed
during the feasibility assessment stage
• Preliminary financial and economic analysis
• Identification of potential sources of funding and financing
• Conclusions and recommendations
Annexes:
• Conceptual Study
Feasibility Study (FS)
A Feasibility Study is a comprehensive investigation which aims at clearly establishing the viability of an
idea through a disciplined and documented process of thinking leading to rigorous assessment of
whether a project will work and achieve its expected results. Such a study usually evaluates in detail a
project’s technical design based on test work and engineering analysis, its costs and benefits, social and
environmental aspects, institutional issues, financial aspects, feasibility of investments, etc. and
determines the optimal project option/design and form of implementation. The study must present
enough information to determine whether or not the project should be advanced to final engineering
and construction stage. This is a “go/no-go” decision point, thereby implying that sometimes the answer
is no.

MINECOFIN
Request for a feasibility study has to be submitted to MINECOFIN according the 1st Planning and
Budget Call Circular, to be screened by the Public Investment Committee. The necessary scope of work
of the study required will be adapted to the specific nature of the project. MINECOFIN has the key
function as quality assurer.
The minimum contents of a Feasibility Study are:

Written sections:
• Description of the context
• Definition of objectives and logic of the intervention
• Identification of the project
• Demand and option analysis
• Environmental considerations, including EIA and climate change
• Technical design and cost estimates
• Plan for implementation and operation of the project
• Financial, economic and sensitivity analysis
• Qualitative and probabilistic risk analysis
• Conclusions and recommendations
Annexes:
• Design and Drawings: Preliminary Design
• Other annexes such as EIA Report, Compensation Report, various studies
1.3.3 Distinction between pre-feasibility and feasibility studies
Pre-feasibility studies generally cover the same subjects as feasibility studies, but do so in much less
detail. Another key difference is on cost estimation. In PreFS, cost estimation is based on assumptions
while cost estimation in FS is normally based on vendors’ offers/proposals, at least for expensive price
equipment/materials.
Feasibility Study Reports for Medium and Major Projects also differ in respect of Options Analysis.
For Medium Projects, option analysis will include the option without project, a do-minimum option and
the recommended solution. Cost-benefit analysis (CBA) shall be performed only for the preferred or
recommended option.
For Major Projects, option analysis will include the option without project, a do-minimum option and at
least one other option i.e. the recommended solution. CBA shall be performed for at least two options.
For all types of projects for which a decision to go ahead with feasibility and/or implementation is made,
Tender Documents are to be developed to select service providers (Project Identification Phase) as well
as service, supply and works providers (Implementation Phase).
The Procurement Plan for the Project Identification Phase shall include the tenders for commissioning a
Feasibility Study Report and any associated technical studies, including when this is compulsory, an
Environmental Impact Assessment Report. In case of insufficient in-house capacity by the Contracting
Authority, the pre-feasibility study can also be tendered prior to tendering of the feasbility study.

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The Procurement Plan for the Implementation Phase shall generally include the tender for commissioning
detailed technical designs, separately or jointly with the tenders for construction and supervision
servicers.
In line with the FIDIC Contracts Guide terminology, the overall design may comprise three stages: the
conceptual design, the preliminary design, and the final design (also termed detailed design under the
same Contracts Guide). While conceptual designs are often prepared in-house by the concerned public
entities, preliminary design and final/detailed designs are generally outsourced.
1.4 Project Development Cycle for public investment projects: decision points and key
outputs
1.4.1. Project’s suitable for Development under the PPP Procurement Framework
When a Project is initiated by a Rwandan Central Level Entity, the first decision to be made is whether or
not the project is suitable for Public Private Partnership (PPP). In case the Project Promoter i.e. the Chief
Budget Manager within the Contracting Authority (CA) appreciates that a Project is, in principle,
suitable for PPP procurement, the process will start with the preparation of the Project’s Pre-Feasibility
Study. Thus, the preparation of the Feasibility Study will follow, and in case this is approved, the process
will continue in accordance with the PPP Guidelines (Official Gazette of Rwanda no. 29 bis of 16 July
2018).
Figure 1-1: Process for PPP based procurement of all Projects' categories, step 1 and 2
CA PIC Steering
RDB MINECOFIN Committee
Independent review and selection
Project Project screening PPP Receives
Establishing PPP
Prefeasibility suitability add to PPP information for PPP
suitability
Report database project
Member of
Member of CA Led by RDB MINECOFIN
Technical
Committee
Project Feasibility The process shall continue as

Report established under the PPP
Guidelines
Source: PPP Guidelines (Official Gazette of Rwanda no. 29 bis of 16 July 2018)
However, it is assumed that, due to both the relatively limited budget size and the complexity of the
process, Small Projects are generally not suitable for PPP procurement. Nevertheless, in case the
Contracting Authority that initiates a Project, appreciates that the project could be suitable for PPP
procurement, also for this category of projects establishing PPP Project suitability requires the
preparation of a Pre-Feasibility Study.

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1.4.2. Projects suitable for traditional way of procurement
In case the Project Promoter – Rwandan Central Level Entity, appreciates that a Project is not, in principle,
suitable for PPP procurement, the Project’s Identification and Appraisal process will be as follows:
Small Projects
The Chief Budget Manager will coordinate preparation of Concept Note and Project Profile Document.
After the internal validation process, the above documents are submitted to MINECOFIN during the
planning process. After MINECOFIN screening and technical approval of the project by the PIC, budget
approval is further necessary for the Project to proceed to implementation. Pre-Feasibility and Feasibility
Study are not required for this Projects’ category.
Figure 1-2: Preparation and appraisal for Small Projects outside the PPP Procurement Framework
Medium Projects
The Chief Budget Manager will coordinate preparation of Concept Note and Project Profile Document.
After the internal validation process, the above documents are submitted to MINECOFIN during the
planning process backing the request to MINECOFIN to approve a full Feasibility Study.
In case of approval of request for FS preparation, and after finalization and internal validation of the
Feasibility Study, and the eventually revised Concept Note and PPD, the following Project’s documents
shall be submitted to MINECOFIN for screening: Project Profile Document, Concept Note, and full
Feasibility Study Report (with its attachments). A Pre-Feasibility Study is not required for this Projects’
category.

MINECOFIN
Figure 1-3: Preparation and appraisal for Medium Projects outside the PPP Procurement Framework
Major Projects
Both a Pre-Feasibility Study and a Feasibility Study are required for this Projects’ category. The Chief
Budget Manager or institutions will coordinate preparation of Pre-Feasibility Study, PPD and Concept
Note and, after internal validation, will submit these documents during the planning process to
MINECOFIN, requesting the approval to prepare a full Feasibility Study.
In case of approval of request for FS preparation, and after finalization and internal validation of the
Feasibility Study, and the eventually revised Concept Note and PPD, the following Project’s documents
shall be submitted to MINECOFIN for screening by MINECOFIN and PIC: Project Profile Document,
Concept Note, and full Feasibility Study Report (with its attachments).
During the Project Identification Phase, the Contracting Authority shall tender for services in order to
commission the pre-feasibility study (unless this is prepared in-house), and the feasibility study, with the
relevant attachments (preliminary design, detailed design and any other required technical studies). The
detailed designs could be tendered jointly with the construction works (i.e. by using the D&B
procurement option). However, given the possibility that budget approval of the project is achieved at a
later stage than the year of project submission to MINECOFIN, technical final design should always be
commissioned only after budget approval.

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Figure 1-4: Preparation and appraisal for Major Projects outside the PPP Procurement Framework
1.5 The dimensions of Project’s Feasibility
The study of Project’s feasibility requires the analysis of four closely interrelated dimensions:
 Institutional and Legal

 Technical
 Environmental and Social
 Financial and Economic
Figure 1-4: Dimensions of Feasibility
Institutional Technical
Legal
CBA
Economic
Environmental
Social
Financial

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The above four dimensions need to be assessed in parallel in an integrated approach, with continuous
feedback and crosschecks between the various dimensions of the assessment. By careful analysis all the
relevant aspects at an early stage of a Project’s development, a (pre)feasibility study helps to avoid
investment decisions that may not make sense and prepare the ground for a qualified decision whether
the selected investment option will be able to meet the established objectives. The study shall also point
out which further studies or analyses may be needed for subsequent Project’s implementation.
1.6 Steps of a feasibility study
As a general principle a feasibility study shall conclude about the technical-technological,

organisational, social, environmental and economic feasibility of a Project as compared to the relevant
benchmarks for such activities and to inform decision-makers whether the planned project represents
the best solution to achieve set objectives. Figure 1.5 below presents the eight steps of the envisaged
appraisal. The main indicators calculated under the appraisal are:
For both CBA and CEA: The Financial Net Present Value (FNPV) resulting from the financial analysis; for
CBA only: The Economic Net Present Value (ENPV) and the Benefit Cost Ratio (BCR) resulting from the
economic analysis. Section 3.8 of these Guidelines directs on how interpreting the resulting values – the
same chapter includes a checklist for feasibility studies’ assessment.

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Figure 1-5: The eight steps of feasibility analysis under the CBA methodology
Important Note: Step 6 is not carried out under the CEA methodology!
Source: adapted from EU Guide to Cost-Benefit Analysis of Investment Projects, Economic Appraisal Tool for
Cohesion Policy 2014-2020, European Commission, Directorate General for Regional and Urban Policy, December
2014

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1.7 Project’s Financial versus Economic Feasibility
Financial feasibility and socio-economic feasibility analysis are two different types of analysis. Financial
analysis focuses on project financial attractiveness and includes only direct cash flows; economic analysis
takes a wider perspective and considers the socio-economic welfare effects of a project. The similarity
between financial and economic analysis is the methodology applied, however they use different inputs.
Both financial and economic analysis need to be considered in a feasibility study to establish the
desirability of a project, rendering four basic combinations of results and respective general
recommendations:
1. Project is both financially and economically feasible: the project can be left to the private sector,
as its financial attractiveness should guarantee the interest of private investors. This does not mean that
the project should not be regulated by the Government. Private investors will be focused on the financial
results of the project rather than the project’s socio-economic benefits. Some form of Government
intervention may be needed to warrant the realisation of the socio-economic effects of the project.
2. The project is financially feasible but not economically feasible, for instance due to negative
environmental impacts. These categories of projects can still be left to the private sector, with the public
sector requiring compensation for the negative effects. The project promoter could for instance be
required to create a hectare of nature elsewhere for every hectare of nature destroyed at the project
site, or could be taxed for the emission of greenhouse gases.
3. The project is financially not feasible, but economically feasible. Many public investment projects
are in this group: the initial investment is too large to be recovered from project revenues, or there are
no revenues, and thus the project is not interesting for private investors. From an economic point of view
these projects create benefits that are larger than the costs, which makes them economically desirable.
Public investment projects do not have to be financially feasible, but must always be economically
feasible.
4. The project is not financially nor economically feasible. These projects should not be carried out,
at least not in their current definition or configuration. It may be possible to redefine or resize the project,
or to time it differently so that it becomes feasible.

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2 Guiding principles for commissioning, carrying out and assessing feasibility

studies
A feasibility study shall provide the factual inputs for defining the appropriate scope of a project and will
outline the financial, institutional and organisational needs for the construction / implementation and
operation of a project based on a consultative process among the different stakeholders. In this regard,
some general principles apply to the preparation of feasibility studies, which are outlined in this chapter.
2.1 Tendering, commissioning and assessing feasibility studies
Feasibility Studies are prepared under the Procurement Plan for the Identification Phase. It is generally
recommended that feasibility studies be commissioned to external service providers. When
commissioning feasibility studies, the Terms of Reference will have to be prepared and tailored according
to the specificities of the proposed project. The ToR should further define which specific deliverables will
have to be produced by when and in which formats. In case an Environmental Assessment Report is also
required for the specific Project, this can be commissioned to the FS service provider or to a different
service provider. Synchronization of all deliverables – technical studies and drawings, environmental
studies, and financial and economic studies, must be required under the ToR.
The technical feasibility assessment under a Feasibility Study will usually include preliminary design
sketches for the recommended technical layout. These will also provide a sound basis for subsequent
detailed planning and application for land use. The next planning steps will usually involve the detailed
technical design, the application for a building permit, and the preparation of tender dossiers for all
works, works supervision services and possibly needed supplies. For these technical planning steps, the
relevant legislation, regulatory framework, applicable standards and norms, as well as sector policies, will
have to be observed. Table 2.1 below presents the types of documents required for each project
category, and the associated Design Stages.
Table 2-1: Documents required and associated to Design Studies

Concept Note Pre-Feasibility Feasibility Project Profile
Documents Report Report Data
Project’s size
After investment
approval
SMALL Required Not required Not required Required -Works Supervision
MEDIUM Required Not required Required Required -Works
MAJOR Required Required Required Required -Supplies
DESIGN Conceptual Conceptual Preliminary Main/Detailed (Final)

STAGES Solution Study Solution Study Design Design
Once the contract with the selected tenderer for the feasibility study is signed, contract management
shall include staged acceptance and validation of the relevant deliverables. In case of any open question
and missing information, the concerned deliverable shall be reverted to the service provider for the
required revisions and completions.

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Review of the deliverables forming the Feasibility Study shall be carried out by the Contracting Authority
through formal Validation Meetings preceded and/or followed by written comments addressed to the
service provider. Frequently the ToR for Feasibility Studies envisage that approval of a specific deliverable
is a condition for submission of subsequently scheduled deliverables.
Reporting format for concept note, pre-feasibility and feasibility studies

Indicative reporting formats for preparation of concept note, pre-feasibility and feasibility studies are
provided under Annex A to these guidelines. Although the formats need to be adapted to the sector and
project in reference, as regards feasibility studies the reporting format provides the basis for preparing
Terms of Reference and outsource the preparation of these documents.
The feasibility study must be prepared with all necessary background documents, annexes and
documentation. The feasibility study result depends on the demand analysis i.e. assessment of past and
future demand (forecast), which is a pre-requisite for the CBA and the main determinant of its quality.
The economic analysis must build on the financial analysis and both adopt an incremental approach.
Terms of Reference example for feasibility studies

Annex B to these guidelines presents general (not sector specific) Terms of Reference for contracting
services related to preparation of feasibility study reports. The Terms of Reference and the contract for
Feasibility Studies will generally stipulate a staged approval of the service provider outputs, for example
demand analysis and options analysis should be approved before the cost-benefit analysis is initiated.
Contracts with service providers will require the provision of MS excel copy of the financial model, with
traceable formula format, which clearly sets out all assumptions made, sensitivity analyses carried out,
and key outputs in support of the various analyses and conclusions.
2.2 Choice between different appraisal methodologies
CONTENTS AND PURPOSE OF THIS SECTION
 Selection of appraisal methodology: Cost-Benefit Analysis (CBA) or Cost-Effectiveness Analysis (CEA)

 Basis for selection is the extent to which socio-economic benefits can be adequately quantified
 Overview of sectors in which a CBA and in which a CEA should be applied
 Role of Multi-Criteria Analysis (MCA) is indicated
 An overview of other grounds for public intervention
Investment projects, such as power, transport, urban development and rural irrigation generate
economic benefits, most of which can be valued. Therefore, establishing economic viability requires a full
cost-benefit analysis. However, for many social sector projects, some poverty targeting projects and
projects that primarily generate social and environmental benefits, the conventional measure of
economic benefits such as willingness to pay may not adequately capture their value to society. For these
projects, when adequate benefit valuation is difficult, economic viability of a project can be assessed

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based on the cost-effectiveness analysis and, when appropriate, supplemented by a Multi-Criteria

Analysis (MCA). Indicative investment decision rules under different situations are presented in Figure 2-
1 and discussed below.
Figure 2-1: Indicative investment decision rules
Investment decision rules
Social sector and most poverty

Investment projects
alleviation projects
Benefits can be Benefits cannot be

valued adequately valued
Full cost-benefit analysis: Cost-effectiveness analysis:

• When there is only one project • Select the project with the lowest
option, accept if the ENPV is positive cost-effectiveness ratio - cost per unit
or the ERR higher than the minimum of output or outcome;
required discount rate; • When appropriate, cost-effectiveness
• When there are several project analysis can be supplemented by
options with similar benefit flows: 1) multi-criteria analysis.
select the project option with the
lowest cost effectiveness ratio, and 2)
accept if the ENPV is positive or the
ERR than the minimum required
discount rate;
• When there are several project
options with very different benefit
flows, select the project option with
the highest ENPV.
Source: Guidelines for the economic analysis of projects, Asian Development Bank, 2017
Benefits can be adequately valued

If the socio-economic benefits can be adequately valued, then CBA is the methodology to apply. CBA
measures the difference between the flow of costs and benefits with the project and those without (the
"with project" and "without project" scenario). Policy choices are rarely between a project and no project
– rather, there are usually several plausible policy alternatives (e.g. the construction of a new greenfield
national road for 100km, or greenfield for the first 50km only, with upgrading of existing road for
remainder, or upgrading existing road for the entire length). Economic analysis will typically compare
several policy scenarios against a common “without project” baseline. Moreover, as infrastructure and
other capital assets typically have long life, these different scenarios must measure flows over many
years.
Benefits cannot be adequately valued

In some sectors, it may not be possible to adequately value the socio-economic benefits. In such cases,
the CBA may be replaced by a Cost-Effectiveness Analysis (CEA), focusing on the cost of attaining a given
target. In a CEA, rather than judging a project on its Economic Net Present Value (ENPV) as would be done
in a CBA, the project is evaluated on cost per unit of output (expressed in FNPV). For example, in a
Technical and Vocational Education and Training (TVET) project, the CEA result would be expressed in the

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FNPV of the costs of per graduate from the training. In broad lines, a CEA follows the same steps as a
CBA, however economic analysis is only qualitative, which also affects risk and sensitivity testing.
CBA versus CEA

Much depends on the extent to which output variables, and benefits in particular, can be measured and
monetised. There are cases where benefits are hard to quantify, thus, traditional CBA cannot be applied,
and cost-effectiveness analysis becomes more appropriate. CEA starts from the premise that the good or
service concerned must be supplied. In such cases the decision to carry out a certain type of investment
or programme is determined as part of the political process and a cost-effectiveness analysis is used to
determine the best project to achieve the desired results, generally the one that achieves the greatest
output per unit of input. For projects to be submitted to MINECOFIN to the annual planning cycle, an
indicative demarcation of sectors where CBA should be applied and sectors where CEA should be applied
is provided in Table 2-2.
Table 2-2: Sectors indicative applicability for CBA and CEA
CBA CEA
Energy generation Education*
ICT Health*
Transport Sports and culture
Agriculture Rural settlement
Irrigation Energy transmission & distribution
PSDYE (infrastructure related) Environmental protection
Water supply Governance and decentralization,
Sanitation Justice, reconciliation, law & order
Urban settlement/affordable housing PSDYE (programme projects)
* in large education or health projects (above 15 billion FRW), a CBA should always be considered. If indeed the benefits cannot
be adequately quantified, then a CEA is acceptable.
COST EFFECTIVENESS ANALYSIS
In Cost-Effectiveness Analysis, the appraisal shall focus on verifying that the project is the most efficient
solution for the society to supply a given, necessary service at the pre-defined conditions set out. In addition,
qualitative description of main economic benefits should be provided. CEA is carried out by calculating the
cost per unit of ‘non-monetised’ benefit and is required to quantify benefits but not to attach a monetary
price or economic value to the benefits.
The conditions for applying CEA are as follows:

 the project produces only one project output which is homogenous and easily measurable;
 the output is a crucial supply, entailing that action to secure it is essential;
 the aim of the major project is to achieve the output at minimum cost or to maximise outputs with
given cost;
 there are no significant externalities;
 there is a wide evidence of appropriate benchmarks to verify that the chosen technology meets the
minimum required cost performance criteria.

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Advice for applying CEA:

 Make sure you are using the right output or outcome to build the ratio. Try varying the output used
to see whether that dramatically alters the comparative rankings of the options and programmes
being compared.
 In carrying out a CEA, it is critical to begin with an exhaustive list of all the different costs and benefits
that could arise - even if some are later excluded. Otherwise, important aspects of the analysis could
be overlooked.
 Information on costs, benefits and risks is rarely known with certainty, especially when one looks to
the future. This makes it essential that sensitivity analysis is carried out, testing the robustness of
the CEA result to changes in some of the key numbers.
Multi-Criteria Analysis
Multi-Criteria Analysis (MCA) is an appraisal technique used to establish preferences amongst different
options for delivering a given set of objectives. It does this with reference to an explicit set of criteria,
which helps appraisers to assess the extent to which the investment objectives are met by the different
solutions available to them. The problems addressed by MCA consist of a finite number of alternatives
that are known explicitly at the beginning of the process. The purpose may be to identify the best
alternative, rank options in preference order, or shortlist a number of options for more detailed appraisal.
A standard tool of MCA is the “performance matrix”, which compares the performance of each option
against multiple appraisal criteria.
MCA is most commonly applied as a supporting technique in CBA or CEA, generally in the options analysis.
A comprehensive explanation on the methodology for MCA is included in Annex D.
Other grounds for public intervention

Public intervention as discussed above generally may focus on public infrastructure as well as on other
development projects involving, or not, the development of physical assets. There is an a priori rationale
for public sector involvement whenever the market cannot or will not produce the socially desirable
quantity of the good or service. However, in other cases, public development projects provide incentives
aiming to encourage a socio-economic change, for example a change for better use of natural resources.
The nature of government involvement, however, merits careful consideration. In some cases, it may be
appropriate for the government to produce goods; in others, financing production of the service might
be just more advisable (primary education, for example); in yet others, a subsidy might be the most
suitable intervention (subsidizing a forest that sequesters carbon dioxide, or the access of poor people to
safe water, for example). In all cases, three fundamental questions should be answered:
1. What market failure leads the private sector to produce more or less than the socially optimal
quantity of this good or service?
2. What sort of government intervention is appropriate to ensure that the optimal quantity is
produced?
3. Is the recommended government intervention likely to have the desired impact as presented
under the result chain framework linking inputs-activities-outputs-outcome(s)-impact?

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If there is a strong case for government intervention, the costs and benefits of government involvement
must be assessed to show whether or not the benefits are likely to outweigh the costs.
These guidelines mostly focus on public intervention aiming to improve public infrastructure in various
sectors. Thus, certain steps of the analysis such as technical designs and related costs would not apply to
development projects providing subsidies rather than investment in capital assets. Yet the same appraisal
methodologies applicable to capital investment projects, i.e. CBA, CEA and MCA, could prove suitable for
assessment of other types of public intervention. The choice of the appraisal methodology shall have to
be done on a case by case basis, depending on measurability of benefits and overall information available.
2.3 Analytical Framework
 Theoretical background of CBA:

1. Concept of opportunity costs
2. Long term perspective of analysis
3. Expression of economic performance in monetary values
4. Concept of discounting future costs and benefits
5. Micro-economic and incremental approach isolating project effects from non-project related
economic effects
6. Do nothing scenario versus do something and project scenario
7. How to treat employment effects
 Theoretical background of CEA and the extent to which the above 7 bullets apply
Feasibility studies include technical, environmental and social, financial analysis and economic studies.
The number and scope of these studies depend on the sector of investment. However, all the above-
mentioned studies are complementary and need to be conducted in parallel so that all information is
coherently processed into the final Feasibility Study Report focusing on Cost-Benefit Analysis.
Cost-Benefit Analysis (CBA) is an analytical tool for judging the economic advantages or disadvantages of
an investment decision by assessing its costs and benefits in order to assess the welfare change
attributable to it. The analytical framework of CBA refers to a list of underlying concepts which is as
follows:
 Opportunity costs. The concept of opportunity costs of a good or service consider the costs of
alternative choices10 and compares these with the costs of the chosen alternative. The rationale
of this concept is in the observation that project investment decisions do not just have financial
effects but will also have wider external effects (socio-economic effects such as employment,
emissions, other environmental effects). These can be socially undesirable outcomes, but also
10 In economic theory, the opportunity costs refer to the best alternative forgone, i.e. the best alternative choice.

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desirable outcomes. In a CBA, these external effects are monetised as much as possible by
comparing the situation without the project with the situation with the project.
 Long-term perspective. A long-term outlook is adopted, ranging from a minimum of 10 to a

maximum of 30 years or more, depending on the sector of intervention. Hence the need to:
o set a proper time horizon;
o forecast future costs and benefits (looking forward);
o adopt appropriate discount rates to calculate the present value of future costs and benefits;
o take into account uncertainty by assessing the project’s risks.
 Calculation of economic performance indicators expressed in monetary terms. CBA is based on

a set of predetermined project objectives, giving a monetary value to all the positive (benefits)
and negative (costs) welfare effects of the intervention. These values are discounted (see box on
concept of discounting) and then totalled in order to calculate a net total benefit. The project
overall performance is measured by indicators, namely the Economic Net Present Value (ENPV),
expressed in monetary values, and the Economic Rate of Return (ERR), allowing comparability
and ranking for competing projects or alternatives.
 Microeconomic approach. CBA is typically a microeconomic approach enabling the assessment

of the project’s impact on society as a whole via the calculation of economic performance
indicators, thereby providing an assessment of expected welfare changes. While direct
employment or external environmental effects realised by the project are reflected in the ENPV,
indirect (i.e. on secondary markets) and wider effects (i.e. on public funds, employment, regional
growth, etc.) should be excluded. This is for two main reasons: i) most indirect and/or wider
effects are usually transformed, redistributed and capitalised forms of direct effects; thus, the
need to limit the potential for benefits double-counting; ii) there remains little practice on how
to translate them into robust techniques for project appraisal, thus the need to avoid the analysis
relies on assumptions whose reliability is difficult to check.
CONCEPT OF DISCOUNTING
In the financial and economic analysis, a time value is attached to financial and economic costs and revenues
or socio-economic benefit. The future costs and revenues or socio-economic benefits are discounted,
expressed in today’s value, in order to make them comparable. Today’s value is referred to as the Net Present
Value (NPV), in financial analysis generally as FNPV and in economic analysis as ENPV.

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Discounting is done by means of a discount rate; the financial discount rate (FDR) reflecting the public cost
of financing in financial analysis and social discount rate (SDR) reflecting the economic opportunity costs of
capital (EOCK) in economic analysis. As the financial and economic analysis are usually done in constant (real)
prices, the discount rates should be expressed in constant (real) terms too. This means inflation is excluded.
Some examples with a discount rate of 13%:

 1,000 FRW to be obtained next year are assumed to be worth 885 FRW today (1,000 / 1.13).
 Today’s value of 1,000 FRW to be received in two years will be 783 FRW (1,000 / (1.13 * 1.13)).
value
The formula for discounting is: NPV =
( 1 + DR ) t
where value is the value to be discounted, DR is the discount rate and t is the number of years for which the
value needs to be discounted. See also Annex C.
 Incremental approach. CBA compares a scenario with-the-project with a counterfactual baseline

scenario without-the-project (current situation). The incremental approach requires that:
o a counterfactual scenario is defined as what would happen in the absence of the project.
For this scenario, projections are made of all cash flows related to the operations in the
project area for each year during the project lifetime. In cases where a project consists
of a completely new asset, e.g. there is no pre-existing service or infrastructure, the
without-the-project scenario is one with no operations. In cases of investments aimed at
improving an already existing facility, it should include the costs and the
revenues/benefits to operate and maintain the service at a level that it is still operable
(Business As Usual (BAU)) or even small adaptation investments that were programmed
to take place anyway (do-minimum). In particular, it is recommended to carry out an
analysis of the promoter’s historical cash-flows (at least previous three years) as a basis
for projections, where relevant. The choice between BAU or do-minimum as
counterfactual should be made case by case, on the basis of the evidence about the most
feasible, and likely, situation. If uncertainty exists, the BAU scenario shall be adopted as
a rule of thumb. If do-minimum is used as counterfactual, this scenario should be both
feasible and credible, and not cause undue and unrealistic additional benefits or costs.
As illustrated at the end of this section (see ‘choice of the counterfactual scenario’) the
choice made may have important implications on the results of the analysis;
o secondly, projections of cash-flows are made for the situation with the proposed project.
This takes into account all the investment, financial and economic costs and benefits
resulting from the project. In cases of pre-existing infrastructure, it is recommended to
carry out an analysis of historical costs and revenues of the beneficiary (at least three
previous years) as a basis for the financial projections of the with-project scenario and as
a reference for the without-project scenario, otherwise the incremental analysis is very
vulnerable to manipulation;

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o finally, the CBA only considers the difference between the cash flows in the
with-the-project and the counterfactual scenarios. The financial and economic
performance indicators are calculated on the incremental cash flows only.
 Use of a ‘do-nothing’ instead of a ‘do-minimum’ counterfactual. The “do minimum” scenario

should be used by default to carry out a CBA, except for capacity rehabilitation projects. For
capacity expansion or upgrade projects, the analysis asks the question: “Do we expand capacity
or keep it at current levels?” The analysis then compares the “do something” with a “do
minimum”. If the analyst instead compared the “do something” with a “do nothing”, the project
would not be one of capacity upgrade versus no capacity upgrade, but rather one of capacity
upgrade versus letting capacity deteriorate potentially into inoperability. The consequence of
using a “do nothing” instead of a “do minimum” counterfactual would normally be to
overestimate the returns of the capacity expansion project, since the “do minimum” scenario
includes fewer benefits or higher costs to users. This is illustrated in Table 2.3 below.
In rehabilitation projects, the nature of the project itself calls for comparing a “do something”
with a “do nothing”. Generally, a pure rehabilitation project involves keeping existing capacity
constant, rather than expanding it. That is, the “with project” scenario involves no growth in
capacity. In that sense, and although it is just a matter of semantics, a rehabilitation project could
be viewed as comparing a “do minimum” with a “do nothing.”
 Employment creation. It is generally assumed that investments can generate new employment,
particularly within areas or countries displaying a high rate of unemployment, since in this case
the probability that jobs are displaced by other areas is rather low. Recent research in the context
of a mature infrastructure network found that roads-related accessibility improvements increase
local employment11. Cost-benefit analysis considers direct job creation in the context of
economic analysis, by calculating shadow wages on the cost side, while benefits from job creation
are not included on the benefit side. However, in some cases, particularly in the context of
economic analysis of education and research projects, benefits from the creation of new jobs are
monetized through the ‘human capital formation’ method. This method is based on
consideration that the staff employed under the investment project shall gain knowledge and
experience allowing them to increase their salaries in the long-term. Thus, the benefit to the
project is monetized as the present value of the total annual incremental gross salary gained by
persons trained under the investment project, over their entire work career. In sectors other than
the above, a separate analysis of labour market impact of the investment could be included under
the feasibility study report, but related benefits would not be quantified in monetary terms.
11
http://eprints.lse.ac.uk/83637/. However, the study in reference states that overall, “these economic benefits are relatively
small. These kinds of returns are not suddenly to transform poorly performing economies into powerhouses. We also need to
be careful in interpreting these changes as gains to the national economy. To some extent, jobs may be displaced from other
areas”. “Our work is one of the first attempts to carefully quantify the local economic impacts of existing schemes using real
world data on actual investments, and the employment effects that they generated. Our report considered previous
infrastructure evaluations from across the Organisation for Economic Cooperation and Development, and found only six that
carefully analysed the effect of road improvements on local employment. Of these six, ours was one of only two that detected
positive effects.”

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Applicability to CEA
 CEA does not compare a scenario with-the-project with a counterfactual baseline scenario
without-the-project (current situation). Instead, it generally considers historical or ‘acceptable’
(from the perspective of the investor) costs and/or outputs. Thus, before the analysis is
performed, the investor should establish the standard costs that should not be exceeded in
relation to the physical units to be achieved under the investment. This may require a systematic
collection of cost data to be used as benchmarks.
 CEA is based on financial analysis only. Financial analysis is carried out as for the CBA (exception
made for the incremental approach) to calculate the FNPV and FIRR. The FNPV is used to derive
the FNPV per each physical unit of output. In case the FNPV is not available, total investment
costs could be used to calculate the value per each physical unit of output.
2.4 The choice of the counterfactual scenario
 Explanation on definition and role of the do nothing, do minimum and project scenario (this does not
apply to CEA)
 Calculation example of the effect of scenario choice
If a river with a ferry crossing is assumed, where the daily capacity of the number of vehicles and
passengers needs to be expanded to cater to growing demand, then the various scenarios could for
instance be formulated as follows:
 Do nothing scenario: leave the situation as it is. The existing ferry will continue to operate,
resulting in increasing waiting times to cross the river;
 Do something scenario: small interventions to the existing situation with minimal investments,
for instance increasing the frequency of ferry crossings, so that capacity increases somewhat.
This results in additional operational costs, but also increases capacity. The question remains if
the capacity increase is sufficient to cater to the foreseen demand;
 Project scenario: construction of a bridge. This is a major investment, which will greatly increase
demand.
The following example, adapted from EIB (2013)12, illustrates the issue of the project performance in
relation to what scenario is selected as counterfactual. The proposed project, which consists of
rehabilitating and expanding existing infrastructure capacity, involves investing FRW 450 billion and will
result in benefits growing by 5% per year. The ‘do-minimum’ scenario, which consists of only
rehabilitating existing capacity, involves investing FRW 30 million, followed by constant benefits. The BAU
involves no investment at all, which, in turn, will affect the amount of output the facility can produce,
causing a fall in net benefits of 5% per year.
12 European Investment Bank, (2013) The Economic Appraisal of Investment Projects at the EIB.

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As shown in Table 2.2 below, the results of the CBA change significantly if different scenarios are adopted
as counterfactual. By comparing the proposed project with the ‘do-minimum’ scenario, the ERR equals
3%. If the BAU is taken as a reference, the ERR increases to 6%. Thus, any choice should be duly justified
by the project promoter on the basis of clear evidence about the most feasible and most likely situation
that would occur in the absence of the project.
The conclusion of the project displayed in Error! Reference source not found. is that the Do Minimum
scenario is preferred over the project scenario, as it creates the highest NPV over the BAU scenario
compared to the project. In other words, higher investment in the project (compared to the Do Minimum
scenario) is not justified by higher benefits.
Table 2-3: Example effect of scenario choice on ERR (all amounts in billion FRW except ERRs)
Scenarios FRW billion NPV 1 2 10 21
Net benefit 1,058 45 47 70 119
1 Proposed project
Investment -435 -450
Net benefit 661 45 45 45 45
2 Do-minimum
Investment -29 -30
Net benefit 442 45 43 28 16
3 Business as usual
Investment 0 0
Scenarios FRW billion NPV 1 2 10 21
Proposed project net of Do- Net flows -9 -420 2 25 74
1-2
minimum ERR 3.3%
Proposed project net of Net flows 182 -450 4 42 103
1-3
Business as usual ERR 6.4%
Do-minimum net of Business Net flows 194 -30 2 17 29
2-3
as usual ERR 28.2%
Source: The economic appraisal of investment projects at the European Investment Bank, March 2013
2.5 Financial versus Economic analysis
 Explanation of the difference between financial and economic feasibility

 Presentation of a quadrant with financially feasible and unfeasible projects versus economically feasible
and unfeasible projects
 Public investments do not need to be financially feasible, but should always be economically feasible
Financial feasibility and socio-economic feasibility analysis are two different types of analysis. The
financial analysis focuses on project financial attractiveness and includes only direct cash flows (see
section 3.5); the economic analysis takes a wider perspective and considers the socio-economic welfare
effects of the project (see section 3.6). The similarity between financial and economic analysis is the
methodology applied, however they use different inputs.
Both financial and economic analysis need to be considered in a feasibility study to establish the
desirability of a project, in four basic combinations (see Figure 2-2).

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Figure 2-2: Financial versus economic feasibility
Project is financially feasible Project is financially not

feasible
Project is Project can be done by private Project can be done by public
economically sector sector, subsidised from public
feasible funds
Project is Project should not be carried Project should not be carried
economically out or it should be taxed to out
not feasible compensate for negative
economic effects
1. Project is both financially and economically feasible: the project can be left to the private sector,
as its financial attractiveness should guarantee the interest of private investors. This does not
mean that the project should not be regulated by the Government. Private investors will be
focused on the financial results of the project rather than the project’s socio-economic benefits.
Some form of Government intervention may be needed to warrant the realisation of the socio-
economic effects of the project.
2. The project is financially feasible but not economically feasible, for instance due to negative
environmental impacts. These projects can still be left to the private sector, with the public sector
requiring compensation for the negative effects. The project promoter could for instance be
required to create a hectare of nature elsewhere for every hectare of nature destroyed at the
project site, or could be taxed for the emission of greenhouse gases. However, there might be
cases when the economic costs are paramount and no financial and/or in-kind compensation
from the private sector may turn the project to be desirable for the society. Thus, the project
would not be carried out although financially feasible.
3. The project is financially not feasible, but economically feasible. Many public investment projects
are in this group: the initial investment is too large to be recovered from project revenues, or
there are no revenues, and thus the project is not interesting for private investors. But from an
economic point of view these projects create benefits that are larger than the costs, which makes
them economically desirable. An example is an airport, which requires considerable investments
in basic infrastructure that can generally not be fully recovered from airport dues and taxes. Yet
airports form vital nodes in a country’s transport network as they facilitate (and reduce the costs
of) the movement of people and of air cargo imports and exports.
Many national and international investment programmes are aimed at this category of projects,
always with the intention of making up for the lack of financial attractiveness. This can be done
by means of grants, subsidies, soft loans, or PPP schemes in which the private sector invests in
parts of the project that can be made financially attractive (for example a terminal within a
seaport) and the public sector covers the parts of the project that are financially unfavourable

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(the basic infrastructure of a seaport). It is always required that benefits to the economy are
sufficiently demonstrated before the decision is taken to invest public money in this type of
projects.
Public investment projects do not have to be financially feasible, but should always be
economically feasible.
4. The project is not financially nor economically feasible. These projects should not be carried out,
at least not in their current definition or configuration. It may be possible to redefine or resize
the project, or to time it differently so that it becomes feasible.

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3 Feasibility studies
This chapter provides a stepwise approach to Feasibility Studies. Whereas it is written with CBA in mind,
many sections also apply to CEA too. The main difference is in the economic analysis, where in a CBA the
socio-economic effects are quantified, whereas in a CEA they cannot be quantified. The respective
differences are highlighted in the various sections of this chapter.
The structure and contents of the Feasibility Study Report with a CBA shall generally comprise the
following chapters:
0. Executive Summary
1. Description of the context
2. Definition of objectives and logic of the intervention

2.1 Needs assessment
2.2 Project relevance
3. Identification of the project

3.1 Project activities
3.2 Body responsible for project implementation
3.3 Project stakeholders
4. Technical feasibility & environmental sustainability

4.1 Demand analysis
4.2 Option analysis
4.3 Environmental considerations, including EIA and climate change
4.4 Technical design and cost estimates
4.5 Plan for implementation of the project
4.6 Plan for operation of the project
5. Financial analysis
5.1 Cash-flows for project costs and revenues, including residual values
5.2 Tariffs and affordability analysis, whenever relevant
5.3 Sources of financing
5.4 Financial profitability & sustainability
6. Economic analysis
6.1 Fiscal corrections
6.2 From market to shadow prices
6.3 Evaluation of non-market impacts
6.4 Economic viability
7. Risk assessment
7.1 Sensitivity analysis
7.2 Qualitative risk analysis
7.3 Probabilistic risk analysis
8. Conclusions of the feasibility analysis and recommendations

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The sections in this chapter follow the same structure as indicated above. Table 3-1 below indicates to
what extent these steps apply to CBA and CEA.
Table 3-1: Feasibility study steps applicable to CBA and CEA
Step CBA CEA

1. Description of the context applicable Applicable
2. Definition of objectives applicable Applicable
3. Identification of the project applicable Applicable
4.Technical and administrative feasibility & applicable Applicable
environmental sustainability
5. Financial analysis applicable Applicable
6. Economic analysis applicable Only narrative description of foreseen economic
effects
7. Risk and sensitivity assessment applicable Qualitative risk assessment. Quantitative risk
assessment applies only on project costs/revenues.
8. Conclusions and recommendations applicable Applicable
3.1 Description of the project and its context
 Importance of proper project description

 Key features of project description:
1. Socio-economic conditions
2. Policy and institutional aspects
3. Statistics and data on the current infrastructure and/or service provision
4. Information on the project context (such as environmental effects)
5. Perception of population that will be affected
 CBA and CEA build upon the same features to describe the project and its context
The project appraisal starts with a proper description of the project. This includes a description of the
motivation for the project, the objectives of the project, the problem it intends to solve. The first step of
the project appraisal aims to describe the social, economic, political and institutional context in which
the project will be implemented.
The key features to be described relate to:

 the socio-economic conditions of the country/region that are relevant for the project, including
for instance demographic dynamics, expected GDP growth, labour market conditions,
unemployment trends, etc.;
 the current infrastructure endowment and service provision, including indicators/data on
coverage and quality of services provided, current operating costs and tariffs/fees/charges paid
by users, if any;

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 other information and statistics that are relevant to better qualify the context, for instance,
existence of environmental issues, environmental authorities likely to be involved, etc.;
 the perception and expectations of the population with relation to the service to be provided,
including, when relevant, the positions adopted by civil society organisations.
The presentation of the context is instrumental to forecast future trends, especially for demand analysis.
In fact, the possibility of achieving credible forecasts about users, benefits and costs often relies on the
assessment’s accuracy of the macro-economic and social conditions of the region. In this regard, an
obvious recommendation is to check that the assumptions made, for instance on GDP or demographic
growth, are consistent with data provided in national and sectorial documents. In Rwanda, a good source
would be the National Institute of Statistics in Rwanda (NISR).
Also, this exercise aims to verify that the project is appropriate to the context in which it takes place. Any
project is integrated in pre-existing systems with its own rules and features, and this is an imminent
complexity that cannot be disregarded. Investments to provide services to citizens can achieve their goals
through the integration of either new or renewed facilities into already existing infrastructures.
Partnership with the various stakeholders intervening in the system is thus a necessity. Also, sound
economic policy, quality institutions and strong political commitment can help the implementation and
management of the projects, and the achievement of larger benefits. In short, investments are easier to
carry out where the context is more favourable. For this reason, the specific context characteristics need
to be taken into due consideration starting from the project design and appraisal phase. In some cases,
improvements in the institutional set up might be needed to ensure an adequate project performance.
GOOD PRACTICES
 The context is presented including all sectors that are relevant to the project and avoiding unnecessary
discussions on sectors that are unrelated to the project.
 The existing infrastructure endowment and service provision is presented with relevant statistics.
 The sectorial and regional characteristics of the service to be provided are presented in light of the
existing development plans.
COMMON MISTAKES
 Socio economic context and statistics are presented without explaining their relevance for the project.
 Socio-economic statistics and forecasts are not based on readily available official data and forecasts
 The political and institutional aspects are considered irrelevant and not adequately analysed and
discussed.

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3.2 Definition of objectives
 Importance of a clear description of project objectives

 Need to quantify as much as possible with indicators and targets
 Identification of project effects to be further quantified in the CBA
 Embedding the project in long term development plans
The second step of the project appraisal aims to define the objectives of the project. From the analysis
of all the contextual elements listed in the previous section, the national, regional and/or sectorial needs
that can be addressed by the project must be assessed, in compliance with the national-level sectorial
strategy whenever applicable. The project objectives should then be defined in explicit relation to needs.
When specifying the needs, the promoter should focus on specific and not generic issues such as
economic development. Also, these should be quantified and explained: e.g. volume and growth rate of
traffic congestion due to urbanisation dynamics, indices of water quality deterioration as a consequence
of industrialisation, risk of energy supply shortage due to increased demand, etc. In other words, the
needs assessment builds upon the description of the context and provides the basis for the objective’s
definition.
As far as possible, objectives should be quantified through indicators and targets. A target is a quantified
aspect of the objectives, for example: reduction of travel time from A to B of X minutes; increasing the
catchment area of a service of N thousands of people, improvement of capacity from X to Y MW,
reduction of GHG emissions from X to Y tons of CO2 per year, etc. They may relate, for example, to
improvement of the output quality, to better accessibility to the service, to the increase of existing
capacity, etc.
A clear definition of the project objectives is necessary to:

 identify the effects of the project to be further evaluated in the CBA and CEA. The identification
of effects should be linked to the project’s objectives in order to measure the impact on welfare.
The clearer the definition of the objectives, the easier the identification of the project and its
effects. Objectives are highly relevant for the CBA and CEA, which should reveal to what extent
they are met;
 verify the project’s relevance. Evidence should be provided that the project’s rationale responds
to a priority for the territory. This is achieved by checking that the project contributes to reaching
the national long-term development plans in the specific sector. the policy and institutional
aspects, including existing economic policies and development plans - e.g. linkage to Vision 2020,
Vision 2050, EDPRS213, National Strategy for Transformation (NST1), Sector Strategic Plans (SSPs)
- organisation and management of services to be provided/developed by the project, as well as
13 Economic Development and Poverty Reduction Strategy 2.

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capacity and quality of the institutions involved. Reference to these strategic plans should
demonstrate that the problems are recognised and that there is a plan in place to resolve them.
Whenever possible, the relationship or, better, the relative contribution of the project objectives to
achieve the specific targets of national policies and strategies should be clearly quantified. Such
identification will also enable the linking of the project objectives with the monitoring and evaluation
system.
GOOD PRACTICES
 Project effects are identified in clear relation to the project objectives.

 The general objectives of the project are quantified with a system of indicators and targets.
 Target values are established and compared to the situations with- and without the project.
 Project indicators are linked to those defined in the respective national strategies/plans, esp. NST1 and
Sector Strategic Plans (SSPs), or other relevant documents. Where the indicators set at the level of the
national strategies/plan are inappropriate to measure the impact of specific projects, additional project
specific indicators, are set up.
 If a region or country wide target exists (e.g. 100 % coverage of water supply in a given service area,
diversion of minimum 50 % of biodegradable waste from landfill, etc.), the contribution of the project to
achieving this wider target (in % of total target) is explained.
 Source and values of indicators are explained.
COMMON MISTAKES
 The economic effects considered in the CBA / CEA are not well aligned with the specific objectives of the
project.
 Project objectives are confused with its outputs. For instance, if the main objective of the project is to
improve the accessibility of a peripheral area, the construction of a new road or the modernisation of the
existing network are not objectives, but the means through which the objective of improving the area’s
accessibility will be accomplished.
 Where the investment is compliance driven (e.g. it must be done further to approval of new legislation),
the extent to which the project contributes to achieve such compliance is not shown. If the required
standards are not attained by the project, evidence of what other measures are planned and how they
will be financed is not provided.

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3.3 Identification of the project
 Importance of clear project identification

 Project needs to be a self-sustaining unit of analysis
 Description of all physical elements and activities to be implemented
 Description of organisation responsible for project implementation (project promotor) and its capabilities
 Description of the project impact area and all stakeholders and their involvement
A project is clearly identified when:

 the physical elements and the activities that will be implemented to provide a given good or
service, and to achieve a well-defined set of objectives, consist of a self-sufficient unit of analysis;
 the body responsible for implementation (often referred to as ‘project promoter’ or ‘beneficiary’)
is identified and its technical, financial and institutional capacities analysed; and
 the impact area, the final beneficiaries and all relevant stakeholders are duly identified.
3.3.1 Physical elements and activities

A project can be defined as ‘as a series of works, activities or services intended in itself to accomplish an
indivisible task of a precise economic or technical nature which has clearly identified goals’. These works,
activities or services should be instrumental in the achievement of the previously defined objectives. A
description of the type of infrastructure (national road, water supply system, hospital, power plant,
broadband, waste water treatment plant, etc.), type of intervention (new construction, rehabilitation,
upgrade, etc.), service provided (cargo traffic, urban solid waste management, access to broadband for
businesses, cultural activities, etc.) and intended location should be provided in order to define the
project activities.
In this regard, the key aspect is that appraisal needs to focus on the whole project as a self-sufficient unit
of analysis, which is to say that no essential feature or component is left outside the scope of the appraisal
(under-scaling). For example, if there are no connecting roads for waste delivery, a new landfill will not
be operational. In that case, both the landfill and the connecting roads are to be considered as a unique
project. In general, a project can be defined as technically self-sufficient if it is possible to produce a
functionally complete infrastructure and put a service into operation without dependence on other new
investments. At the same time, including components in the project that are not essential to provide the
service under consideration should be avoided (over-scaling).

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The application of this principle requires that:
 partitions of project for financing, administrative or engineering reasons are not appropriate
objects of appraisal (‘half a bridge is not a bridge’). A typical case might be that of a request for
public funds to support the first phase of an investment, whose success hinges on the completion
of the project as a whole. Or, request for state financial support for only a part of a project
because the remaining will be financed by other sponsors. In these cases, the whole investment
should be considered in CBA / CEA. The appraisal should focus on all the parts that are logically
connected to the attainment of the objectives, regardless of what the aim of the donor’s
assistance is.
 inter-related but relatively self-standing components, whose costs and benefits are largely
independent, should be appraised independently. Sometimes a project consists of several
inter-related elements. For example, the construction of an industrial park including a cargo
terminal, storage areas and plots for industrial activities. Appraising such a project involves,
firstly, the consideration of each component independently and, secondly, the assessment of
possible combinations of components. The measurement of the economic benefits of individual
project components is particularly relevant in the context of large multifaceted projects. As a
whole these projects may present a net positive economic benefit (i.e. a positive ENPV).
However, this positive ENPV may include one or more project components that have a negative
ENPV. If this component(s) is not integral to the overall project, then excluding it will increase the
ENPV for the rest of the project.
 future planned investments should be considered in the CBA / CEA if they are critical for ensuring
the operations of the original investment. For example, in the case of wastewater treatment, a
capacity upgrade of the original plant shall be factored in at a certain point of the project’s life
cycle, if it is needed to comply with an expected population increase, in order to continue to meet
the original project’s objectives.
3.3.2 The body responsible for project implementation

The project promoter, i.e. the body responsible for project implementation (and in most cases, also
responsible for project operation), usually a ministry or agency, should be identified and described in
terms of its technical, financial and institutional capacity. The technical capacity refers to the relevant
staff resources and staff expertise available within the organisation of the project promoter and allocated
to the project to manage its implementation and subsequent operation. In the case of the need to recruit
additional staff, evidence should be provided that no constraints exist to find the necessary skills on the
local labour market. The financial capacity refers to the financial standing of the body, which should
demonstrate that it is able to guarantee adequate funding both during implementation and operations.
This is particularly important when the project is expected to require substantial cash inflow for working
capital or other financial imbalances (e.g. medium-long term loan, clearing cycle of VAT, etc.). The
institutional capacity refers to all the institutional arrangements needed to implement and operate the
project [e.g. the Single Project Implementation Unit (SPIU)] including the legal and contractual issues for
project licensing. Where necessary, special external technical assistance may need to be foreseen and
included in the project.

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When the infrastructure owner and its operator are different, a description of the operating company or
agency who will manage the infrastructure (if already known) and its legal status, the criteria used for its
selection, and the contractual arrangements foreseen between the partners, including the funding
mechanisms (e.g. collection of tariffs/service fees, presence of government subsides), should be
provided.
3.3.3 Financial beneficiaries and relevant stakeholders

After having described the project activities and the body responsible for project implementation, the
boundaries of the analysis should be defined. The territorial area affected by the project effects is defined
as the impact area. This can be of local or national (or even including neighbouring countries as in case
regional cross-border river basins are involved) interest, depending on the size and scope of the
investment, and the capacity of the effects to unfold.
Although generalisations should be avoided, projects typically belonging to some sectors have a common
scope of effects. For example, transport investments such as a new national road, even if implemented
within a regional framework, should be analysed from a broader perspective since they usually form part
of an integrated network that may extend beyond the geographical scope of the analysis. The same can
be said for an energy plant serving a delimited territory but belonging to a wider system. In contrast,
water supply and waste management projects are more frequently of local interest. However, all projects
must incorporate a wider perspective when dealing with environmental issues related to CO2 and other
greenhouse gas (GHG) emissions with effects on climate change, which are intrinsically non-local.
A good description of the impact area requires the identification of the project’s final beneficiaries, i.e.
the population that benefits directly from the project. These may include, for example, road users,
households exposed to a natural risk, companies using an industrial park, etc. It is recommended to
explain what type of benefits will be enjoyed and to quantify them as much as possible. The identification
of the final beneficiaries should be consistent with the assumptions of the demand analysis.
In addition, all bodies, public and private, that are affected by the project need to be described. Large
infrastructure investment does not usually only affect the producer and the direct consumers of the
service, but can generate larger effects (or ‘reactions’) e.g. on partners, suppliers, competitors, public
administrations, local communities, etc. For instance, in the case of a railroad linking Ugandan or
Tanzanian border posts with Kigali, local communities along the railroad layout may be affected by
negative environmental impacts, while the benefits of the project are mostly accrued by the inhabitants
of the towns where the train will stop. The identification of ‘who has standing’ should account for all the
stakeholders who are significantly affected by the costs and benefits of the project.

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GOOD PRACTICES
 Where a project has several stages or phases, these are properly presented together with their respective
costs and benefits.
 Individual investment measures are bundled into one single project when these are: i) integral to the
achievement of the intended objectives and complementary from a functional point of view; ii)
implemented in the same impact area; iii) share the same project promoter; and iv) have similar
implementation periods.
COMMON MISTAKES
 An artificial splitting of the project is adopted to reduce the project investment cost in order to fit to the
available budget.
 Project over scaling: investments which are functionally independent of each other are packaged
together without a preliminary verification of the economic viability of each investment and of possible
combinations and without a clear functional and strategic link among them.
 Project under scaling: a request for funds is presented for financing a portion of a project which cannot
be justified in isolation from other functional elements.
 Project over sizing due to over optimistic assessment of the impact area, e.g. on the basis of unrealistic
assumptions of demographic growth.
 The institutional set up for project operations is presented unclearly. This will make it difficult to verify
that financial cash flows are properly accounted for in the financial analysis.
 Benefits of a second phase of a project are included in the economic analysis of the first phase without
also including the additional costs, thus making the first phase look economically and/or financially more
attractive.
3.4 Technical and administrative feasibility, social and environmental assessment
 This step contains various types of analyses which require expert involvement
 Demand analysis: provides a forecast of demand for the project
 Demand analysis should be based on background information and socio-economic data, and should be
clear and transparent in methodology and main assumptions
 Options analysis should consider various locations, technologies, layouts, designs, etc. of the project as
well as potential effectiveness and environmental and social effects
 Options analysis should score and weigh all these criteria to select the best option, usually this is done by
means of a Multi-Criteria Analysis (MCA)
 All social and environmental impacts should be considered, described and where possible mitigating
measures should be proposed; usually this is done in Environmental Impact Analysis (EIA)
 The social impacts analysis should include expropriation and resettlement issues and all potential social
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 The technical design should include a description of location of the project, including demonstration of
availability and necessary permits
 The technical design should include a description of the main works components, technology applied,
design standards etc. It should include cost estimates for each works component, including labour
 A plan for implementation of the project should be provided, including timing of preparatory steps
(studies, analysis), construction and implementation phase
 A plan for operation of the project should be provided, including institutional and legal implications,
management and governance structures, description of the organisation, procedures, budgets for
operations
This stage of the FS development calls for deployment of various technical specialists, including
architects, civil/mechanical engineers, geotechnical/materials/measurement engineers, land
surveyors/quantity surveyors, environmental experts, social experts, economists etc. In most cases, these
services are out-sourced.
Technical feasibility, social and environmental sustainability are among the elements of information to
be provided. Although these analyses are not formally part of the CBA / CEA, their results must be
concisely reported and used as a main data source within the CBA / CEA (see box). Detailed information
should be provided on:
 demand analysis;
 options analysis;
 social and environmental assessment;
 technical design, cost estimates and implementation schedule.
In the following, a review of the key information that needs to be summarised in the CBA / CEA, in order
to understand the overall justification of the project solution sought, is provided. Although they are
presented consecutively, they should be viewed as parts of an integrated process of project preparation,
where each piece of information and analysis feed each other into a mutual-learning exercise (see box
on timing of CBA / CEA).
TIMING OF CBA / CEA: AN ONGOING PROCESS
The CBA principles should be adopted in the project design process as soon as possible. The CBA / CEA should be
understood as an ongoing, multi‑disciplinary, exercise performed throughout the project preparation in parallel
with other technical and environmental considerations. Prerequisites for the CBA / CEA of the proposed project
solution are, however, the finalisation of a detailed demand analysis and the availability of investment and
operational and management (O&M) cost estimates, including costs for environmental mitigation and
adaptation measures. These are based on the preliminary project design, which are centrepieces of the
‘technical’ feasibility study and the EIA.
This does not necessarily mean that the analysts responsible for preparing the CBA / CEA should start working
after the engineers complete the preliminary technical design and deliver the cost estimates, but rather in
parallel. In fact, analysts preparing the CBA / CEA should adopt an interdisciplinary approach to project

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preparation from an early stage and are usually involved in preliminary, simplified CBAs / CEAs for comparisons
of different technical and environmental options. Their involvement in the preparation of the demand analysis
and options analysis is useful (and often decisive) in achieving the best results for the project.
Once the optimal project solution is identified, a full‑scale CBA / CEA is usually performed at the end of the
preliminary design stage. The aim is to provide confirmation to the project planner(s) of the adequacy and
economic convenience of the proposed solution to meet the pre‑established project objectives. The results of
the full‑scale CBA / CEA, based on the most recent cost estimates, shall be the foundation for formulating the
Project Profile Data form (PPD) to propose a new project in the planning cycle.
3.4.1 Demand Analysis

Demand analysis identifies the need for an investment by assessing:
 current demand (based on statistics provided by service suppliers, regulators, ministries, national
and/or regional statistical offices for the various types of users). In the case of a Rwandan road,
demand is assessed by carrying out traffic counts on a particular project road. If it is a piped water
supply scheme, household surveys would determine how much water is in demand in the
projects influence area.
 future demand (based on reliable demand forecasting models that take into consideration
macro- and socio-economic forecasts, alternative sources of supply, elasticity of demand to
relevant prices and income, etc.) in both the scenarios with- and without-the-project.
Both quantifications are essential to formulate demand projections, including generated/induced

demand where relevant, and to design a project with the appropriate productive capacity. For example,
it is necessary to investigate which share of the demand for public services, road transport, or disposal of
waste material can be expected to be satisfied by the project. Demand hypotheses should be tested by
analysing the conditions of both the present and future supply, which may be affected by actions that
are independent from the project.
PROJECTS BELONGING TO LARGER, TRANSBOUNDARY NETWORKS
Particular attention should be paid to identifying whether the project under consideration belongs to networks.
This is particularly the case for transport and energy infrastructures, which always form part of networks, but
also for ICT and telecommunication projects.
When projects belong to networks, their demand (and consequently their financial and economic performance)
is highly influenced by issues of mutual dependency (projects might compete with each other or be
complementary) and accessibility (ease of reaching the facility).
There are several techniques that can be used for demand forecasting, ranging from simple regression
analysis to sophisticated network models. The choice depends on the data that is available, the resources
that can be dedicated to the estimates and on the sector for which the estimate is done.

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Transparency in the main assumptions, as well in the main parameters, values, trends and coefficients
used in the forecasting exercise, are matters of considerable importance for assessing the accuracy of
the estimates. Assumptions concerning the policy and regulatory framework evolutions, including norms
and standards, should also be clearly expressed. Furthermore, any uncertainty in the prediction of future
demand must be clearly stated and appropriately treated in risk analysis. The method used for forecasting
(including the type of model), the data source and the working hypotheses must be clearly explained and
documented in order to facilitate the understanding of the consistency and realism of the forecasts.
GOOD PRACTICES
 Use is made of appropriate modelling tools to forecast future demand.

 Where macro‑economic/socio‑economic data/forecasts are available from official national sources,
consistent use of them is made across all projects/sectors within the country.
 Demand is appraised separately for all distinct groups of users/consumers relevant to the project.
 Effects of current or planned policy measures and economic instruments that could influence the project
are taken into account for demand analysis. Also, all parallel investments potentially affecting the
demand for services delivered by the project are identified, described and assessed.
COMMON MISTAKES
 The methodology and parameters used for estimation of current and future demand are not explicitly
presented nor justified, or they deviate from national standards and/or official forecasts for the
region/country.
 Users’ growth rates ‘automatically’ assumed throughout the entire reference period of the project are
overoptimistic. Where uncertainty exists, it is wise to assume a stabilisation of demand after the first e.g.
3-to‑X years of operation.
 Insufficient or incomplete market analysis often leads to an overestimation of revenues. In particular, a
full assessment of the competition in the market (projects providing similar products and/or surrogates)
and quality requirements for project outputs are often neglected.
 The link between demand analysis and design capacity of the project (supply) is missing or unclear. The
design capacity of the project should always refer to the year in which demand is highest.
3.4.2 Options analysis

Undertaking a project entails the simultaneous decision of not undertaking any of the other feasible
options. Therefore, in order to assess the technical, economic and environmental convenience of a
project, an adequate range of options should be considered for comparison.
Thus, it is recommended to undertake, as a first step for large projects, a strategic options analysis,
typically carried out at pre-feasibility stage and which may require multi-criteria analysis. The approach
for option selection should be as follows:
 establish a list of alternative strategies (e.g. technological choice, location, coverage) to achieve
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 screen the identified list against some qualitative criteria, e.g. multi-criteria analysis based on a
set of scores, and identify the most suitable strategy.
For example, a river crossing needs to be provided. There are several options to provide a crossing: by
means of starting ferry operations, or by constructing a bridge or a tunnel. There are also options in the
choice of capacity: size of the ferry service and frequency, number of traffic lanes in the bridge or tunnel.
Each option requires a different investment, has different operational costs and will have a different
capacity. There may also be several locations where the crossing can be provided, depending on the width
of the river, the flow of the water and the position of the crossing in the road network. There are also
several technical solutions; for instance, the material and type of construction of a bridge. These more
detailed technological alternatives are generally not part of the strategic options analysis, but are
assessed during the technical feasibility phase. Examples are the choice for a type of road pavement or
the choice for quay wall construction in a port.
STRATEGIC OPTIONS: DIFFERENT EXAMPLES
 Different routes or construction timing in transport projects (roads/rails).

 Centralised vs. decentralised systems for water supply or wastewater treatment projects.
 A new gravity sewer main and a new wastewater treatment plant vs. a pumping station and pressure
pipes that pump the wastewater towards an existing treatment plant, but with a capacity which has to
be increased;
 Different locations for a centralised landfill in a regional waste management project.
 Retrofitting an old power plant or building a new one.
 Different peak load arrangements for energy supply.
 Large hospital structures rather than a more widespread offer of health services through local clinics.
 Possible re use of existing infrastructure (e.g. ducts, poles, sewerage networks) or possible co
deployment with other sectors (energy, transport) to reduce the cost of broadband deployment
projects.
Once the strategic option is identified, a comparison of the specific technological solutions is typically
carried out at feasibility stage. In some circumstances, it is useful to consider, as a first technological
option, a ʻdo-minimumʼ solution. As mentioned, this assumes incurring certain investment outlays, for
example for partial modernisation of an existing infrastructure, beyond the current operational and
maintenance costs. Hence, this option includes a certain amount of costs for necessary improvements,
in order to avoid deterioration of infrastructure. Synergies in infrastructure deployment (e.g.
transport/energy and high-speed broadband infrastructure) should also be considered, in view of better
use of public funds, higher socio-economic impact, and lower environmental impact.
Once all potential technological solutions are identified, also in the context of the Environmental Impact
Assessment (EIA), they need to be assessed and the optimal solution selected as the subject of the
financial and economic appraisal. The following criteria shall be applied:
 if different alternatives have the same, unique, objective (e.g. in the case of compliance-driven
projects with predetermined policy objectives or targets) and similar externalities, the selection

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can be based on the least cost solution per unit of output produced, in which case the CEA is
completed;
 if outputs and/or externalities, especially environmental impacts, are different in different
options (assuming all share the same objective), it is recommended to undertake an MCA for all
main options in order to select the best alternative.
The criteria considered in selecting the best solution, with ranking of their importance and the method
used in the evaluation, shall always be presented by the project promoter as a justification for the option
chosen.
GOOD PRACTICES
 The options analysis is based on a common baseline (i.e. a common counterfactual scenario and
consistent demand analysis are adopted across the options).
 The options analysis starts from a more strategic point of view (i.e. general type of infrastructure and/or
location/alignment for the project) and continues with an assessment of specific technological variants
for the type of infrastructure/site selected. New alternative technologies are accompanied by a thorough
assessment of their technological, financial, managerial risks, climate risk and environmental impacts.
 For comparisons based on costs, all assumptions on unit costs of investment, O&M and replacement
should be disclosed and explained separately for each option to facilitate their appraisal. Unit costs of
common consumables (e.g. labour, energy, etc.) are the same for all options.
 Options are compared using the same reference period.
COMMON MISTAKES
 The various project options are discussed and analysed in detail, but they are not assessed against a
counterfactual scenario which forms the basis of the incremental approach.
 The identification of possible alternatives is done rather ‘artificially’, e.g. alternatives are not genuine
solutions but simply constructed to show they are worse than the preferred (pre‑decided) alternative.
 There is lack of ‘strategic thinking’: project options are considered only in terms of alternative routes (for
transport projects) or alternative technologies of a pre‑selected solution, but not in terms of possible
alternative means to achieve the intended objectives.
 Too many or irrelevant criteria, or inappropriate scoring, are used in multi‑criteria analysis for shortlisting
the project options.
3.4.3 Social and Environmental considerations, including expropriation and cross-cutting areas
Some requirements on the project’s social and environmental considerations should be fulfilled in
parallel with the technical considerations and contribute to the selection of the best project option. In
this context, the project promoter shall demonstrate to which extent the project contributes to
environmental protection, resource efficiency and climate change targets, respects the “polluter pays
principle”, takes account of social risks and impacts, and complies with pertinent regulations. Special
attention should be given to the investment social impacts, particularly in case expropriations and
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When appropriate, an Environmental Impact Assessment (EIA) procedure must be carried out to identify,
describe and assess the direct and indirect effects of the project on human beings and the environment.
While the EIA is a formally distinct and self-standing procedure, its outcomes need to be integrated in
the FS & CBA / CEA and be in the balance when choosing the final project option. The costs of any
environmental integration measures resulting from the EIA procedure (including measures for protection
of biodiversity) are treated as input in the assessment of the financial and economic viability of the
project. On the other hand, the benefits resulting from such measures are estimated, as far as possible,
when valuing the non-market impacts generated by the project.
Costs and benefits resulting from the integration of both mitigation and adaptation measures in the
project design are used in the appraisal of the project’s financial and economic performance.
The Project effects and impact on the environment is studied in relation to both the construction phase
and the operational phase. Generally, the screening and scoping phase – carried out by the relevant
national authorities - determines the studies to be carried out in relation to the characteristics of the
project and the impact area. Environmental analysis shall encompass the assessment of the investment
impact on habitat and species.
Environmental Impact Assessment (EIA)

When appropriate an Environmental Impact Assessment (EIA) needs to be carried out in line with the
Organic Law N° 04/2005 of 08/04/2005 determining the modalities of protection, conservation and
promotion of environment in Rwanda and respective guidelines to analyse significant environmental
impacts (positive or negative) of a proposed project and its alternative design options on the physical,
biological, cultural and socio-economic characteristics of a particular geographic area.14 The objective of
the EIA is to prevent and mitigate adverse impacts, enhance positive impacts and assist the rational use
of resources, hence maximising the benefit of socio-economic developments and ensuring sustainable
development. Respective findings are summarised in the Environmental Impact Report (EIR), including
the Environmental Management Plan (EMP), which indicates among others impacts, measures and
respective costs to mitigate negative and strengthen positive environmental impacts.
As a tool for sustainable development and poverty reduction in Rwanda, EIA addresses responsible and
equitable use of the environment resources and fostering the commitment for environmental protection.
EIA contributes to sustainable development by increasing efficiency of development projects in light of
environmental regulations and requirements. It streamlines business practices to conform to regulations’
requirements of development, environmental protection and habitat use. It also ensures that projects
take necessary prevention, mitigation and monitoring steps to safeguard them from the high costs of
environmental remediation if environmental damage occurs.
Projects subject to EIA are listed in the Ministerial Order N° 004/2008 of 15/08/2008 establishing the list
of works, activities and projects that have to undertake an environment impact assessment.
14 See Rwanda General Guidelines and Procedure for Environmental Impact Assessment, 2006, p. 1

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Environmental issues
The Project effects and impact on the environment is studied in relation to both the construction phase
and the operational phase. Generally, the screening and scoping phase determines the studies to be
carried out in relation to the characteristics of the project and the impact area. Environmental analysis
shall encompass the assessment of the investment impact on habitat, species and climate. The impact
on any protected areas such as natural parks and wetlands shall be studied in detail. The environmental
feature on which the investment can have significant impact may include:
 Flora, fauna, habitats;
 Soil and geology;
 Land Use;
 Surface water;
 Groundwater;
 Agriculture;
 Forestry;
 Hunting;
 Archaeological and Cultural Heritage;
 Landscape and aesthetics;
 Tourism and Recreation;
 Existing public and private infrastructure;
 Population and human health;
 Air Quality.
The analysis shall be cross sectoral. For example, impacts on groundwater do generally determine
impacts on habitats and species, agriculture and existing infrastructure; but other impacts may be found
on cultural heritage, tourism and recreation. Mitigation measures shall be identified, recommended and
costed.
Socio-economic issues
Both positive and negative impacts of the project on the society are to be analysed. The main positive
impact is generally the reason why the project is envisaged (e.g. to provide drinkable water to local
communities, to improve roads within the project area etc.). The above impact is to be appropriately
analysed and quantified. There might be temporary or permanent impacts in terms of jobs and/or
economic activities. However, some infrastructure / economic activity might be affected and appropriate
mitigation measures are therefore to be envisaged. One particular category of social impact is the need
of expropriating land and other properties and the resettlement of the affected households and
communities.
Expropriation issues: Resettlement and Compensation

Due to its tremendous social impacts, special attention has to be paid at feasibility stage to the issue of
expropriation. Resettlement and Compensation procedures shall be completed before construction or
physical implementation of a project commences. The EMP should also outline, how expropriation,
resettlement and compensation are supposed to be done; which area or group of affected people will be
resettled or compensated, when and at what estimated compensation. Compensation and/or
resettlement measures shall be planned and costed according to the Expropriation and Compensation

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Law N° 01/2007 of 20/01/2007, the Organic Law on Land (2005), Organic Law on Environment No
04/2005 and any other law relevant to compensation or resettlement issues.
In this context, the following major resettlement issues (risks and opportunities) should be taken into
consideration15:
 Displacement of people from an area;
 Loss of property, businesses, land or access to other natural resources, e.g. access to (irrigation)
water;
 Economic losses for affected individuals and families (e.g. loss of crops and economic fruit trees)
with a temporary or permanent loss of income for subsistence (e.g. loss of a roadside location
for an informal business, etc.);
 Social disruption and break-up of families due to displacement and relocation;
 Loss of community benefits and social disintegration.
 Risk that people with fewer resources and skills become even more vulnerable due to lack of
land, economic losses, social disruption and loss of community benefits (equity issues)
 Possibilities to improve livelihood (i.e. access to resources) of most vulnerable population groups
through resettlement and compensation, herewith reducing inequity between different
population groups (potential opportunities).
Since the needs, benefits and risks concerning expropriation and resettlement can be different for men
versus women, poor versus rich people, rural versus urban population, people with and without disability,
respective mitigation measures have to build upon disaggregated information. Thereby ensuring that
benefits, risks and opportunities for different groups are integrated into planned resettlement and
compensation activities.
At feasibility stage information about estimated figures for the compensation of expropriated
landowners as well as cost estimates for further resettlement and mitigation measures, including the
underlying assumptions, is required and should form part of the EMP in the EIR.
Where applicable a separate Resettlement Action Plan (RAP) has to be developed. RAP is a document in
which a project developer or other responsible entity specifies the procedures that it will follow and the
actions that it will take to mitigate adverse effects, compensate losses, and provide development benefits
to persons and communities affected by an investment project.
Consideration of social risks and impacts

Development strategies and projects need to be as inclusive as possible: projects shall be designed to
ensure equitable opportunities for full participation of all groups in society, economic life and labour
market, in this regard also ensuring the accessibility and usability of infrastructure. Ideally, social risks
and impacts are fully reflected in the EIA under the headline of socio-economic development. This
guideline therefore complements the Rwanda Environment Management Authority (REMA)
environmental impact assessment guidelines 2006, as well as sector specific EIA guidelines, and
emphasizes the social dimension of the project assessment: The purpose is to identify social and
15
See: Sector guidelines for EIA for roads development projects in Rwanda, Rwanda Environment Management Authority,
August 2009

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economic impacts and to define potential measures to avoid, manage, mitigate or offset negative or
enhance positive predicted impacts, including the number of jobs created by the project. In this regard
impacts can be either positive (i.e. benefits and opportunities to capitalise on) or negative (i.e. adverse
impacts to be managed).
Among others, the following social risks and impacts should be considered to identify impacts, develop
mitigation measures and derive strategies exploiting positive impacts as opportunities:
 Any prejudice or discrimination towards individuals or groups in providing access to development
resources and project benefits: Assessment of who will and who will not benefit in terms of
usability and accessibility of the planned infrastructure based on disaggregated information for
men, women, people with disability and poor families.
 Opportunities to contribute to the reduction of vulnerability of disadvantaged groups (including
people with disability) and improved gender equity through accessibility and usability of the
proposed infrastructure project (incl. opportunity to increase access to resources like jobs,
markets, public services, social network, etc.)
 Risks that negative project impacts fall disproportionately on individuals or groups who may be
disadvantaged or vulnerable: Assessment of who will be negatively and will not be affected by
the proposed infrastructure in terms of land and natural resource tenure and use, land access,
food security, losing job, social network, access to markets, etc. Again, considering disaggregated
information for men, women, people with disability and poor people.
 Impacts on the health, safety and well-being of workers and project affected communities,
including increasing the risk of HIV infection during and after the construction phase.
 Consideration of the impact on gender balance and how the project may contribute to promotion
of gender equality.
 Potential for child labour.
 Impact on job creation during and after the construction phase.
 Risks to cultural heritage.
At feasibility stage identified social impacts, devised mitigation measures ad management strategies as
well as associated costs should be part of the EMP in the EIR.
Linkage of the environmental and social assessment to the further financial and economic analysis
While the EIA is a formally distinct and self‑standing procedure, its outcomes need to be integrated in
the CBA / CEA and considered when choosing the final project option. The costs of any environmental
integration measures resulting from the EIA procedure are treated as input in the assessment of the
financial and economic viability of the project. On the other hand, the benefits resulting from such
measures are estimated, as far as possible, when valuing the non‑market impacts generated by the
project (see chapter economic benefits).
Against this backdrop, the EIR, including the EMP, indicating among others impacts, mitigation measures
and respective costs, is needed to prepare a proper financial and economic analysis of the proposed
project at feasibility stage.

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Also, mitigation measures and management strategies to cope with social impacts (negative and positive)
as well as with effects resulting from expropriation and resettlement should be reflected in the EMP to
be properly considered in the further steps of analysis. If the information on social aspects and
expropriation issues does not form part of the EIR or EMP, separate documents have to be provided at
feasibility stage.
GOOD PRACTICES
 Environmental and socio-economic considerations are incorporated into the project design and
preparation at an early stage. For example, project design shall study and implement the technical
alternatives suitable to decrease the scope of expropriation and resettlements. Any other mitigation
measures to reduce environmental l and socio-economic negative impacts are proposed under the EIA
procedure.
 Cost of measures taken for correcting and monitoring negative impacts are included in the investment
cost and the operational costs considered in the CBA / CEA, respectively.
 Early dialogue between the developer and the authorities/nature experts (REMA) is carried out to run
procedures smoothly and to enable better and faster decisions, which in turn could reduce costs and
avoid delays. Public consultations are also carried out in Rwanda to complement the EIA analysis and
include any valuable inputs into the proposals for mitigation and improvement.
COMMON MISTAKES
 There is no consistency between options analysed in the CBA / CEA and options analysed in the EIA. In
particular, the options selected for the CBA / CEA are not fully analysed in the EIA.
 Project cost does not incorporate cost of mitigation measures and environmental and socio-economic
costs and benefits are not properly considered into the economic analysis.
 No proper consultation of people affected by the project has been conducted.
3.4.4 Technical design, cost estimates and implementation schedule

A summary of the proposed project solution shall be presented with the following headings.
 Location: description of the location of the project including a graphical illustration (map).
Availability of land is a key aspect: evidence should be provided that the land is owned (or can be
accessed) by the beneficiary, who has the full title to use it, or has to be purchased (or rented)
through an acquisition process. In the latter case, the conditions of acquisition should be
described. The administrative process and the availability of the relevant permits to carry out the
works should also be explained. Instances of expropriation should be considered; resettlement
and compensation procedures should be described and followed.
 Technical design: description of the main works components, technology adopted, design
standards and specifications. Key output indicators, defined as the main physical quantities

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produced (e.g. kilometres of pipeline, number of overpasses, number of trees planted, etc.),
should be provided.
 Capacity-utilisation plan: description of the infrastructure capacity and the expected utilisation
rate - expected numbers of users. These elements describe the service provision from the supply
side. Project scope and size should be justified in the context of the forecasted demand.
 Costs estimates: estimation of the financial needs for project realisation and operations are
imported in the CBA / CEA as a key input for the financial analysis. Evidence should be provided
as to whether cost estimations are project promoter estimates, tender prices or costs as
achieved.
 Implementation timing: a realistic project timetable together with the implementation schedule
should be provided including, for example, a Gantt chart (or equivalent) with the works planned.
A reasonable degree of detail is needed in order to enable an assessment of the proposed
schedule. In the case of projects that will require land acquisition, the timing of expropriation
should be considered. This also takes into consideration the timing of the preparation of a
Resettlement Action Plan for the Project Affected Persons.
The Feasibility Study should provide the source for cost estimates as well as specify the stage of the design
associated to these cost estimates (e.g. conceptual design, preliminary design or main/detailed design –
see also Footnote 14), so that accuracy of the estimates can be properly assessed. Generally, cost
estimates are provided under ‘Bill of Quantities’ format. Bill of Quantities (BoQ) is a list of items giving
brief identifying descriptions and estimated quantities of the works. Since the BoQ provides a measure
of the extent of works, this allows the works to be priced. The works included in each item are defined in
detail by the rules in the Method of Measurement. It is necessary therefore for the BoQ to state, usually
in the Preamble to the Bill, the method applicable. However, because of the uncertain nature of much of
civil engineering work at the billing stage, the quantities are “estimated”. In the majority of contracts, the
works will be remeasured on site to reflect the true quantities actually required16.
Annex E provides a template of Bill of Quantities and other forms that are used during the design stage
to prepare estimates of cost of works based on unit prices, in accordance with the International
Federation of Consulting Engineers (FIDIC17) guidance. The BoQ may serve a number of functions as:
 It provides for detailed cost estimates that are used to tender the works;
 Once the works are contracted, it provides for a schedule of rates as the contract basis for valuing
variations in the works;
 It is a basis for measuring the value of works completed for the purpose of payments.
Authors of a Feasibility Study will need to use information from the Bill of Quantities as an input on
estimated costs of each investment component. Moreover, investment costs are to be associated to the
16
Axel-Volkmar, Jaeger l, Dr. Götz-Sebastian Hök, FIDIC-A Guide for Practitioners, Springer-Verlag Berlin Heidelberg 2010, ISBN
978-3-642-02099-5 e-ISBN 978-3-642-02100-8 DOI 10.1007/978-3-642-02100-8
http://www.springer.com/gp/book/9783642020995; Bills of Quantity, D. Atkinson, December 2000
http://fidic.org/sites/default/files/Bills%20of%20Quantity%20Atkinson.pdf
17
http://fidic.org/about-fidic

MINECOFIN
estimated duration of works, often as a percentage, e.g. 20% of total investment costs are to be incurred
in the first year within the reference period, another 40% in the second year and the remaining 40% in
the third year. The Bill of Quantities should provide for prices net of VAT and should specify the exchange
rates used to convert prices from other currencies, whenever applicable. Thus, the authors of the
feasibility study have to check that this is the case and use the information accordingly.
GOOD PRACTICES
 A concise summary of the results of the feasibility study(ies) is included in the CBA / CEA report to explain
the justification of the selected solution. Input data from the technical studies are duly used in the CBA /
CEA. Should the FS include a section on CBA / CEA, consistency with the main CBA / CEA report is ensured
or major differences explained.
 The Bill of Quantities is consulted to check that all investment components (including the costs of
environmental mitigation measures) have been included under cost estimates.
 The technical description of investment and operating cost components provides sufficient detail to allow
for cost benchmarking.
Direct employment in the investment and operational phase

Direct employment during the investment and operational phase is generally estimated by the designers
when estimating investment and operational costs. The detailed breakdown of prices (see e.g. Annex E)
provided by the designers is in fact based on estimates of costs of materials, equipment and labour.
Therefore, engineers are best placed to provide estimates on the number of direct Full-Time-Equivalent
(FTE) jobs18 to be created by an investment during both the investment and the operational phase. A
good practice is that cost estimates distinguish between skilled and unskilled labour, having in mind that
conversion costs for the purpose of the economic analysis could differ for these two categories19.
According to a recent publication by an International Financial Institution, unskilled labour employed in
construction is 40% of the cost and gains 30% of the wage paid20. In line with the above, it is
recommended that Terms of Reference for designers require the designers to estimate the annual
number of direct unskilled and skilled FTE jobs during the investment and the operational phase.
The number of direct jobs to be created (expressed in FTE) can for instance be presented as follows, see
Table 3-2.
18
A full-time equivalent, sometimes abbreviated as FTE, is a unit to measure employed persons in a way that makes them
comparable although they may work a different number of hours per week. The unit is obtained by comparing an employee’s
average number of hours worked to the average number of hours of a full-time worker. A full-time person is therefore counted
as one FTE, while a part-time worker gets a score in proportion to hours he or she works. For example, a part-time worker
employed for 20 hours a week where full-time works consists of 40 hours, is counted as 0.5 FTE.
19
Skilled labour of category consists of workers who would be able to find alternative employment quickly and where supply is
fixed in the short term. This generally includes those with specialist skills and in vocational, technical, or managerial roles. For
skilled labour that is scarce, the actual wage rate paid by the project inclusive of benefits can be taken as its economic cost. In
the relatively rare case where wage controls and barriers to labour mobility mean the economic cost is greater than the wage
actually paid, an upward adjustment to the actual wage paid can be made.
20
Guidelines for the economic analysis of projects, Asian Development Bank, 2017

MINECOFIN
Table 3-2: Example of presentation of number of jobs created in a project
Number of jobs directly created: No (FTE) Average duration of these jobs (months)
(A) (B)
During investment phase 38 12
During operational phase 59 78
3.4.5 The plan for implementation of the project

The plan for implementation of the project takes into consideration all aspects of implementation of the
investment or development project both in terms of resource constraints and institutional capability. In
case of hard infrastructure, project implementation starts with the pre-feasibility and feasibility studies
and other planning documents, to conclude with the end of construction and installation of supplies, thus
allowing the start of operations. In case of development projects, in some cases there are no works or
supplies, and therefore the feasibility study is followed by implementation of the activities according to
each specific case.
The following implementation aspects are analysed under this section:

 Project implementation team during the investment phase, and,
 Time-Table for implementing the project.
According to the concept adopted by the Government of Rwanda since 2011, a Single Project
Implementation Unit (SPIU) established within the Beneficiary organisation shall ensure that the project
is delivered on time to suitable costs and quality. The Single Project Implementation Unit is responsible
for all phases of implementation (procurement/construction), including the procurement strategy.
Therefore, an organisation chart shall be provided in the FS that identifies the various participants, their
interfaces and reporting relationships, and their roles and responsibilities and the place of this project
management team in the organisational structure of the promoter.
The SPIU shall:

 ease project coordination; introduce economies-of-scale in the shared functions for instance in
fiduciary functions like monitoring and evaluation (M&E), finance and accounting as well as
procurement among others and
 enhance institutional memory, expertise and the depository of knowledge would be leveraged
through reduced staff turnover in Project Implementation Units (PIUs).
A Single Project Implementation Unit typically comprises the following positions that are seen as crucial
to the success of project implementation:
 SPIU Coordinator – overall head of unit, who reports directly to the Chief Budget Manager;
 Programme Manager;
 Sector Specialists –sector specific experts relevant to the specific project;
 Fiduciary – Finance, Procurement, M&E – specialists and professionals;
 Administration – Administrative Assistant, IT Technician.
Thus, this section of the FS Report shall describe the background and experiences of these key staff. It is
crucial that these staff have the correct experience. A plan for training the assigned staff and/or recruiting
new staff shall be prepared; this shall also include the envisaged consultancy agreements. It should be

MINECOFIN
noted that the Project Management Unit cannot simply offload the entire management task to a
contractor, as they are responsible for the overall project and have specialised knowledge that is needed
for making key decisions. Finally, the information system supporting Project implementation must be
planned.
It is important to define what defines completion or end result of the implementation phase. All steps
necessary for the preparation, implementation and launch of the Project, including all relevant tenders,
should be identified and scheduled in the Project Time-Chart, which defines inter alia the implementation
milestones. The Project Time-Chart for implementing the Project comprises:
 The Building Planning and Contract Scheduling;
 The Project Time-Table;
 The Procurement Plan;
 The Plan of public consultations.
The completeness of all required project documentation shall be assessed.
The Building Planning and Contract Schedule includes both procurement and construction. The chart on
the following page (Figure 3-1) presents an indicative example of the above schedules. Relevant durations
for procurement shall be added in accordance with the applicable procurement law, while the other
deadlines shall be based on the appropriate contractual clauses. It is also observed that the construction
schedule includes the period of time necessary for completing the investment, plus the period of time
contracted as ‘Defects Notification Period’ (from 1 to 2 years, depending on contractual provisions). The
supervision of works by the Engineer shall last until the end of the Defects Notification Period.
The Project Time-Table shall be possibly prepared as a Gantt chart presenting project phases, key tasks,
responsibilities, and accompanying milestones. Provision of time and date estimates is required.

MINECOFIN
Figure 3-1: example of Building Planning and Contract Schedule
Year 1 Year 2 Year 3 Year 4

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43
Activity
1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7
Procurement
Simple procurement - public
procurement specialist
Consultations
Preparation of tenders - 5 tenders
Start the procurement procedure -
●
open procedure
tender for works (FIDIC
Red+GPP)
equipment - lasers/scientific
equipment
equipment - 2 groups (non
scientific equipment)
supervision
management
visibility
TA time and frequency
Standstill period
Deadline for appeals
Deadlines for the Contracting
Construction
Works (12 months)
Tests on completion
Users permit ●
Installation of equipment
DNP (2 years)
Supervision of construction
Management

Table 3-3: Template Project Time-Table
Hard Development
Phase/key task Start date Completion date
infrastructure projects
Pre-feasibility study: X X
Design studies: conceptual design, preliminary design,

X If applicable
main/ detailed design:
Environmental impact assessment including public

X If applicable
consultation:
Financial and economic analysis and full Feasibility Study

X X
Report:
Preparation of tender documentation(s): X If applicable
Land use and construction permits (whenever required): X If applicable
Other approvals and clearances (please specify): X If applicable
Tender procedure(s): X If applicable
Land acquisition including public consultation: X If applicable
Any other public consultations (completed/still

X If applicable
outstanding):
Construction phase/contract(s) (including supervision
X If applicable
during the Defects Notification Period):
Other activities (please specify): If applicable X
Operational phase: X X
The potential financing sources shall be also presented under this section. Any ongoing negotiations shall
be reported and the potential role of the private sector carefully analysed.
GOOD PRACTICES
 The key functions to be performed during project implementation have been defined and responsibilities
properly assigned to the team members. Any needs for external technical expertise are identified.
 The Project time table also includes all project planning documents under the phases already completed,
and indicates the expected dates for the remaining phases, as well as for obtaining location and building
permits.

 A robust procurement strategy is in place based on market search and knowledge of the potential
suppliers and their capacities. A detailed procurement plan is provided which includes all planned
tenders, with specification, for each tender, of the envisaged procedure and the estimated tender
amount.
COMMON MISTAKES
 Timing for acquisition of land including through expropriations, as well as timing for construction of any
related infrastructure outside the project scope, are not appropriately factored.
 Outsourcing of all project management tasks.
 Financing sources not identified and potential role of the private sector not analysed.
 Project insurance not included under the procurement plan.
 The Defects Notification Period (DNP) is not included under the construction schedule and/or the duration of
works supervision does not consider the DNP’s duration.
3.4.6 The plan for operation of the project

The Feasibility Study Report shall provide for analysis of the institutional and legal framework for project
operation, followed by the presentation of the management and governance structures needed for
decision-making, daily management and monitoring of the operation. The plan for operation of the
project shall include allocation of human and financial resources for managing and monitoring the
contract.
Institutional and legal analysis

This analysis will build on the elements provided in the project identification section (see 3.2.2 above)
where the body responsible for project implementation often referred to as ‘project promoter’ or
‘beneficiary’ is identified and its technical, financial and institutional capacities analysed.
This section shall further detail the legal status of the Project once in operation – will it be operated by
the Project Promoter or another legal entity. In this case, the agreement in place regarding the
operational phase should be referred to including any revenue sharing arrangements and ownership of
assets acquired under the Project. This section shall also provide information on any legal issues that are
still pending and the envisaged dispute resolution framework.
Management and governance structures

The management and governance structures needed for managing, delivering and monitoring the Project
shall be defined in this chapter, which shall allow the assessment of the capacities in place and plans to
meet any shortage of resources. The separation of responsibilities between management and
governance structures shall be ensured, with clear reporting lines and schedules established. The
governance function could be undertaken by a Project Steering Committee that shall take decisions and
shall also assess each operation’s progress and performance. The management and monitoring functions
shall be established within the Project Promoter organisational structure.

The procedure for the transition from implementation to operation shall also be clearly described. The
role of the Single Project Implementation Unit (SPIU) established by the Project Promoter (a line Ministry
of Public Agency) in relation to the Project operational phase, shall be presented. The organisational
structure shall be provided jointly with information on the number of staffs required for the successful
implementation and operation of the project, by position (project manager, technicians, administrative
staff etc.). In case additional staffs need to be recruited, the strategy and timetable for recruitment and
training shall be presented.
Plan for operation of the project

After the end of the investment or development phase, the Project Operation Plan shall encompass the
following elements:
 Contract management team to be assigned based on need and workload analysis,
 Internal procedures regulating implementation and regular update of the Project Operation
Plan, and monitoring and reporting during the operational phase,
 Budget allocated for operational and maintenance costs (and any replacements costs whenever
necessary)21,
 Monitoring and reporting schedule,
 Financial resources necessary during the current budgetary cycle and beyond, if applicable,
 Evaluation plan.
GOOD PRACTICES
 The procedure for the transition from Project implementation to Project operation is clearly described.
 Financial resources have been secured for managing and monitoring the Project during the current
budgetary cycle.
 A monitoring and reporting schedule are developed.
 Plans are developed to respond to difficulties or problems as they eventually arise.
COMMON MISTAKES
 No arrangements are foreseen to ensure that needed financial resources shall be available beyond the
current budgetary cycle.
21
Not applicable to development projects.

3.5 Financial analysis
 Financial feasibility and sustainability are calculated for CBA and CEA alike
 Methodology of financial analysis is based on the discounted cash flow method. Only cash in and out of
the project is considered. Taxes, finance costs and amortisations are not included.
 For CBA financial ratios (FNPV and FIRR) are calculated; additionally, for CEA, the FNPV of costs per unit
of output or the output per unit of FNPV cost is calculated.
 The financial discount rate to be used in Rwanda is 13%
 Contingencies are not included in the financial analysis (but are included in the budget requests)
 Cash flows out are Capital Expenditures (CAPEX) and operations and maintenance costs (O&M, or OPEX)
 Cash flows out are revenues (if any) and the residual value of the project
 VAT should be included if the project promotor cannot recover VAT (this is valid for most public
organisations). VAT should be excluded if the project promotor can recover VAT (this is valid for most
providers of utilities such as electricity and water companies)
 Financial feasibility is expressed in a Financial Internal Rate of Return (FIRR) and a Financial Net Present
Value (FNPV). The project is financially feasible if the FIRR is above the financial discount rate; the FNPV
in that case is above zero.
 Financial sustainability calculations analyse whether the project in each year of analysis has enough cash
inflows to cover all cash outflows. In this case, finance costs (loan interest and repayments) are included.
3.5.1 Introduction
This stage is carried out by Economists/Financial Analysts. A financial analysis must be included in the
CBA / CEA to compute the project’s financial performance indicators. Financial analysis is carried out in
order to:
 assess the consolidated project profitability;
 assess the project profitability for the project promoter and some key stakeholders;
 verify the project financial sustainability, a key feasibility condition for any typology of project;
 outline the cash flows which underpin the calculation of the socio-economic costs and benefits
 The cash inflows and outflows to be considered are described in detail below.
3.5.2 Methodology
The financial analysis methodology used in this guide is the Discounted Cash Flow (DCF) method. The
following rules should be adopted:
 The financial analysis should be carried out in Rwandan Francs (FRW). If project inputs or outputs
are converted from foreign currencies to FRW, then the applied exchange rate should be clearly
mentioned and consistently applied throughout the analysis.
 The financial analysis should consider incremental cash flows (in and out) only.

 Only cash inflows and outflows are considered in the analysis, i.e. depreciation, reserves, price
and technical contingencies and other accounting items which do not correspond to actual flows
are disregarded.
 Financial analysis should, as a general rule, be carried out from the point of view of the
infrastructure owner. If, in the provision of a service in the interest of the general public, owner
and operator are not the same entity, a consolidated financial analysis, which excludes the cash
flows between the owner and the operator, should be carried out to assess the actual profitability
of the investment, independent of the internal payments. This is particularly feasible when there
is only one operator, which provides the service on behalf of the owner.
An appropriate Financial Discount Rate (FDR) is adopted in order to calculate the present value
of the future cash flows. The financial discount rate reflects the financial opportunity cost of
capital.
For financial feasibility analysis of projects to be submitted for funding under the annual planning
cycle of MINECOFIN the FDR is set at 13%, in real terms.
See Annex F for more background on the FDR.
 The financial analysis should usually be carried out in constant (real) prices, i.e. with prices fixed
at a base-year. The use of current (nominal) prices [i.e. prices adjusted by the Consumer Price
Index (CPI)] would involve a forecast of CPI that does not seem always necessary. When a
different rate of change of relative prices is envisaged for specific key items, this differential
should be considered in the corresponding cash flow forecasts. When the analysis is carried out
at constant prices, the FDR will be expressed in real terms. When the analysis is carried out at
current prices, a nominal FDR will be used.
 Contingencies: some CAPEX estimates include contingencies, generally of up to 10% of the total
CAPEX. These contingencies are included to cover limited variations the cost estimates. There
often is considerable time between the moment in which the estimates are done and the time at
which the works of the project are implemented, so that price variations in unit prices due to
market developments or inflation may occur. The contingency is intended to cover limited cost
increases, so that the project does not immediately falls short of cash if the investment costs turn
out to be slightly higher than estimated.
The contingency is not included in the financial (nor in the economic) analysis. Instead, a
sensitivity test is performed on financial and economic feasibility analysis results, which considers
(amongst others) the effect on results of variations in CAPEX. Contingences are generally allowed
to be included in grant or funding calculations.
For cost estimates of projects to be submitted for funding under the annual planning cycle of
MINECOFIN a maximum contingency sum of 10% of investment costs is allowed. Note that the
contingency sum should be calculated on construction works and equipment only (not on initial
studies, land purchase, publicity and/or supervision).

 Project cash-flow forecasts should cover a period appropriate to the project’s economically
useful life and its likely long-term impacts (design life). The number of years for which forecasts
are provided should correspond to the project’s time horizon (or reference period). The choice
of time horizon affects the appraisal results. In practice, it is therefore helpful to refer to a
standard benchmark, differentiated by sector and based on internationally accepted practice.
The proposed reference periods are shown in Table 3-4. These values should be considered as
including the implementation period. In the case of unusually long construction periods, longer
values can be adopted.
Table 3-4: Suggestions for reference periods per sector
Sector Reference period (years)

Railways 30
Roads 25-30
Ports and airports 25
Urban transport 25-30
Water supply/sanitation 30
Waste management 25-30
Energy 15-25
Broadband 15-20
Research and innovation 15-25
Business infrastructure 10-15
Other sectors 10-15
Source: EU-guide for Cost-Benefit Analysis 2014
 VAT should be included in the financial analysis if the project promotor cannot recover VAT. This
is the case with most public organisations. In these cases, VAT is to be included as investment
cost as the project would be short of cash if unrecoverable VAT were to be excluded from the
cost estimate.
If VAT can be recovered by the project promotor, it should not be included in the financial
analysis. This is the case if the project promotor is a private entity or a corporatised public
organisation, such as electricity and water companies in Rwanda.
Since the recoverability of VAT may vary from case to case, it is recommended that a statement
from the VAT Authority is obtained and attached to the feasibility study report, which confirms
whether the relevant organisation (the future Contracting Authority for the investment in
reference) can or cannot recover VAT.
 A practical recommendation is to always round the figures in spreadsheets, in order to keep a

good overview of order of magnitude of figures. In a spreadsheet full of figures such as
12,943,278.93 million FRW it is much harder to maintain an overview of order of magnitude than
in a spreadsheet that expresses this figure as 12.9 million FRW. Thus, preferably figures are
indicated with as little digits as possible, for instance in billions, millions or thousands. It is useful
to maintain the full figure in calculations, as for budget reasons some International Financial
Institutions (IFIs) or other grantors request calculation outcomes to be indicated up to the final

digit. In those cases, it is recommendable to create an extra outcome sheet with full figures for
use in funding applications and to show rounded figures in the calculation sheets.
3.5.3 Investment cost, replacement costs and residual value

The first step in the financial analysis is the analysis of the amount and breakdown over the years of the
total investment costs. Investment costs are classified by:
 Initial investment: it includes the capital costs of all the fixed assets (e.g. land, constructions
buildings, plant and machinery, equipment, etc.) and non-fixed assets (e.g. start up and technical
costs such as design/planning, project management and technical assistance, construction
supervision, publicity, etc.). It should be presented in the form of a Bill of Quantities (BoQ), i.e.
as an itemized list of quantities and prices, at least per group of assets. Some items might be
lumpsums, such as design studies or publicity. Annex E contains more explanation on the BoQ.
In cases where a project consists of a completely new asset, e.g. there is no pre-existing service
or infrastructure, the without-the-project scenario is one with no operations. The costs
(investment and operations) can simply be taken from the technical assessment. In cases of
investments aimed at improving an already existing facility, it should include the costs and the
revenues/benefits to operate and maintain the service at a level that it is still operable (Business
As Usual (BAU) or even small adaptation investments that were programmed to take place
anyway (do-minimum). In particular, it is recommended to carry out an analysis of the promoter’s
historical cash-flows (at least previous three years) as a basis for projections, where relevant, so
that the incremental costs can be established.
Cost breakdown over the years should be consistent with the physical realisations envisaged and
the time-plan for implementation. Where relevant, the initial investment shall also include SEIA
costs.
 Replacement costs: includes costs occurring during the reference period to replace short-life
machinery and/or equipment, e.g. engineering plants, filters and instruments, vehicles, furniture,
office and IT equipment, etc.
It is preferable not to compute cash-flows for large replacements close to the end of the
reference period. When a specific project asset needs to be replaced shortly before the end of
the reference period, the following alternatives should be considered:
o shorten the reference period to match the end of the design lifetime of the large asset
that needs replacing;
o postpone the replacement until after the end of the reference period and assume an
increase of the annual maintenance and repair cost for the specific asset until the end of
the reference period.
AVOIDED CAPITAL INVESTMENT COST IN THE COUNTERFACTUAL SCENARIO

According to the incremental approach, investment costs should be considered net of possible avoided capital
costs in the counterfactual scenario. The latter costs assume that, without the investment, there is no longer a
feasible situation so that it is in any case necessary to implement other interventions, at least in a way to
guarantee a minimum level of service provision. This is the assumption of taking the do-minimum as the
reference scenario. For example, in the electrical sector, a new substation could be needed to satisfy the load
increase in the absence of a new line. This cost must be included in the counterfactual scenario.
 A residual value of the fixed investments must be included within the investment costs account
for the end-year. The residual value (salvage value) reflects the capacity of the remaining service
potential of fixed assets whose economic life is not yet completely exhausted. The latter will be
zero or negligible if a time horizon equal to the economic lifetime of the asset has been selected.
For project assets with economic lifetimes in excess of reference period, their residual value shall
be determined by computing the net present value of cash flows in the remaining life years of
the operation. Other residual value calculation methods may be used in duly justified
circumstances. For instance, in the case of non-revenue generating projects, by computing the
value of all assets and liabilities based on a standard accounting depreciation formula or
considering the residual market value of the fixed asset as if it were to be sold at the end of the
time horizon. Also, the depreciation formula should be used in the special case of projects with
very long design lifetimes, (usually in the transport sector), whose residual value will be so large
as to distort the analysis if calculated with the net present value method.
The residual value can be singled out either within the project inflows or within the investment
costs but with negative sign (see Table 3-6 for an example).
3.5.4 Operating costs and revenues

The second step in financial analysis is the calculation of the total operating costs and revenues (if any).
Operating costs
Operating costs include all the costs to operate and maintain (O&M) the new or upgraded service. Cost
forecasts can be based on historic unit costs, when patterns of expenditures on operations and
maintenance ensured adequate quality standards. Although the actual composition is project-specific,
typical O&M costs include: labour costs for the employer; materials needed for maintenance and repair
of assets; consumption of raw materials, fuel, energy, and other process consumables; services
purchased from third parties, rent of buildings or sheds, rental of machinery; general management and
administration; insurance cost; quality control; waste disposal costs. and emission charges (including.
environmental taxes, if applicable).
Operational costs are usually distinguished between fixed (for a given capacity, they do not vary with the
volume of good/service provided) and variable (they depend on the volume). Generally, these costs are
estimated by the intended project operator, which should have experience with operating costs of
providing the good or service. See Table 3-5 for an example.

Table 3-5 Example of operating cost estimate (all amounts in million FRW)
Element number Cost/unit/year Total cost/year
Fixed staff
Management 3 19.80 59.40
Office staff 10 9.90 99.00
Support staff 4 3.96 15.84
Total fixed staff 17 174.24
Variable staff
Worker (produces on average 120 units/year) 6.44
Total cost at annual production of 10,000 units* 536.67
Fixed costs
Insurance 61.88
Office costs 69.70
Workshop costs 206.00
Total fixed costs 337.58
Variable costs
Energy per unit 0.010
Raw material per unit 0.070
Packing material per unit 0.005
Transport per unit 0.015
Waste disposal per unit 0.002
Total cost at annual production of 10,000 units 1,020.000
* in practice the number of workers will not vary per unit but per range of units.
Maintenance costs are generally fixed and estimated along with design and costing the project and
expressed as an annual percentage of the initial investment (e.g. average annual maintenance equals
1.5% of the initial investment costs). For different items on the BoQ different percentages apply,
depending on their exposure to wear and tear. In some projects, a maintenance regime schedule can be
included, specifying maintenance costs per year (for instance a limited amount every year, and major
maintenance every 5 or 10 years).
Cost of financing (i.e. interest payments) follow a different course and must not be included within the
O&M costs.
Revenues
The project revenues are defined as the ʻcash in-flows directly paid by users for the goods or services
provided by the operation, such as charges borne directly by users for the use of infrastructure, sale or
rent of land or buildings, or payments for services. These revenues will be determined by the quantities
forecasts of goods/services provided and by their prices. Incremental revenues may come from increases
in quantities sold, in the level of prices, or both.
Transfers or subsidies (e.g. transfers from state or regional budgets or national health insurance), as well
as other financial income (e.g. interests from bank deposits) shall not be included within the operating
revenues for the calculations of financial profitability because they are not directly attributable to the
project operations. On the contrary, they shall be computed for the financial sustainability verification.
When the contribution of the state or other public authority (PA) is, however, in exchange for a good or
service directly provided to it by the project (i.e. the state is the user), this shall be generally considered
a project revenue and included in the financial profitability analysis. In other words, it is not relevant how

the state or PA pays for the goods or services (i.e. through tariffs, shadow tolls, availability payments,
etc.) because the contribution to the project originates from a direct relation to the use of the project
infrastructure.
3.5.5 Return on investment

The financial net present value of investment (FNPV) and the financial rate of return of the investment
(FRR) compare investment costs to net revenues and measure the extent to which the project net
revenues are able to repay the investment, regardless of the sources or methods of financing.
The Financial net present value on investment is defined as the sum that results when the expected
investment and operating costs of the project (discounted) are deducted from the discounted value of
the expected revenues:
where: St is the balance of cash flow at time t, at is the financial discount factor chosen for discounting
at time t and i is the financial discount rate.
The financial rate of return on investment is defined as the discount rate that produces a zero FNPV, i.e.
FRR is given by the solution of the following equation:
The FNPV is expressed in money terms (FRW) and must be related to the scale of the project. The FRR is
a pure number and is scale-invariant. Mainly, the examiner uses the FRR in order to judge the future
performance of the investment in comparison to other projects, or to a benchmark required rate of
return.
The return on investment is calculated considering:

 (incremental) investment costs and operating costs as outflows;
 (incremental) revenues and residual value as inflows.
In practice, this would result in the following:

 New assets: costs and revenues as in the project scenario, as there are no costs and revenues in
the no-project situation;
 Additions to or rehabilitations of existing assets: costs and revenues as in the project scenario
minus costs and revenues in the Business As Usual situation.

Table 3-6: Calculation of the return on investment (billion FRW)
1 2 3 4 5 6 7 8 9 10
FNPV 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
startup costs 2,0 2,0

Investment 46,5 20,0 30,0
Operations 9,6 2,0 2,0 2,0 2,0 2,0 2,0 2,0 2,0
Maintenance 4,8 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0
Total outflows 61,3 22,0 30,0 3,0 3,0 3,0 3,0 3,0 3,0 3,0 3,0
Revenues 31,6 3,0 5,0 8,0 8,0 8,0 8,0 8,0 8,0
Residual value 26,5 30,0
Total inflows 38,0 0,0 0,0 3,0 5,0 8,0 8,0 8,0 8,0 8,0 38,0
Net cash flow -23,3 -22,0 -30,0 0,0 2,0 5,0 5,0 5,0 5,0 5,0 35,0
discount rate 13% During the construction These can include also costs, The residual value is considered
FNPV -23,3 phase usually no operating e.g. for feasibility studies, here as a revenu. It can also be
FIRR 2,6% revenues and costs occur. borne before the start of the considered under outflows, in that
evaluation period. case with a negative sign.
3.5.6 Financial sustainability

The project is financially sustainable when the risk of running out of cash in the future, both during the
investment and the operational stages, is expected to be nil. Project promoters should show how the
sources of financing available (both internal and external) will consistently match disbursements year-
by-year. In the case of non-revenue generating projects, or whenever negative-cash-flows are projected
in the future (i.e. in years in which large capital investments are required for asset replacements), a clear
long-term commitment to cover these negative cash flows must be provided.
Investment phase
The expected investments in the project need to be funded, by grants, loans, or private equity. The
project promoter needs to show that project funding is available to cover the initial investments.
Operational phase
During the operational phase, the project should generate sufficient cash every year to cover
maintenance costs, operational costs and financing costs (interest costs and loan repayments). In project
funded by grants, financing costs are not applicable. In non-revenue generating public projects, the
annual O&M costs need to be foreseen in the annual budgets. The project promoters should obtain
commitment from the budget planners to include the necessary O&M budget for the projects in the
annual budgets. In case loans are involved in project funding, for instance a soft loan from IFIs such as
World Bank or African Development Bank, the financing costs need to be included in the annual budgets
too.
The difference between inflows and outflows will show the deficit or surplus that will be accumulated
each year. Sustainability occurs if the cumulated generated cash flow is positive for all the years
considered (see examples in Table 3-7 and Table 3-8). The inflows include:
 sources of financing (in the example tables 60% grant and 40% loan is assumed);
 operating revenues from the provision of goods and services; and

 transfer, subsidies and other financial gains not stemming from charges paid by users for the use
of the infrastructure.
The residual value should not be considered unless the asset is actually liquidated in the last year of the
analysis.
The dynamics of the inflows are measured against the outflows. These relate to the following:
 initial investment
 replacement costs
 operating costs
 reimbursement of loans and interest payments (the loan in the example table has an interest
rate of 5% and is to be repaid in 8 years (years 3 to 10).
 taxes on capital/income and other direct taxes (not included in the example table).
It is important to ensure that the project, even if assisted by donor co-financing, does not risk suffering
from a shortage of capital. In particular, in the case of significant reinvestments/upgrades, proof of
disposal of sufficient resources to cover these future costs should be provided in the sustainability
analysis. In this sense it is recommended to carry out a risk analysis that considers the possibility of the
key factors in the analysis (usually construction costs and demand) being worse than expected.
Table 3-7: Financially unsustainable project (billion FRW)
1 2 3 4 5 6 7 8 9 10
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Startup costs 2,0

Investment 20,0 30,0
Operations 2,0 2,0 2,0 2,0 2,0 2,0 2,0 2,0
Maintenance 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0
Loan repayment + interest 3,6 3,5 3,4 3,3 3,1 3,0 2,9 2,7
Total outflows 22,0 30,0 6,6 6,5 6,4 6,3 6,1 6,0 5,9 5,7
Grant 13,2 18,0

Loan 8,8 12,0
Revenues 3,0 5,0 8,0 8,0 8,0 8,0 8,0 8,0
Total inflows 22,0 30,0 3,0 5,0 8,0 8,0 8,0 8,0 8,0 8,0
Net cash flow 0,0 0,0 -3,6 -1,5 1,6 1,8 1,9 2,0 2,1 2,3
Cumulative cash flow 0,0 0,0 -3,6 -5,2 -3,5 -1,8 0,1 2,1 4,3 6,5
The project has a negative cash

flow in some years and is thus
not financially sustainable.
When the investment includes works, cash flow analysis related to investment costs shall also include: 1)
the cost of works supervision services during the Defects Notification Period; 2) the amount of ‘retention
money’ if the works contract provides for a percentage of the payment to be withheld until the end of
the Defects Notification Period. In case the works contractor’s liability during the Defects Notification
Period is covered by a performance guarantee, this second item of expenditure (retention money) shall
not be included under the analysis. In the above simplified example, only construction and/or equipment
costs are envisaged.

Table 3-8: Financially sustainable project (billion FRW)
1 2 3 4 5 6 7 8 9 10
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Startup costs 2,0

Investment 20,0 30,0
Operations 2,0 2,0 2,0 2,0 2,0 2,0 2,0 2,0
Maintenance 1,0 1,0 1,0 1,0 1,0 1,0 1,0 1,0
Loan repayment + interest 3,6 3,5 3,4 3,3 3,1 3,0 2,9 2,7
Total outflows 22,0 30,0 6,6 6,5 6,4 6,3 6,1 6,0 5,9 5,7
Grant 13,2 18,0

Loan 8,8 12,0
Extra capital injection 3,6 1,5
Revenues 3,0 5,0 8,0 8,0 8,0 8,0 8,0 8,0
Total inflows 22,0 30,0 6,6 6,5 8,0 8,0 8,0 8,0 8,0 8,0
Net cash flow 0,0 0,0 0,0 0,0 1,6 1,8 1,9 2,0 2,1 2,3
Cumulative cash flow 0,0 0,0 0,0 0,0 1,6 3,4 5,3 7,3 9,4 11,7
An extra capital injection into the project prevents it

from running out of cash in year 3 and 4. The project
is now financially sustainable.
If at any one period the project generates negative cash-flows the promoters should decide to obtain
short term over drafts or request additional funds. Note that financial sustainability does not consider
contingencies, however the contingencies can help to cover small budget deficiencies due to inflation,
exchange rate variations or technical uncertainties.
Financial sustainability versus financial return on investment

The financial analysis includes both financial sustainability and financial return on investment. How these
compare to one another is illustrated in Figure 3-2.
Figure 3-2: Financial return on investment and financial sustainability
total investment cost financial return on investment
operating costs and revenues financial sustainability
sources of financing
Source: based on EU-guide on Cost-Benefit Analysis 2008

FINANCIAL SUSTAINABILITY FOR INFRASTRUCTURE UPGRADE
If projects fall within an already existing infrastructure, such as capacity extension projects, the overall financial
sustainability of the infrastructure operator, including the project (more than that of the single extended
segment), should be checked after the project (i.e. in the scenario ‘with the project’), even if the analysis of
incremental cash‑flows shows that the project will not run out of cash‑flow. This is to ensure that not only the
project but also the operator will not run out of cash‑flow, or possibly experience negative cash flows, after
implementation of the project, and is particularly relevant in the case of infrastructure that has previously
suffered from severe underfunding.
Payback period
In financial analysis of commercial projects, a payback period is often calculated. The payback period is
defined as the time needed to earn back the CAPEX from net revenues (revenues minus OPEX). The
shorter the payback period, the more desirable the project. Calculations cannot be explicitly express by
a formula, so it is possible to achieve the result only through the gradual loading of the net annual cash
flows discounted at the alternative cost of capital until the following cumulative sum will equal the
investment costs. If the investment costs are one year higher than the cumulative discounted net cash
flow and next year it is already conversely, it means that these two values (FNPV = 0) have been balanced
during the year. To find out in which month it happened, the linear interpolation is used.
In many public investment projects, there are no revenues and thus no payback period can be calculated.
If the public project does generate revenues, then a payback period can be calculated just as for
commercial projects.
3.5.7 Project funding and financing

In general, there are three sources for funding and financing22 public investments: i) Internal funding
sources, ii) external funding support and iii) borrowing as financing source with the requirement to be
paid back at least partly.
Internal funding sources comprise state budget sources and non-tax revenues, which are used to fund
the investment costs as well as the operational costs. External funding support refers to a transfer of
resources from a Development Partner (Donor) to the Rwandan budget. The same lines of authority and
procedures that govern the normal Rwandan budget are applicable.
Borrowing is used for both investment and operational costs. It can be differentiated into domestic
borrowing, external concessional (soft loans with interest rate lower than market-rate) and non-
concessional loans (with market-rate interest rate) and public guarantees.
There are several ways to fund public investment projects which in some cases are combined. The main
funding options are:
 Grants: one-off payments to cover (part or all) of the CAPEX of the project, without any need for
interest or repayments. Generally, a good substantiation of the level of the grant is requested
before it is allocated. The European Union for instance uses the funding gap method. The funding
22 Funding: area of intervention for grants; financing: capital contributions that can be reimbursed and remunerated.

gap is the part of the (discounted) investment costs that are not covered by the (discounted)
revenues generated by the project. The budget should only pay a grant for that part of the CAPEX
that cannot be recovered from net revenues of the project.
 Subsidies: periodical payments to cover (part or all) of the OPEX of a project, without any need
for interest or repayments. These are applied to projects with negative net revenues, so that the
continuation of the project is guaranteed.
 Soft loans: loans with favourable conditions, such as low interest rates and/or postponed
repayments. This instrument is often applied by IFIs and development banks.
 Commercial loans, taken from commercial banks. These are generally not applied for funding of
public investment projects, as they will have commercial interest rates and payback periods.
 Public-Private Partnerships (PPPs): joint funding by public and private parties. Usually this means
a commercially attractive sub-project is defined, which is developed as a private sector project.
The commercially unattractive part is funded from public sources. For example: a container
terminal in a port (pavement, equipment, buildings, IT systems) can be constructed and operated
by a private operator, but usually the access channel, port basin and quay walls need public
funding to be constructed23.
3.5.8 Financial analysis in CEA

The general approach in CEA is based on comparing ‘effectiveness’ of a given option versus an assumed
historical or virtual benchmark. Benchmarks can be provided by standard costs or expected outputs per
unit of cost. CEA measures costs in a common monetary value (NPV) and the effectiveness of an option
in terms of physical units. Because the two are incommensurable, they cannot be added or subtracted to
obtain a single criterion measure. One can only compute the ratio of costs to effectiveness in the
following ways:
CE ratio = C1/E1 or EC ratio = E1/C1
where: C1 = the cost of option 1 (in monetary units); and E1 = the effectiveness of option 1 (in physical
units).
The first equation above represents the cost per unit of effectiveness (CE), e.g. FRW spent per life saved.
Projects can be rank ordered by CE ratio from lowest to highest. The most cost-effective project has the
lowest CE ratio. The second equation is the effectiveness per unit of cost (EC), e.g. lives saved per USD
spent. Projects should be ranked from highest to lowest EC ratios.
For example, as presented in the case study contained in this Guide, investment in TVET facilities can be
assessed by considering a standard discounted cost, and compare it with the Project discounted cost,
then calculating the CE and EC ratios. In the above-mentioned example, the CE ratio is calculated on the
basis of the calculated FNPV (FRW 16974 million) and the estimated number of graduates in the reference
period (7169), with the following results:
CE ratio = C1/E1 = FRW 16974 million/7169 graduates = FRW 2741 = effectiveness of the option in physical
units, and,
23 For further reference see: PPP Guidelines, Official Gazette of Rwanda no. 29 bis of 16 July 2018.

EC ratio = E1/C1 = Number of graduates (7169)/not discounted investment costs (FRW 13,900 million), =
0.51 versus 0.36 at standard costs, with higher effectiveness of the Project in terms of unit per cost.
The outputs to be ranked by cost-effectiveness analysis will often be social or environmental in nature.
For example, work in health economics looking at the cost-effectiveness of different treatments. As with
CBA, the level of detail for the analysis will typically depend on the specific issue being addressed but
should take a broad view of costs and benefits to reflect all stakeholders.
EXAMPLE
In 2005 the UK Government undertook a value for money analysis of Government investment in different types
of childcare. The choice was between higher cost "integrated" childcare centres, providing a range of services to
both children and parents, or lower cost "non-integrated" centres that provided basic childcare facilities.
The analysis used a variant of cost-effectiveness analysis to allow the comparison of the cost-effectiveness of
childcare to other policy areas such as employment, education and crime, where the evidence allowed the
analysts to quantify intermediate outputs from the policy (e.g. improved educational attainment aged 18) but
not the final outcomes of the policy (e.g. better overall life chances, higher skilled workforce and higher economy
wide productivity growth).
Source: United Kingdom Prime Minister's Strategy Unit, 2004
GOOD PRACTICES
 Price and technical contingencies are excluded from the investment cost for the financial profitability
calculation, although they are eligible costs (up to 10 % of the initial investment cost).
 The inflation rate is based on official national projections of the Consumer Price Index (CPI).
 For O&M costs fixed and variable components are calculated separately.
 In the counterfactual case, the chosen regime of regular and periodic maintenance and operations does
not lead to disproportionate losses of operational performance. Any predicted change of operational
performance is shown to realistically correspond to the chosen maintenance and operations regime and
to related incremental benefits calculations (such as time savings and modal shift).
 Fixed maintenance costs are expressed in % of the net cost of the assets for both civil works and plant
components. Variable maintenance costs are expressed in unit cost per output of assets (e.g. FRW/ton,
FRW/km, FRW/tonkm, etc.).
 When a project adds new assets to complement a pre-existing service or infrastructure, both additional
contributions from existing users and contributions from new users of the new service/infrastructure are
considered to determine the project revenues.
COMMON MISTAKES
 Replacement costs are not considered in the calculation of residual values.

 The total investment cost in the CBA or its individual elements is inconsistent with the values presented
in the feasibility study or in other more advanced engineering design documents, if available.
 Costs for protection of archaeological remains in the project site, as well as environmental and/or climate
change integration measures are not included in the project cost.

 VAT is included in the financial analysis although it is recoverable.
 Asset depreciation, interest and loan repayments and income tax, and dividends paid to shareholders are
included within the O&M costs.
 Subsides received to cover (part of) the operating costs are included in the calculation of the donor
contribution as revenues.
 Charges levied by governments in exchange for the goods or services rendered are confused with transfer
payments and excluded from the operating revenues. For instance, a charge paid by farmers to the
irrigation authority. Although the charge is called ʻtaxʼ, this is not a transfer but a charge directly paid by
users in exchange for the use of water. Accordingly, it must be considered as a project’s revenue. Another
example is the ʻtaxesʼ paid by the citizens for waste collection and disposal services.
 In the FRR calculation, cash-flows relative to replacement costs are computed twice: as operating outlays
and as equity contribution from the project promoter.
 In the case of loans involved in project financing, loan conditions are not explained.
 Nominal interest rates are used to calculate the interest payments, where the analysis is carried out at
constant prices.
3.6 Economic analysis
 Methodology of economic analysis is based on calculating the welfare effects of the project on society,
which is a wider approach than the financial analysis
 The social discount rate to be used in Rwanda is 13%
 Cost inputs are based on financial costs, however with a correction for price distortions such as taxes,
subsidies, market imperfections. This correction is mostly done on the basis of conversion factors.
 Rwanda has standard conversion factors that can be applied to CAPEX and OPEX items
 Socio-economic effect calculations try to monetise as much as possible the socio-economic effects of the
project. These are calculated on the basis of the demand analysis and the description of potential project
effects. Quantification should be based on transparent data and methodologies and should only include
the incremental effects of the project (based on a comparison of do nothing with project scenario)
1. Direct effects are the effects on the project promotor (financial costs converted to economic costs),
but also direct effects on society, such as generalised transport cost savings, improved agricultural
productivity, improved career opportunities due to education, etc
2. Indirect effects are the effects on other markets, such as employment effects in supplying sectors.
Care should be taken not to overestimate these.
3. External effects are the effects for which no market exists, such as emissions, noise, safety or
damage to landscape.
 Economic feasibility is expressed in an Economic Internal Rate of Return (EIRR) and an Economic Net
Present Value (ENPV). The project is economically feasible if the EIRR is above the social discount rate;
the ENPV in that case is above zero.
 In a CEA, economic analysis is restricted to analysing the cost effectiveness, answering the question of
realised units of output versus units of costs (for instance costs in FRW per trained person in a Technical
and Vocational Education Training project).

3.6.1 Introduction
The basis of economic analysis is the assumption that a project not only has financial impacts, but wider
impacts on the welfare and wellbeing of those affected too. A project creating a health centre in a town
will result in better quality of life for people in this town, resulting in a positive effect on welfare. A
hydropower plant will provide an environmentally friendly source of electricity, but it will have a negative
impact on landscape too.
In an economic analysis, the project’s contribution to welfare is expressed in monetary values as much
as possible. The key concept is the use of shadow prices to reflect the social opportunity cost of goods
and services, instead of prices observed in the market, which may be distorted. Sources of market
distortions are manifold:
 non-efficient markets where the public sector and/or operators exercise their power (e.g.
subsidies for energy generation from renewable sources, prices including a mark-up over the
marginal cost in the case of monopoly, etc.). Examples in Rwanda are the tariffs for electricity
delivered by Rwanda Energy Group (REG), which is subsidised from Government budgets, and
similarly the water tariff charged by the Water and Sanitation Corporation (WASAC);
 administered tariffs for utilities may fail to reflect the opportunity cost of inputs due to
affordability and equity reasons;
 some prices include fiscal requirements (e.g. duties on import, excises, VAT and other indirect
taxes, income taxation on wages, etc.). An example in Rwanda is the fuel price, which is regulated
by the Rwanda Utilities Regulatory Authority (RURA) and which includes a mark-up for
maintaining strategic oil reserves, for road maintenance and VAT;
 for some effects no market (and no prices) are available (e.g., time savings).
The standard approach suggested in this guide, consistent with international practice, is to move from
financial to economic analysis. Starting from the account for the return on investment calculation, the
following adjustments should be:
 corrections for fiscal distortions and conversion from market to shadow prices;
 evaluation of non-market impacts and correction for externalities.
After market prices adjustment and non-market impacts estimation, costs and benefits occurring at
different times must be discounted. The discount rate in the economic analysis of investment projects,
the Social Discount Rate (SDR) or economic discount rate, reflects the social view on how future benefits
and costs should be valued against present ones.
In Rwanda, the SDR is published by MINECOFIN as Economic Opportunity Cost of Capital (EOCK) on their
website24. The EOCK or SDR to be applied is 13%.
See Annex F for more background on the SDR.
24
http://rwanda-cscf.cri-world.com/

After the use of the appropriate SDR, it is possible to calculate the project economic performance
measured by the following indicators: Economic Net Present Value (ENPV), Economic Rate of Return
(ERR) and benefit/cost ratio (B/C ratio). In the following sections the steps to move from financial to
economic analysis are described.
3.6.2 Corrections for fiscal distortions and conversion from market to shadow prices
Corrections for fiscal distortions

Taxes and subsidies are transfer payments that do not represent real economic costs or benefits for
society as they involve merely a transfer of control over certain resources from one group in society to
another. Some general rules can be established to correct such distortions:
 prices for input and output in the economic analysis must be considered net of VAT;
 prices for input should be considered net of direct and indirect taxes25;
 prices (e.g. tariffs) used as a proxy for the value of outputs should be considered net of any
subsidy and other transfer granted by a public entity,
 a Foreign Exchange Premium (FEP) should be considered in the pricing of tradable goods, as the
economic value of foreign exchange may exceed the market exchange rate applied.
As concerns the methods of eliminating transfer payments, if it is possible to determine their exact value,
they should be directly eliminated from the cash flows. For example, VAT payments on construction costs
can be simply dropped off in the economic analysis. If it is not possible to determine their exact value,
they should be eliminated from the project cash flows using conversion factors.
For projects in Rwanda, it is important to check if VAT is included in the financial costs or not, as this
dictates the starting point for application of the standard conversion factors (SCF) from the MINECOFIN
database. VAT is generally included in financial costs for all projects developed by government
organisations. Exceptions are WASAC and REG, who can recover VAT.
From market to shadow prices

When market prices do not reflect the opportunity cost of inputs and outputs, the usual approach is to
convert them into shadow (economic) prices to be applied to the items of the financial analysis. This is
done by means of conversion factors. The approach for estimating conversion factors is dependent on
the type of input (and output). Annex G presents a simplified theoretical approach to the estimation of
shadow prices.
The economic implications of the conversion factors are as follows:
25
Despite the general rule, in some cases indirect taxes (or subsidies) are intended as a correction for externalities. In this and
in similar cases, it is justified to include these taxes (subsidies) in project costs (benefits), provided that they adequately reflect
the underlying marginal cost (Willingness-To-Pay (WTP)), but the appraisal should avoid double counting (e.g. including both
energy taxes and estimates of full external environmental costs).

 A conversion factor of less than 1 (one) implies that the economic cost or benefit of the good or
service is lower than its financial cost or benefit.
For example, assume 1 litre of gasoline costs 1000 FRW (including VAT) and that Government
excises a tax of 50% on gasoline. Then the financial costs of 1 litre of fuel are 1000 FRW, but the
economic costs are 1000 FRW * 1/1.18 * 1/1.50 = 565 FRW (rounded). The conversion factor is
0.565.
 A conversion factor greater than 1 (one) implies that the economic costs or benefit of the good
or service is higher than its financial cost or benefit.
For example, assume 1 kWh of electricity costs 100 FRW (including VAT) and that Government
subsidises 25% of the cost price. Then the financial costs of 1 kWh of electricity are 100 FRW, but
the economic costs are 100 FRW * 1/1.18 * 1/(1-0.25) = 113 FRW (rounded). The conversion
factor is 1.13.
In practice, the level of detail of the conversion from market to shadow prices should correspond to the
level of detail of the project. In a pre-feasibility study, a single conversion factor of 0.8 to 0.9 can be
applied overall, where 0.9 is on the conservative side.
In CBAs at the level of a feasibility study, it is good practice to apply different conversion factors to various
items on the BoQ. This can be various materials, various labour categories, and different types of energy
sources or utilities (electricity, fuel, water). See Annex G for theoretical background on conversion factors.
It should be noted that applying conversion factors to financial costs and revenues26 is just one step of
the economic analysis. Another important step is monetisation of non-market impacts and externalities,
see 3.6.3.
RWANDA STANDARD CONVERSION FACTORS
In Rwanda, MINECOFIN has set standard conversion factors that can be applied in CBA studies. They are available
on the Ministry website27. There is a database of about 5,000 tradable items in the database, as well as
conversion factors for non-tradable items.
Some explanation on the application of the database28:
 The database makes a difference between tradable items and non-tradable items. A good or service is
considered internationally tradable if (i) a project’s demand for it as an input is ultimately met through an
expansion of imports or a reduction of exports, and (ii) its production by a project leads to a reduction in
26
The evaluation of the shadow price of a project’s direct benefits, i.e. revenues related to the use of the goods or services
rendered by the project, is commonly done through the marginal willingness-to-Pay (WTP) concept. The WTP measures the
maximum amount that people would be willing to pay for a given outcome that they view as desirable.
27 See http://rwanda-cscf.cri-world.com/.
28
Based on: Final Report on the Estimation of Commodity-Specific Economic Prices and Conversion Factors for Rwanda,
Cambridge Resources International Inc, 25 August 2014

imports or an expansion of exports. Non-tradable items are not traded internationally, for example local
transportation, construction, electricity, telecommunication, water supply, all public services, hotel
accommodation, real estate and goods with very high transportation costs, such as gravel or sand.
 The database gives standard conversion factors for 4 non-tradable items: transportation, construction,
electricity and telecommunications. These are based on a Rwanda-specific average breakdown of the
service into various tradables and non-tradables, and thus for transport for instance includes various types
of labour (skilled, semi-skilled and unskilled), fuel, equipment, etc.
 The tradable items are divided into 4 categories:

1. Importable input to the project: items that are imported to be used in the project;
2. Importable output: items that are produced by the project that would substitute imported items;
3. Exportable input: items that are used in the project that would otherwise be exported;
4. Exportable output: items that are produced by the project for export.
One tradable can thus have 4 different conversion factors in the database, following the above categories. These
conversion factors consider import duties, import subsidies, excise taxes, export taxes, export subsidies, and a
Foreign Exchange Premium (FEP), depending on the category and applicability of the duty, subsidy or tax.
Rwanda SCF always include a correction for VAT. Therefore, when converting from financial to economic costs
VAT has to be carefully considered:
1. If VAT is included in the financial costs, then the SCF from the database can be applied.
2. If VAT is not included in the financial costs, then the SCF from the database should be adapted before it
can be applied. The Rwanda database of SCFs allows for manual recalculation of the SCF so that the
correction for VAT can be deleted. See the print screen shown below of the SCF for imported motor
vehicles.

Table 3-9 gives an example of conversion of a BoQ item with several sub-items from the road case study
(note that the share of the elements in the total costs are random and not based on actual road
construction projects). Financial costs in Table 3-9 include VAT.
Table 3-9 Example of application of conversion factors
Share in Financial cost Conversion Economic cost

Element Type of conversion
costs (billion FRW) factor (billion FRW)
Gravel (sourced locally) 30% 14.2 standard factor MINECOFIN 0.8924 12.7
Asphalt (imported) 20% 9.5 standard factor MINECOFIN 0.8112 7.7
Transport 15% 7.1 standard factor MINECOFIN 0.8724 6.2
Construction 35% 16.6 standard factor MINECOFIN 0.8840 14.7
Total 100% 47.4 0,8777* 41.2
Source: taken from the road case study (see Volume 2 Case Studies)
* is the resulting weighted conversion factor for the item ‘road’ on the CAPEX list
3.6.3 Evaluation of non-market impacts and correction for externalities

In the previous sections, the conversion of project costs (inputs) and direct project outputs into economic
prices has been discussed. However, an important aspect of the economic analysis is the inclusion of
wider socio-economic impacts, which as indicated can be classified in three categories:
1 Direct effects (this includes effects on the project promoter/developer, such as CAPEX, OPEX
and revenues, but also effects on society as a whole, such as time saving for transport users).
2 Indirect effects (this includes effects on other markets, such as employment effects at
supplying sectors).
3 External effects (this includes effects for which no market exists, such as emissions, noise,
safety, or the creation of barriers or damage to landscape).
Direct effects
Apart from the direct effects on the project promoter/developer, which are taken from the financial
analysis and on which conversion factors have been applied to convert them to economic effects, there
are wider direct effects which affect society as a whole. Examples are:
 Transport cost savings: a new road offers a faster or shorter route from A to B so that the cost of
transport passengers and freight from A to B is reduced. The transport cost saving should be
based on the time saved or costs saved in the project case compared to the counterfactual
(without project case. If for instance travelling between A and B used to take 2 hours before
project implementation, but now takes only 1.5 hours due to road improvements, then the travel
cost savings should be based on saving half an hour per vehicle (and a value of time of the
passengers of those vehicles).
 Agricultural productivity improvements: an irrigation project increases the yield of farming land.
Again, counterfactual and project case need to be compared. If the yield was 3000 kg/ha/year
before the project and will be 4000 kg/ha/year after the project, then the economic benefit of
the project should be based on an additional yield of 1000 kg/ha/year.
 Avoided waste in landfills and increased recycling due to a waste management project. Here, the
economic benefit should be based on an assessment of avoided damage to environment due to
dumping and the additional value created through recycling.

Indirect effects
This category includes effects on other markets, such as employment effects in sectors supplying to the
project. Generally, these are calculated by means of multipliers, indicating for instance that each job in
sector X generates 1.4 additional jobs in other sectors. Care should be taken not to overestimate the
indirect employment effects; these effects are often misused by project developers to promote their
projects. The question always remains what activities the employees had before their engagement in the
newly created jobs. Only the incremental effects should be included: if they came from other jobs, the
employment effect may be limited.
Another example of indirect effects is the creation of additional economic activity or output due to the
provision of electricity. The availability of electricity may allow people to increase their productivity or to
engage in new economic activities. Again, only the incremental effects should be included.
External effects
For these effects no market exists. Examples are emissions, noise, safety or the creation of damage to
landscape. The net effect can be positive or negative. A few examples:
 the construction of a hydro-power plant to replace a coal fired power plant will greatly reduce
the emission of greenhouse gases such as CO2, NOx, SOx and PM.
 the construction of a dam with reservoir (for instance to feed a hydro-power plant) will have a
large effect on the landscape due to the water reservoir and the effects on the river flow
downstream of the project.
 the construction of a new road with separate traffic lanes for each direction will increase road
safety but may also generate additional traffic, which will result in additional emissions, noise
and safety. The net effect should be calculated, it depends on the amount additional traffic and
on the safety improvement.
Generally, emission, noise and safety effects are based on predefined values and costs, such as per ton-
kilometre or passenger-kilometre in transport (often specified per type of transport), or per kilowatt-
hour (kWh) or megawatt hour (MWh) in case of a power plant. Many countries use predefined values per
transport category, which are updated every 5 to 10 years to include technological progress (increased
fuel efficiency, alternative fuels, etc). For example: average emissions of CO2 per ton-kilometre in a >20-
ton truck with 50% load factor, or average number of fatalities per billion passenger car kilometres on a
dual lane road. Values of CO2 emissions are based on the EU climate change scenario, see box on Social
Cost of Carbon (SCC). Values of fatalities are often based on the average economic output of this person
that is forgone, the Value of Statistical Life (VOSL), in order to avoid the ethics of putting a price on human
life.
Quantification of the unit value of avoided CO2 emissions

In order to assess the social benefits of avoided CO2 emissions, a social cost of CO2 emissions should be
used (Social Cost of Carbon - SCC). However, there is no consensus on the actual SCC. For example, the
European Commission CBA guide, referring to the European Investment Bank as a source, in its central
scenario recommends using 25 Euro/ton CO2 in 2010 and applying an annual increase of 1 Euro/ton until
2030. A “high” scenario recommends using 40 Euro/ton CO2 in 2010 with a 2 Euro/ton CO2 of annual
increase until 2030.

In a more recent document from 2016, titled EC Climate change and major projects29, another SSC
quantification is proposed (see orange line in figure 3.3 below). On the other hand, the “EU reference
scenarios to 2050”30 provides its own projections of Emission Trading System credits prices (note that the
market prices of ETS-credits do not necessarily reflect the actual SCC). These projections, along with ETS
prices are plotted on Figure 3-3.
Figure 3-3: Various ETS and SCC projections in Euro/ton of CO2
Lacking specific values for the Republic of Rwanda, the above projections were compared with the most
recent World Bank projections contained in the ‘Report of the High-Level Commission on Carbon Prices’
(May 2017) 31 and projection by the United Kingdom Government (January 2018)32.
According to the World Bank projections, SCC would vary from 30-50 USD/ton of CO2 in 2020 to 130-160
USD/ton of CO2 in 2050. UK estimated carbon values are provided until 2035 and provide higher values
than the EU and World Bank values.
In the light of the above, the EU SCC under the climate change scenario are recommended for use in
economic studies in Rwanda as values that, although lower than World Bank projections in the medium-
term (2030-2040), tend to converge towards World Bank values in 2050.
29
https://ec.europa.eu/clima/sites/clima/files/docs/major_projects_en.pdf
30
https://ec.europa.eu/energy/sites/ener/files/documents/20160713%20draft_publication_REF2016_v13.pdf
31
‘Report of the High-Level Commission on Carbon Prices’, Washington DC: World Bank. High-Level Commission
on Carbon Prices, 2017. License: Creative Commons Attribution CCBY3.0 IGO
https://static1.squarespace.com/static/54ff9c5ce4b0a53decccfb4c/t/59b7f2409f8dce5316811916/15052273327
48/CarbonPricing_FullReport.pdf
32
‘Updated short-term traded carbon values used for modelling purposes’
United Kingdom Government, Department for Business, Energy & Industrial Strategy, January 2018;
https://www.gov.uk/government/collections/carbon-valuation--2

Table 3-10 Various alternatives for SCC (per ton of CO2 emitted)
Source 2020 2030 2040 2050

European Union 46 EUR/ton 52 EUR/ton 75 EUR/ton 121 EUR/ton
(SCC climate change scenario)
World Bank 30-50 USD/ton 80-100 USD/ton 110-130 USD/ton 130-160 USD/ton
Rwanda recommended values 46,000 FRW/ton 52,000 FRW/ton 75,000 FRW/ton 121,000 FRW/ton
EXAMPLE: CALCULATION OF VALUE OF CO2 EMISSIONS
Based on number of vehicles

If only the number of vehicles is known, and not the number of passengers and tons of freight, then the emissions
of CO2 can be based on the amount of fuel consumed per vehicle to travel a certain distance. For instance, a car
that travels 80 km consuming 7 litres per 100 km uses 5.6 litres of petrol. CO 2 emissions per litre of petrol are
2.78 kg. The total CO2 emission of the passenger car travelling 80 km is thus 5.6 * 2.78 = 15.57 kg of CO 2.
The total emission needs to be multiplied by the cost of emitting CO2, generally expressed in a price per ton. The
emission price per ton of CO2 is 39,000 FRW in 2018 (see box on Social Cost of Carbon). In our example, this
means that the CO2 cost of the car travelling 80 km is 607 FRW.
Based on the number of passengers or tons of freight

In case only the number of passengers or tons of freight is known, an average value of CO 2 emission per
passenger-kilometre or ton-kilometre should be applied. These are available for various vehicles and load factors
and are for instance expressed as: CO2 emission in a passenger car (average occupancy 1.5 persons): 150 g per
passenger-kilometre. With this value (and the average distance and number of passengers) and a CO 2 value per
ton, the cost of CO2 emissions can be calculated too.
Significant progress has been made in recent years in refining the estimates of unit values of non-market
impacts and improving methods to integrate such values into economic analysis. Developments in this
field, both empirical and theoretical are, however, still needed, in order to broaden the range of
externalities considered, such as the conservation of ecosystem services. Considering that ecosystem
services change is one of the vital aspects of welfare, this should be always considered as potential for
any project.
Whenever money quantification is not possible, environmental impacts should at least be identified in
physical terms for a qualitative appraisal in order to give to decision-makers more elements to make a
considered decision. See section 3.4.3.
3.6.4 Economic performance

Once all project cost and benefits have been quantified and valued in money terms, it is possible to
measure the economic performance of the project by calculating the following indicators (Table 3-11):
 Economic Net Present Value (ENPV): the difference between the discounted total social benefits
and costs;
 Economic Rate of Return (ERR): the rate that produces a zero value for the ENPV;

 B/C ratio, i.e. the ratio between discounted economic benefits and costs.
ECONOMIC PERFORMANCE INDICATORS
The difference between ENPV and FNPV is that the former uses accounting prices or the opportunity cost of
goods and services instead of imperfect market prices, and it includes as far as possible any social and
environmental externalities. This is because the analysis is done from the point of view of society, not just the
project promoter. Because externalities and shadow prices are considered, some projects with low or negative
FNPV(C) may show positive ENPV (see also section 2.5).
The ENPV is the most important and reliable social CBA indicator and should be used as the main reference
economic performance signal for project appraisal. Although ERR and B/C are meaningful because they are
independent of the project size, they may sometimes be problematic. In particular cases, for example, the ERR
may be multiple or not defined, while the B/C ratio may be affected by considering a given flow as either a benefit
or a cost reduction.
In principle, every project with an ERR lower than the social discount rate or a negative ENPV should be
rejected. A project with a negative economic return uses too many socially valuable resources to achieve
too modest benefits for all citizens. Sinking a capital grant in a project with low social returns means
diverting precious resources from a more valuable development use.
Table 3-11: Economic rate of return (FRW billions)
1 2 3 4 5 6 7 8 9 10
ENPV 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
Startup costs 1,7 1,7

Investment 40 17,0 25,5
Operations 8,5 1,8 1,8 1,8 1,8 1,8 1,8 1,8 1,8
Maintenance 4,1 0,9 0,9 0,9 0,9 0,9 0,9 0,9 0,9
Total economic costs 52,4 18,7 25,5 2,6 2,6 2,6 2,6 2,6 2,6 2,6 2,6
Benefit 1 65,5 5,0 7,0 10,0 13,5 17,0 21,0 24,0 29,0
Benefit 2 16,3 2,0 2,5 4,0 4,0 4,0 4,0 4,0 4,0
External effects 4,3 0,3 0,6 0,8 1,0 1,2 1,3 1,3 1,4
Residual value 22,6 25,5
Total benefits 84,6 0,0 0,0 7,3 10,1 14,8 18,5 22,2 26,3 29,3 59,9
Net benefits 32,2 -18,7 -25,5 4,7 7,5 12,2 15,9 19,6 23,7 26,7 57,3
discount rate 13% Financial costs have been Socio-economic benefits and external
ENPV 32,2 converted to economic costs by effects of the project have been
EIRR 25,1% applying conversion factors. This calculated.
B/C-ratio 1,61 affects the residual value too.
GOOD PRACTICES
 Cost savings in O&M or investment are accounted for and included on the cost side as a negative, i.e. as
decreasing costs and with appropriate conversion factors.
 Project positive impacts on employment are captured by applying the Shadow Wage Conversion Factor
to (unskilled) labour cost and not including job creations as a direct benefit of the project.

 Project impacts on the overall economy (i.e. GDP growth) are excluded from the analysis of the project
benefits.
 If specific indirect taxes are intended to correct for externalities, then these are included in economic
analysis to reflect the social marginal value of these externalities, provided that they adequately reflect
the underlying WTP (see annex G) or marginal damage cost and there is no double-counting with other
economic costs.
COMMON MISTAKES
 In the economic analysis a nil cost is given to the opportunity cost of land owned by a local municipality,
although it may have value in other uses (e.g. it may be rented to local farmers).
 Conversion factors are ʻborrowedʼ from other countries without justification.
 Revenues from tariffs are included as an economic benefit in addition to consumers’ marginal willingness
to pay for the service rendered.
 Failure to isolate the ʻincrementalʼ economic benefits of the project, i.e. the benefits which are not
displaced from other markets. This is especially evident in cases where it is attempted to measure
secondary indirect impacts.
 Together with the application of the shadow wage on the cost side, benefits from job creation are
included on the benefit side.
3.7 Risk assessment
 The risk assessment consists of three elements:

1. Sensitivity analysis (or quantitative risk analysis) testing the effect of variations in major input
variables (such as costs, demand, major assumptions) on financial and economic feasibility
conclusions of the project. This gives an indication of how robust financial and economic feasibility
is under various scenarios.
2. Qualitative risk analysis, listing all potential risks to the project, the chance of occurrence and the
potential impact on the project.
3. Risk prevention and mitigation, where a description is given of how risks identified in step 1 and 2
can be prevented from occurring, and what the mitigating measures are in case they should occur.
A risk assessment must be included in the CBA/CEA. This is required to deal with the uncertainty that
always permeates investment projects, including the risk that the adverse impacts of climate change may
have on the project. The recommended steps for assessing the project risks are as follows:
 sensitivity analysis;
 qualitative risk analysis;
 risk prevention and mitigation.

The rest of this section presents the aforementioned steps.
3.7.1 Sensitivity analysis

Sensitivity analysis enables the identification of the ʻcriticalʼ variables of the project. Such variables are
those whose variations, be they positive or negative, have the largest impact on the projectʼs financial
and/or economic performance. The analysis is carried out by varying one variable at a time and
determining the effect of that change on the NPV. As a guiding criterion, the recommendation is to
consider ʻcriticalʼ those variables for which a variation of ±1 % of the value adopted in the base case gives
rise to a variation of more than 1 % in the value of the NPV. The tested variables should be
deterministically independent and as disaggregated as possible. Correlated variables would give rise to
distortions in the results and double-counting. Therefore, before proceeding to the sensitivity analysis,
the CBA/CEA model should be reviewed with the aim of isolating the independent variables and
eliminating the deterministic interdependencies (e.g. splitting a variable in its independent components).
For example, ʻrevenueʼ is a compound variable, which depends on the two independent items ʻquantityʼ
and ʻtariffʼ, both of which should be analysed. Table 3-12 gives an illustrative example. Numbers are
shown for a cost-benefit analysis, but the method can be applied to the FNPV or the CE ratio in a cost-
effectiveness analysis in the same manner.
Table 3-12: Critical variables example
Variable Variation of the FNPV Criticality Variation of the ENPV Criticality

due to a ± 1% variation judgement due to a ± 1% variation judgement
Yearly population growth 0.5% Not critical 2.2% Critical
Per capita consumption 3.8% Critical 4.9% Critical
Unit tariff 2.6% Critical Not Applicable -
Total investment cost 8.0% Critical 8.2% Critical
Yearly maintenance costs 0.7% Not critical 0.6% Not critical
Per capita Willingness-to-pay Not applicable - 12.3% Critical
Annual noise emissions Not applicable - 0.8% Not critical
A particularly relevant component of the sensitivity analysis is the calculation of the switching values.
This is the value that the analysed variable would have to take in order for the NPV of the project to
become zero, or more generally, for the outcome of the project to fall below the minimum level of
acceptability (see Table 3-13). The use of switching values in sensitivity analysis allows making some
judgements on the risk of the project and the opportunity of undertaking risk-preventing actions. For
instance, in the example below, one must assess if a 19 % investment cost increase which would make
the ENPV equal to zero thereby means that the project is too risky. Thus, the need to further investigate
the causes of this risk, the probability of occurrence and identify possible corrective measures (see next
section).

Table 3-13: Switching values example
Variable Switching values

Benefits/revenues
Yearly population growth Minimum increase before the FNPV equals 0 104%
Maximum decrease before the ENPV equals 0 47%
Per capita consumption Minimum increase before the FNPV equals 0 41%
Unit tariff Minimum increase before the FNPV equals 0 60%
Maximum decrease before the ENPV equals 0 Not applicable
Per capita Willingness-to-pay Minimum increase before the FNPV equals 0 Not applicable
Costs
Total investment cost Minimum decrease before the FNPV equals 0 82%
Maximum increase before the ENPV equals 0 19%
Yearly maintenance costs Minimum decrease before the FNPV equals 0 95%
Annual noise emissions Minimum decrease before the FNPV equals 0 Not applicable
Finally, the sensitivity analysis must be completed with a scenario analysis, which studies the impact of
combinations of values taken by the critical variables. In particular, combinations of ʻoptimisticʼ and
ʻpessimisticʼ values of the critical variables could be useful to build different realistic scenarios, which
might hold under certain hypotheses. In order to define the optimistic and pessimistic scenarios it is
necessary to choose for each variable the extreme (lower and upper) values (within a range defined as
realistic). Incremental project performance indicators are then calculated for each combination. Again,
some judgments on the project risks can be made on the basis of the results of the analysis. For example,
if the ENPV remains positive, even in the pessimistic scenario, the project risk can be assessed as low (see
Table 3-14).
Table 3-14: Scenario testing example
Base case Scenario - - Scenario- Scenario + Scenario ++

Variable
Yearly population growth 100% 70% 85% 115% 130%
Per capita consumption 100% 70% 85% 115% 130%
Unit tariff 100% 70% 85% 115% 130%
Total investment cost 100% 130%% 115% 85% 70%
Per capita Willingness-to-pay 100% 70% 85% 115% 130%
Result
FNPV -34,284 -68,568 -51,426 -20,570 -6,857
ENPV 212,128 116,720 159,164 265,273 307,716
Source: authors
3.7.2 Qualitative risk analysis

The qualitative risk analysis aims shall include the following elements:
 a list of adverse events to which the project is exposed;
 a risk matrix for each adverse event indicating:
o the possible causes of occurrence;
o the link with the sensitivity analysis, where applicable;

o the negative effects generated on the project;
o the (ranked) levels of probability of occurrence and of the severity of impact;
o the risk levels.
 an interpretation of the risk matrix including the assessment of acceptable levels of risk;
 a description of mitigation and/or prevention measures for the main risks, indicating who is
responsible for the applicable measures to reduce risk exposure, when they are considered
necessary.
To carry out the qualitative risk analysis, the first step involves the identification of adverse events that
the project may face. Building a list of potential adverse events is a good exercise to understand the
complexities of the project. Examples of events and situations with negative implications in the
implementation of the project and, in particular, generating cost overruns and delays in its
commissioning, are very varied and depend on the project specificities: landslides; adverse impacts of
extreme weather events; non-obtainment of permits; public opposition; litigation; etc.
Once the potential adverse events have been identified, the corresponding risk matrix may be built. The
following paragraphs contain some brief instructions on how to operationally build a risk matrix.
First, it is necessary to look at the possible causes of the risk materialising. These are the primary hazards
that could occur during the life of the project. All causes of each adverse event must be identified and
analysed, considering that several weaknesses of forecasting, planning and/or management may have
similar consequences over the project. The identification of the causes of potential dangers can be based
on ad hoc analyses or looking at similar problems that have been documented in the past. In general, the
occurrence of a disaster is looked upon as a design weakness, in the broadest possible sense, and
therefore it is expected that all the potential causes of failure are properly identified and documented.
Examples can be: low contractor capacity; inadequate design cost estimates; inadequate site
investigation; low political commitment; inadequate market strategy, etc.
When appropriate, the link with the results of the sensitivity analysis should be made explicit by showing
which critical variables are affected by the adverse events. For example, for the adverse event
unexpected geological conditions the corresponding critical variable is investment cost, and so on.
However, depending on the nature of the event considered this is not always applicable (for example no
variable corresponds to qualitative events such as public opposition).
For each adverse event, the general effect(s) generated on the project and the relative consequences on
the cash flows should be described. For example, delays in the construction time will postpone the
operational phase, which in turn, could threaten the financial sustainability of the project. It is convenient
to describe these effects in terms of what the project promoter (or the infrastructure manager and
services provider) might experience in terms of functional or business impacts. Each effect should also
be characterised by its consequences over the project calendar (short vs. long term implications), relevant
for both the prediction of the effect on the cash flows and the determination of appropriate risk
mitigation measures.
A Probability (P) or likelihood of occurrence is attributed to each adverse event. Below, a recommended
classification is given, although in principle other classifications are possible:

 Very unlikely (0–10 % probability)
 Unlikely (10–33 % probability)
 About as likely as not (33–66 % probability)
 Likely (66–90 % probability)
 Very likely (90–100 % probability)
To each effect a Severity (S) impact from, say, I (no effect) to V (catastrophic), based on cost and/or loss
of social welfare generated by the project, is given. These numbers enable a classification of risks,
associated with their probability of occurrence. Below a typical classification is given (Table 3-15).
Table 3-15: Risk severity classification
Rating Meaning
I No relevant effect on social welfare, even without remedial actions.
II Minor loss of the social welfare generated by the project, minimally affecting the project long
run effects- However, remedial or corrective actions are needed.
III Moderate: social welfare loss generated by the project, mostly financial damage, even in the
medium‑long run. Remedial actions may correct the problem.
IV Critical: High social welfare loss generated by the project; the occurrence of the risk causes a
loss of the primary function(s) of the project. Remedial actions, even large in scope, are not
enough to avoid serious damage.
V Catastrophic: Project failure that may result in serious or even total loss of the project
functions. Main project effects in the medium‑long term do not materialise.
The Risk level is the combination of Probability and Severity (P*S). Four risk levels can be defined as
follows with the associated colours (see Table 3-16).
Table 3-16: Risk level colouring example
Risk level Colour Severity/ I II III IV V

Probability
Low A Low Low Low Low Moderate
Moderate B Low Low Moderate Moderate High
High C Low Moderate Moderate High High
Unacceptable D Low Moderate High Very high Very high
E Moderate High Very high Very high Very high
This exercise must be carried out during the planning phase so that decision makers can decide what is
the acceptable level and thus what mitigation measures must be adopted. During the risk analysis
included in the CBA/CEA, the remaining risks in the final design of the project are analysed. In principle
no unacceptable risks should remain. The classification is useful, however, to identify the potential
problems that the project might be confronted with.
3.7.3 Risk prevention and mitigation

Once the level of the remaining risks (P and S) is established, it is important to identify the mitigation
and/or prevention measures foreseen. The diagram below (Table 3-17) shows, in a qualitative way, the
kinds of measures or combinations of measures to reduce the project risk prevailing in the various areas

of the above defined risk matrix. The identification of these measures requires a thorough knowledge of
the causes of risk and of the nature and the timing of the end effects.
Table 3-17: Risk measures example
Severity/ I II III IV V
Probability
A
B Prevention or mitigation Mitigation
C
D
Prevention Prevention and mitigation
E
The ʻintensityʼ of the measure should be commensurate to the level of risk. For risks with high level of
impact and probability, a stronger response and a higher level of commitment to managing them shall
be implemented. On the other hand, for low level risks, close monitoring could be sufficient. When the
risk level becomes unacceptable (a situation that should never materialise, in principle) the entire project
design and preparation must be revised. When identifying measures to mitigate existing risks, it is
mandatory to define who is responsible for their execution and in what stage of the project cycle this will
happen (planning, tendering, implementation, operation).
Finally, the impacts of the risk prevention and/or mitigation measures on the project’s resilience and the
remaining exposure to risk need to be assessed. For each adverse event, it is suggested to assess the
residual risk after the implementation of the measures. If risk exposure is assessed to be acceptable (i.e.
there are no longer high or very high-risk levels), the proposed qualitative risk strategy can be adopted.
If a substantial risk remains, it is required to move to a probabilistic quantitative analysis to further
investigate the project risks (see next section).
Table 3-18 on the next page provides a simplified example of a risk prevention matrix for illustrative
purposes.

Table 3-18: Risk prevention matrix example
Adverse Variable Causes Effect Timing Effect on cash Probability Severity Risk Prevention and/or Residual
event flows level mitigation risk
measures
Constructio Investm. Low contractor Delay in Medium Delay in C III Modera Set up of a Project Low
n delays cost capacity service start establishing a te Implementation Unit
positive cash flow to be assisted by
including benefits technical assistance
materialisation for project
management during
implementation
Project cost Investm. Inadequate Investment Short Higher (social) D V Very The design of the Moderate
overrun cost design cost cost higher costs in the first High project must be
estimates than phase of the revised
expected project
Landslides Not Inadequate site Interruption Long Extra costs to A III Low Close monitoring Low
applicable investigation of the rehabilitate the
service service
Delayed Not Low political Delay in Short Delay in A II Low Close monitoring Low
obtainment applicable commitment start of the establishing a
of permits Mismanagement works positive cash flow
of the licensing including benefits
procedures materialisation
Public Not Inadequate Demand Medium Lower revenues C V High Early definition of an Moderate
opposition applicable market strategy lower than and social appropriate social
Underestimation expected benefits plan, awareness-
of threats raising activities and
campaigns to raise
the level of social
acceptance

MINECOFIN
GOOD PRACTICES
 The sensitivity analysis is extended to all the independent variables of the project and, among them, the
critical variables are identified.
 A large enough numerical scale (i.e. a scale of 1-5) is used for adequate differentiation of probability of
occurrence and impact levels of the adverse effects.
 The cost of prevention/mitigation measures is included within the investment and/or O&M costs. This
includes risks linked to natural disasters or other similarly unforeseeable events which need to be either
covered in the technical design of the project and/or adequately insured (if possible).
 The switching values for critical variables are also calculated.
COMMON MISTAKES
 Risks that are out of the control of the project promoter or other stakeholders (i.e. change of legislation)
are neglected in the analysis, although they may substantially contribute to the success/failure of the
project.
 Too aggregated variables (e. g. benefits as a whole) are considered in the sensitivity and risk analysis. As
a consequence, it is not possible to identify which parameters the prevention/mitigation measures have
been focused on.
 Independently from the type of analysis, risk prevention/mitigation measures are not identified.
 A too generic discussion on risk causes and prevention measures is carried out with no mention of their
likelihood of occurrence and/or identification of impacts.
 There is no identification of the risk manager, i.e. the function responsible for the implementation of the
identified risk prevention/mitigation measures.
3.8 CBA/CEA checklist and interpretation of results
3.8.1 Checklist
The following checklist is intended as a suggested agenda both from the standpoint of the project
promoter, who is involved in preparing the project dossier, and from that of the project examiner, who
is involved in reviewing the quality of the appraisal.
Table 3-19: CBA/CEA checklist
Step Question
General  Has an incremental approach been adopted?
 Is the counterfactual scenario credible?
 Has an appropriate time horizon been selected?
 Have project effects been identified and monetised in the CBA?
 Have appropriate financial and social discount rates been adopted?
 Does the economic analysis build on the financial analysis?
 Are all prescribed documents made available to the required quality level and in the
prescribed formats?
• Are the findings of the study well-documented, sound and sufficiently clear?

MINECOFIN
Step Question
Presentation of the context  Is the social, institutional and economic context clearly described?
 Have all the most important socio-economic effects of the project been considered in
the context of the region, town or sector concerned?
 Are these effects actually attainable given the context?
 Are there any major potential constraints to project implementation?
Definition of objectives  Does the project have clearly defined objectives stemming from a clear assessment of
the needs?
 Is the project relevant in light of the needs?
 Are the project objectives quantitatively identified by means of indicators and target
values?
 Is the project coherent with the national and regional strategies and priorities, as well
as with strategic goals defined at sectoral levels (as defined in formally approved
documents)?
 Are the means of measuring the attainment of objectives and their relationship, if any,
with the targets of national strategies indicated?
Identification of the project  Does the project constitute a clearly identified self-sufficient unit of analysis?
 Have combinations of self-standing components been appraised independently?
 Has the technical, financial and institutional capacity of the promoter been analysed?
 Has the impact area been identified?
 Have the final beneficiaries eventually profiting from the project been identified?
 If the project is implemented by a PPP, is the PPP arrangement well described, are the
public and private parties clearly identified?
 Whose costs and benefits are going to be considered in the economic welfare
calculation?
 Are all the potentially affected parties considered?
Technical feasibility and  Has current demand for services been analysed?
environmental sustainability  Has future demand for services been forecasted?
 Are the demand forecasting method and assumptions appropriate?
 Does the application dossier contain sufficient evidence of the project’s feasibility
(from a technical point of view)?
 Has the applicant demonstrated that other alternative feasible options have been
adequately considered?
 On what criteria was the project optimal option selected? Are these criteria
appropriate for the type of project?
 Is cost of measures taken for correcting negative social & environmental impacts
included in the cash flows considered in the CBA / CEA?
 Is the technical / procedural design appropriate to the achievement of the objectives?
 Is capacity utilisation rate in line with demand expectations?
 Are the project cost estimates (investment and O&M) adequately explained and
sufficiently disaggregated to allow for their assessment?
Project implementation and  Have the key activities to be performed during project implementation been defined
operation and responsibilities assigned to identified staffs?
 Is any need for external technical expertise identified?
 Is a procurement plan provided which includes all planned tenders, estimated
(Note that this is not a deadlines for contracting, envisaged procedure and estimated tender amounts? Is
separate step in the there evidence that estimated tender amounts are based on market search?
CBA/CEA-methodology,  Is a comprehensive time-table provided for Project implementation and does it include
where it is generally part of land acquisition if applicable, as well as timing for construction of any related
the technical feasibility infrastructure outside the project scope, and the milestones established for the
study) purpose of monitoring the Project during implementation?

MINECOFIN
Step Question
 Is the procedure for the transition from Project implementation to Project operation
clearly described?
 Is the Plan for Project’s operational phase provided and does it present the
management and governance structure envisaged for managing, delivering and
monitoring the Project? Are reporting lines established?
 Are needed financial resources indicated for managing the Project during the
operational phase?
 Is a monitoring and reporting schedule developed?
Financial analysis CBA and CEA:
 Have depreciation, reserves, and other accounting items which do not correspond to
actual cash flows been excluded from the analysis?
 Has the residual value of the investment been properly calculated and included in the
analysis?
 In the case of using current prices, has a nominal financial discount rate been
adopted?
 Has VAT, if recoverable by the beneficiary, been excluded from the analysis?
 Have transfers and subsides been excluded from the computation of the project
revenues?
 If tariffs are levied from users, how has the polluter-pays-principle been applied, what
is their cost recovery level in the short, medium and long-term?
 If an affordability cap is applied to tariffs, has an affordability analysis been carried
out?
 Is the financial sustainability analysed at project and, where appropriate, operator
level?
 If the project is not financially sustainable by itself (produces negative cash-flows at
some point), is it explained how the required funds are planned to be covered?
CEA:
 Are CE and EC ratios calculated?
 Are historical or virtual benchmarks being used to compare results with CE and EC
ratios?
Economic analysis CBA:
 In the case of market distortions, have shadow prices been used to better reflect the
social opportunity cost of the resources consumed?
 Is the Standard Conversion Factor calculated and applied to all minor non-traded
items?
 In the case of major non-traded items, have sector-specific conversion factors been
applied?
 Has the appropriate shadow wage been chosen for the labour market?
 If cash-flows present fiscal requirements, have market prices been corrected?
 Have non-market impacts been considered for the evaluation of the project economic
performance?
 Have externalities been included in the analysis, including climate change effects?
 Are the unit values for quantification of economic benefits and externalities and their
real growth over time adequately presented/explained?
 Have the main economic performance indicators been calculated (ENPV, ERR and B/C
ratio) considering the right categories of cost and benefits? Is there any risk of benefit
double counting?
 Is the economic net present value positive? If not, are there important non-monetised
benefits to be considered?
 Are all benefits that could not be quantified, properly described?

MINECOFIN
Step Question
Risk assessment  Is the sensitivity analysis carried out variable by variable and possibly using switching
values?
 Has the scenario analysis been carried out?
 Is the project’s economic case robust to downside scenarios such as for example
increases of 25% on construction costs, delays to project completion of 6, 12 and 24
months, or increases of 25% on annual operating costs over the reference period?
 What is the proposed risk prevention and mitigation strategy?
 Has a full risk prevention matrix been built?
 Have risk mitigation or prevention measures been identified?
 If the project appears to be still exposed to risk, has a probabilistic risk analysis been
carried out?
 What is the overall assessment about the project risk?
Conclusions and • Are conclusions of the study clearly presented and justified?
recommendations • Has the study formulated clear recommendations, and has a best solution or option been
identified, costed and proposed? Do recommendations cover also the next steps and any
further actions necessary to secure project financing and implementation (including
determination of scope of final design)?
3.8.2 Interpretation of results
The performance indicators resulting from CBA analysis are as follows:

 Financial Rate of Return (FRR) and corresponding Financial Net Present Value (FNPV);
 Economic Rate of Return (ERR) and corresponding Economic Net Present Value (ENPV);
 Benefit Cost Ratio (BCR or B/C).
Interpretation of results from financial performance indicators
In case FNPV > 0, the project is financially feasible: a positive financial net present value indicates that
the present value of projected earnings generated by a project or investment exceeds the present value
of the anticipated costs. Generally, an investment with a positive FNPV will be profitable; an investment
with a negative FNPV will result in a net loss.
The calculation of the financial return on investment measures the capacity of the net revenues to
remunerate the investment cost. When the FRR is lower than the applied discount rate, or the FNPV is
negative, then the revenues generated will not cover the costs and the project needs budget assistance.
Financial information should be studied also in respect of: financial sustainability and, for revenue-
generating projects, also the payback period.
Financial sustainability: a project is financially sustainable when it does not incur the risk of running out
of cash in the future. The crucial issue here is the timing of cash proceeds and payments. Project
promoters should show how over the project time horizon, sources of financing (including revenues and
any kind of cash transfers) will consistently match disbursements year-by-year. Sustainability occurs if
the net flow of cumulated generated cash flow is positive for all the years considered.

MINECOFIN
Payback period: an effective project shall have, as minimum, a discounted payback period shorter than
the expected lifetime of the investment. In case of a project with long payback period, by providing a
grant from the budget, a capital mix can be reached that reduce the payback periods to more acceptable
levels.
Interpretation of results from economic performance indicators
The ENPV is the most important and reliable social CBA indicator and should be used as the main
reference economic performance signal for project appraisal. Although ERR and B/C are meaningful
because they are independent of the project size, they may sometimes involve problems. In particular
cases, for example, the ERR may be multiple or not defined, while the B/C ratio may be affected by
considering a given flow as either a benefit or a cost reduction.
For a project to be approved, the ENPV should be positive i.e. ENPV >0 and ERR should be higher than
the social discount rate. In principle, every project with an ERR lower than the social discount rate or
a negative ENPV should be rejected. A project with a negative economic return, uses too much of socially
valuable resources to achieve too modest benefits for all citizens. In some exceptional cases, however, a
project with a negative ENPV could be accepted for budget assistance if there are important non-
monetized benefits (e.g. for biodiversity preservation projects, cultural heritage sites, landscape). This
should be seen as a rare occurrence, and the appraisal report should still specify in a convincing way,
through a structured argument, sustained by adequate data, that, in some sense, social benefits exceed
social costs, even if the applicant is unable to fully quantify the former.
The Benefit-Cost Ratio is the present value of project benefits divided by the present value of project
costs. If B/C >1 the project is suitable because the benefits, measured by the Present Value of the total
inflows, are greater than the costs, measured by the Present Value of the total outflows.
Like the IRR, this ratio is independent of the size of the investment, but in contrast to IRR it does not
generate ambiguous cases and for this reason it can complement the NPV in ranking projects where
budget constraints apply. In these cases, the B/C ratio can be used to assess a project’s efficiency.
The performance indicators resulting from CEA analysis are as follows:
CE ratio = C1/E1 and EC ratio = E1/C1 where: C1 = the cost of option 1 (in monetary units); and E1 = the
effectiveness of option 1 (in physical units).
The first equation above represents the cost per unit of effectiveness (CE). This cost should be below the
benchmark cost for the investment, if this is established, or should be the lowest cost among alternative
options. The second equation represents the effectiveness per unit of cost, therefore, the higher the ratio
the better.

MINECOFIN
4 Compiling the Project Profile Data
The submission of Project Profile Data (PPD) through IFMIS is compulsory under the 1st Planning and
Budgeting Call Circular. The templates for the PPD are regularly updated by MINECOFIN, usually at the
beginning of the planning cycle with the 1st Planning and Budgeting Call Circular.
The following table provides an overview of the contents of the Project Profile Data (PPD) required for
projects to be submitted to MINECOFIN for funding33, cross-referenced with the source of information
in the standard chapters of a Feasibility Study Report and the main steps of the feasibility appraisal as
presented in the FS Guide chapter 3.
Table 4-1: Source of information under Feasibility Study Reports for compiling the PPD
No Project Profile Data – required FS Report chapters Main steps of the feasibility
information appraisal as presented in the
Guidelines
1 Section 1. Project Promoter and project’s objectives
All steps
1.1 Project Promoter 3. Identification of the Project Step 3. Project identification
1.2 Project title 0. Executive Summary Not applicable

1.3 Contact person 4. Technical feasibility & Step 4. Technical feasibility &
environmental sustainability - Plan environmental sustainability
for the Operation of the Investment
1.4 Project’s objectives (summary of 0. Executive Summary Step 2. Definition of objectives
objectives – 250 words max.34 plus 2. Definition of objectives and logic
separate paper) of the intervention
1.5 Type of project 3. Identification of the project Step 3. Project identification
1.6 Start and end date, duration of 4. Technical feasibility & Step 4. Technical feasibility &
project implementation in years (in environmental sustainability - - Plan environmental sustainability
case of construction projects for implementation of the
without operation) investment
1.7 Location / district(s) 0. Executive Summary Step 4. Technical feasibility &
environmental sustainability
1.8 Availability of basic infrastructure 4. Technical feasibility & Step 4. Technical feasibility &
(e.g. Access to water, access to environmental sustainability environmental sustainability
electricity, roads, land, etc.)
1.9 Procurement modality (role of the 4. Technical feasibility & Step 4. Technical feasibility &
private sector) environmental sustainability - Plan environmental sustainability
for implementation of the Step 5. Financial analysis
investment
5. Financial analysis
2 Section 2. Project costs and financing
2.1 Estimated total investment costs 5. Financial analysis Step 5. Financial analysis
(without operation and
maintenance costs)
2.2 Potential financing sources 5. Financial analysis Step 5. Financial analysis
33
Table 4-1 refers to information required for the 2017-2018 planning cycle – updates are to be checked through the MINECOFIN
web pages.
34 The PPD requires to prepare a short project description (up to 100 words) that shall provide for a ‘project justification
statement’ and mention the main project activities, for example as follows: “Aim of the project is to rehabilitate the existing
road Muhanga - Karongi with a length of 78 km. The road has currently a single lane and some of its sections are subject to
landslides and flooding, with frequent traffic interruptions. It is envisaged that the road will be reconstructed to a width of 7.5
meters. Main activities shall be preparation (studies, documentation and compensation costs); building and construction
(earthworks, road, bridges, retaining walls, public utilities, road information system, vegetation and landscape, noise and safety
barriers, other environmental mitigation measures); and supervision of works (4% of building and construction costs).”

MINECOFIN
No Project Profile Data – required FS Report chapters Main steps of the feasibility
information appraisal as presented in the
Guidelines
2.3 Medium Term Budget Estimate 5. Financial analysis Step 5. Financial analysis
(planned disbursements)
3 Section 3. Key performance indicators
3.1 Outcome 6. Economic analysis Step 6. Economic analysis
3.2 Output / benefit indicator #1 6. Economic analysis Step 6. Economic analysis
Estimate of annual outputs:
3.5 Y1 planned output #1 4. Technical feasibility & Step 4. Technical feasibility &
environmental sustainability environmental sustainability
5. Financial analysis Step 5. Financial analysis
4 Project Planning Documents – Feasibility Study / Assessment (uploads)
4.1 Concept note 0. Executive Summary Not applicable
4.2 Technical design / layout (FS) 4. Technical feasibility & Step 4. Technical feasibility &
environmental sustainability - Plan environmental sustainability
for Implementation of the
Investment
4.3 Financial and economic feasibility 5. Financial analysis Step 5. Financial analysis
(FS) 6. Economic analysis Step 6. Economic analysis
4.4 Environmental and Social Impact 4. Technical feasibility & Step 4. Technical feasibility &
Assessment (EIA) environmental sustainability - Plan environmental sustainability
for Implementation of the
Investment
4.5 Other project documents (financing FS annexes
agreement, expropriation report,
land valuation, etc.)

MINECOFIN
List of references
 Bills of Quantity, D. Atkinson, December 2000, See

http://fidic.org/sites/default/files/Bills%20of%20Quantity%20Atkinson.pdf
 Commodity-Specific Conversion Factors Database for the Republic of Rwanda, Ministry of Finance
and Economic Planning (MINECOFIN), see http://rwanda-cscf.cri-world.com/
 Cost-benefit analysis for investment decisions – Chapter 8: the economic opportunity cost of
capital, Jenkins, G., Kuo, C., and Harberger, A., 2011.
 Developing Harmonised European Approaches for Transport Costing and Project Assessment
(HEATCO), see http://heatco.ier.uni-stuttgart.de/
 Economic Development and Poverty Reduction Strategy 2 (2013-2018), Ministry of Finance and
Economic Planning (MINECOFIN), May 2013.
 Estimating the Economic Opportunity Cost of Capital for Kenya, Roksana Ghanbariamin, February
2015
 EU Guide to Cost-Benefit Analysis of Investment Projects, Economic Appraisal Tool for Cohesion
Policy 2014-2020, European Commission, Directorate General for Regional and Urban Policy,
December 2014
 FIDIC-A Guide for Practitioners, Axel-Volkmar, Jaeger l, Dr. Götz-Sebastian Hök, Springer-Verlag
Berlin Heidelberg 2010, ISBN 978-3-642-02099-5 e-ISBN 978-3-642-02100-8 DOI 10.1007/978-3-
642-02100-8. See http://www.springer.com/gp/book/9783642020995
 Final Report on the Estimation of Commodity-Specific Economic Prices and Conversion Factors for
Rwanda, Cambridge Resources International Inc, 25 August 2014
 Final Report on the Estimation of Rwandan National Parameters for Economic Appraisal of
Investment Projects, Cambridge Resources International Inc, 22 July 2014
 General Guidelines and Procedure for Environmental Impact Assessment, Rwanda Environment
Management Authority, June 2011
 Guidelines for Financial Management and Financial Analysis of Projects, the African Development
Bank, 2006
 Guidelines for the economic analysis of projects, Asian Development Bank, 2017
 Handbook on Economic Analysis of Investment Operations, World Bank, Belli, P. et al, 26 January
1998
 Interest rate structure up to October 2017, National Bank of Rwanda, 3 November 2017
 Investment project financing – Economic analysis guidance note, World Bank, 9 April 2013
 Making choices in health: Who guide to cost-effectiveness analysis. Tan-Torres Edejer, T.,
Baltussen, R., Adam, T., Hutubessy, R., Acharya, A., Evans, D. B., & Murray, C. J. L. World Health
Organisation, (2003). See http://www.who.int/choice/publications/p_2003_generalised_cea.pdf
 National Parameters, Ministry of Finance and Economic Planning (MINECOFIN), http://rwanda-
cscf.cri-world.com/
 New road infrastructure: the effects on firms, Gibbons, Stephen and Lyytikainen, Teemu and
Overman, Henry G. and Sanchis-Guarner, Rosa (2017), SERC Discussion Papers, SERCDP0214.
Spatial Economics Research Centre, London School of Economics and Political Science, London,
UK.
 October 2017 CPI Inflation, National Bank of Rwanda, on: https://www.bnr.rw/index.php?id=163
 Public Investment Criteria: Economic Internal Rate of Return and Equalizing Discount Rate, Asian

MINECOFIN
Development Bank Report nr 37, Ifzal Ali, November 1986

 Sector guidelines for EIA for roads development projects in Rwanda, Rwanda Environment
Management Authority, August 2009
 Social Discounting of Large Dams with Climate Change Uncertainty, Marc Jeuland, 2010, Water
Alternatives 3(2): 185-206
 Strategy survival guide, UK Prime Minister's Strategy Unit. (2004). See:
http://www.odi.org.uk/resources/docs/7270.pdf
 The Economic Appraisal of Investment Projects at the EIB, European Investment Bank, 2013
 The Social Discount Rate in Developing Countries, Missaka Warusawitharana, 9 October 2014 on
FEDS Notes (See: https://www.federalreserve.gov/econresdata/notes/feds-notes/2014/the-
social-discount-rate-in-developing-countries-20141009.html)
 TRACECA Appraisal Manual. Guidelines for Pre-Feasibility of Transport Projects with Exercises and
Case Studies, February 2012’. Source: http://www.trt.it/documenti/Guide-CBA-ENG.pdf
 TREMOVE economic transport and emissions model, see
http://www.tmleuven.be/methode/tremove/home.htm
 Vocational Training: Creating Opportunities. KfW Development Bank’s Commitment, October
2017
 Asian Development Bank, Guidelines for the economic analysis of projects, Asian Development
Bank, March 2017 https://www.adb.org/sites/default/files/institutional-
document/32256/economic-analysis-projects.pdf
 Proposed Indicators for Assessing Technical and Vocational Education and Training. Inter-Agency
Working Group on TVET Indicators, ETF-ILO-Unesco. April 2012
 Key Aspects of the Economics of Technical and Vocational Education and Training (TVET)
Lessons Learned and Gaps to be Filled. Deutsche Gesellschaft für Technische Zusammenarbeit
(GTZ) GmbH. Author/Responsible/Editor: Artjom Wolf, Andrea Erdle © GTZ 2009, Eschborn
 Costs and Benefits in Vocational Education and Training, Kathrin Hoeckel, OECD
EDU/EDPC/CERI(2008)3
 CEA Final Report. Study on the Use of Cost-effectiveness Analysis in EC’s Evaluations. Centre for
European Evaluation Expertise, 20 July 2006. Study financed by the European Commission, DG
BUDGET http://ec.europa.eu/smart-regulation/evaluation/docs/cea_finalreport_en.pdf
 Better evaluation. The UK Prime Minister Strategy Unit, 2004
http://www.betterevaluation.org/en/evaluation-options/CostEffectivenessAnalysis
 Guide to CEA. Who (World Health Organisation), 2003
http://www.who.int/choice/publications/p_2003_generalised_cea.pdf
 Handbook on economic analysis of investment operations. Pedro Belli, Jock Anderson, Howard
Barnum, John Dixon, Jee-Peng Tan. Operational Core Services Network, Learning and Leadership
Centre. 26 January 1998
 Cost-Effectiveness Analysis as a Method for the Evaluation of Vocational and Technical Education.
Kaufman, Jacob J., Office of Education (DHEW), Washington, DC. 10/12/1068
https://eric.ed.gov/?id=ED029983

5 Annexes
Annex A – Indicative reporting format for Concept Note, Pre-Feasibility and

Feasibility Studies
Indicative reporting format for Concept Note
WRITTEN SECTIONS
1. General information on the proposed investment project

1.1 Project’s Name
1.2. Contracting Authority
1.3. Name of Chief Budget Manager
1.4. Name of Investor (if applicable)
1.5. Total estimated costs (national currency)
1.6. Estimated duration of implementation phase (months)
2. Situation assessment and identification of possible alternative solutions

2.1. Investment objectives
2.2 Need of the investment – current and future demand, expected positive effect that are predicted by
achieving the investment and negative effects by non-doing the investment.
2.3. Alternative solutions that could respond to the identified needs.
3. Justification of the selected technical option

3.1. Criteria for selecting the project optimal option.
3.2. Description of the selected technical option and its merits versus alternative options.
4. Conceptual solution of the selected option

4.1. Information on the legal, economic and technical characteristics of land or construction.
4.2. Features of the site / sites proposed to achieve the investment.
4.3. Short technical and functional description of the investment: purpose and functions; characteristics,
parameters and technical data; specific deliverables; estimated minimum operating duration
corresponding to the destination / proposed functions.
4.4. Justification of need to develop, as appropriate, further studies.
5. Detailed budget estimates for the project

5.1. Estimated costs for the implementation of the investment considering, where appropriate:
- costs of similar investments made;
- cost standards for similar investments.
Feasibility Study Guidelines Rwanda XCIV

5.2. Estimated costs for design, phasing, technical and economic documentation related to the
investment and development of other specialised studies depending on the specific investment, including
the expenses necessary for obtaining permits, authorisations and approvals required by law.
5.3. Estimated operational costs.
6. Basic implementation plan, milestones

6.1. Procurement strategy in brief.
6.2. Duration of each implementation phase and deadlines.
7. Identification of funding and Cost Recovery Options

Source identified for financing the investment and operational costs.
8. Project’s Socio-Economic Impact

Description of socio-economic impact quantified as far as possible.
9. Justification in relation to the National Planning Framework

Present the way the Project shall contribute implementing NST1, Vision 2050 and any related national
strategy or law obligations.
DESIGNED SECTIONS
10. Conceptual Study.
Feasibility Study Guidelines Rwanda XCV

Indicative annotated reporting format for Pre-Feasibility Studies (PreFS)
Maximum length of the pre-feasibility study report excluding appendices: 30-40 pages.
The report should be structured using the headings (chapters, sections and subsections) given below. Under
each heading, explanatory notes are added to indicate the topics to be handled in that part of the report.
Two-page summary referring to background of the pre-feasibility study, period in which it was conducted
and by whom, context of the envisaged investment/intervention/project, brief description of the
investment, its location, investment promoter, the conclusions of demand and option analysis, investment
costs, brief presentation of main benefits.
2. Situation assessment and need for the investment
2.1. Relevant policies, strategies, legislation and any other reference framework
National policies/strategies affecting the sector, programmes (including sectoral objectives, strategies,
priorities and implementation mechanisms), international agreements relating to the sector which the
country has signed, policy links (including land-use policies), and legal aspects linked to the sector.
2.2. Features of the sector in the country

Institutional and administrative setting, role of resources and linkages with other sectors in the national
and local economies, all relevant revenues and financing, role of sector in environmental conservation and
protection, and key intersectoral links, condition of infrastructure in the relevant areas.
2.3. Beneficiaries and stakeholders involved

Principal stakeholders and their roles, including: resources users, non-governmental organisations
(including community-based organisations and service NGOs), private sector organisations, and relevant
Government institutions. Also, analysis of institutional arrangements and any co-ordination mechanisms.
2.4. Situation analysis and identified weaknesses

Analysis/review of problems/opportunities described in the Terms of Reference for the pre-feasibility study
or, if not described in the ToR, identification and analysis of problems/opportunities to be addressed by the
intervention. These problems and opportunities may refer to both the sector and the targeted area(s).
Relevant interventions by the Government and donors in the sector or other relevant sectors served by the
proposed project.
2.5. Documentation available

Key documents for the study such as previous studies and evaluation reports.
3. Identification of the intervention
3.1. Project description

Concise description of the project (presenting its aim, existing situation, issues it will address, facilities to
be constructed, technical and functional data of the investment, characteristics of the physical outputs such
as length, capacity by using relevant metrics etc.), a map identifying the project area and the project within
the area), components with their individual total cost estimates (without activity cost breakdown). The map
of the project area, supplemented by photo / video evidence whenever appropriate, shall be included as
technical attachment to the pre-feasibility study report as technical attachment 1.
3.2. Project purpose and demand analysis
Feasibility Study Guidelines Rwanda XCVI

Detailed description of why do the target groups and beneficiaries need the project, supported by relevant
evidence. The demand for the project should be demonstrated and quantified as far as possible.
3.3. Objectives to be achieved through the investment

Project objectives (list with short explanation) and consistency of objectives with the relevant national /
local strategies. Investment expected contribution to achieving the established objectives as well as to
support socio-economic development of the project impact area.
3.4. Project results

Description of what services will the project deliver to the target groups and beneficiaries, and which are
broadly the expected results, thus also identifying the investment’s potential benefits.
3.5. Assumptions and risks analysis

Assumptions that are to be confirmed before going for the investment are presented, along with any action
by agencies other than the investment promoter, required to support the achievement of the project
activities, results and purpose.
Capacity of the project to respond to the non-realisation of crucial assumptions that could jeopardise the
project’s success, and the extent to which these risks have been considered, are also presented.
Risk analysis shall include as appropriate: i) political and regulatory risks; institutional and administrative
capacity issues and risks; technical issues and risks; social issues and risks; environmental issues and risks;
economic and financial issues and risk. A risk prevention matrix should be developed and cost of any
feasible mitigation measures broadly estimated.
The five above sections shall be summarized through a logframe matrix of proposed project/programme
design, including intervention logic, indicators, assumptions and preconditions., attached under the
technical appendices as technical appendix 2.
3.6 Options analysis and feasible solutions to realise the investment

Presentation of the scenarios and technical-economical options for the investment analysed in order to
select the option considered for the conceptual technical solution and preliminary costing. At least the
following information should be included:
(i) Options for scale (against technical, operational, economic, environmental and social criteria) and
options for location of the proposed infrastructure, with characteristics of alternative sites;
(ii) Technological options — per component and per system;
(iii) Risks involved for each alternative, including risks related to climate change impacts and weather
extremes;
(iv) Option analysis for option without project, do minimum and the recommended solution;
(v) Indicative costs for each option (including consideration of operational costs) and CBA for the
recommended option;
(vi) Summary table containing all pros and cons for all options considered.
The criteria considered in recommending the best solution shall be presented with ranking of their
importance and method of their evaluation.
The consultations conducted on option analysis shall be also briefly presented.
A full report on option analysis shall be included under the technical appendices.
3.7 Conceptual technical solution

Description and features of the selected site.
The conceptual technical solution for the selected option is developed/designed and briefly described.
Drawings and any other technical attachments are included under technical appendices.
The solution shall be possibly developed by considering the characteristics of the site selected in the context
of option analysis.
Feasibility Study Guidelines Rwanda XCVII

4. Implementation
4.1. Physical and non-physical means

Preliminary indication of physical works, equipment, supervision, technical assistance, policy or technical
studies, monitoring and evaluation.
4.2. Organisation and implementation procedures

Choice of implementation agency, initial assignment of responsibilities, and definition of procedures
(including procurement procedures).
4.3. Time schedule

Expected project duration and phasing.
4.4 Cost estimate and financing plan

Preliminary costs by component and input, in foreign exchange and local currency, with specification of
exchange rate used, indicating the financing source where possible.
Both Investment costs and operational and maintenance costs shall be compared with similar investments,
whenever possible.
4.5. Special conditions and accompanying measures

Preliminary action for government and parties involved, including the private sector, whenever applicable
possibly even prior to launching the feasibility study. This section contains preliminary information on the
project implementation. Further information will be provided in the feasibility study during the Formulation
phase.
5. Factors ensuring sustainability
5.1. Policy support measures

The extent to which implementation of existing policy requires modification or additional policy measures
at a national and/or regional level.
5.2. Appropriate technology

The extent to which the technology and the standards proposed are compatible with: those already in use
in the country, the use of local materials and skills, the physical and financial resources of private sector
(whenever applicable).
5.3. Environmental protection

The extent to which the impact of the project on people, land use, water, air, noise, flora and fauna and
cultural heritage is consistent with agreed environmental standards and practices.
It shall be indicated whether an Environmental Impact Assessment is required for the project.
5.4. Socio-cultural and gender aspects

The degree to which the project is consistent with present socio-cultural norms and practices.
Any social issues that shall be brought about by the project such as need of expropriations and
resettlements.
5.5. Institutional and management capacity, public and private

The extent of efficiency with which relevant institutions, public and private, may fulfill their responsibilities
in the project. The eventual need for specialized consultancy shall be discussed.
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6. Preliminary financial and economic analysis
Description of economic entities included in the analysis; definition of the ‘with’ and ‘without project’
scenarios and underlying assumptions; analysis of relevant alternative scenarios; description and
calculation of benefits and costs; detailed analysis and justification of any revenues and affordability of fees
for services for low-income groups; description and justification of type and analysis performed and of the
results of the analysis; assessment of project relevance, effectiveness, efficiency and viability from the
financial and economic perspective. This section should provide confirmation that key sustainability issues
have been incorporated either in the project or as external assumptions.
7. Identification of potential sources of funding and financing
Potential sources of funding and financing shall be indicatively identified for both investment costs and
operational costs: revenues, equity, bank loans, budget allocations for state / local budget, foreign loans
guaranteed or contracted, state or external grants, and other legal sources.
8. Conclusions and recommendations
The pre-feasibility report shall conclude by recommending or not the project. In case the project is
recommended including recommendation of a specific option, the conclusions shall include proposals of
any further studies that need to be conducted to confirm the pre-feasibility findings.
Possibly, detailed Terms of Reference for the necessary further studies – such as Technical Studies,
Economic Studies, Environmental and Social Studies – shall be developed by the pre-feasibility consultants.
The above-mentioned ToR shall be attached to the pre-feasibility report.
9. List of Appendices
Appendices to the pre-feasibility report shall include both technical and administrative annexes.
9.1. Technical appendices to the pre-feasibility report
1. Map of the project area supplemented by photo / video evidence.

2. Logical framework matrix of proposed project/programme design, including intervention logic,
indicators, assumptions and preconditions.
3. Full options analysis report: analysis of the options for the project/programme design, incorporating
feasibility and sustainability. Analysis of the relevance of the preferred option (the project), which is the
basis for the conclusions.
5. Other technical appendices, including at least the Conceptual Study of the preferred option, Location
Plan, Situation Plan.
6. Terms of Reference for further studies (Feasibility Studies, Environmental Impact Assessment).
9.2. Administrative appendices to the pre-feasibility report
1. Terms of Reference for the pre-feasibility study (as prepared by the project promoter/investor).
2. Study methodology/work plan prepared by the consultant (2-4 pages).
3. Consultants’ itinerary (1-2 pages).
4. List of persons/organisations consulted and dates of consultations (1-2 pages).
5. Minutes of relevant consultation meetings (length as appropriate).
6. Literature and documentation consulted (1-2 pages).
7. Curricula vitae of the consultants (max 1 page per person).
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Indicative annotated reporting format for Feasibility Studies
To be used as an input for contracting services related to preparation of Feasibility Study reports.
Maximum length of the feasibility study report excluding appendices: 120-150 pages.
The report should be structured using the headings (chapters, sections and subsections) given below. Under
each heading, explanatory notes are added to indicate the topics to be handled in that part of the report.
0. Separate Executive Summary
Ten to thirty pages summarising each chapter of the Feasibility Study.
Two to five pages summary referring to background of the feasibility study, period in which it was
conducted and by whom, context of the envisaged investment/intervention/project, brief description of
the investment, its location, investment promoter, the conclusions of demand and option analysis,
investment costs, brief presentation of main benefits.
2. Presentation of the context (Step 1)
This assessment requires the definition of the social, economic, political and institutional context. The key
features to be described relate to:
(1) the socio-economic conditions of the country/region that are relevant for the project;
(2) the policy and institutional aspects, including existing economic policies and development plans with
their policy objectives;
(3) the existing situation i.e. description of existing infrastructure and service provision, use/objective of
the infrastructure;
(4) the weaknesses of the existing situation; particular emphasis should be made on the territorial needs
addressed by the project;
(5) the perception and expectations of the population with relation to the service to be provided.
3. Definition of objectives and logic of intervention (Step 2)
3.1. Strategic Planning and Project Specific Objectives
This section shall clearly demonstrate the needs and relevance of the project.
Clear objectives shall be defined for the project in order to verify that the investment responds to an
existing need and to assess the results and the impact of the project. As far as possible the objectives should
be quantified through indicators with baselines and target values.
The definition of the objectives shall be used to identify, where possible and appropriate, the project
benefits in order to assess contribution of the project to welfare and to achieving the specific objectives of
the national policies, strategies, plans and or/programmes in reference.
3.2. Contribution to socio-economic development
This section shall describe the project’s contribution to socio-economic development. Topics to be
addressed may include:
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 How does the project contribute to socio-economic development (i.e. sustainable growth,
environment, innovation, education, (sustainable) mobility, health, etc.)?
 Have the expected socio economic trends at country/regional level been assessed?
 Is the project specifically addressing them?
3.3. Measures to ensure optimal utilisation of the Project
 This section shall present the measures taken to ensure optimal utilisation of the infrastructure in
the operational phase. In particular:
 What are the organizational measures adopted?
 What are the operational measures?
 Are these measures in line with demand projections?
 Is there any competing infrastructure planned to be built or legislative issues that may threaten
the assumed utilisation of project assets?
4. Identification of the project (Step 3)
The identification of the project shall take place considering the following:
(1) The project needs to be clearly identified as a self-sufficient unit of analysis, that is, technical lots or
administrative or financial phases that cannot be regarded as being operational in themselves, shall be
analysed together with other phases comprising a project. Project activities shall be described.
(2) A concise description of the project shall be given including facilities to be constructed, characteristics
of the physical outputs such as length, capacity by using relevant metrics etc.
(3) Project location should be described a map identifying the project area and the project within the area,
supplemented by photo / video evidence whenever appropriate, shall be included as technical attachment
to the feasibility study report.
(4) The impact area, final direct beneficiaries and relevant stakeholders whose welfare counts in the
aggregation of net benefits shall be considered. Stakeholders analysis and their roles shall include:
resources users, non-governmental organisations (including community-based organisations and service
NGOs), private sector organisations, and relevant Government institutions; analysis of institutional
arrangements and any co-ordination mechanisms.
(5) The body responsible for implementation is identified and its technical, financial and institutional
capacities analysed.
5. Results of feasibility studies with demand and option analysis, technical feasibility and
environmental sustainability (Step 4)
5.1. Demand analysis
Detailed description of why do the target groups and beneficiaries need the project, supported by relevant
evidence. The demand for the project should be demonstrated and quantified as far as possible. The
demand analysis shall identify and quantify the social need for the investment and consider as a minimum:
 the current demand, by the use of models and actual data;
 the future demand, from macroeconomic and sector forecasts and elasticity estimates of demand
to relevant prices, income, and other core determinants;
 supply side aspects including the analysis of existing supply and expected (infrastructure)
developments.
Current Demand Analysis / Base Case. The following topics should be addressed, if applicable:
• Historical trends in terms of volumes (and prices if relevant) in the targeted markets
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• Sector analysis (if relevant)
• Current situation, historical and market share (including competition)
• Promoter's marketing/sales/distribution organisation and its planned evolution.
• Pricing policies
• Capacity constraints.
Future Demand Analysis. The promoter’s demand projections shall be discussed in light of:
• Socioeconomic and demographic trends
• Market trends and other relevant elements
• Promoter's competitive advantages/disadvantages
• Demand projections
• Capacity aspects
• Changes in pricing policies
• Economic life span of the project
• Other assumptions used.
5.2. Option analysis
 List of alternative strategies identified to achieve the intended objectives (i.e. type of infrastructure
and location for the project); description of the selected strategy and, if applicable, methodology
applied for its selection.
 Identified options in line with the strategy to achieve intended objectives; criteria used to screen
and identify the most suitable option (e.g. Multi-criteria analysis / criteria used and approach for
ranking/comparing; simplified CBA if alternatives present different outputs, externalities and
environmental impacts; or least cost solution if alternatives have the same, unique, objective and
similar externalities).
 Option analysis for at least option without project, do minimum and the recommended solution.
CBA performed for at least the three options.
 Comparison of the specific technological solutions for the selected option (including in the context
of EIA/SEA procedures).
 Final option(s) chosen and description of the promoters’ justification.
5.3. Technical description and engineering aspects
 Site characteristics.
 Infrastructure characteristics of site and requirements (roads and transport, communications,
water supply, sewerage system and electricity provisioning, heating, coaling and ventilation
system, waste disposal, energy requirements.
 Type of works (i.e. new infrastructure/plant, rehabilitation, upgrade/modernisation) and their
suitability of the works to cope with requirements (demand, regulations, safety, etc.).
 Scope of the works and its main components.
 If the project is a stage/phase of a larger investment the broader works scope should be described.
 Particular engineering / technological aspects.
 Engineering / technological risks and, if applicable/relevant, the adopted mitigation
measures/factors.
5.4. Project costs
Investment Costs
 Total investment cost and detailed cost breakdown.
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 Individual project elements and unit costs, including cost of measures taken to address negative
environmental impacts, if any.
 Level of accuracy of costs estimates i.e. whether the costs are based on basic/detailed design, or
pre/post tendering estimates, or contractual estimate (the most recent cost information should be
used).
 Deviations from original estimates (feasibility / application) after tendering/contracting, if
applicable.
 Specify the exchange rate used.
Operational Costs
 Current operation and maintenance costs; changes in operation costs after the project
 Operating and maintenance unit costs of investment.
5.5. Environmental considerations including EIA and climate change
 Analysis of environmental analysis requirement (environmental screening)

 Climate Change Mitigation and Greenhouse Gas Emissions
 Summary and conclusions on the environmental impact assessment (if required)
5.6. Plan for implementation of the project
Procurement Process
 Type of envisaged procurement.
 Status of procurement process.
Implementation Schedule
 Location and building permits requirement and status.
 Implementation schedule with time-table including planning if applicable.
 Identified phases and the optimal set-up from effectiveness and efficiency point of view.
Physical and Financial Indicators to Monitor Implementation

 Physical and financial indicators for monitoring the progress of the project and their expected
values (e.g. indicate the expected annual and cumulative percentage of physical completion of the
project, which normally differs from the financial one, and include a link to the project web site, if exists).
5.7. Plan for operation of the project

 Legal status of promoter and other entities participating in the project
 Organisational Structure
 Monitoring structure and arrangements
 Experience with similar projects
 Human Resources
 Human resource requirements
 Recruitment needs (if applicable)
 Personnel Hiring and Training (if applicable)
 Consultancy required support
5.8. Institutional capacity and capability

 Technical capacity and experience of the planning, implementing and operating bodies.
Description of management structure during implementation and operation. If applicable,
describe the use of external technical assistance during planning, implementation and operation.
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 Legal organisation of the implementing and operating bodies (private or public bodies,
institutional setup of bodies’ legal services, contractual arrangements for implementation and
operation, expropriation rights, open legal procedures, etc.).
 Key financial parameters (Project Measures) and the existing position of the implementing and
operating bodies (adequacy of available funds to finance the implementation of the project,
financial sustainability during implementation and operation, financial capacity of implementing
and operating body/bodies – available info on external risk ratings)
 Administrative and project management arrangements and experience to implement and operate
the project. If applicable, describe the use of external technical assistance, PIUs and other
arrangements aiming at capacity enhancement.
6. Financial analysis (Step 5)
Methodology and parameters

 Use of the discounted cash flow method (exclusion of contingencies, depreciation and other
accounting items from profitability calculations).
 Incremental approach against the counterfactual without-the-project scenario.
 Reference period and price base year.
 Choice of financial discount rate (where rates alternative than MINECOFIN recommended one are
used, the promoter’s justification shall be provided).
 Use of constant vs. nominal prices.
 Adoption, where feasible, of a consolidated owner-operator approach.
 Allowance for inclusion (non-recoverability) of VAT in the financial analysis.
 Calculation of residual value.
Tariffs and affordability analysis, whenever relevant

 Strategy for setting users charges/fees/tariffs, proposed tariff structure and consistency with
national/regional pricing polices.
 Consistency with polluter pays and full cost recovery principles (include available supporting
evidence).
 Social acceptability of tariffs and tariff increases (affordability analysis), when relevant, including
eventual measures to manage the cost recovery vs. affordability trade/off.
Financial profitability
 Cash-flows for project costs and revenues, including residual values
 Financial performance of the project (is the project in need of co-financing?), main financial
indicators.
 Check of financial profitability calculations and In case of private partners involved, calculation of
return on private capital and comparison with financial profitability benchmarks in the sector.
Financial Sustainability
 Demonstration of financial sustainability at project level (positive cumulated net cash flow over the
reference period).
 Inclusion of all inflows (sources of financing, operating revenues, transfers, subsidies and other
financial gains) and outflows (debt service costs, short life-time asset renewals and direct taxes in
cash flows).
 In case of project not financially sustainable by itself, description of under which mechanisms and
arrangements the required funds will be ensured.
 Sources of public subsidies, if any, either for operations or asset renewals at national/regional/local
level.
Feasibility Study Guidelines Rwanda CIV

Sources of Funding and Financing
Potential sources of funding and financing shall be indicatively identified for both investment costs and
operational costs: revenues, equity, bank loans, budget allocations for state / local budget, foreign loans
guaranteed or contracted, state or external grants, and other legal sources.
7. Economic analysis (Step 6)
Methodology and parameters

 Macroeconomic assumptions used and consistency with those used in other parts of analysis.
 Choice of social discount rate in line (where rates alternative to the MINECOFIN recommended one
are used, the promoter’s justification shall be provided).
 Discussing (i) price base year used, (ii) reference period used in analysis and (iii) confirm use of
constant prices.
Fiscal corrections, from market to shadow prices

 Conversion from financial to economic prices, explaining how fiscal adjustments were made and
conversion factors applied.
 Calculation of economic residual value.
Evaluation of non-market impacts (socioeconomic benefits and costs)

 Identification of direct benefits and methods used for monetary evaluation.
 Assumptions (unit values, parameters, growth factors, etc.) underpinning direct benefits
identification and evaluation.
 Evaluation of environmental, climate change mitigation and other external benefits/costs.
 If applicable/available, results of the analysis of the distributional effects of the project (i.e. analysis
of the project impact on the welfare across users and other stakeholders).
 Qualitative description of non-quantifiable/ non-monetary benefits and costs, where applicable.
Economic viability
 Results of the economic viability calculations: ENPV, ERR and B/C ratio.
8. Risk assessment (Step 7)
Project Risk Management Process

 Process / approach for identification of adverse events to which the project is exposed (including
climate change dimension or make reference to the climate change chapter).
 Strategy of the promoter to cope with such eventual adverse events (and in particular how the
investment will be completed and functioning within expected applicable and allowable period
framework).
Qualitative risk analysis and Prevention/Mitigation Matrix

 Risk matrix provided by the promoter including the assessment of acceptable levels of risk and/or
categorisation of risks. Risk analysis shall include as appropriate: political and regulatory risks;
institutional and administrative capacity issues and risks; technical issues and risks; social issues
and risks; environmental issues and risks; economic and financial issues and risk.
 Details of the possible causes of occurrence and the negative effects generated on the project.
 A description of mitigation and/or prevention measures for the main risks identified by the
promoter.
Sensitivity of Economic and Financial Analyses

 Identification of variables to be tested under sensitivity analysis.
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 Ranges used for the sensitivity test.
 Identification of the critical variables.
 Calculation of switching values correctly performed.
Probabilistic Risk Analysis

Results about the robustness of project’s financial and/ economic performance, based on the quantitative
(probabilistic) risk analysis performed.
9. Conclusions and recommendations (Step 8)
The feasibility report shall summarise the conclusions of the feasibility analysis and recommend, or not
recommend, the project.
10. Annexes
Technical appendices
Design and Drawings: Preliminary Design.
Map of the project area supplemented by photo / video evidence.
Logical framework matrix of proposed project/programme design, including intervention logic, indicators,
assumptions and preconditions.
Full options analysis report: analysis of the options for the project/programme design, incorporating
feasibility and sustainability. Analysis of the relevance of the preferred option (the project), which is the
basis for the conclusions.
Other Annexes such as EIA Report, Compensation Report, and various studies (depending on the subject
of the Feasibility Study).
List of documentation consulted for the study, such as previous studies and evaluation reports.
Administrative appendices
Terms of Reference for the feasibility study (as prepared by the project promoter/investor and agreed
during the Inception Phase).
Study methodology/work plan prepared by the consultant (2-4 pages).
List of persons/organisations consulted and period of consultations (1-2 pages).
Minutes of relevant consultation meetings (length as appropriate).
Literature and documentation consulted (1-2 pages).
Curricula vitae of the consultants (max 1 page per person).
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Annex B – Terms of Reference for contracting services for preparation of Feasibility Study Reports
1. Background of the Assignment
1.1. Foreword
(Text to be developed by Contracting Authority (CA, or Client) for consultancy FS & CBA services): Put the
project and the investment in context.
In addition to the Feasibility Study with CBA, Technical Documentation for construction shall be prepared.
The documentation shall be prepared by experts selected according to the procurement rules of the project
promoter (or donor), under a separate contract.
1.2. Project Overview

(Text to be developed by Contracting Authority (CA, or Client) for consultancy FS & CBA services):
The Beneficiary shall be briefly presented together with the basis of the intention of the project and the
overall and specific project objectives.
Key stakeholders of the project shall be listed.
Location and concise project description shall be provided.
2. Objective of the Assignment

The overall objective is to carry out a detailed assessment to determine the overall feasibility of
implementing the Project.
The specific objective of this assignment is to support the initial development of the Project through the
provision of expert's preparation of a Feasibility Study with Cost-benefit Analysis.
Implementation of activities envisaged under this contract shall result in high-quality professional and
technical basis for preparation of options and selection of the most favourable solution, that are technically
and operationally compliant with all applicable standards and good practice, economically and
operationally sustainable and socially affordable in Rwandan circumstances.
The objective is to ensure the most cost-effective project development that would generate the biggest
socio-economic (therefore not solely financial) benefits. The Consultant shall therefore select the most
cost-effective solution of the options for the economic project lifetime for which it is reasonable to expect
that it shall be approved for assistance by national authorities.
Specific objectives are:

 to establish the technical, economic, environmental and social feasibility of the Project,
 to estimate the cost of implementing the project,
 to prepare CBA,
 to prepare Environmental Management Plan (EMP) - check list,
 to prepare Technical Documentation Review,
 to prepare implementation and procurement schedule for the project.
The Consultant shall:

 Keep the Contracting Authority informed of progress and any issues that arise;
 Work closely with the Beneficiary / end recipient of the infrastructure;
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 Regularly and frequently consult with and inform all key stakeholders during the implementation
of the Project.
The following outputs will be provided by the Consultant:

A. Feasibility Study (FS)
B. Cost-benefit Analysis (CBA)
C. Technical Documentation Report (TDR)
The Feasibility Study must prove the selection of the most favourable solution in terms of technical-
technological and financial-economic aspects.
The Cost-benefit Analysis and the Technical Documentation Report must be prepared as an integral part of
the Feasibility Study.
3. Scope of Services, Tasks and Expected Deliverables

The following are the specific activities to be carried out by the Consultant:
 Prepare Analysis of the current state - Review of all existing information, reports and studies
relevant to the Project
 Prepare the Demand analysis
 Prepare one planned and at least two alternative options of implementing the Project
 Do a comparative ranking for all the projects options based on the economic and financial analysis
and recommend the best alternative and its implementation plan.
 Determine an implementation of the time schedule for the Project,
 Prepare a procurement plan,
 Prepare a cost estimate for the main civil works, by using the Bill of Quantities provided by the
designers,
 Prepare a detailed list of equipment with the cost estimate,
 Prepare the Cost-benefit Analysis (CBA),
 Prepare Environmental Management Plan (EMP) - check list,
 Identify all risks to the Project and suggested mitigation plans. The Consultant shall also identify
risks related to revenues and costs and conduct relevant sensitivity analyses on the financial results
with respect to changes in several key variables. The consultant shall prepare an overall risk
management matrix for mitigating identified risks and unknowns during planning stage,
procurement stage, construction stage, commissioning, defects liability, and operation period.
 Prepare a draft Feasibility Study for review and discussion – the Study shall integrate all available
technical and social environmental information and identify any gaps for further consideration,
 Prepare a Final Feasibility Study Report considering the client’s and other stakeholder’s comments,
 Prepare a separate Executive Summary of the Final Feasibility Report outlining the principal of the
project, cost of the basic components, economic and technical justifications and the social and
environmental assessment of the Project,
 Prepare Technical Documentation Review (TDR) - detailed review of existing project
documentation and supporting documents with Technical Documentation Report, with
recommendations for improvement,
 Prepare the Guidelines for Sustainable Building Design and Construction (if applicable).
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3.1. Results to be achieved by the Consultant
A. Feasibility Study
The Feasibility Study shall provide the factual inputs for defining the appropriate scope of the project and
will outline the financial, institutional and organisational needs for the construction and operation of the
Project based on a consultative process among the different stakeholders.
As a general principle, the Feasibility Study shall conclude about the technical-technological, organisational
and economic feasibility of the Project as compared to the relevant international benchmarks for such
activities and to inform decision-makers whether the planned project represents the best use of the funds
available.
The Feasibility Study must be prepared with all necessary background documents, annexes and
documentation in accordance with applicable legal requirements and methodologies agreed with the
Contracting Authority during the Inception Phase.
The Feasibility Study result depends on the Demand analysis i.e. assessment of past and future demand
(forecast), which is a pre-requisite for the CBA and the main determinant of its quality.
The structure and contents of the Feasibility Study shall be compliant with the instructions provided by the
Contracting Authority during the Inception Phase (Text to be developed by Contracting Authority for
consultancy FS & CBA services, with specifications for the relevant sector of investment).
B. Cost-benefit Analysis
The Consultant shall provide full CBA taking into consideration one planned and at least two alternative
options of implementing the project. Financial analysis is one of the basic analyses in the Feasibility Study,
and shall be given appropriate priority.
The minimum requirement is that the project must be sustainable over its economic lifetime i.e. there must
be a flow of future revenue sufficient to cover operating and maintenance costs, including investment
maintenance. There is, however, a second aspect of the financial analysis which is of critical importance;
this is to estimate the level of subsidy which is required to make the project financially viable. The rationale
for public funding is that infrastructure projects cannot cover all of the investment cost and the future
operating and maintenance cost from future revenue. The estimated future flow of revenue must, at the
least, cover annual operating costs but it can also cover some part of the capital cost of the new investment,
in the sense that the flow of revenue can repay a loan to a bank or some other institution. However, there
may be some percentage of the capital cost which cannot be met by future revenue and which requires a
subsidy to make the project financially viable over its lifetime.
Option analysis shall focus on the following key aspects of selecting the best option:
 properly justification of the solution sought, including evidence that the selected option is the
optimal one of the various options considered during the technical feasibility study;
 if different alternatives have the same, unique objective and the same or very similar externalities,
the selection shall be based on the least cost solution per unit of output produced considering the
long term operating and maintenance costs associated with the option;
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 if the output and externalities are different in different options (assuming all share the same
objective), a simplified CBA shall be undertaken for all main options to select the best option by
determining which option is more favourable from a socio-economic point of view and the selection
should be based on economic parameters of a project, including its Economic Net Present Value
(ENPV). The simplified CBA shall be carried out based on approximate estimates of key financial
and economic data, including demand, investment cost and operating costs, revenues, direct
benefits and externalities, where relevant.
Presentation of the options analysed in order to select the option considered for the technical solution and
costing shall include at least the following information:
1. Options for scale (against technical, operational, economic, environmental and social criteria) and
options for location of the proposed infrastructure;
2. Technological options — per component and per system;
3. Risks involved for each alternative, including risks related to climate change impacts and weather
extremes;
4. Cost estimate for each option (including consideration of operational costs);
5. Summary table containing all pros and cons for all options considered.
The criteria considered in recommending the best solution shall be presented with ranking of their
importance and method of their evaluation. The consultations conducted on option analysis shall be also
briefly presented. A full report on option analysis shall be included under the technical appendices.
The financial model must contain sensitivity and risk analyses. The Consultant shall identify the key
variables to which the financial model is sensitive. A series of scenarios shall be developed in order to test
the sensitivity of the project to the changes in the key assumptions that are the basis of those variables.
The economic impact of the project shall be described in quantitative terms as much as possible. Economic
benefits, together with social benefits generated through the project, shall be described, and project
beneficiaries identified. If it is possible to quantify all relevant costs and benefits, then the results of the
analysis shall be presented using the recognised criteria such as the economic internal rate of return, net
present value, and cost-benefit ratio.
The financial and economic analyses shall be prepared in accordance with the MINECOFIN Guidelines for
Feasibility Studies of projects at central Government level in Rwanda.
C. Technical Documentation Review - review of existing project documentation and supporting documents
& Technical Documentation Report
The Consultant shall provide a detailed review of technical documentation and supporting documents for
the planned option. On the basis of the review, Technical Documentation Report will be drafted.
The Technical Documentation Report shall particularly contain:
 Guidelines to designers in order to carry out design process,
 Recommendations for improvements/optimisation of project’s documentation,
 Guidelines for Sustainable Building Design and Construction with recommendations for
sustainability measures (to be confirmed during the Inception Phase).
Guidelines for Sustainable Building Design and Construction will be drafted. The main objective of
sustainable design is to reduce, or completely avoid, waste of critical resources like energy, water and raw
materials; prevent environmental degradation caused by facilities and infrastructure throughout their life
Feasibility Study Guidelines Rwanda CX

cycle; and create built environments that are usable, comfortable, safe and productive. Buildings use
resources (energy, water, and etc.), generate waste and emit potentially harmful atmospheric emissions.
Building owners, designers and builders face a unique challenge to meet demands for new and renovated
facilities that are accessible, secure, healthy and productive while minimising their impact on society, the
environment, and the economy. The Guidelines for Sustainable Building Design and Construction shall
result in net positive benefits to all three areas (society, the environment, and the economy).
The approach is intended to apply an integrated design methodology. All stakeholders shall be involved to
contribute their understanding of how the building and its systems will work and benefit to the whole
Community. It is imperative that the major decision-maker allows participation of all of the stakeholders,
who are affected by the design.
D. (Optional:) Assistance to completing funding applications

As an additional option, assistance to completing funding applications (project descriptions, context,
objectives, results of financial and economic CBA and risk and sensitivity assessments, etc) can be requested
from the Consultant.
4. Team Composition & Qualification Requirements for the Key Experts

The following criteria will be applied to all Consultants who submit a proposal. In case of applications
submitted by a Joint Venture (JV) these selection criteria will be applied to the JV as a whole.
In case you are short listed for another assignment at the same time, when proposing full time staff for any
of the assignments, those full-time staff shall be different for each assignment. Proposing the same full-
time staff for more than one assignment at the same time may result in the rejection of the technical
proposal.
4.1. Team Composition - Key Experts

Alternative professional staff shall not be proposed, and only one in curriculum vitae (CV) may be submitted
for each position. All experts who have a crucial role in implementing the contract are referred to as key
experts.
The Consultant will make Expert No. 1 – Team Leader

available the following Key Expert No. 2 – Buildings and Infrastructure project expert
experts: Expert No. 3 – Sectoral Expert
Expert No. 4 – Financial Expert - Expert for financial and economic analyses
Expert No. 5 – Environmental Expert
Expert No. 6 – Land expropriation and resettlement Expert
4.2. Qualification Requirements

Since the service to be provided by the Consultant is highly specialised, the Consultant’s team shall consist
of persons that have experience in the preparation of feasibility studies and CBA in the field of …………. To
be inserted for similar types of infrastructure projects.
The consultants are requested to indicate (by marking with A, B, C, etc.) which periods/projects listed in the
expert’s CV correspond with the requirements A, B, C, etc.
One reference may cover 2 or more requirements. The consultant shall support listed projects for key
experts with appropriate evidence for at least 3 projects.
Key expert 1: Team Leader – leader in preparation of Feasibility study and coordinator of the contract
implementation
Input
Feasibility Study Guidelines Rwanda CXI

The team leader is responsible for the overall contract coordination and quality control of contract
implementation. S/he will ensure that the engagement of short-term experts is agreed with the contracting
authority and that they are engaged on time to deliver the project outputs.
Qualifications and skills

 Master’s Degree Academic level (University level education in duration of at least 4 years) in Civil
Engineering or Architecture
 Good organisational and coordination skills
 Working knowledge of English.
 Advantage: Master of Business administration degree
General professional experience

 Requirement A: At least 10 years of general professional experience in infrastructure projects in
the Project sector,
 Requirement B: Minimum 5 years of experience in preparation of feasibility studies in the Project
sector intended for International Financial Institutions (IFI) funding.
Specific professional experience

 Requirement C: Experience as a team leader in preparation of feasibility studies or business plans
on at least 2 projects funded by IFIs in the last 7 years.
 Requirement D: At least 2 projects completed in the preparation of feasibility studies for buildings
and infrastructure projects.
 Requirement E: Knowledge of official languages of Rwanda.
Key expert 2: Buildings and Infrastructure projects expert – design engineer
Input
The expert will be responsible for the coordination and management for preparation of Technical
Documentation Report and option analysis activities for the projects.
Qualifications and skills

 Master’s Degree Academic level (University level education in duration of at least 4 years) in
Architecture
 Working knowledge of English
 Advantage: certified by the Rwandan Chamber of Architects/Engineers.
General professional experience

 Requirement A: 10 years of professional working experience infrastructure projects,
 Requirement B: Minimum 5 years of experience in preparation of feasibility studies and designs for
infrastructure projects intended for International Financial Institutions (IFI) funding
Specific professional experience

 Requirement C: Experience in preparation of feasibility studies on at least 2 projects in the last 7
years,
 Requirement D: At least 2 projects completed in the preparation of feasibility studies and project
applications intended for IFI co-financing in the Project sector,
 Requirement E: Experience in the design of at least 1 infrastructure project in the Project sector,
 Requirement E: Knowledge of official languages of Rwanda.
Key expert 3: ……………
Feasibility Study Guidelines Rwanda CXII

4.3. Other experts, support stuff & backstopping

CVs for experts’ other than the key experts shall not be submitted in the tender. The Consultant shall select
and hire other experts as required according to the needs. The selection procedures used by the Consultant
to select these other experts shall be transparent, and shall be based on pre-defined criteria, including
professional qualifications, language skills and work experience.
All experts should have as a minimum requirement a university degree, at least five (5) years’ work
experience, be fluent in English, and proven experience in the field(s) relevant for their specific projects,
and work experience in Rwanda will be an asset.
Cost for backstopping and support staff, as needed, are considered to be included in the financial offer of
the consultant. The Consultant should provide adequate administrative staff (i.e. secretary, translator,
interpreter, accountant) needed to support the expert team in order to assure the quality of all its activities
and outputs.
Consultants are reminded that communication with local Final Beneficiaries will mainly be in English.
Therefore, if necessary, the Consultant has to hire respectively qualified experts or must provide
interpretation and translation services which must be covered by the contract price.
5. Reporting Requirements and Time Schedule for Deliverables
5.1. Reports
The Consultant shall prepare and submit to CA (Client) the following documents and reports:
1. Draft Inception Report 4 hard copies; 4 digital copies

2. Final Inception Report 4 hard copies; 4 digital copies
3. Technical Documentation Report 4 hard copies; 4 digital copies
4. Implementation and procurement plans 4 hard copies; 4 digital copies
5. Financial and economic analysis 4 hard copies; 4 digital copies
6. Draft Feasibility Study Report 4 hard copies; 4 digital copies
7. Final Feasibility Study Report 6 hard copies; 6 digital copies
8. Executive Summary FS 6 hard copies; 6 digital copies
9. Final Funding Application 4 hard copies; 4 digital copies
10. Monthly Progress Report 2 hard copies; 2 digital copies
All digital copies should be editable versions: Word files, Excel sheets including formulas, drawings DWG
files. The financial model shall be prepared by using MS excel and organised through several sheets
including at least the following ones: 1. Summary; 2. Assumptions and Results; 3. Demand; 4. CAPEX
(including all CAPEX inputs); 5. Residual Values; 6. BAU. 7. OPEX; 8. Revenues; 9. Financial Analysis; 10.
Financial Sustainability; 11. Economic Costs; 12. Economic Benefits; 13. Economic Analysis; 14. Sensitivity
testing; 15. Monte Carlo simulations.
The MS excel copy of the financial model shall be provided with traceable formula format, which clearly
sets out all assumptions made, sensitivity analyses carried out, and key outputs in support of the various
analyses and conclusions.
Note: a maximum number of words or pages (combined with prescribed font size and line spacing) can be
given to prevent the Consultant from providing too long report texts.
Feasibility Study Guidelines Rwanda CXIII

5.2. Time Schedule
The assignment is expected to take a maximum of xxxx (xx) months and documents and reports should be
reported as follows:
1. Draft Inception Report 1st month (schedule to be adjusted by Contracting Authority)
2. Final Inception Report 2nd month
3. Technical Documentation Report 8th month
4. Implementation and procurement plans 9th month
5. Financial and economic analysis 13th month
6. Draft Feasibility Study Report 14th month
7. Final Feasibility Study Report 15th month
8. Executive Summary FS 15th month
9. Final Application 15th month
All documents shall be prepared in English. The Consultant must include the costs of translation in his Bid
price.
The printed and bound documents and their digital versions must be identical and should allow printing of
additional copies from the digital versions, if necessary, completely identical to the printed copies. The
digital versions shall be made in PDF format. Aside from the PDF format, the Consultant shall also ensure
and provide to the CA (Client) the complete documents in the original formats in which they were prepared,
which can be altered and supplemented by the CA (Client).
At the end of the assignment Consultant will prepare a Final Report and deliver it to the Client.
The Contracting Authority (Client) has to give his comments / approval on each of the Consultant’s
deliverable within 15 days, the latest.
During the Inception Phase, the Contracting Authority shall provide detailed instructions regarding the
format and editing of the Feasibility Study Report and all its attachments including font/font size of text
and footnotes, indentation, format of tables, charts and figures (editing of titles, sources etc.), automatic
table of contents, list of sheets for excel sheets, etc.
An indicative Table of Contents of the Feasibility Study Report is provided in attached to these Terms of
Reference.
6. Client’s Project Team and Inputs

For project monitoring purposes, the Client has established a Project Team. The Consultant is obliged to
closely cooperate with the Project Team, ensure constant contact and be prepared to promptly make
potential corrections in the prepared documents.
The Project Team shall assist the Consultant to collect the necessary background documents, organise
working meetings and potential presentations, as well as to ensure the necessary reviews. The Project Team
shall also ensure other necessary support to the Consultant in contract implementation.
The Client undertakes to submit to the Consultant the necessary input data and background documents
(available to the Client) for project implementation, as well as to ensure the necessary points of contact in
the utility company and the unit of local self-government when collecting the necessary information for the
purposes of performing the activities required for the project.
The Client shall make available to the Consultant information’s, reports, documents, etc., related to the
execution of the Services. All documents related to the Services are, and will remain Client’s property until
completion of the Services. The Consultant cannot use or dispose of his documentation without previous
Client’s written consent.
Feasibility Study Guidelines Rwanda CXIV

Available documents relevant for the Project:
<list to be inserted>
7. Other relevant information

The Consultant shall attend working meetings which will be held during contract implementation, upon the
Client’s invitation. The Consultant shall also attend and actively partake in the presentation of individual
project phases. The Consultant shall, for the needs of the meeting, take part in the preparation of
documents and presentations required, take part in these, and present his work.
The key staff defined in ToR shall take part in all the key meetings, as well as in the presentations of
activities.
The Consultant shall cooperate with the authors of previously prepared technical documents, relevant for
the preparation of the documents covered by these Terms of Reference, and participate in working
meetings upon the Project Team’s invitation.
The Client shall, at the request of the Consultant, make available all previously prepared design documents.
8. Improvement of ToR
The Consultant may offer suggestions and improvements in the Terms of Reference, which would from
Consultant’s perspective result in better implementation of the Project.
If accepted, such proposals will form part of the Terms of Reference of the proposals submitted by the
consultant. The effect on the time and cost estimates given under the above clause shall be clearly
identified.
9. Contact person in PIU

The contact person for the Consultant in the Project Implementation Unit (PIU) of the Ministry of… is….
<please add name and contact references>.
Feasibility Study Guidelines Rwanda CXV

Annex C – Establishing the discount rate
C.1 Discount rates in Rwanda

The discount rates to be used in feasibility studies of project to be submitted for funding to MINECOFIN are
set at:
 Financial discount rate: 13%
 Social discount rate: 13% (indicated as EOCK under National Parameters on the MINECOFIN
website35)
Both are expressed in real terms, as the financial and economic analysis are expressed in real terms too.
The FDR is the opportunity cost of capital and is valued as the loss of income from an alternative investment
with a similar risk profile. The FDR in Rwanda is based on the lending rate of the National Bank of Rwanda,
which ranged between 16.8% and 17.6% in the previous year36. As this is a nominal rate, it was corrected
for inflation of about 4%37, giving an FDR of 13.3% or rounded 13%. Another approximation could be based
on the interest rate on T-bonds, which indicates the cost of raising capital by the government. While these
are not issued regularly, an approximate level can be obtained for the past 3 years, where T-bonds for 10
years have been issued at 13% in 2015 and for 15 years at 13.5% in 2016.
The social discount rate for Rwanda was established by Cambridge Resources International Inc, in a study
commissioned by MINECOFIN38. The approach applied is based on the view that the ‘marginal’ source of
funds for both the public and private sectors is usually borrowing via the capital market, which corresponds
with the social opportunity cost of capital method mentioned in section D.3. The resulting EOCK (or SDR) is
12.93%, or 13% if rounded. Comparable SDR rates as in Rwanda have been found for other African
countries, for instance an SDR of 12.77% for Kenya39 and an SDR of 11.08% for South Africa40.
C.2 Theoretical background of establishing the social discount rate41

The main methods currently used to calculate the social discount rate are:
1 the social rate of time preference
2 the social opportunity cost of capital.
The first approach is based on the argument that public investment reduces private consumption and thus
equates the social discount rate to a rate of time preference, usually estimated with the Ramsey formula,
which implies that the social rate of time preference equals the intertemporal discount rate plus the
consumption growth rate times the elasticity of the marginal utility of consumption.
35 http://rwanda-cscf.cri-world.com/
36
Interest rate structure up to October 2017, National Bank of Rwanda, 3 November 2017
37
October 2017 CPI Inflation, National Bank of Rwanda, on: https://www.bnr.rw/index.php?id=163
38
Final Report on the Estimation of Rwandan National Parameters for Economic Appraisal of Investment Projects, Cambridge
Resources International Inc, 22 July 2014
39
Estimating the Economic Opportunity Cost of Capital for Kenya, Roksana Ghanbariamin, February 2015
40
Cost-benefit analysis for investment decisions – Chapter 8: the economic opportunity cost of capital, Jenkins, G., Kuo, C., and
Harberger, A., 2011
41
The Social Discount Rate in Developing Countries, Missaka Warusawitharana, 9 October 2014 on FEDS Notes (See:
https://www.federalreserve.gov/econresdata/notes/feds-notes/2014/the-social-discount-rate-in-developing-countries-
20141009.html)
Feasibility Study Guidelines Rwanda CXVI

The second approach is based on the argument that public investment crowds out private investment one-
for-one and, as such, the discount rate is estimated based on the pre-tax real rate of return for private
investment, typically estimated using returns to private capital. Based partly on this approach, leading
development banks, such as the World Bank and the Asian Development Bank, typically apply a real
discount rate in the range of 10% to 12% percent when evaluating projects in developing countries. Many
government agencies in these countries follow such guidelines and apply a similar discount rate when
evaluating public projects.
There is increasing debate on the level of SDRs applied to public investment projects. Economists point out
that there is a risk to applying such relatively high discount rates: it implies, for example, that projects
requiring a significant upfront cost to realize a flow of benefits over long periods of time may be
discouraged. Many international development banks and government planning agencies responsible for
project appraisal can be found using rates of 7-12% or more. These agencies justify choosing higher discount
rates to account for the opportunity cost of capital, while most economists argue that social discount rates
should be below 4%. Meanwhile, a new and robust debate has begun in economics over whether social
discount rates of even 3-4% are too high in the context of climate change4243.
42Social Discounting of Large Dams with Climate Change Uncertainty, Marc Jeuland, 2010, Water Alternatives 3(2): 185-206
43Social Discount Rates for Cost-Benefit Analysis: A Report for HM Treasury, United Kingdom, by Mark Freeman, Ben Groom and
Michael Spackman. A summary report from two workshops on recent advances in social discounting practice and theory,
February 2018 (See:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/685904/Social_Discount_Ra
tes_for_Cost-Benefit_Analysis_A_Report_for_HM_Treasury.pdf)
Feasibility Study Guidelines Rwanda CXVII

Annex D – Multi Criteria Analysis
D.1 Introduction to Multi-Criteria Analysis

Multi-Criteria Analysis (MCA)44 is an appraisal technique used to establish preferences amongst different
options for delivering a given set of objectives. It does this with reference to an explicit set of criteria, which
helps appraisers to assess the extent to which the investment objectives are met by the different solutions
available to them. The problems addressed by MCA consist of a finite number of alternatives that are known
explicitly at the beginning of the process. The purpose may be to identify the best alternative, rank options
in preference order, or shortlist a number of options for more detailed appraisal. A standard tool of MCA is
the “performance matrix”, which compares the performance of each option against multiple appraisal
criteria.
MCA can take different forms. These vary according to the nature of the decision and the time, resources
and data available to appraise the alternatives, as well as by the skills of the analyst and the requirements
of the organisation or culture in which the appraisal takes place. Whether simple or more sophisticated,
explicit or implied, all MCA requires judgements to be made by the evaluator. The analytically form of MCA
described in this chapter translates the “performance matrix” into a numerical value that provides an
overall assessment of the relative contribution of options to delivering the objectives of a project. The
assignment of these values is based on the informed judgement of the appraiser.
The advantages of MCA over judgement unsupported by analysis are that:

 The technique is transparent, open and explicit;
 It elucidates the problem or question being addressed and sets out the pros and cons of different
solutions;
 The choice of objectives and appraisal criteria are open to analysis, as well as to challenge and
change if they are judged to be inappropriate;
 Criteria “weights” and option “scores” are explicit, developed according to established techniques,
can be cross-referenced to other sources of information and amended if necessary, provide a clear
audit trail;
 It can provide an important means of communication, both within the decision-making body and
between that body and external interested parties;
 Simple sensitivity testing can be used to assess the robustness (and/or decision turning-points) of
appraisal conclusions.
Where full Cost-Benefit Analysis (CBA), Cost-Effectiveness Analysis (CEA) or other more standard
quantitative appraisal techniques are not possible, MCA brings structure, transparency and consistency to
the appraisal of investment projects. The method is also useful to inform and supplement CBA and other
studies when it is not possible to express all costs and benefits in monetary terms, or where financial and
economic indicators are appropriate to complement other evaluation parameters. It can, therefore,
44 This section is adapted from ‘The economic appraisal of investment projects at the European Investment Bank’, March 2013
Feasibility Study Guidelines Rwanda CXVIII

contribute to appraisals that generate ERRs or other economic indices but leave some relevant factors
outside the calculations.
This chapter outlines the application of MCA principles to the appraisal of investment proposals in a way
that is both transparent and contestable. In doing so, it focuses on the fuller form of MCA, in which the
relative performance of options is expressed numerically (using “weights and scores”) – and, as such,
represents an “indicator” of project effectiveness in delivering investment objectives. The quantitative
outcome of MCA is then compared with total project costs, represented by the outcome of a standard
discounted cost analysis.
D.2 Stages of MCA

In summary, the steps of the MCA approach described in this chapter are six-fold:
1. Establish the decision context and the aims of the MCA.
2. Identify the options to be considered and compared, the project and relevant counterfactual(s).
3. Identify the investment objectives and constraints.
4. Identify the benefit criteria that reflect the value associated with the outcome of each option.
5. Assess the benefits:
 “weight” the benefit criteria for relative importance;
 describe the expected performance of each option against the criteria and “score” the ability
of each to deliver the benefits; and
 combine the weights and scores to derive an overall value for each option (total weighted
scores) and rank them accordingly.
6. Conduct sensitivity analysis to assess the robustness of MCA results to changes in weights and
scores.
The stages of the analysis are outlined below, with supporting material provided in appendices.
D.2.1 Step 1 – Decision Context

The purpose of appraisal of projects is to inform the public funding decisions based on proposals prepared
by national authorities and other project promoters. In doing so, it focuses on the evaluation of the
appropriateness and robustness of investment projects within the strategic context in which they have
been developed – it does not make the investment decision (the promoter does), nor does it prioritise
projects across different areas or sectors. In this context, MCA is a suitable appraisal alternative when other
techniques cannot be used for reasons of insufficient or inadequate data and limited time and resources
available to appraise projects. It enables a comparison of the project with other options, where appropriate,
and facilitates the ranking of multiple options from best to worst, as a result of assessing the relative
benefits of the project and other options for meeting the investment objectives.
Good practice experience shows that assessment of investment proposals for projects in certain sectors
and/or countries are more suited to appraisal using MCA than other methods. In particular, sectors for
which project benefits are difficult to measure and value pose a challenge for systematical appraisal using
CBA/CEA techniques (and hence the calculation of project ERRs and ENPVs). This includes, for example,
investments in education, health and urban development. Whilst the capital investment and operating
costs of these projects are more straightforward for the national authorities to appraise, the benefits are
Feasibility Study Guidelines Rwanda CXIX

rarely expressed in monetary terms. For this reason, the MCA approach described below focuses on the
assessment of a project’s benefits, which are combined with project costs to facilitate an assessment of the
overall economic robustness of the project. When combined with the total discounted costs of options, it
enables an assessment of the comparative economic value of the project, where the economic decision-
criterion is represented by a comparison of (incremental) costs and benefits, where the latter is expressed
in total “weighted benefit scores”.
Weighting of criteria and scoring of options are not exact sciences and represent, respectively, opinions
about the relative importance of different criteria and the practical benefits that will be received from the
implementation of each option. Although the method is itself transparent and systematic, it is important
that MCA based appraisals are undertaken by a small appraisal team (not an individual analyst in isolation)
and that the results of the appraisal are queried and tested for robustness through sensitivity analysis.
D.2.2 Step 2 – Option Identification

MCA is an incremental approach to comparing alternatives. Differences in the costs and benefits of the
situation with the project (i.e. do something specific) and one or more counterfactual scenarios without the
project are compared in the option analysis. The “without” scenario could be represented by one or more
of the following:
1. “Do nothing” – a baseline option that should be realistically considered, which may or may not be
acceptable or possible or could be catastrophic for the service/business in question.
2. “Do minimum” – the minimum investment required if the project is not implemented,
incorporating the costs of maintaining the current service/operation over the lifetime of the
proposed project.
3. “Do something else” – other projects that could be implemented to meet the objectives of the
investment (typically, to differing degrees).
Project promoters variably consider and evaluate alternatives to investment projects. At a minimum,
however, evaluation should always involve a comparison of the project with a “do nothing” or preferably,
a realistic “do minimum” option (and not simply the static situation before and after the project is
implemented).
The alternatives should be described, and wherever possible key descriptors should be quantified; where
this is not possible, they should be described qualitatively. Examples include:
 Intended outcomes;
 Expected workloads and performance targets, planned capacity;
 Accessibility;
 Physical characteristics and infrastructure implications;
 Phasing and timing of implementation;
 Flexibility to accommodate future change;
 Staffing consequences;
 Impact on financial parameters;
 Effects on others (other aspects of the business, other parties).
Feasibility Study Guidelines Rwanda CXX

D.2.3 Step 3 – Identify Objectives and Constraints
As a guiding principle, investment objectives and the benefits that flow from their achievement will be
determined by the needs of the end users/intended beneficiaries. They focus on the required
outputs/outcomes (i.e. “what” needs to be achieved) rather than the means of achieving them (i.e. “how”
they will be delivered). Investment objectives may be expressed in terms of criteria, such as relevance,
appropriateness, effectiveness, equity, efficiency, acceptability, etc.
The objectives must be consistent with the policies and strategies of the sector and the context in which
the project has been designed and will function. They will reflect the business aims of the promoter, as
established in existing business plans, and reflect how the investment will contribute to these. As far as
possible, objectives should be SMART: specific, measurable, achievable, relevant and with a time
dimension. Objectives that are important but difficult to express in SMART terms should be incorporated
into appraisals with as much objectivity as possible. However, statements like “upgrade the quality of
accommodation” or “improve the quality of information” are typically not useful objectives, as they:
 refer to a means rather than the desired ends (there may be multiple ways of delivering the
outcome sought); and
 are not SMART – have no timescale and no standard for measuring improvement.
Constraints are factors that impact on strategic, business and investment objectives and, as such, set the
boundaries for the investment. They may relate to policy commitments, the physical environment,
availability of appropriate staff, appropriate timescales, minimum standards, and so on. Investment
constraints may also be related to financial issues, such as, maximum capital value or a limit on the
operating cost implications of an investment.
D.2.4 Step 4 – Identify Benefit Criteria

Benefit criteria are used to identify and evaluate the investment options that are compared during a
project’s appraisal (the project and at least one alternative, such as “do minimum”). Derived from the
strategic and business objectives and constraints, they fall into the following categories:
 Benefits that can be quantified financially – these should be included in the cost analysis;
 Benefits that can be quantified, but not financially;
 Benefits that cannot be quantified.
There is no “right” answer to the appropriate number of benefit criteria, as this very much depends on the
nature of the decision to be made and the availability of supporting information, time and resources. A
large number of criteria means additional analytical work. At the same time, there is a danger that
important attributes may be ignored if there is a very small number of criteria. It is good practice to check
that duplicate, potentially redundant criteria or those that do not help to differentiate the options are
removed and the key investment objectives (ends not means) are adequately reflected in the benefits
appraisal. The aim is to produce a manageable number of relevant criteria (possibly between 5 and 10)
consistent with a well-founded conclusion that effectively compares the project with other options.
Each criterion is described by a list of potential benefits and, where relevant, disbenefits. These are drawn
from the hierarchy of objectives, starting from policy aims, the promoter’s strategic and business
Feasibility Study Guidelines Rwanda CXXI

objectives, through to those directly related to how the project will contribute to these objectives. Where
benefits can be expressed in monetary terms (e.g. cost savings) they are included in the cost analysis and
not treated as a benefit criterion – to do otherwise would lead to double-counting. Benefit criteria might,
for example, reflect the following kinds of factors:
 Strategic fit and coherence;

 Meeting needs/demands;
 Quality of services/products delivered;
 Effectiveness/efficiency of service/product delivery;
 Accessibility of the project’s services/products;
 Staffing factors (e.g. recruitment and availability of staff);
 Flexibility to respond to changing demands and technological developments;
 Environmental quality;
 Ease and timing of implementation.
D.2.5 Step 5 – Assess Benefits

The evaluation of project benefits focuses on the non-monetary implications of investment options. The
benefits delivered by the project are assessed comparatively using the benefit criteria identified at Step 4.
Where possible all benefits should be quantified. The construction of weighted benefit scores is preferable
to, and more robust than, the simple ranking of alternatives, with no clear measure of the degree to which
one option is better (or worse) than another.
Step 5a: Weight benefit criteria

The purpose of weighting is to establish the relative importance of each criterion vis-à-vis the others. There
are different ways of identifying criteria weights, though the following approach is recommended for its
simplicity and transparency:
 Rank the criteria in order of importance;
 Attribute the most important criteria a weight of (say) 100;
 Examine each of the remaining criteria relative to the highest-ranking attribute using pair-wise
comparison (e.g. if the most important is 100, what is the relative value of the second (say, 70), the
third (say, 50) and so on);
 Repeat the process for each successive pair of benefit criteria until each has been weighted;
 Scale the outcome to 100 (%), thereby attributing each criterion a % that reflects its importance
compared with the other criteria;
 Record the weights and the rationale behind them.
Step 5b: Score options

The following practical approach is recommended for scoring options for their relative performance
against each of the benefit criteria:
 Examine each option against each criterion, using the option descriptions to help make
comparative assessments;
 Score each between 0 and 10 on each criterion (again using the descriptions to help make
assessments), the better the performs the higher the score;
 Record the scores and the rationale behind them.
Feasibility Study Guidelines Rwanda CXXII

Step 5c: Preference ranking of options
To rank options and identify the preferred solution in terms of the non-monetary benefits of the project:
 Calculate total weighted scores;
 Rank options from highest to lowest weighted scores, thereby identifying the best way for achieving
the investment objectives from the options selected for appraisal.
D.2.6 Step 6 – Undertake Sensitivity Analysis

Given the subjective (if systematic and transparent) nature of judgements made about benefit criteria
weights and option scores, sensitivity testing is particularly important for assessing the robustness of the
appraisal’s conclusions. In the sensitivity analysis, facilitated by simple spreadsheet calculations, the
weights and scores can be varied to understand how the preference ranking is affected by these factors.
The following steps are undertaken to assess the sensitivity of the appraisal conclusions (i.e. total weighted
scores) to the scores assigned to options. For each option:
 Determine the agreed range of scores for each criterion;
 Alter the score of the first criterion within its agreed range;
 Repeat the analysis for scores of each of the other criteria;
 Note the implications for the total weighted benefit score when all scores for the option are at a
maximum and when they are at a minimum.
Undertaking sensitivity analysis on criteria weights is complicated by the fact that altering the weight (%)
of one criterion affects the weights of other criteria. In this case the process is as follows:
 Determine the agreed range weights for each criterion;
 For the first criterion to be examined, allocate the change in weight across the other weights
(proportionately with the originally assigned weights of these);
 Adjust the weights arising from the change in weight of the first criterion and note the implications
for the total weighted scores of options;
 Repeat the analysis for the weights of each of the other criteria.
D.3 Incremental costs and benefits

As in other forms of economic appraisal, the analyst’s conclusion on the value of a project is based on the
balance of project costs and benefits relative to the alternatives, i.e. the incremental cost-benefits of the
options examined in the appraisal. Costs are expressed as the total discounted costs of the investments
under appraisal and benefits by the outcome of the MCA. By expressing project benefits in a single indicator
(total weighted scores), the outcome of MCA approximates the “effectiveness” indicator used in CEA and
the principles of CEA can be applied. In particular, the “cost-effectiveness plane” illustrated below is a useful
way of comparing the project with other investment options, including when only one alternative (typically
do nothing/minimum) is evaluated in the Bank’s appraisal.
When this approach is applied to a comparison of an investment with the next best alternative (e.g. do
minimum) the four-quadrant depiction, shown in , which illustrates that:
Feasibility Study Guidelines Rwanda CXXIII

 The project is better (more “cost-effective”) if it offers higher benefits at lower costs than the
alternative (south-east quadrant of the plane);
 The project is worse (less “cost-effective”) if it delivers fewer benefits at higher costs that the
alternative (north-west quadrant of the plane);
 Where the project is costlier but offers greater benefits (north-east quadrant) or is less costly but
offers fewer benefits (south-west quadrant), incremental cost-effectiveness is unclear and the
appraisal conclusion depends on the magnitude of the incremental cost-benefits.
Figure D-1: Cost-Effectiveness Plane (four quadrant depiction)
Error! Reference source not found. below summarises the outcome of an illustrative investment appraisal
involving three options, a minimum option and two major investment options. The more beneficial options
are also the costlier, with Option 1 generating the lowest benefits (total weighed scores) for the lowest
costs (NPC) and Option 3 the greatest benefits for the highest costs – such that Option 2 is in the north-east
quadrant of the cost-effectiveness plane when compared to Option 1, and Option 3 is also in the north-east
quadrant when compared to Option 2.
Feasibility Study Guidelines Rwanda CXXIV

Table D-0-1: Illustrative incremental cost-benefit comparison of options
Option 1 Option 2 Option 3

Costs (FRW billion) and benefits
Initial investment costs 48 207 211
Life-cycle investment costs* 13 34 38
Annual operational costs 44 44 44
Net Present Cost (3.5% discount rate, 30 years) 752 1,050 1,069
Cost preference rank 1 2 3
Total Weighted Score 380 710 800
Benefits preference rank 3 2 1
NPC (FRW billion)/benefit point 1.98 1.47 1.34
Rank 3 2 1
Incremental Cost-Benefit comparison
Cost differences:
NPC option 1 +752
NPC option 1 vs. 2, FRW billion +298
NPC option 2 vs. 3, FRW billion +19
Benefit differences:
TWS option 1 +380
TWS option 1 vs. 2 +330
TWS option 2 vs. 3 +90
NPC/TWS differences:
Option 1 1.98
Option 1 vs. 2 0.90
Option 2 vs. 3 0.21
Rank 3 2 1
*The investment costs incurred through life of the Project (excludes annual maintenance)
When compared to the minimum option (the “best” cost scenario), the NPC of Option 2 is FRW 298 billion
higher and generates 330 more benefit points than Option 1. This balance represents an incremental “cost
-benefit” ratio of 0.90, with each additional FRW 1 billion NPC spent generating 1.1 times as many additional
benefits compared to Option 1. Likewise, when Options 2 and 3 are compared, the additional NPC is FRW
19 billion for 90 additional benefit points, representing a “cost-benefit” ratio of 0.21, with each additional
FRW 1 billion NPC generating 4.7 times as many additional benefits. Overall therefore, and assuming Option
1 is a real option and options are mutually exclusive, Option 2 is more “cost-beneficial” than Option 1 and
Option 3 more “cost-beneficial” than Option 2.
D.4 Other MCA considerations
D.4.1 Mutual independence and double-counting

An underlying principle of MCA is that preferences associated with the options are independent from one
criterion to another, such that a score can be assigned to one criterion without knowing how the option
scores on other criteria. If this proves not to be the case, there are a few ways this can be addressed, such
as:
 By combining into one criterion the two non-mutually independent criteria;
Feasibility Study Guidelines Rwanda CXXV

 Establishing a minimum requirement for each non-independent criterion and rejecting options that
do not satisfy it because their poor performance on one criterion cannot be compensated for by
better performance on another45;
 More advanced models might be needed if simpler approaches fail to ensure that the
independence of criteria scores is ensured.
As in CBA and other appraisal approaches, double-counting should be avoided, otherwise the appraisal will
give undue importance (weight) to the elements that are double-counted when calculating the final
outcome of the benefits assessment and reaching an appraisal opinion. Care is needed to avoid double-
counting by including duplicate factors in both cost and in benefit assessments, and/or by reflecting them
in more than one of the benefit criteria. Critical review, checking and rechecking for consistency, mutual
dependency, redundancy, etc. of criteria is important throughout the MCA exercise.
D.4.2 Timing of benefits

Major infrastructure investment projects have implications for many years, generating benefits over the
total operating period of the project. On the cost side of an appraisal, discounting is used to reflect social
time preference expressed in a single indicator of monetary value. In the absence of such approaches when
assessing non-monetary benefits, MCA alternatives include, for example:
 Where the completion date is an important consideration (i.e. the point at which project benefits
will start to be generated), it can be modelled by a separate criterion within the MCA technique;
 By incorporating time in the definition of other criteria so that temporary impacts are distinguished
from permanent or longer–term impact, usually by being explicit about the time horizon over which
benefits will be generated;
 Using some other principle for giving less (or more) importance to long-term implications.
Whichever approach is used, it is important that appraisers ensure all assessments of criteria and options
are made on a common basis. Hence, if some impacts are immediate or one-off and others are longer term,
and/or occurring in variable time patterns, these differences should be recognised explicitly in the scores
awarded to option criteria during the appraisal.
D.4.3 Superior/inferior or dominant/dominated options

It is possible that one or more of the investment options examined through MCA might be superior (or
inferior) to the other options, as demonstrated by the attribution of highest (or lowest) scores for every
benefit criterion and hence for total weighted scores. For example, a new build facility might perform better
on every criterion when compared to a “do nothing/minimum” counterfactual (better access/location,
better service effectiveness, more flexible, the most modern accommodation, greater acceptability to end
users, etc.). If options benefits were the decision-criterion, a clearly superior investment would not need to
be appraised further but could be selected as the preferred way forward and, likewise, a clearly inferior
option removed from the exercise (unless it has a role as a baseline comparator).
However, even if an investment alternative is shown to be superior in terms of the benefits delivered, as
demonstrated through MCA, total project costs must also be factored into the appraisal opinion. The
45This threshold usually ensures preference independence (i.e. independence of scores). All options need to meet the minimum
performance, so that the preference on any one criterion is unaffected by those on others.
Feasibility Study Guidelines Rwanda CXXVI

project may deliver the largest benefits, but it is also likely to be a costly – perhaps the costlier alternative.
Hence, a conclusion of dominance (or dominated) should not be made until the MCA results and costs have
been brought together, as outlined above.
D.5 Checklist for consecutive stages of MCA
Step 1 – Decision Context
Summary actions/decisions:
 Evaluate the decision context – the nature of the decision required and the resources available to
address the decision.
Outputs:
 An appropriate approach to MCA within the decision context;
 An agreed process for undertaking appraisal judgments/decisions.
Step 2 – Option Identification
 Develop an understanding and describe the realistic implications of not implementing the project
(do nothing, do minimum);
 Consider and explore the range of possible options capable of delivering the investment
objectives (albeit to differing degrees);
 Develop an understanding of the project and any other investment options in sufficient detail to
undertake the MCA.
Outputs:
 Description of the options to be subjected to MCA (including a baseline, such as do nothing/do
minimum).
Step 3 – Identify Objectives and Constraints
 Identify the high-level policy aims for the sector and the promoter;
 Identify and review the organisation’s business aims and objectives;
 Identify the objectives for the investment strategy that are SMART (specific, measurable,
achievable, relevant and time-linked);
 Check that the chosen objectives concentrate on results rather than the means of achieving them;
 If possible, rank objectives from highest to lowest in order of priority;
 Constraints.
Outputs:
 Statement of ranked/prioritised objectives for the investment;
 Statement of constraints facing the investment.
Feasibility Study Guidelines Rwanda CXXVII

Step 4 – Identify Benefit Criteria
 Identify the benefits that will be realised by meeting the objectives set for capital investment;
 Classify the benefits into groups of benefit criteria.
Outputs:
 List of benefits that the investment seeks to deliver;
 Identification and definition of benefit criteria for the evaluation (comparison of alternatives).
Step 5 – Assess Benefits
 Give a weight (0 to 100) to each benefit criterion;
 Give a score (1 to10) to each option on each of the benefit criteria;
 Multiply weights and scores to provide a total weighted score for each option;
 Rank options in terms of the acceptability of the cost of incremental benefits.
Outputs:
 Weights for benefit criteria;
 Scores for each criterion for each alternative solution;
 Total weighted scores for alternatives;
 Incremental costs and benefits;
 A preferred “benefits” option.
Step 6 – Undertake Sensitivity Analysis
 Conduct sensitivity tests on the weighted benefit scores of each option;
 Identify critical factors that affect the ranking/preference of options on “benefits” grounds.
Outputs:
 Sensitivity analysis on benefit criteria weights and options scores;
 Switching values/crossover points that alter the preferred option;
 Conclusions on the robustness of the benefits assessments.
Feasibility Study Guidelines Rwanda CXXVIII

Annex E – Bill of Quantities and other forms to prepare estimates for unit price
works contracts46
1. Introduction
 The Bill of Quantities is the document containing an itemised breakdown of the works to be
carried out in a unit price contract, indicating a quantity for each item and the corresponding unit
price. The quantities set out in the Bill of Quantities are estimated quantities. Each price for each
item of the Bill of Quantities is detailed in the Price Schedule.
The amounts due will be calculated by measuring the actual quantities of the works executed and
by applying the unit rates to the quantities actually executed for each item.
 The Detailed Breakdown of Prices is the list containing the basic costs, net costs and mark-ups
from which each price on the Bill of Quantities and the Price Schedule and on the Daywork
Schedule results.
The Detailed Breakdown of Prices provides the coefficients for applying the price revision formula
(if/as stipulated in the terms of the Contract) and can provide the basis for valuation of additional
work ordered.
 Provisional sums for use when works are to be executed on a daily work basis can only be
executed by administrative order of the Supervisor in accordance with the terms of the Contract.
2. Specific to Bill of Quantities, Price Schedule, Daily Works Schedule

 The prices inserted in the Bill of Quantities and Price Schedule are to be the full inclusive values of
the works described under the items, including all costs and expenses that may be required in and
for the construction of the works described, together with any temporary works and installations
which may be necessary and all general risks, liabilities and obligations specified or implied in the
documents on which the tender is based. It will be assumed that establishment charges, profit
and allowances for all obligations are spread evenly over all unit rates.
 Save where the technical specifications or the Bill of Quantities and the Price Schedule specifically
and expressly state otherwise, only permanent works are to be measured.
 No allowance will be made for loss of materials or volume thereof during transport or
compaction.
 The prices do not include taxes and fiscal duties, as exoneration is explicitly given for the contract.
Non-exonerated taxes and fiscal duties are covered in the prices of the Bill of Quantities, Price
Schedule and Daily work Schedule, apart from those stated separately in the financial offer
templates.
 The Unit prices in Bill of Quantities and Price Schedule are obtained by multiplying the Net cost of
Template 5 - Table D, on the one hand, with the coefficient K, on the other hand.
46Adapted from PRAG Practical Guide to Contract Procedures for EU External Actions
https://ec.europa.eu/europeaid/funding/about-funding-and-procedures/procedures-and-practical-guide-prag_en
Feasibility Study Guidelines Rwanda CXXIX

The coefficient K represents the proportions between the Site costs (Fc) of Template 5 - Table E and
the Total net costs (Ps) and between the General costs (Fg) of Template 5 - Table F and the Contract
price (Pv): K = (1+A)/(1-B) whereby
A= Fc/Ps
B =Fg/Pv
 The units of measurement used in the annexed technical documentation are those of the
International System of Units (SI47). No other units may be used for measurements, pricing, detail
drawings etc. (Any units not mentioned in the technical documentation must also be expressed in
terms of the SI.) Abbreviations used in the bill of quantities are to be interpreted as follows:
% percent
h hour
kg kilogram
km kilometre
l litre
L.s. lump-sum
m metre
m2 square metre
m3 cubic metre
m/d man/day
m/m man/month
mm millimetre
mm2 square millimetre
N.d. nominal diameter
pcs pieces
to tonne
47 SI refers to Système International (d’Unités), the French indication for the International System of Units
Feasibility Study Guidelines Rwanda CXXX

TEMPLATE BILL OF QUANTITIES
The applicable Method of Measurement is stated as follows: <………>

Prices DO NOT include the Value Added Tax (VAT), this should be added on the final total
ESTIMATED
PRICE No TITLE UNIT UNIT PRICE QUANTITIES AMOUNT
(a) (b) (c) (d) (e) (f = d * e)

000 <for instance:
installation of
the site>
001
…
Total 000-99
100
101
…
Total 100-199
200
201
…
Total 200-299
300
301
…
Total 300-399
….
Total amount
of the works,
outside
dayworks
Dayworks
Total
Note: the numbering of prices under (a) and titles under (b) correspond to the numbering in the Price
Schedule
Feasibility Study Guidelines Rwanda CXXXI

Annex G – Simplified theoretical approach to establishing shadow prices
A simplified theoretical approach for the estimation of the shadow prices is presented in Error! Reference
source not found.G.2 below.
Figure G-2: From market to shadow prices
Market prices
Outputs Inputs
Non-tradable Tradable
Major items Minor items
Other Labour
Long run marginal Standard conversion

Willingness-to-pay Shadow wage Border prices
cost factor
Shadow prices
Source: based on EU-guide for Cost-Benefit Analysis 2014 (adapted from Saerbeck 1990)
Project inputs
If they are tradable goods, border prices are used. If a project uses an imported input, e.g. gas and oil, the
shadow price is the import cost plus insurance and freight (CIF) in more liberalised (i.e. competitive and
undistorted) markets, thus excluding any custom duties or taxes applied once the good enters the national
market. Border prices can be expressed as a percentage of the price of the goods, as a fixed amount per
unit or as a minimum price applied as soon as the good passes the border. Where the relevant economic
border lies is a matter to be ascertained on a case-by-case basis.
If they are non-tradable goods:

 the Standard Conversion Factor, which measures the average difference between world and
domestic prices of a given economy (see box for an example) is applied in the case of ʻminorʼ items,
e.g. administrative costs, intermediate services, etc.;
Feasibility Study Guidelines Rwanda CXXXII

 ad hoc assumptions, depending on the specific hypotheses made on market conditions, should be
undertaken in the case of ʻmajorʼ items, e.g. land, civil works, machinery, equipment, etc. to reflect
their long run marginal cost48;
 for manpower, the Shadow Wage is calculated.
The method generally used to operationally put into practice the different techniques presented above is
to apply a set of predefined conversion factors to the project financial costs.
EXAMPLE: APPLICATION OF THE SCF
An illustrative computation of the Standard Conversion Factor (SCF) for a hypothetical country is hereby presented.
The simplified formula for the estimation of the SCF is:
SCF = (M+X)/ (M+X+TM)
where: M is the total value of import at shadow prices, i.e. CIF prices; X is the total value of export at shadow prices,
i.e. FOB prices; TM is the total value of duties on import.
It is assumed that the total value of export at FOB prices and of import at CIF prices, in a given year, including both
intra‑Rwandan and extra‑Rwandan trade of all products and services, are respectively FRW 25,000 million and FRW
20,000 million. In the same year, the national general government and the EU collect FRW 500 million as taxes and
duties on imports, excluding VAT. Export taxes, duties and other monetary compensatory amounts on exports are
nil, as well as import and export subsidies.
International trade detailed data and main national accounts tax aggregates are provided both by Eurostat and
national statistics institutes. Hence, in this example:
M= FRW 25,000 million
X= FRW 20,000 million
TM= FRW 500 million.
The SCF formula leads to the following result:
The variables in the SCF formula generally do not undergo significant variations on a yearly basis. For this reason,
the SCF could be either computed for a single year, or as an average of a number of years.
Application of Conversion Factors to project inputs

Transforming inputs market prices into shadow prices is completed, in practice, through the application of
Conversion Factors. These are defined as the ratio between shadow prices and market prices. They
represent the factor at which market prices have to be multiplied to obtain inflows valued at shadow price.
Formally:
48In economic theory, the long run marginal cost is defined as the change in the long run total costs of producing a good or
service resulting from a change in the quantity of output produced. Long run total costs can go down (economies of scale), or go
up (diseconomies of scale).
Feasibility Study Guidelines Rwanda CXXXIII

where: pi are market prices for the good i, vi are shadow prices for the same good and ki are the conversion
factors.
If the conversion factor for one good is higher than one, then the observed price is lower than the shadow
price, meaning that the opportunity cost of that good is higher than that captured by the market.
Conversely, if the conversion factor is lower than one, then the observed price is higher than the shadow
price, due to taxes or other market distortions which add to the marginal social value of a good and
determine a higher market price.
In principle, Conversion Factors should be made available by a planning office and not calculated on a
project-by-project basis. When national parameters are not available, project-specific calculations can be
made but these must then be consistent across projects. At least, corrections should be applied to depurate
market prices from fiscal factors, e.g. an excise tax on import. The following box provides an example.
In the absence of evidence of market failures, the CFs should be set equal to 1.
EXAMPLE: CONVERSION FACTOR FOR MATERIALS
As an example, let us assume that concrete is an input cost of the investment project. If the unit price of concrete
used for the project is FRW 10 million, which includes 18 % VAT and an import tax rate of 7 % (regardless of the
country of origin), a simplified way to estimate the shadow price is to use the conversion factor (CF) computed as
follows:
CF = 1/(1+i) * 1/(1+VAT)
where i is the import tax rate of the input good entering the CBA. Thus, the shadow price (SP) can be estimated by
multiplying the CF by the observed market price (MP) of this good:
SP = 1/(1+i) * 1/(1+VAT) * MP
The CF will amount to CF = 1/(1.07) * 1/(1.18) = 0.935 * 0.847 =0.792 and the shadow price would be equal to SP =
0.792 * 10 million = 7.92 million FRW.
Since the import tax rate could differ depending on the type of good considered, in order to compute the shadow
price of the aggregated item ‘materials’ the project appraiser could use the average tax rate applying to those
materials which are more commonly used in investment projects, such as bricks, iron, tubes, concrete, bituminous
materials, plastics and other chemical products (e.g. paints), wood, etc. The same approach can also be applied for
other cost items. An Input‑Output matrix or the Use Table of a given economy can be used to breakdown
aggregated input factors such as civil works, equipment, materials, etc. into their main sub‑components, in order
to disentangle the traded components to which the border price rule applies, and then compute the conversion
factor as a weighted average.
Feasibility Study Guidelines Rwanda CXXXIV

The shadow wage
Current wages may be a distorted social indicator of the opportunity cost of labour because labour markets
are imperfect, or there are macroeconomic imbalances, as revealed particularly by high and persistent
unemployment or by dualism and segmentation of labour conditions (e.g. when there is an extensive
informal or illegal economy). The project promoter, in such cases, may resort to a correction of observed
wages and to the use of conversion factors for computing shadow wages.
WAGE DISORTION EXAMPLES
 In the private sector, labour costs for a private company may be lower than the social opportunity cost
because the State gives special subsidies to employment in some areas.
 There may be legislation fixing a minimum legal wage, even if due to heavy unemployment there may be
people willing to work for less.
 There are informal or illegal sectors with no formal wage or income, but with a positive opportunity cost of
labour.
The shadow wage measures the opportunity cost of labour. Typically, in an economy characterised by
extensive unemployment or underemployment, this may be less than the actual wage rates paid. In
particular:
 for skilled workers previously employed in similar activities, the shadow wage can be assumed
equal or close to the market wage (net of income tax);
 for unskilled workers drawn to the project from unemployment, it can be assumed equal to or not
less than the value of unemployment benefits or other proxies when unemployment benefits do
not exist;
 for unskilled workers drawn to the project from informal activities or an underemployment
situation, it should be equal to the value of the output forgone in their previous activities.
In the absence of national/regional data, a shortcut formula for determination of the shadow wage is
illustrated in the box below.
SHADOW WAGE: SHORTCUT FOR ESTIMATION
A practical solution to determine the shadow wage can be the reduction of unit labour costs by a percentage
determined by the share of income taxation: SW = W * (1-t)
where: SW is the shadow wage, W is the market wage and t is the income taxation.
For example, if the market wage is 500,000 FRW per month and there is an income taxation of 25%, then the
shadow wage is 500,000 * 0.75 = 375,000 FRW.
If a country is suffering from a high unemployment rate, the shadow wage may be inversely correlated to the level
of unemployment. The following formula might be adopted for unskilled manpower used on project construction
sites in order to take into account an ‘unemployment effect’, i.e. the excess supply of labour compared to the
market clearing level in the case of a persistently high unemployment: SW = W*(1-t)*(1-u)
Feasibility Study Guidelines Rwanda CXXXV

where: u is the unemployment rate of the region.
If we assume an unemployment rate of 50%, our example shadow wage would become 500,000 * 0.75 * 0.5 =
187,500 FRW.
For more detailed SW formulas at regional level see Del Bo et al. (2011).
Project outputs
The concept of marginal WTP is commonly used to estimate the shadow price of the project output. In
other words, to evaluate the project direct benefits, related to the use of the goods or services rendered.
The WTP measures the maximum amount that people would be willing to pay for a given outcome that
they view as desirable. Different techniques, including revealed preference, stated preference and benefit
transfer methods, exist to empirically estimate the WTP. The adoption of one or another method depends
on both the nature of the effect considered and the availability of data.
In absence of WTP estimates derived directly from users, or in the impossibility to adopt a benefit transfer,
other proxies of WTP can be used. A commonly accepted practice is to calculate the avoided cost for users
to consume the same good from an alternative source of production. For example, in the case of water
supply projects, the avoided cost of water transported in tank lorries; in wastewater, the avoided cost of
building and operating individual septic tanks; in energy, the avoided cost of substitute fuels (e.g. gas vs.
coal) or alternative generation technologies (e.g. renewable energy sources vs. fossil fuels). The following
box provides an empirical example of the application of this methodology.
In practice, the economic analysis evaluation of the project’s direct benefits is carried out by replacing the
financial revenues, in the form of user fees, charges or tariffs, with the estimation of the users WTP for
project outputs less changes in supply costs. This operation is grounded on the following reasons:
 in sectors not exposed to market competition, regulated, or influenced by public sector decisions,
the charges paid by the users may not adequately reflect the social value of actually or potentially
using a given good. A typical example is a publicly provided good, e.g. health care, for which a
administered tariff is paid by users;
 in addition, the use of a good or service may generate additional social benefits for which a market
does not exist and therefore no price is observed. For example, time savings and prevention of
accidents for the users of a new, safer, transport service.
For both reasons, the WTP provides a better estimate for the social value of the good or service than the
observed tariffs. Also, the WTP is used for the projects providing outputs that are not subject to charges
(e.g. a free recreational area).
For the evaluation of some outputs, when the WTP approach is not possible or relevant, long-run marginal
cost (LRMC) can be the default accounting rule. Usually WTP is higher than LRMC in empirical estimates,
and sometimes an average of the two is appropriate.
Feasibility Study Guidelines Rwanda CXXXVI

Users’ marginal Willingness-To-Pay (WTP), which measures the maximum amount consumers are willing to
pay for a unit of a given good, is used to estimate the direct benefit(s) related to the use of the goods or
services rendered by the project.
Feasibility Study Guidelines Rwanda CXXXVII

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Ministry of Finance and Economic Planning

Guidelines for preparation and assessment

Feasibility Study Guidelines Rwanda

Ministry of Finance and Economic Planning

All rights reserved

Feasibility Study Guidelines Rwanda i

Feasibility Study Guidelines Rwanda ii

Feasibility Study Guidelines Rwanda iii

3.5 Financial analysis ..................................................................................................................... 55

Feasibility Study Guidelines Rwanda iv

Feasibility Study Guidelines Rwanda v

Feasibility Study Guidelines Rwanda vi

AADT Annual Average Daily Traffic

Feasibility Study Guidelines Rwanda vii

FRW Rwandan Franc

Feasibility Study Guidelines Rwanda viii

SEA Strategic Environmental Assessment

Feasibility Study Guidelines Rwanda ix

Counterfactual See business as usual.

Feasibility Study Guidelines Rwanda x

Feasibility Study Guidelines Rwanda xi

Impact The broader, long-term change to which the Project contributes at

Feasibility Study Guidelines Rwanda xii

Outcome The main medium-term effect of the intervention focusing on behavioural

Feasibility Study Guidelines Rwanda xiii

1.1 The FS Guide

Feasibility Study Guidelines Rwanda 1

1.2 Role of project appraisal according to the National Investment Policy

Feasibility Study Guidelines Rwanda 2

Small Project: < 750 000 000 FRW

Major Project: > 15 000 000 000 FRW

The following cases should be considered:

 Case A: The project is initiated by a Rwandan Central Level Entity

Feasibility Study Guidelines Rwanda 3

 Case B: The project is initiated by a Rwandan Local Administrative Entity

1.3.1 Stages in the Project Development Cycle

Stages in the Project Role of central level entities involved

Feasibility Study Guidelines Rwanda 4

1.3.2 Required documents

Project Profile Data (PPD)

Concept Note (CN)

The minimum contents of a Concept Note are:

Feasibility Study Guidelines Rwanda 5

Pre-Feasibility Study (PreFS)

The minimum contents of a Pre-Feasibility Study are:

Feasibility Study (FS)

Feasibility Study Guidelines Rwanda 6

The minimum contents of a Feasibility Study are:

1.3.3 Distinction between pre-feasibility and feasibility studies

Feasibility Study Guidelines Rwanda 7

Project Feasibility The process shall continue as

Feasibility Study Guidelines Rwanda 8

1.4.2. Projects suitable for traditional way of procurement

Feasibility Study Guidelines Rwanda 9

Feasibility Study Guidelines Rwanda 10

1.5 The dimensions of Project’s Feasibility

 Institutional and Legal