Methodology for Selection and Prioritization of Infrastructure Projects

Methodology for Selection and Prioritization of Infrastructure Projects I. Introduction Serbia has high needs for infrastructure development in order to adequately prepare for future EU accession and to meet national development goals. Given that both domestic and external financial resources for infrastructure are limited, it is important to focus available funding on strategically significant infrastructure projects i.e. on those projects which will make the largest contributions (impacts) towards the achievement of national policy objectives for accession and socio-economic development. It should be noted that the identification of strategically significant projects will be an important element in the successful adoption of the Sector Approach under IPA2 for the programming period 2014-2020. Past and on-going donor assistance (including EU assistance) has supported infrastructure project preparation at both central and local government levels. Notable in this respect are the EU PPF 1 and SIDA 2 projects (support to central government institutions), the EU MISP 3 projects (support to municipalities) and the Western Balkans Investment Framework (support and leveraged IFI investments at the level of the Western Balkans Region). As a consequence a large number of procedures, documents and manuals have been produced to support infrastructure project development in Serbia. The purpose of this Concept Paper is to build on this existing base of documentation and to develop a consolidated standard methodology which can be used by the Serbian authorities for the selection of strategically significant projects. This methodology should generally be applicable to all funding sources (particularly IPA2) and should address the needs of both central and local governments. The methodology is a basis for a successful programming process during which the selection of projects for funding is performed and the financial arrangement for funding the individual projects is identified. A major problem identified by EUD /SEIO task managers and sector specialists is that often assessments of project maturity do not take into account the quality of project documentation. Inadequate and incomplete documentation is a significant factor in delaying the full preparation of infrastructure projects in Serbia, leading to delays in tendering, subsequent slow implementation and poor absorption of available funding. Given that the costs of preparing major infrastructure projects can be as much as 10% of the total project value, the selection of projects with inadequate documentation also results in inefficient and ineffective use of technical assistance budgets. Linked to the problem of poor documentation is the poor capacity of line ministries and public utility companies to monitor the preparation of infrastructure projects. A system whereby nominated lead ministries which will act as focal points for coordinating and managing project preparation is currently being established but it is still to be fine-tuned and is not standardised among the various responsible bodies /ministries. 1 PPF=Project Preparation Facility 2 SIDA=Swedish International Development Agency 3 MISP=Municipality Infrastructure Support Programme 1

II. Proposed Methodology Two main weaknesses have been identified in the existing selection procedures. Firstly, little attention is paid to the strategic significance of projects i.e. to their potential contribution towards achieving strategic objectives. Secondly, the assessment of project readiness (maturity) does not take into account the quality (reliability of data) and completeness of planning and technical documentation. In response to these weaknesses, it is proposed to incorporate additional assessments into the existing project selection process, namely the Strategic Relevance Assessment and the Gap Assessment of the projects before final selection. These assessments are shown in Figure 1 (steps 3 and 5). The prioritization criteria will be developed separately for the following sectors and sub-sectors: energy, transport, environment (waste management, water/wastewater), and business infrastructure (industrial zones, business parks, incubators). The proposed methodology is a top-down process where potential projects are initially derived either directly from national strategies or from other central /local government sources etc. Identified projects will have had a variable amount of preparatory work carried out on them and therefore are likely to exist in a variety of formats. In order to establish the minimum level of information needed for the prioritisation process, the projects identified in step 2 should be summarised in a standardised Project Identification Form (PIF), a template for such a PIF has been developed by the SEIO and includes few very simple eligibility criteria. The long list of projects is assessed for strategic relevance (step 3) and short list of projects will be done in order to check the scope of the project, analyse alternative options and using technical, institutional, financial, environmental criteria as shown in step 5. A final list of priority projects is produced and depending on their readiness, the projects are classified into four groups. This sequence of screening and assessment steps should act as a quality filter gradually reducing the long list of potential projects to a prioritised project pipeline, thereby ensuring that only the strategic projects are selected for full preparation. This in turn should decrease the problems encountered during implementation. 2

Figure 1: Proposed Methodology for Infrastructure Project Prioritisation (1) Identify relevant infrastructures projects pipelines consolidate and standardize sector-based processes for projects identification (by the line Ministries) (SLAP, various Strategy/Action plans,) (2) Identification of a broad list of potential strategic projects through Project Identification Form submitted to SEIO by line Ministries through ISDACON data-base - Project Identification Form (PIF) step (2) (3) Strategic Relevance Assessment (Filtering step) - Strategic Relevance Assessment criteria based on PIF - step (3) (4) Short list of relevant projects (5) Gap Assessment Analysis: Project Identification (objectives, investment type, options identification) Technical elements (Spatial Planning + technical documentation) Institutional readiness (Institutional framework and capacity) Financial/Economic elements (expenditure coverage affordability) Social/Environmental elements (EIA, social/environmental impacts) - Gap Assessment Questionnaire/ Gap Assessment Report Questionnaire + Project Documentation will provide data for step (5) (6) Final list of prioritized projects (to be included in ISDACON) Project preparation in accordance with the Serbian legal requirements and EU procedures 3

III. Project Identification (Step 1) Identify relevant infrastructures projects pipelines consolidate and standardize sector-based processes for projects identification (by the line Ministries) (SLAP, various Strategy/Action plans,) The first step in the prioritisation process is the identification of a pipeline of infrastructure projects which potentially might be important in the implementation of sector strategies or national /regional socio-economic development programmes (Figure 1, step 1). This step aims to consolidate and coordinate existing identification procedures currently used by line ministries, national enterprises, local authorities, regional agencies and SEIO. The two main sources of pipeline projects are expected to be: a) Structured project pipelines/mechanisms (SLAP 4 and respective line ministry databases), b) Sector Strategy Action Plans - Master Plans. The main elements of the project identification step are summarized in Table 1, below. Table 1: Summary of Project Identification Scope Key Actors Inputs Method Outputs Consolidate and coordinate existing processes for project identification in order to provide a basis for the subsequent formulation and selection of strategic infrastructure projects - Line Ministries - Projects proponents 5 (Line Ministries, National Enterprises, Public Utility Companies (PUCs), Municipalities, etc.) - National Strategies/ Sector Strategies and other Policy Documents - SLAP and other project databases Identification of potential projects from existing project databases and pipelines according to a sector strategic objectives following National Sector Strategies/Action Plans. Identified infrastructure projects pipeline formulated Identify potential infrastructure projects sources/pipelines 4 SLAP will be treated as one of several sources of potential infrastructure projects in the sectors of environment and business development, as SLAP does not cover the sectors of transport and energy 5 One should differ between the proponents in respect of this methodology from the project proponents in the programming process. Project proponents in respect of this methodology are all the state bodies involved in realisation of infrastructural projects. Project proponents in respect of programming process can only include line ministries 4

IV. Standardise Information for Potential Projects (Step 2) Identification of a broad list of potential strategic projects through Project Identification Form (PIF) submitted to SEIO by line Ministries through ISDACON data-base Given that projects will be identified from a wide variety of sources it is likely that long list projects will exist in a number of different formats and will be at different stages of preparation, For example, many (but not all) projects registered on the SLAP database are assessed on 6 separate criteria 6 which are individually scored and used to provide an overall assessment of project quality. By contrast, projects identified by line ministries may exist only as short project concept notes containing less information with little or no prior assessment. It is therefore proposed that project promoters should complete a standard Project Identification Form (PIF) which will provide sufficient information for the following step in the prioritisation process (assessment of strategic relevance) to be carried out. In order to ensure that this step is carried out consistently and efficiently, it is further proposed that the process of coordinating the preparation and analysis of PIFs is managed by one institution, namely SEIO through ISDACON database. This includes the establishment and operation of inter-ministerial Sector Working Groups and the management of a database, ISDACON, which can be readily adapted to host a national infrastructure project pipeline. A standard PIF template has been developed for the following sectors: environment, transport, energy and business development. Regardless of sector, each PIF template will address three sets of basic project information, these are as follows: a) General data and information, including information on sector institutional set up and policy ownership, b) Eligibility/Consistency with EU policies IPA priorities/country Strategy Paper Overall national strategic framework Individual sector strategies, c) Questions for Strategic Relevance Assessment based on sector Strategic Relevance criteria agreed with line Ministries, and on whose basis the projects will be assessed in the next step of the prioritisation process (Figure 1, step 3). Project data from PIFs will be uploaded to the ISDACON 7 database by the line Ministry. It is proposed that access to the data base for PIF submission will be constantly open, whilst assessment of PIFs will be done periodically (say every 12 months) by SEIO and that these assessments are systematically reviewed and presented to by the relevant Sector Working Groups. The main elements of this step are summarized in Table 2, below. Table 2: Main Elements for Establishing a Common Database of Project Information Scope Key Actors Inputs Method Outputs Ensure that all potential infrastructure projects have the minimum, standardised, information needed for: (i) identifying institutional ownership & set-up; (ii) eligibility screening; (iii) assessing strategic relevance. Provide easy and user- friendly access to a comprehensive database of infrastructure project proponents, institutional policy owners and basic project parameters. - SEIO/ISDACON for projects data base construction and management - Projects proponents and Institutional owners for PIF completion and submission to SEIO Infrastructure projects PIFs submitted by proponents/li ne Ministries - Acquisition by SEIO of basic project information through a PIF to be completed by project promoters and/or public institutions responsible for the project. - Insertion of completed PIFs in a national sector based data base of infrastructure projects hosted/managed by ISDACON National consolidated sector-based infrastructure projects database, easily accessible for both the submission and consultation of PIFs 6 SLAP assessment criteria are: (i) environmental; (ii) financial; (iii) socio-economic; (iv) technical; (v) institutional; (vi) maturity 7 It should be noted that it is not proposed to either combine or merge the SLAP and ISDACON databases. The specified PIF data fields will be completed for all SLAP-sourced projects regardless of whether they have been previously assessed using the SLAP scoring criteria (as described above). 5

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V. Assessment of Strategic Relevance and Development (Step 3) Strategic Relevance Assessment (Step 4) Short list of relevant projects The information /data provided in PIFs will be used to assess the strategic relevance of potential projects defined as the extent to which an individual project will contribute towards achieving overall and sector policy objectives and / or meeting sector targets as given in the strategic framework. In the case of sectors where there is no adopted national strategy in place (e.g. the water sector) the analysis of PIF data will be used to assessing overall project impacts using the sector strategic relevance criteria outlined below. Specific Strategic Relevance Criteria (together with related assessment questions) for scoring the estimated strategic relevance /impact of proposed projects have been developed. Strategic relevance criteria have been developed separately for each of the sectors and sub-sectors covered by this methodology. Strategic relevance criteria will follow the main aspects of project relevance for each of the sectors/subsectors (defined main areas for strategic relevance): Transport 1. Demand/supply and origin/destination factors 2. Relation with other transport corridor/routes 3. Traffic safety and security of transport 4. Economy growth potential (export/import), economy systems and sectors affected by the project Energy 1. Sustainable Energy Development 2. Enhanced competition 3. Social impact 4. Impact in terms of economy and employment 5. Compliance with the international obligations Environment: water/wastewater 1. Construction and upgrading of Wastewater treatment facilities and Extension of Wastewater Collection Systems 2. Construction of water treatment facilities and water supply systems 3. Upgrading of the adequate flood protection levels Environment: Municipal waste 1. Integrated waste management 2. Reduction of negative impact of hazardous waste on environment and human health 3. Impact on local development 4. Impact on environment and human population Business infrastructure (will be developed for Industrial zones, Technological parks, Tourism infrastructure and Business incubators). 1. Export Market Demand and Private Sector Demand 2. BRI Outputs and Financial Sustainability 3. Availability of Skilled Labour and Employment Generation. NB: please have in mind that each of these criteria for all the sector/subsector will be assessed by the specific questions relevant for respective areas. The assessment of the strategic relevance of the project is performed by SEIO and line ministries in the sector working group format. 7

Projects will be assessed within SEIO and the results will be communicated via regular Sector Working Group meetings (which include SEIO and line Ministries) and shortlisted by sector/sub-sector accordingly to their strategic relevance. Institutional policy ownership and the institutional set up for project preparation (at the level of policy owner) will also be identified. In case the necessary structure for project preparation and monitoring does not exist, implementation of strategically important infrastructure projects will be postponed until the necessary mitigation measures can be undertaken to address the identified weaknesses (capacity building, training, TA etc). A necessary precondition for moving to the next step is that the declared institutional set up should demonstrate sufficient capacities, for project preparation and monitoring of implementation. The main elements for assessing strategic relevance and developing a short list of projects are given in Table 3 below. Final shortlists per sector/sub-sector for projects funding will be published by SEIO/ISDACON and shortlisted projects will be submitted to next step (Gap Assessment). Table 3: Main Elements for Assessing Strategic Significance and Short-Listing Projects Scope Key actors Inputs Method Outputs 1. Assess project Strategic Relevance according to sector Strategic Relevance Criteria agreed with line Ministries (and where possible, extracted from National Strategies) - SEIO - Sector Working Groups Strategic Relevance Criteria agreed with line Ministries for each of the Strategic relevance of each project will be assessed in relation to their compliance, consistency and coherence with the sector/sub-sector Strategic Relevance Criteria. 2. Promote only Strategically relevant projects with all the main preconditions for its implementation ISDACON data base of Strategic Infrastructure Project 1. Strategic Relevance Assessments for potential projects 2. Short-List of strategically relevant Infrastructure Projects according to established Strategic Relevance Criteria. 8

VI. Gap Assessment (Step 5) Gap Assessment Analysis (Step 6) Final list of prioritised projects Gap assessment is the process of assessing the quality and completeness of the project documentation of relevant projects with preconditions relevant for implementation (short list projects) and is carried out in the following sequence: Firstly, proponents of Shortlisted Projects are requested to provide further detailed information by means of specific Gap Assessment Questionnaires (per sector and sub-sector) and providing SEIO with any existing project documentation). Gap Assessment Questionnaires specific to each of the sectors /sub-sectors have been prepared. Secondly, the technical assessment process is coordinated by SEIO (TA supported and in close cooperation with experts from line Ministries, PUCs etc.) who will undertake detailed and complete Gap Analyses of all shortlisted projects by means of analysis of completed Gap assessment questionnaires and related technical documentation, including: - Project Identification (objectives, investment type, options identifications); - Technical maturity (Spatial Planning + technical documentation); - Institutional readiness (Institutional framework and capacity); - Financial/Economic maturity (expenditure coverage affordability); - Social/Environmental maturity (EIA, socio/environmental impacts). Thirdly, the Gap Assessment Analysis is presented in a final Gap Assessment Reports including outputs and recommendations for selected projects. On the basis of these Gap Assessment Reports, projects will be divided into 4 groups according to their degree of MATURITY and proposed as being: a) ready for initiating tendering procedure for works; b) ready for preparation of missing technical documentation; c) minor gap to be addressed before preparation of technical documentation; d) substantial gaps to be addressed before preparation. The main elements of the Gap Assessment step are shown below in Table 4. Table 4: Main Elements of Gap Assessment 9

Scope Key actors Inputs Method Outputs Undertake Gap Assessment Analysis of shortlisted projects through specific questionnaires (per sector/sub-sector) and related project documentation. Prepare Gap Assessment Reports of shortlisted projects, including outputs and recommendations for the preparation phase - Technical Assessment coordinated by SEIO (TA supported) in close cooperation with line Ministries - Projects Project s Gap Assessment Questionnaire (to be completed by the project proponents Projects technical documentation Project proponents for Rank shortlisted projects according to their degree of MATURITY and propose them for a) ready for initiating; b) ready for preparation of missing technical documentation; c) minor gap to be addressed before preparation of technical documentation; d) substantial gaps to be addressed before preparation - Project Gap Assessment Questionnaires provided to all Project proponents that passed step 3 (Figure 1). The Gap Assessment Questionnaires will be different for each sector (transport, energy, environment and business infrastructure) and sub-sectors (e.g. waterwastewater, solid waste, etc.). - Project proponent fills up the Gap Assessment Questionnaire and provides requested information + project documentation. - The questionnaires will lead to the technical assessment of the project readiness and will include detailed assessment of project s technical documentation. - The projects will be prioritized for each sector/sub-sector. In addition, detailed inputs and recommendation for their preparation/ will be provided through the Gap Assessment Report. Gap Assessment Reports, including recommendations for further steps related to each of specific projects Final list of prioritized projects preparation and implementation in four groups. 10