Argument (#4 April 2020)

How should Investment Projects in Infrastructure be Prepared?

by Viktor Dovhan

The Action Plan for implementing the Strategy of Infrastructure Project Lifecycle Management Reform in Ukraine for 2020-2024 envisages changes to the preparation of investment projects. At present there is no uniform approach at state level to prepare investment projects implemented out of various sources of financing, such as: own funds of enterprises, loans from international financial institutions and other loan resources, funds from the State Budget, state aid as well as private investors.

Currently, according to Ukrainian legislation and possible sources of financing, the requirements for preparing investment projects are different and they generally do not take into account a sector’s specific nature. Therefore, these requirements need to be adjusted and updated in accordance with best European practices.

In addition, there is no centralized approach at sectoral level to prepare and appraise transport investment projects, prioritize them according to clear selection criteria, and to coordinate and properly support their implementation in accordance with sector strategic goals, as well as to monitor them subsequently.

As a consequence, the preparation of transport investment projects is, in most cases, not done in line with European practices, but carried out haphazardly without proper justification of the investment need and feasibility, assessment of socio-economic and financial impact for both the transport sector and the whole country.

Therefore, the implementation of transport investment projects out of IFI funds, whose lending sums accounts for the largest share of the possible amounts of attracting external financial resources (more than 90%), is not achieved in full. Transport investment projects were almost not financed at all from State Budget funds, with the exception of road development projects.

Preparation of investment projects

With regard to investment projects to be financed out of State Budget funds or with state aid, the Ministry of Economy has approved requirements to project development and the Guidelines for its preparation:

1) For public investment projects1, to be implemented with public capital investments, the following documents shall be produced:

— a Concept Note informing of the project’s purpose, key findings of its performance pre-assessment to take a decision on the feasibility of its implementation:

— Investment Project consisting of these sections: Public Investment Project Executive Summary, Feasibility Study, Implementation Program, Financing Plan, and Project Achievement Status.

In order for investment projects to be implemented with state aid2, the following documents shall be produced:

— Forms of project (investment) proposal the investment project to be supported with state aid will be developed on, to study a feasibility of the project’s subsequent development;

— Forms of investment project to be supported with state aid.

As to projects that may be implemented from IFI funds, no approved form or clear guidelines on preparing project proposals are currently available.

The Ministry of Finance has currently developed a draft Procedure for examining project proposals for the initiation of investment projects of economic and social development in Ukraine, supported by international financial institutions, including a project proposal form. However, the document is currently under public consultations as a regulatory act.

Calculation of performance indicators

Requirements for calculating performance indicators need to be adjusted in accordance with European practice and the specific nature of implementing transport investment projects. Namely, a mandatory socio-economic analysis, with achieving of its positive results, as well as mandatory financial analysis.

With regard to investment projects that need IFI3 funding, the performance assessment should be carried out only for those projects to be implemented as financially sustainable ones, without taking into account the socio-economic effect.

Introducing a unified form of investment project and developing the Guidelines to prepare them, given the peculiarities of their implementation and the best European practices, are proposed.

Prioritization of investment projects

In order for investment projects to be implemented using public capital investments4, the Ministry should submit a list of public investment projects, prioritized in terms of their development (implementation), to the Ministry of Economy.

Introduction of a uniform approach to assessing and prioritizing transport investment projects, irrespective of funding sources, to study further attracting the proper funds as established by the laws, and implementing properly the projects, is suggested.

Monitoring of investment projects

The order of the Ministry of Economy5, has approved the monitoring for public investment projects, to be implemented out of IFIs funds. See sections 41-46 of the Project Monitoring Section in accordance with the resolution of the Cabinet of Ministers of Ukraine6; the PPP projects should be monitored according to the CMU resolution7. A unified approach to monitoring all projects that have been selected, assessed and prioritized by the Ministry regardless of their funding sources, is proposed.

 

Viktor Dovhan is an advisor to the Minister of Infrastructure of Ukraine

 

 


1 According to Resolution of Cabinet of Ministers of Ukraine no 571 of 22 July 2015 ‘Certain issues of public investment management’, and Order of Ministry of Economy no 1865 of 22 December 2017 ‘Guidelines on preparing and assessing the public investment project”

2 According to Cabinet of Ministers of Ukraine resolution no 835 of 13 November 2013 ‘On approving the Procedure for selecting investment projects to be supported with State Aid’, Order of Ministry of Economy no 724 of 19 June 2012, Order of Ministry of Economy no 1279 of 13 November 2012 ‘On approving the Guidelines on developing an investment projects’

3 According to Ministry of Finance order no 616 of 14 July 2016 ‘On approving the Procedure for assessing the financial status of a potential beneficiary of an investment project to be implemented as financially sustainable as well as for defining a security type to serve and repay a loan out of international financial institutions funds to be served out of beneficiary’s funds’

4 According to section 18 of the Procedure for selecting public investments projects approved by CMU resolution no 571 of 22 July 2015 ‘Certain Issues of Public Investment Management’

5 No 1785 of 25 October 2016 ‘On approving the Procedure for monitoring the status of developing (implementing) public investment projects’

6 No 70 of 27 January 2016 ‘On Procedure for Preparing, Implementing, Monitoring and Completing Implementation of Projects of Social and Economic Development of Ukraine Supported by International Financial Institutions’

7 No 81 of 9 February 2011 ‘On approving the Procedure for Providing the Information on Achieving A Contract Made on PPP basis by a Private Partner to a Public Partner’

 

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