PPP projects should be identified for potential inclusion in the local development plan based on:
• Commercial sustainability
• Potential development impact
• Moderate complexity
• High operating costs relative to total project costs
• Other planning and policy inputs
The MVA methodology consists of choosing a number of attributes (variables) that are likely to be predictive of commercial sustainability, strong development impact, appropriate complexity or high operating costs, other planning and policy inputs and applying these criteria to a number of similar projects to determine the degree to which each project appear to possess each of the attributes.
The general criteria to select and prioritize projects suitable for implementation under PPP should reflect two main requirements: Policy and planning criteria, as set forth in the local development plan, and sector or basic services needs, such as water supply. For a project to be included in either of these plans, it may be necessary for it to possess certain attributes. For example, priority projects should be:
• Able to achieve MDG targets
• Able to alleviate poverty
• Critical to other development projects (as in an integrated development approach);
• Able to increase human capital investment to support training and new job opportunities;
• Able to protect the environment and improve management of natural resources; and/or
• Able to develop, or meet demands for, needed infrastructure services as opposed to the rehabilitation of existing facilities.
These attributes can be used to prioritize sectoral or basic services projects, as identified in the list of devolved activities. It is also possible that the LGU may have its own set of project requirements. For example, if water supply is an identified need, it may require the following attributes: potability, affordability, and high accessibility. Moreover, for PPP projects special attention must be given to a review of the issues and risks that the private sector might consider important, such as:
• What exactly is the scope of the project?
• What is the nature and level of investment expected?
• What business is being offered and over what time frame?
• What special risks are involved in implementation or operation?
• What agencies will be involved on the part of the public sector?
• Who will be in charge of developing the project?
• What government policies will likely have an impact on the project?
In case such questions cannot be answered satisfactorily, the proposed project should not be processed further. In other words a critical pass/fail decision is introduced at the point of review by the LGU. This does not mean that the project is rejected outright, but it does mean that the project has to be redesigned and/or outstanding issues resolved.
The following criteria are suggested for the selection of PPP projects:
Table 2-2: MVA Criteria for PPP Project Evaluation
Criteria | Data/Information Needs |
Socio-economic benefits | EIRR, if available from studies, or brief description of social and economic rational and benefits; factors such as employment, poverty alleviation and investment in human resource development should also be taken into account |
Likely financial viability | Use of a simple and objective financial model, otherwise use available information from public markets and commercial centers |
Land acquisition | Indication of the degree of complexity of land acquisition |
Environmental Impacts | Indication of the degree of positive impact on environment as opposed to negative or complex aspects |
Social Safeguards | Indication of the degree of complexity related to resettlement, impact on indigenous, poverty-stricken and/or other vulnerable groups |
The number and gravity of the risks | |
Demand | Growth trends, total volume and demand/capacity ratios |
Regional development | Regional impact and contribution to the regional economy |
Stakeholder support | Indication of consultation with and the degree of support from various stakeholders |
Sector strategy and plan | Importance of project in subsector strategy and plan |
Safety aspects | Specific safety objectives being sought, are they complicated and costly (negative), or simple and conventional (positive) |
The prioritization process then requires that all similar projects are evaluated using the same MVA methodology. This is a relatively simple, but well accepted procedure for ranking projects where hard data is limited. The procedure uses a mixed subjective/objective assessment of the selected criteria to provide a score for each attribute. These scores are then added and projects can then be ranked by their total score. The information required to complete the process will be a mix of hard and soft data.
MVA is a relatively simple way of ranking projects even before complete information is available. MVA should be carried out by a team of experienced professionals and not just by a single individual to ensure that the results of the analysis reflect the collective information and understanding of facts and issues possessed by the LGU.
The suggested scoring guideline in the table below is designed to attract private participation in the implementation and operation of PPP projects. The guideline incorporates two important considerations: (i) that at this point, it is critical to develop projects which are financially sound and robust and are not burdened by a host of complex issues which could dampen private sector interest and/or delay the project; and (ii) that government funds available for project development are very scarce which implies that they need to be applied, if at all, only to those projects which have a high chance of success. A low score will make private sector participation very problematic and projects in this category should not compete with projects that have a much better chance of success. Thus, with respect to the first 6 criteria, which are considered critical for private sector interest, a low score (ranging from 3 to1 based on a 5-point scoring system) will result in the project being screened out for further processing as a PPP project candidate. Conversely, those that rank high can proceed to feasibility study preparation.
Table 2-3: Guidelines for Scoring
Criterion | High Score 7-10 points | Medium Score 6-4 points | Low Score 3-1 points |
1. Socio-economic benefits | EIRR > 20% | EIRR <15% FAIL | |
2. Likely financial viability | FIRR > 20% | FIRR<14% FAIL | |
3. Land acquisition | No land acquisition involved, or some but not complex | Medium complexity owing to amount and issues | Very complex and problematic owing to number and seriousness of issues FAIL |
4. Environmental impacts | No impacts, or some, but issues are not complex | Medium complexity-impacts are few and not serious | Many issues / severe impacts FAIL |
5. Social safeguards | None, or few, affected but not seriously | Medium complexity because of number of issues involved | Large number of people affected and/or seriousness of issues FAIL |
6. Risks | Few issues / risks | Some issues / risks but can be managed | Many issues / risks which are not easily managed |
7. Demand aspects | Growth >15% Total volume >5 million, or equivalent Demand capacity ratio >1.2 | Growth 5-15% Total volume 2.5 million, or equivalent Demand capacity ratio 8-1.2 | Growth <5% Total volume <2 million, or equivalent Demand capacity ratio <.8 |
8. Regional development | Impact on low GRDP states and/ or high poverty alleviation focus | Impact on medium GRDP states and/ or medium poverty alleviation focus | Impact on high GRDP provinces and/or low poverty alleviation focus |
9. Stakeholder support | Evidence of strong support from all / most stakeholders | Mixed support from all / most stakeholders | Low level of support or lack of support from most stakeholders |
10. Subsector strategy and plan | Forms integral part of, and already included in plans | Part of sub-sector plan | Ad hoc project but not in conflict with sector plan |
11. Safety aspects | High safety focus | Moderate safety focus and impacts | Low safety focus and impacts |