The Second File must, as a minimum, contain the following sections:
1. Executive Summary: (including summary of recommendation to proceed to Third File phase). The Executive Summary requirement is the same as for the First File, except that all information and analysis shall be updated to reflect the project concept and alternatives considered by the Second File, and current information. The Work Team shall include an affirmative statement that all information is complete and up-to-date, to the best of its knowledge at the time of Second File submittal to the Supervisory Committee.
2. Administrative Context: The Administrative Context requirement is the same as at the First File, except that all information shall be updated to reflect the project concept and alternatives considered by the Second File, and current information. Note that the project name must be the same as that employed at the First File stage, as this is used to track the project in the NCP database.
3. Economic Benefits: The Second File shall provide an identification of project benefits, and meeting the project need. Benefits shall be identified using the same base year as costs, and the identification and enumeration of benefits should be provided for the same period of time. Differences in benefits between alternatives are an important consideration, as these will be critical to assessing whether cost differentials between alternatives may be justifiable. Tangible benefits shall be quantified, using current market prices. Intangible benefits should also be quantified where possible, and an attempt made to assign a realistic value to the Kingdom.
Negative impacts of the project and each alternative shall also be identified. These shall include any anticipated negative impacts for users or non-users of the project outputs, and for Saudi society at large.
4. Financial Case: The Second File shall explore the financial case for the proposed project and the identified alternatives. For each of these, the Second File shall include indicative implementation cost estimates for each phase of the project. The requirement for estimation of project construction costs is similar to that for the First File, except that all information shall be updated to reflect the project concept and alternatives considered by the Second File, and current information.
Mitigation costs shall also be identified if there is likely to be a need to build mitigation measures into the project design, due to anticipated negative environmental or social impacts.
The Second File shall also include a more robust identification of costs associated with the operational phase of the project; these costs may include, as applicable:
a) Staffing for project operation, maintenance, management, and support, to include indirect support, such as accounting, human resources, and legal, etc. Staffing costs also include training, payroll and benefit costs.
b) Material and supplies.
c) Utilities.
d) Facility, plant, and equipment repair, renovation, and replacement. Assumptions on repair, renovation, and replacement cycles should be clearly described, with supporting rationale.
e) Support contracts and insurance.
f) Indirect costs, and
g) Other costs.
For an alternative in which the project will be operated by a private party (as in a Privatization), the cost to the government of administering and monitoring the contract shall be included. The cost of the contract itself shall be presented not as an estimated lump sum, but as a total based on the categories of operational costs listed in the previous paragraph.
Operational costs shall be projected over the proposed life of the project/duration of the Privatization contract. Identical sets of assumptions (e.g., for inflation, consumer prices, currency fluctuation, energy costs, etc.) must be employed for each alternative, and each alternative must cover the same time period. Ultimately there should be a single, centralized source of such assumptions, issued by the government, to ensure accuracy and consistency across the various cost analyses which will be developed in each sector.
If an alternative will include asset transfer costs (e.g., at the end of the contract term, an asset will be purchased by the government from a private partner), an estimate of these costs shall be included, with supporting rationale.
For the project and each identified alternative, the Second File shall also provide an analysis of the financial viability of the project if implemented as a Privatization: what are the potential sources and value of revenue streams to private partner, i.e., budgetary payments from the Government, user fees from consumers of the project services, a combination of these sources, and/or other revenue sources.
At the Second File stage, an estimate of the revenue produced from each source shall be provided, with supporting rationale and/or identification of need for additional studies (e.g. traffic, ridership, or other demand related studies) to confirm an alternative's estimates, and assess whether the estimated revenues are adequate to ensure the sustainability of the project. The Second File shall provide examples of similar Privatization projects that have been successfully implemented, either in the Kingdom or elsewhere, and discuss their applicability. If no similar examples can be identified, the File shall describe the envisioned Privatization model and explain why it is expected to be viable.
The Second File shall also include a comparison of the costs and benefits of the project and each alternative. A qualitative VFM assessment is required in the Second File, as described in Chapter 4 Section 12 of this Manual.
5. Assessment of Affordability: The Assessment of Affordability at the Second File includes all of the elements required in the First File phase, and these data shall be updated to reflect the project concept and alternatives considered by the Second File, and current information. In addition, the Second File shall identify the total cost of the project and each alternative, including, at the Kingdom level or Entity level as appropriate, the alternative's fiscal impact, budgetary impact, and their accounting treatment, to include on or off-balance sheet status. For a State-owned entity which is not included within the national budget, the impact of the project on that Entity's budget and financial status shall be identified.
The Second File shall also identify and quantify, for the project and each alternative, all required contingent liabilities that would need to be assumed in order to make the project or alternative bankable, based on the anticipated project structure and Standard Heads of Terms. A contingent liability is a potential liability that may occur, depending on the outcome of an uncertain future event. For example, a Privatization contract may include a termination guarantee, which defines the government's payment obligations in the event the government terminates the contract. The Second File shall also identify mitigation strategies for each contingent liability to reduce the government's potential exposure.
6. Project Rationale and Assessment of Need and considered alternatives: The Project Rationale and Assessment of Need requirement is similar to that requirement for the First File, except that all information shall be updated to reflect the project concept and alternatives considered by the Second File, and current information. If additional project details are known at the time of Second File preparation, these should be reflected. Alternatives that were determined not to be feasible at the First File phase shall not be included. However, new alternatives may be introduced based upon the more advanced level of project definition; for example, implementation of identical project concepts in alternative locations. The status quo (i.e., taking no action to alter current conditions) shall always be included as an option.
The Second File shall also consider the time dimension of project need and benefits. The benefits may change over the term of the project, and a life-cycle quantification of benefits is required; for example, the number of persons to receive daily access to wastewater treatment services as a project outcome may be 100,000 in year one, and 140,000 people in year 20, due to projected population growth. Assumptions used in projecting benefit change (either positive or negative) over time shall be clearly described, with supporting rationale.
7. Market Assessment of the Project Concept and proposed alternatives: The objectives of the Market Assessment at the Second File stage are to gain a more detailed understanding of the market interest and capacity to undertake the proposed project. The Work Team may engage in limited interaction with the private sector to conduct this assessment, without any commitment, tacit or explicit, that the project may actually be pursued. Interaction may be conducted through issuance of Requests for Information and receipt of written expressions of interest and comments', and/or by the conduct of online surveys or questionnaires. Based on this interaction, the Work Team shall document whether:
a) There is private sector interest in undertaking the project.
b) There is private sector experience in similar projects, either in the Kingdom, regionally, or globally.
c) There is available private sector capacity (financial, technical) to undertake the project.
If the answer to any of these questions is negative, the Second File shall document the rationale for considering private sector performance. Limited private sector experience in a particular project type, for example, does not mean that the private sector is necessarily incapable of performing such a project, but does introduce a risk factor which must be considered and assessed. Lack of private sector interest, by contrast, may lead to restructuring certain aspects of the project, to make it more conducive to Privatization.
The Market Assessment may also identify private sector concerns about the project concept. For example, potential bidders may express concern about the level of certainty of traffic volume projections for a road project, or the proposed contract duration of a housing project. The Second File shall propose a specific remedy for each concern, and identify associated costs and risks.
8. Identification of issues related to the Project, including technical, environmental, social, stakeholder, legal and other issues related to the Project concept and the alternatives that have been considered: Based upon the Issues Identification conducted in the First File, and subsequent analysis, the Second File shall document the technical, environmental, social, stakeholder, legal, and any other applicable issues associated with the project and each alternative. For each issue, the associated risks and associated impacts shall be identified, and mitigation strategies and implementation costs projected and included in the Second File risk analysis and cost estimates. The Risk Identification shall also include a Stakeholder Index as described in Chapter 1 Section 4 of this Manual.
If any potentially significant social risks are identified, a Social Impact Assessment will be conducted as part of the Second File. Significant social risks may include, but are not limited to: imposition of new or increased user fees; resettlement; land acquisition from private citizens; demolition of existing facilities to make way for new construction, etc. The requirements for a Social Impact Assessment are discussed in Chapter 6 Section 4.
For each alternative involving a Privatization-based solution, the Second File shall also include a risk allocation model listing the project risks and how they will be allocated between the government and the private parties. Risks may be assumed by the government, assigned to the private party, or shared between the government and private party according to clearly-defined parameters. The costs of risk mitigation shall be included in the cost estimates. Note that public procurement alternatives will also entail risks (e.g., the risk of public procurement cost overruns) and these risks should be considered in projecting the cost and benefit of non- Privatization options.
9. Project Plan that includes a time schedule, resources and budget for completion of the Third File: A plan shall be provided for the development of the Third File, providing a time schedule, resources, and budget for completion of the Third File, developed with NCP participation and concurrence. The plan shall specifically identify all required studies necessary to complete the Third File (e.g., demand studies, resettlement analysis, social impact analysis, environmental impact, etc., as applicable) and associated costs.
10. Summary and Recommendation: Based upon the information provided in the Second File, and any additional explanatory or back-up data which the Work Team may wish to append, the Second File shall make a recommendation on whether the project should proceed to the Third File phase, and identify unresolved issues, data requirements, or required studies which will need to be addressed in the Third File (if applicable).