The Capital Budgeting Process Workshop Training Materials

AFRITAC East Regional Workshop
The Capital Budgeting Process

September 1 5, 2014, Entebbe/Uganda

Concept Note

The overarching aim of this workshop is to discuss all the major factors that need to be
taken into account to ensure that capital spending leads to the creation of productive
assets (tangible and intangible). Its central focus will be on how to increase the efficiency
and effectiveness of public investment spending. Public investment is generally regarded as
having a positive relationship with growth and therefore desirable in itself. However, the
literature has also emphasized the need to focus not just on quantity but also on the quality of
the capital spending (as for any other spending for that matter). For example, S. Gupta et al
point out that in countries with weak public investment management processes, public
investment expenditure is unlikely to translate fully into productive capital assets.
1

Some of the seven AFRITAC East (AFE) member countries are currently allocating
significant amounts to capital spending. Capital expenditure in Rwanda, for example,
accounts for 12 percent of GDP, the highest among East African Community Partner states.
Similarly, Uganda is implementing an ambitious program of infrastructure development
which includes the construction of power plants, transmission lines and distribution network
together with roads and railway and an oil refinery, in anticipation of a significant increase in
revenue due to oil exports. In light of this and against the broad purpose mentioned above,
the workshop will set out to provide participants with a better understanding of the following
issues:

basic requirements for successful capital budgeting including appropriate institutional

arrangements
S. Gupta et al, Efficiency-Adjusted Public Capital and Growth, World Development 2014, Vol. 57, p. 164
1
78.
2
key features of good practices of public investment management systems for efficient
and effective capital spending
insights into the systems of at least two internationally recognized good practice
countries
pros and cons of alternative financing and implementation modalities
macro-fiscal, project and other risks associated with capital spending and ways of
minimizing and/or managing them
improving the linkages between strategic planning and capital budgeting.

3
Recent development in PFM has had a positive impact on the quality of public
investment spending. Three practices in particular have been so identified, namely, medium
term budgeting framework (MTBF), performance budgeting and accrual accounting .
2
MTBFs facilitate the integration of investment spending within a more comprehensive
resource use framework. In its absence, planning documents tend not to be rooted in any
macro-fiscal framework. Performance budgeting (PB), in emphasizing results rather than the
nature of the spending (notably whether it is recurrent or capital), facilitates expenditure
prioritization and provides the basis to enforce accountability, helping to improve budget
outcome. PB can contribute to determine whether capital spending has been effective or not.
Accrual accounting provides a more comprehensive picture of a governments capital assets
than cash accounting.
The kind of MTBFs practiced by some countries, however, might not always bring
about the benefits expected. If forward estimates are merely indicative (meaning there are
large variations with the actual the following year), rather than binding, this will not result in
the necessary funding predictability required for successful capital budgeting. Even where
the forward projections are robust, as in advanced countries, the challenge has been to
reconcile the three or five year estimates with the far longer term horizon of some of the big
infrastructure projects. This has led some countries such as Ireland and UK to introduce
longer term commitment in particular sectors like transport, rather than specific projects. The
workshop will examine the fundamental issue of medium term budgeting as a key
requirement for productive capital spending.

An effective project cycle is also critical for successful public investment management.
The main stages are: Identification; Appraisal; Approval; Implementation; and Evaluation.
Some countries use fairly sophisticated techniques to carry out efficiently those stages. The
UKs Gateway model among advanced countries and Chiles National Investment Systems
among emerging economies are two such examples, both considered successful in their own
right. Both models will be presented during the workshop and participants will explore their
relevance and applicability to their respective countries. Each country delegation will be
required to present its capital budgeting system pointing out the respective strengths and
weaknesses and comparing against such best practices.

Israel Fainboim, Duncan Last, Eivind Tandberg, Managing Public Investment, in IMF, Public Financial
2
Management and Its Emerging Architecture, p.313- 314
4
The identification and management of risks are important components for successful
capital spending. The issue of fiscal, project and other risks especially as regard relatively
new financing techniques such as public-private partnerships (PPPs) and which are
increasingly embraced by AFE member countries will be thoroughly explored during the
workshop. Presentations will emphasize the need to ensure that decisions to implement
projects on PPP basis be fully integrated in the budget process just as others financed by any
other means including government borrowing. After all, PPPs are often regarded as being
nothing else that a particular procurement modality. PPPs cannot be thought of as free money
and treated outside of any budget consideration. One of the key risk factosr is in fact to
ensure that PPP projects do not affect long term fiscal sustainability.

PPPs are expected to play an even bigger role in the coming years among AFE member
countries as they attempt to close the infrastructure gap and speed up regional
integration. The main reason for that is the expected significant increases in revenue from
oil and gas in countries such as Kenya, Tanzania and Uganda and for EAC member countries
to link their economies even more in the run-up to the implementation of the monetary
protocol. The building of a railway connecting Kenya, Rwanda and Uganda is a case in point.
Uganda for its part is embarking on the construction of hydropower plants, roads and an oil
refinery probably on PPP basis with Chinese companies.

There are significant capacity limitations with regard to PPP generally and specifically
preparation, implementation and follow-up of contracts among all of the AFE member
countries. The workshop cannot be expected to close all the knowledge gaps with respect to
PPP. However, it will at least contribute to sensitize participants on the main issues involved
including risks and will share with them best practices from more advanced countries in this
regard.

It is generally recommended to undertake value for money audits especially for large
infrastructure projects following their implementation. This is considered to be good
practice for public investment management. The identification of mistakes and the lessons
learned can be used to improve subsequent capital spending on similar large projects. The
workshop is expected to devote time to such audits. The Office of the Auditor General in
Uganda has been invited to present the value for money audit it carried out on a recent
hydroelectric power plant. It identified significant delays and cost overruns during
implementation. Similarly, the Executive Secretary of the Collaborative African Budget
Reform Initiative (CABRI) will present a study carried out in 2010 on Ensuring Value for
Money in Infrastructure Lessons from Studying six large African Infrastructure Projects.

5
There are several risks to the workshop not reaching its principal objectives. First, the
choice of participants attending might not be the most appropriate. Despite AFEs insistence
to member countries to avoid doing so, workshops are often seen by them as a sinecure to
reward not always meritorious staff rather than a learning exercise for those involved in the
relevant areas of work and in need of capacity building. Attempts are usually made to
minimize the risk by closely scrutinizing participants but they are not always successful.
Also, at times it is a delicate matter to refuse a participant who has been nominated by his/her
member country. The next risk relates to the tradeoff between the intensity of the workshop
and the responsibility to cover as much ground as possible to warrant the significant costs
involved in the preparation of such a workshop. Workshop organizers typically try to reach a
compromise between the need to cover key elements of the subject while seeking to avoid
making it too intensive. It has been the case with this workshop. Participants evaluation
forms will tell whether the risk was mitigated. The workshop is prioritizing a practical
approach to the topic. There are risks that it might not have succeeded and the workshop is
perceived as being too theoretical.

The workshop will revolve around five thematic areas. They are as follows:

1. The basics in regard to the capital budgeting process. It has been pointed out in the
literature that getting the basics of the budget process right is fundamental. What is less clear
is what exactly basics are and what are not. The sessions here will propose two elements as
forming form part of the basics: (i) an MTFF/MTBF; and (ii) the integration of recurrent and
capital budgets (a related issue being what is the most appropriate institutional setup for
successful capital budgeting). As pointed out above (and in the reference article in the
footnote), putting the budget in a robust medium term framework helps to contain public
investment within a fiscally constrained environment (which could be based on explicit fiscal
rules). Previously (but still prevalent in some countries), Ministries of Planning prepared
ambitious public investment programs (PIPs) in disregard to any medium term fiscal
framework.

The integration of the current and development budgets - a major reform aimed at improving
budgetary management- has proved a challenge. The sessions would provide an opportunity
for participants to discuss why separate current and capital budgets have evolved over time
and what are the challenges posed by that. Participants would be exposed to the basic
principles of a unified budgeting system and identify the potential areas of improvements that
would underpin a sustained transition to it.

6
2. Increasing the efficiency and effectiveness of Public Investment. Public investments are
increasingly viewed as unaffordable, insufficient and sometime unsustainable posing a
challenge to prudent fiscal management. The sessions would examine the current practices
that undermine the efficiency and effectiveness of capital budgeting. The overall objective
would be to identify the best practices within the region and global context that promote: (i)
systematic cost benefit or cost effectiveness analysis of investment proposals; (ii) adoption of
a clear and transparent criteria to guide project selection, as well as (ii) institutional
arrangements for monitoring the implementation of the investment Projects.
The sessions will also explore ways of ensuring best practices at each of the following stages
of Public Investment management: Identification; Appraisal; Independent Review; Approval;
Implementation; Evaluation.

3. Financing of Public Investment. There are different ways of financing public investment,
each with their own risks and benefits. Domestic revenue, donor financing, borrowing on
concessional and non concessional terms and PPPs are the different ways to do so. The
sessions will discuss them but PPP will feature most prominently for the reasons explained
above. Participants will also learn about best practices from countries that are experienced in
this area. It is expected that case studies will be presented.

7
4. Public Investment practices in AFE member countries and elsewhere. The sessions
here will provide an opportunity for each member country to share experiences and identify
appropriate mechanisms to improve public investment management. This could include : (i)
availability of explicit fiscal principles or rules for public investment, and how do they apply
to capital spending; (ii) planning and constraining capital spending over a multi-year
framework (iii) limitations for governments borrowing for investment; (iv) measures that
guide funding decisions with respect to borrowing; government own revenue; donor
financing. Participants would also be expected to discuss how the different stages of the
project cycle mentioned above are carried out in their respective country.

5. Institutional and Capacity building priorities and Technical Assistance. The sessions
will explore ways to build institutions and capacity among member countries. Any
improvement in public investment management among AFE member countries hinges very
much on the ability of staff from line and Finance Ministries and other agencies such as
National Planning Authorities to acquire the right skills. That means the ability to conceive,
prepare, implement and follow up projects; to be able to interact with their respective
domestic private sectors and international companies to discuss potential PPPs and to
successfully implement them; to better understand feasibility studies for large infrastructure
projects and to be able to challenge their underlying assumptions, the costing methodology
used and their results. This will remain a perennial challenge as often well-trained staff move
on from low-salaries government employment to better-paid jobs in the private sector and
elsewhere.

The resource team is made up of experienced practitioners from different countries and
organizations. They are: Tawfik Ramtoolah (AFE PFM Adviser); Florence Kuteesa (Senior
Economist, FAD/IMF); Anand Rajaram (Practice Leader, World Bank); Neil Cole,
(Executive Secretary, CABRI); Simon Groom (FAD Panel of experts, UK National); Edgardo
Mimica (FAD Panel of experts, Chilean National).

The workshop program is shown below. However, this is still a preliminary draft likely to
be modified in the run-up to the workshop. The presentation expected from the Office of
Auditor General, for example, remains to be confirmed and will be included if it is. Other
presentations from resource persons also remain to be confirmed.

AGENDA (FINAL)

Time Session Resource person
Day 1: Monday September 1, 2014

8:30 - 9:00 AM Presentation and Review of program Tawfik
Ramtoolah

THEME 1: CAPITAL BUDGETING GETTING THE BASICS RIGHT
9:00 10:30
AM
Session 1.1: What are the Basics?
Capital v/s Current spending
National Planning Strategy, MTFF

and MTBF(needs v/s funding
availability)
The appropriate institutional

setting (one unified central finance
agency v/s two)
Tawfik

10:30 10:45
am
BREAK

10:45 12:30
pm

Session 1.2: Institutional setting the
case for independent institutions
PIMAC in South Korea
Major Projects Authority in UK
National Planning Commission in

South Africa

Simon Groom
12:30 14.00
pm
LUNCH
2

14:00 15:30

Session 1.3: The Basics in Chile
Chiles National Public Investment

System and Medium Term Budgeting
Strategic Planning v/s Economic

Planning
Chiles experience with Programs and

recurrent costs

Edgardo Mimica
15:30 15.45
pm
BREAK

15:45 17:00

Session 1.4: Recap of the days
presentations
Main findings
Questions, Answers, Discussions

Tawfik, Simon, Edgardo
Day 2: Tuesday September 2, 2014

THEME 2:INCREASING THE EFFICIENCY AND EFFECTIVENESS OF CAPITAL SPENDING
8:30 10:30
am

Session 2.1: The Investment Project
Cycle Ensuring best practices &
Country examples
Project identification and Appraisal
Review and Approval
Implementation and Evaluation

Simon Groom

10:30 10:45
am
BREAK
3
10:45 12.30
pm
Session 2.2: The Logical Framework
Approach
What is the Log Frame Approach
Programs and projects
Log frame and Government programs

Edgardo
12:30 14:00
pm
LUNCH

14:00 15:30
pm

Session 2.3: A Holistic approach to Public
Investment Management
A PIM assessment system
Typologies of PIM systems
World Bank recommendations

Anand Rajaram
15:30 15:45
pm
BREAK

15:45 16:45
pm

Session 2.4: Reflection on Country
Specific Practices (Group Work)
Country delegates will complete a

questionnaire to reflect their
experiences.

Florence Kuteesa

Day 3: Wednesday September 3, 2014

THEME 3: FINANCING PUBLIC INVESTMENT

8:30 9:30 Session 3.1: Recap of previous days presentations Anand,
Simon, Edgardo

4
9:30 - 10:30 am Session 3.2: Predictability and Financing
of Public Investment
Cash budgeting
Externally funded Investment
Borrowing (Concessional & Non

concessional)
Florence

10:30 10:45
am
BREAK
10:45 12:30
pm

Session 3.3: Public Private Partnership
(PPP) How and When to use?
Conceptual framework and different

forms of PPP.
Prerequisites for successful

implementation of PPP
Chiles 30 years experience of PPPs

Edgardo

12:30 14:00
pm
LUNCH

14:00 16:00
pm

Session 3.3: PPP (contd.)
Case studies of PPPs (successful & non

successful) including risk management
Risks identification and management

Edgardo

16:00 16:15 BREAK

16:15 17:00

Session 3.4: UK PFI Treasury Select
Committee Findings
Main findings
Lessons for participants

Simon
5
Day 4: Thursday September 4, 2014

THEME 4: PUBLIC INVESTMENT PRACTICES IN AFE MEMBER COUNTRIES AND
ELSEWHERE

9:00 10:30 Session 4.1: Value for Money Audit Liz Nambuya,
Assistant
Director, OAG

10:30 - Group work to prepare member Countries presentations on PIM
Practices
11:30 11:45
am
BREAK

Group work to prepare member Countries presentations on PIM
Practices
12:45 14:00
pm
LUNCH

14:00 16:00
pm

Plenary Session to Review Member
Countries PIM Practices.
16:00 17:00
pm
Plenary Session to Review Member
Countries PIM Practices.
.
Day 5: Friday September 5, 2014
6
GROUP PHOTOGRAPH OF PARTICIPANTS

THEME 5: INSTITUTIONAL AND CAPACITY BUILDING PRIORITIES AND TECHNICAL
ASSISTANCE
8:30 10.30
pm
Session 5.1: Exercise Where will your
country be in 30 years time
.
Edgardo
10:30
10:45am
BREAK

10:45 11:30
am

Session 5.2: Summary of main issues and
recommendations of the workshop

Tawfik
11:30 am
12:30 pm
Session 5.3: Workshop oral evaluation

Florence
12:30 13:30
pm
Session 5.4: Closing remarks and
certificates
Florence, Anand, Tawfik,
Edgardo, Simon
7

8
LIST OF PARTICIPANTS

NAME ORGANIZATION COUNTRY
Mr. Mwita Mgeni Mwita Ministry of Finance ZANZIBAR
Ms. Maryam Mohamed Othman Ministry of Finance ZANZIBAR
Mr. Omar Mlenge Omar Ministry of Finance ZANZIBAR
Ms. Mwashamba Hassan Ali Ministry of Finance ZANZIBAR
Mr. Ezekiel Anyosisye Mwakimi MoF, Accountant Generals Department TANZANIA
Leticia Kwangu Ng'wandu Ministry of Finance TANZANIA
Mrs. Joharia Hamis Mwenda Ministry of Works TANZANIA
Mr. Omary Hamza Juma POPC TANZANIA
Mr.Needpeace Jonathan Wambuya Ministry of Finance TANZANIA
Mr. Prosper Mathew Fivawo Ministry of Finance TANZANIA
Mr. Samuel Habteselassie
Ministry of Finance and Economic
Development ETHIOPIA
Mr. Tadesse Bahiru Wolderufael Ethiopian Roads Authority ETHIOPIA
Mr. Zewdu Felleke Belachew
Mr. Fanos Habtewold Chical
Mr. Michael Hailemariam Mengesha Ministry of Finance ERITREA
Mr. Berhane Fessehaye Kifle Ministry of Finance ERITREA
Mr. Ghirmai Mesghena Ghebrehiwet Ministry of Finance ERITREA
Mr. Araia Weressom Emnetu Ministry of Finance ERITREA
Mr.Chimwemwe Kaunda Ministry of Transport and Public Works MALAWI
Mr. Lawrence Ngwalangwa Ministry of Finance MALAWI
Mr. Richard Joseph Kaudzu Ministry of Finance MALAWI
Mr. Pempho Macdonald Mwinjilo Economist MALAWI
Mr. Leonard Angumbwike Mushani Revenue Policy Division MALAWI
Mr. Dhizaala Sanon Moses National Planning Authority UGANDA
Mr. William Epiaka National Planning Authority UGANDA
Mr. Samuel Kiyingi Ministry of Finance, Planning, Econ Dev UGANDA
Mr. Emmanuel Ogwang Ministry of Finance, Planning, Econ Dev UGANDA
Mr. Alexander Mwakidasi Sasa The National Treasury KENYA
Mr. Arthur Chege Nduati The National Treasury KENYA
Mr. Lewis Mutai Suke The National Treasury KENYA
9

Mr. Rastus Matanyi Shikuku The National Treasury KENYA
Program Presentation

Tawk Ramtoolah
AFRITAC East PFM Adviser

Monday September 1, 2014
Welcome to all Participants
Workshop Objectives
Overarching aim: discuss the major factors that need to be taken into account to ensure
that capital spending leads to the creation of productive assets. Specically, the
workshop aims at providing participants with a better understanding of the following :
basic requirements for successful capital budgeting including appropriate
institutional arrangements
key features of good practices of public investment management systems for
efcient and effective capital spending
insights into the systems of at least two internationally recognized good
practice countries
pros and cons of alternative nancing and implementation modalities
risks associated with capital spending and ways of managing them
improving the linkages between strategic planning and capital budgeting

Five thematic areas to be covered
1. Getting the Basics Right
2. Increasing the efciency and effectiveness of Capital spending
3. Financing Public Investment
4. Public Investment practices in AFE member countries and elsewhere
5. Institutional and Capacity building priorities and Technical Assistance
It is expected that through the coverage of those ve themes, participants are
being provided with the skills and knowledge required to improve capital
budgeting in their countries

Requirement for the workshop to be successful
Good time management arrive on time and start on time
Participation is important interaction between delegates and resource person
encouraged
Fairly intensive program still try to have a balance b/n intensity and relaxing
Overlapping nature of some of the themes/topics
Program prepared on basis that topics relevant, relates to the work of
participants but may be not always so
Flash drive with all the PPT and reading list (no hard copy)
Workshop evaluation important

Theme 1: Capital Budgeting Getting the Basics Right

Session 1.1: What are the Basics?
Tawk Ramtoolah
AFRITAC East PFM Adviser
Monday September 1, 2014
What are the Basics?
Outline
PIP (or Capital budget) v/s Acquisition of Non Financial Assets
(ANFA)
ANFA v/s growth
Current v/s Capital spending
National Planning Strategy, MTFF and MTBF(needs v/s funding
availability)
The appropriate institutional setting (one unied central nance
agency v/s two)

PIP (or Development or Capital Budget) v/s Acquisition of
Nonnancial Assets Issue No. 1
Government seeks to build assets through spending in the budget. It takes the
form of PIP or Capital budget.
Question: are all the spending in the Capital Budget or all the projects in the
PIP really about building assets or some merely recurrent in nature?
If a large part consists of salaries, they cannot be included as Acquisition of
xed assets
..\ICD & Others - Courses\GFS 2014 - Clasication of Expense.pdf
..\ICD & Others - Courses\GFS 2014 - NonFinancial asets (detail).pdf

Acquisition of non-nancial assets and growth - Issue No.2
Do all ANFA contribute to growth?
Is the impact on growth the same from one asset to another?
The construction of a market can be expected to increase value added
How about the construction of a bridge leading to nowhere (while elephant)
What should be done to strengthen the link between capital spending,
acquisition of non-nancial assets and growth?

Capital spending, acquisition of non-nancial assets and growth
Dene well-structured, realistic national planning documents and sector
strategy framework to support investment spending (rather than adhoc
decisions with little analytical basis)
Strengthen links between planning and budgeting
Facilitate funding predictability of line Ministries (esp. Infrastructure ones)
otherwise, they will not be encouraged to plan well
Ensure projects go through rigorous analysis at each stage of cycle
If possible, dene expected outputs and outcomes and performance indicators
(program-based budgeting)
Taking into consideration opportunity costs of projects (i.e., could a more
productive asset have been built)

Current and Capital expenditure: Is the distinction always
useful? - Issue No. 3
If capital spending has to be efcient and effective, how about current
spending?
All spending must be useful whether current or capital
A fertilizer/farm input subsidy program, if well designed and targeted could
have greater impact on growth that a capital project
Is xing leakages in a water network better that building a new dam?
Policy issues can be tackled using either current or capital expenditure e.g.
lower female enrolment
The distinction between current and capital is sometimes useful sometimes
counterproductive the quality of the spending is more important than the
distinction b/n the two types

National Planning strategy and MTFF/MTBF: Needs v/s
Funding availability Issue No 4
Importance of medium term scal framework in constraining investment
spending
Importance of medium term budget framework in providing for funding
predictability (locks in the funding)
An example is provided
..\Eritrea\MTFF South Africa 2011 -15.pdf
..\Eritrea\MTBF South Africa 2011 -15.pdf
Macro-Fiscal
Approved
Budget 2012/13
Budget
Estimates
2013/14 2014/15 2015/16 2016/17 2017/18
Nominal GDP 55,574.03 62,322.97 69,631.08 77,818.64 87,488.28 98,250.55
Domestic
Resources 7,467.60 8,843.40 9,993.90 11,719.90 13,682.00 15,980.00
Nominal GDP (%
growth)

12.14% 11.73% 11.76% 12.43% 12.30%
Domestic
Resources (%
growth)

18.42% 13.01% 17.27% 16.74% 16.80%
Tax Revenue (%
growth) 15.07% 17.49% 17.42% 16.86% 16.89%
Budget support (%
growth)

-93.38% -16.94% 2.91% 3.07% 2.97%
Project support (%
growth)

17.05% -28.18% -20.50% 3.00% 3.00%
Domestic
Financing (%
growth)

-21.12% -33.09% -8.03% -62.78% 101.29%
8
Comprehensiveness of the expenditure ceiling the case of Uganda
Uganda - The resource envelope

Approved
Budget
2012/13
Budget
Estimates
2013/14 2014/15 2015/16 2016/17 2017/18
Domestic Resources 7,467.60 8,843.40 9,993.90 11,719.90 13,682.00 15,980.00
URA Revenue 7,284.70 8,382.20 9,848.30 11,564.30 13,514.40 15,797.40
Non-tax revenue 171.1 461.2 145.6 155.6 167.6 182.6
Loan repayments 11.8 0 0 0 0 0
Budget support 749.5 49.6 41.2 42.4 43.7 45
Grants 480.7 49.6 41.2 42.4 43.7 45
Loans 268.8 0 0 0 0 0
Project Support 1,992.80 2,332.60 1,675.30 1,331.90 1,371.80 1,413.00
Grants 762.1 805.5 722.6 622.3 641 660.2
Loans 1,230.70 1,527.10 952.7 709.6 730.8 752.8
Domestic Financing 988.6 779.8 521.8 479.9 178.6 359.5
Resource envelope (inc.
projects) 11,198.50 12,005.40 12,232.20 13,574.10 15,276.10 17,797.50
Uganda - From resource envelope to expenditure ceiling

Approved
Budget
2012/13
Budget
Estimates
2013/14 2014/15 2015/16 2016/17 2017/18
Resource envelope (exc. Projects) 9,205.70 9,672.80 10,556.90 12,242.20 13,904.30 16,384.50
External debt repayments -250.4 -300 -303.2 -301.7 -326.2 -376
Amortization -217.2 -272.5 -288.5 -295.7 -322.8 -370.2
Exceptional Financing -9.4 -13.2 -14.7 -6 -3.4 -5.8
Arrears -23.8 -14.3 0 0 0
Domestic debt repayments -9.7 -9.7 -9.7 -9.7 -9.7 -9.7
Resource envelope (excl. debt repayment) 8,945.60 9,363.10 10,243.90 11,930.70 13,568.40 15,998.80
Domestic arrears 35 0 50 50 50
Resource envelope (excl. debt repayment
and Domestic arrears) 8,910.60 9,363.10 10,193.90 11,880.70 13,518.40 15,998.80
Interest payments 839.2 908.5 729.5 719.2 674.2 710.7
o/w domestic 712.8 785.1 615.9 603.6 566.7 618.3
o/w external 126.4 123.4 113.6 115.6 107.5 92.4
Resource envelope (net of interest, debt and
arrears) Expenditure ceiling 8,071.40 8,454.60 9,464.40 11,161.50 12,844.20 15,288.10
Uganda - From resource envelope to expenditure ceiling

Approved
Budget
2012/13
Budget
Estimates
2013/14 2014/15 2015/16 2016/17 2017/18
Resource envelope (exc. Projects) 9,205.70 9,672.80 10,556.90 12,242.20 13,904.30 16,384.50
External debt repayments -250.4 -300 -303.2 -301.7 -326.2 -376
Amortization -217.2 -272.5 -288.5 -295.7 -322.8 -370.2
Exceptional Financing -9.4 -13.2 -14.7 -6 -3.4 -5.8
Arrears -23.8 -14.3 0 0 0
Domestic debt repayments -9.7 -9.7 -9.7 -9.7 -9.7 -9.7
Resource envelope (excl. debt repayment) 8,945.60 9,363.10 10,243.90 11,930.70 13,568.40 15,998.80
Domestic arrears 35 0 50 50 50
Resource envelope (excl. debt repayment
and Domestic arrears) 8,910.60 9,363.10 10,193.90 11,880.70 13,518.40 15,998.80
Interest payments 839.2 908.5 729.5 719.2 674.2 710.7
o/w domestic 712.8 785.1 615.9 603.6 566.7 618.3
o/w external 126.4 123.4 113.6 115.6 107.5 92.4
Resource envelope (net of interest, debt and
arrears) Expenditure ceiling 8,071.40 8,454.60 9,464.40 11,161.50 12,844.20 15,288.10
The appropriate institutional setting
for best practice Capital budgeting Issue No. 5
Issue: Is it better to have one unied central agency (e.g. Ministry of
Finance, Planning and Econ Dev) or two (Finance; Planning or Nat
Planning Commission) or more (an Independent agency)?
Compare the case of South Africa and Tanzania

The need to prepare the Current and Capital budgets together:
Issue No. 6
Importance of preparing the 2 budgets together to ensure that recurrent costs
of capital spending are included in the budget
Avoid building schools and not having teachers to teach or electricity or water
The issue is closely linked to the institutional fragmentation of the budget
process having different agencies involved could complicate it (becomes
more difcult to budget for recurrent costs)

To summarize
Ensure PIP or Capital spending translate into productive assets
Productive assets should have as large an impact on value added as possible
All spending should be useful whether current or capital the distinction b/n
the two is useful at times but could be counterproductive in other times
MTFF/MTBF are critical instruments to constrain capital spending and
provides an anchor to otherwise overambitious planning documents
Institutional set-up is important one agency might be better than two or
more (except for an independent one)
Preparing current and capital together is better

CAPITAL BUDGETING
WORKSHOP, ENTEBBE
Independent and Quasi-Independent
Institutions
Simon Groom
simongroom@aliceadsl.fr
Reasons for establishing
independent or quasi-independent
institutions
Objectivity/impartiality
Promoting good practices
Compensating for skill shortages by
concentrating capacities
Strategic guidance on capital investment
priorities
2
Overview
S. Korea: PIMAC
UK: Major Projects Authority
South Africa: Planning Commission
Ireland: CEEU
European regional organisations
3
South Korea: Public and Private Infrastructure
Management Center (PIMAC)
Public Investment Management Center (PIMA)
founded in 2000 by Ministry of Strategy and
Finance* to conduct objective preliminary
feasibility studies (PFS) of major projects
(>$50 million) amidst very strong objections
from major investing ministries
A response to:
Fiscal constraints caused by 1997/8 Asian
Financial Crisis
Mounting evidence of systematic optimism bias
and gold-plating
Conict of interest and absence of checks and
4
Status of PIMAC
PIMA merged with Private Infrastructure
Investment Centre in 2005 - consistent with
introduction of unied framework for PPP
project appraisal
PIMAC is a statutory organisation under the
PPP Act (as amended 2005)
PIMAC is an afliated body of the Korean
Development Institute, an independent think-
tank under the tutelage of the MOSF.
Korean Development Institute comes under
Government Funded Research Institute Act
5
A Unified Framework for PPP Project Appraisal
6
Project Initiation
(Solicited / Non-Solicited)
Feasible
Project?
(PFS)
VFM Test
Formulation of PPP Alternative
STOP GO thru PPP
N
Y
N Y
Phase 1
Phase 2
Phases 3
GO thru Government Project
6
Organization Chart for PIMAC
85 staff in 3 divisions
7

Policy Research
Unit
Public Institution
Evaluation Unit
Program
Evaluation Unit
Executive Director
PFS Unit 1 RSF Unit PPP Policy Unit
PPP Project
Unit
Finance & Intl
Cooperation Unit
Policy and Research Division
(21)
Public Investment Evaluation Division
(32)
Public-Private Partnerships Division
(30)
Conduct and manage PFS and
RSF and RDF
Policy research on PIM
Research on Methodology of
Project Evaluation
Program Evaluation and
Performance Management of
Public Investment Projects
Appraisal for SOE Projects
Formulate PPP Annual Plan and
develop PPP guidelines
Conduct Evaluation of PPP Projects
Researches on PPP
Financing and refinancing PPP
Capacity building training
Infrastructure DB management
PFS Unit 2
Role of PIMAC
Researcher
Theoretical and policy studies on infrastructure
development and management
Research on evaluation methodology
Formulation of the Annual PPI Plan
Project Appraiser/Evaluator
PFS on large-scale government projects/programs
PFS on large SOE projects
RSF (re-assessment study of feasibility) on
ongoing projects
VfM tests on PPP projects
EBP (in-depth evaluation of budgetary program)
on an ex post basis
8
Impact of PIM System Reforms
Implemented by PIMAC
Preliminary Feasibility Studies
PFS performed for 528 projects 1999-2011, of
which 61.6% found to be feasible
Total Project Cost Management
Average cost increase requested fell from 26.4% in
1996-99 to 4.4% in 2000-03
Agreed cost increases fell from 11.1% in 1996-99
to 1.0% in 2000-03
Re-assessment Study of Feasibility
24 out of 140 projects subject to RSF were stopped
2006-2010
Total project cost savings of 18% made (compared
to requested increase) on projects that continued
9
Why is PIMAC Interesting?
Demonstrates potentially signicant impact
that impartial, non-conicted institutions can
have on improving value for money
Illustrates proportionality in appraisal effort
Shows how a unied approach to PPP can be
strengthened through organisational
arrangements
10
UK: Major Projects Authority
(MPA)
MPA is a new institution, created in 2011 as a
partnership between the Cabinet Ofce and the
Treasury
With a staff of 68 (May 2014), its focus is on
successful delivery of large and complex
projects
No direct involvement in project
implementation and no approval/decision-
making role
Coordinates a system that provides assurance
planned and consequential - over progress
11
Origins of MPA
Origins lie in a critical report by the National
Audit Ofce, Assurance for High Risk
Projects, instigated because of some high
prole project failures:
Denes assurance as independent assessment of
whether required elements to deliver projects
successfully - good project management practices
and appropriate funding and skills - are in place
and operating effectively
Found that:
High-risk projects often large-scale, innovative and
reliant on complex relationships between stakeholders
and frequently present a level of risk that no commercial
12
Main Activities of MPA
Develop and maintain the rst (!) system for
monitoring Government Major Project
Portfolio (GMPP):
Annual Report on progress around 200 projects
Trafc-light warning system for delivery
condence
Instigate mandatory Starting Gate Review
process decision-step before any public
announcement
Introduce system of Integrated Assurance and
Approval Plans schedule of assurance
assessments to support decision-making and
13
Impact of MPA
Still a young organisation - only recently been
properly staffed but considered as one of the
more successful efciency and performance
innovations of the current government
Unied assurance and approval system
introduced Major Project approval and
assurance guidance
Quality of annual report on GMPP has been
improving; but overall delivery condence for
the portfolio has fallen!
MPA provides no commentary on the
14
Delivery Condence Ratings for Major Projects
15
Completeness of Submissions from Spending Ministries
16
Why is MPA Interesting?
Illustrates usefulness of independent view on
the overall portfolio and systems
Identied need for MPA illustrates:
Potential loss of central oversight over capital
projects in decentralised, performance-oriented
budgeting systems [consultants opinion!]
Recognition of high risk of many public sector
interventions
Role of organisation highlights:
Insufcient attention to deliverability in the
traditional interplay between spending ministries
and nance/planning ministries where there has
17
South Africa: National Planning
Commission (NPC)
NPC created in 2010
Chairman of the Commission reports to the
President
Consists of 25 part-time Commissioners
appointed by the President on the basis of skill
and expertise
Supported by full-time secretariat
18
Functions of NPC
Lead the development and periodic review
South Africa Vision 2030 and long-term
national strategic plan
Lead investigations into critical long-term
trends
Advise on key economic and social issues
Assist with mobilising society around the
national vision
Contribute to reviews of implementation or
progress in achieving the objectives of the
national plan
Contribute to development of international
19
Activities of NPC
Prepared diagnostic Overview (June 2011)
setting out key challenges in combatting
poverty and inequality and led consultations
Draft National Development Plan Vision for
2030 (November 2011)
Undertook national dialogue on draft national
plan, including sub-national governments and
civil society
Prepared revised National Development Plan
(September 2012)
Currently advising government on
implementation framework for NDP
20
NDP and Capital Budgeting
Diagnostic Overview includes Material
Conditions Diagnostic, which in turn covers
social and economic infrastructure, identifying
current provision, demand growth and gaps
Chapter 4 of NDP deals with economic
infrastructure, identifying key policy issues
and priorities in each sector -

21
Why is the NDP Interesting?
Provides an example of an independent think-
tank developing the kind of strategic guidance
necessary for identifying and prioritising
public capital investment
No role in budgeting, so no risk of dual
budgeting problems
Other AFE countries have planning
commissions, but sometimes more directly
involved in capital budgeting, potentially
undermining the advantages of integrated
budgeting:
Ethiopia: National Planning Commission
22
Ireland: Central Expenditure
Evaluation Unit
Began in 1996 as Central Evaluation Unit
(CEU) with nance ministry, but has always
operated more or less independently
As late as 1990, Ireland had no systematic
process for public investment management
Driver was the need to set up good systems for
planning capital investment projects funded
through EU Structural Funds and then the
extension of these systems to domestically
funded projects.
23
Functions of the Central Evaluation Unit
The functions of the original CEU were dened
as:
Assist ministries with developing (outcome-
oriented) performance indicators by which they are
assessed;
Undertake interim evaluations of ministry plans,
including investment plans;
Offer advice on and set standards for cost-benet
analysis; and
Offer advice on wider evaluation issues, e.g., ex
post evaluations.
The Unit led the process of developing the
guidelines that established new PIM process.
24
Functions of the Central
Expenditure Evaluation Unit
The CEEU was created in 2006 with a wider
remit than the CEU:
Verication of the application of the 2005 Capital
Appraisal Guidelines;
Co-ordination of overall implementation of the
comprehensive program of value for money and
policy reviews agreed by the Government in 2006;
Preparation and rollout of program evaluations
under the National Development Plan 2007-2013;
and
General remit to promote value for money across
the system including through the provision, as
resources permit, of technical and other advice to
25
Why is the CEEU Interesting?
Example of a quasi-independent organisation
operating under the nance ministry (and from
2011 the ministry for public expenditure and
reform)
Demonstrates that a small, focused unit with a
good deal of independence can be very
inuential: original CEEU had staff of 10,
including 6 specialist evaluators
Decentralised approach to improving capital
budgeting:
CEEU promotes good practice
Except for a recently created review role for major
26
Regional Institutions to Fill Capacity Constraints:
Joint Assistance to Support Projects in European Regions
(JASPERS)
Managed by European Investment Bank and
co-sponsored by EC, EBRD and KfW
Provides advice to 13 New Member States as
well as candidate countries
Provides technical support to prepare major
infrastructure schemes nanced by EU
Structural and Cohesion Funds
Improves to improve the quantity and quality
of requests for funding
Has supported 550 projects worth euro 60
27
Regional Institutions to Fill Capacity Constraints:
Western Balkans Investment Framework (WBIF)
Joint initiative of the EU, international
nancial institutions (EIB, EBRD & WB),
bilateral donors (KfW) and governments of the
Western Balkans
Provision of small grants which are used to
attract larger amounts of loan nance
(leverage)
Grants largely used for technical assistance in
preparing bankable projects for investors to
make their investment decision. TA provided
by contracted teams of consulting experts
through framework contracts
28
Questions for AFE Participants to
Consider
Is there a place for an independent pre-
appraisal process like S. Koreas? Do AFE
countries have the same sort of problems that
S. Korea was trying to overcome? What would
be the constraints in terms of human resource
capacities and nancing?
Are there advantages from the planning
commission model in terms of developing
realistic plans a national consensus about the
future direction of investment? What are the
potential disadvantages in terms of mission
creep and embedding the capital-current
29
Edgardo S. Mimica (edgardo.mimica@uai.cl)
1
Through time the NIS has achieved a high level of legitimacy in its:
TECHNICAL- ECONOMICAL DIMENSION due to its success in filtering the
bad and finding the best projects among 0.5 million alternatives that are
revolving in the data base. This gain in efficiency has helped to solve more
social demands with the limited, available public funds
ETHIC DIMENSION for the increasing transparency and availability of
contemporary information regarding the public investment process. Any project
in the Integrated Bank of Projects has been made public through the Internet.
See: www.bip.mideplan.cl/bip-consultas/inicio_ie.htm
DEMOCRATIC DIMENSION for the increasing participation of civil society in the
discussion of investment decisions process. Private and non-governmental
organizations may also propose and formulate investment projects, but they
must coordinate through the Provincial or Local governments in order for them
to apply indirectly for public funding
POLITICAL DIMENSIONfor the coordination of government policies and
strategies
LEGITIMACY OF THE NATIONAL INVESTMENT
SYSTEM
2
The National Investment System (NIS):
strategic planning and budgeting for
public investment
Content of this Presentation Content of this Presentation
3
In Chile (since 1973):
State Enterprises
Ministries
Organisms depending
from Ministries
Local governments
Majors Municipalities
Provincial Governments
Governors
Formulate & appraise
projects, but.. according
to Ministry of Planning
regulations
To verify if Investment Initiatives are attractive, means:
Performing an Economic or SOCIAL Project Appraisal
(i.e Evaluation from the point of view of the entire Nation)
MINISTRY of PLANNING
does not formulate projects, they only REVIEW and MONITOR the
appraisal of projects
4
National Investment System (NIS)
legal framework (summary)
Laws: Financial Administration of the Nation
Laws: Planning Ministry
Laws: Budget of Public Sector
Laws: Provincial Governments
Regulations: Office of the Budget
NOTE: A National Investment System must be overwhelmingly rooted in the National Legal
System of a country. Hopefully, requiring Constitutional amendment
5
PURPOSE OF THE NATIONAL INVESTMENT SYSTEM
Contribute to increase the general welfare of the community
To provide the public authorities with a plentiful portfolio of good investment
projects, so that they can choose those suited as more convenient for society as a
whole
Investment projects must comply with quality standards in terms of elaboration,
evaluation and analysis, they are controlled and monitored according to uniform and
transparent rules and with an adequate democratic participation of both the public
institutions and the organized community or civil society (interest groups, ngos,
private sponsors, etc)
Purpose: To increase the quality of National Public Investment
6
PROJECTS HAVE TO FOLLOW THE NATURAL DEVELOPMENT
CYCLE TO BE APPROVED
The N.I.S has been designed to impose projects to go through the
Project Life Cycle, starting from the identification of a project
idea/concept to the final operation and ex-post evaluation stage
The project development cycle is a continuous and dynamic process
with a great deal of overlap, interaction and feedback among the
various phases. Many of the activities are inter-related and cannot be
confined to one particular phase (*)
This interrelationship is particularly strong among the phases
preceding the implementation. There is a considerable interaction
between the implementation phase and the evaluation phase as the
lessons of ex-post evaluation are constantly used to suitably modify
the operations of the project
* Note: From Glenn P. Jenkins Project Appraisal Manual
7
Identification of an unresolved problem, possible benefits, geographic localization
and objectives
Collect additional data and check previous information. Examine technical and
institutional alternatives, establish first cost assessments for investment,
operation, project life and other requirements. Do a preliminary evaluation
Get all the detailed information needed. Eliminate certain unviable alternatives
and evaluate the rest. Pre-arrange for financing. Study all modules: marketing-
demand, technical, environmental, human resources, institutional. Do financial,
economic and distributional appraisals. Do also sensitivity and risk analysis.
Find the best alternative
Detailed engineering design, blue prints and specifications, define all the
logistics, do final adjustments previous to execution stage, draft bidding proposal
Develop the chosen alternative and reduce the uncertainties to acceptable limits
define its parameters. Arrange final financing scheme. Go deeper into studying
modules with the highest risks, check all the assumptions you made
I
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Components of NIS Project Cycle: Pre-Investment Stage
8
Flux Diagram of a Project Life Cycle
Idea
Profile
Pre-Feasibility
Feasibility
Detailed design & Execution-
Construction $$$.$$$.$$$
Operation $.$$$.$$$
Wait Reject
Reject
Wait
Reject
Reject
Wait
Wait
Execution
Execution
Go deeper $$$
Go deeper $$.$$$
Go deeper $.$$$.$$$
Ministry of Finance
9
Processes for appraising investment
projects ex-ante
Content of this Presentation Content of this Presentation
10
1
st
) SYSTEMATICALLY KILL BAD PROJECTS AND
TO DO IT AS SOON & EARLY AS POSSIBLE,
DURING THE PRE-INVESTMENT STAGES
Politics & civil society enter the investment decision
discussion or start lobbying only after the NIS pre-
investment process is terminated.
This is, public discussion is only on the portfolio of projects that
approved the NIS process
TWO GENERAL PURPOSES OF THE NATIONAL INVESTMENT SYSTEM (NIS)
If this is successfully done, then
11
2
nd
) TO SLOW DOWN THE INVESTMENT DECISION
PROCESS BY INTRODUCING GRADUALISM
THROUGH A MANDATORY PROJECT LIFE CYCLE
TWO GENERAL PURPOSES OF THE NATIONAL INVESTMENT SYSTEM (NIS)
If this is successfully done, then
The NIS becomes the anchor of
the financial system; it provides
stability, forcing to approach the
desired end by gradual stages
CAPITAL
BUDGETING
WORKSHOP,
ENTEBBE
Theme 1: Getting the Basics Right
Recap of the Days Presentation
What are the basics?
Ensure PIP or Capital spending translate into
productive assets
Productive assets should have as large an impact on
value added as possible
All spending should be useful whether current or
capital the distinction b/n the two is useful at
times but could be counterproductive in other times
MTFF/MTBF are critical instruments to constrain
capital spending and provides an anchor to
otherwise overambitious planning documents
Institutional set-up is important one agency might
be better than two or more (except for an
Case for Independent Institutions:
Motivations

Objectivity/impartiality PIMAC [appraisal] &
MPA [portfolio delivery]
Promoting good practices - CEEU
Compensating for skill shortages by concentrating
capacities JASPERS or WBIF
Strategic guidance on capital investment priorities
South Africa NPC
Often arise out of crises or identied problems
Case for Independent Institutions:
Is there a place for an independent pre-appraisal
process like S. Koreas? Do AFE countries have the
same sort of problems that S. Korea was trying to
overcome? What would be the constraints in terms
of human resource capacities and nancing?
Are there advantages from the planning commission
model in terms of developing realistic plans a
national consensus about the future direction of
investment? What are the potential disadvantages in
terms of mission creep and embedding the capital-
current budgeting dichotomy?
Is the small, independent evaluation unit a possible
vehicle for promoting good practices in public
Chiles National Investment
System
NIS applies to all levels of government and has
strong legal basis
MOP does not prepare capital budget: it maintains
and polices the NIS and is the ultimate arbiter in
deciding which projects go forward during pre-
investment stage
Clear allocation of roles and responsibilities
between MOP , MOF and other actors
Rigorous, sector-specic methodologies
economic analysis techniques, supported by
published parameter values
NIS is giant lter screening out projects at idea,
CAPITAL
BUDGETING
WORKSHOP,
ENTEBBE
Investment Project Cycle Ensuring good practice
& country examples
Simon Groom

Introduction

What is a Project?
UK denition
A project has denite start and nish dates, a clearly
dened output, a well dened development path, and
a dened set of nancial and other resources
allocated to it; benets are achieved after the project
has nished, and the project plans should include
activities to plan, measure and assess the benets
achieved by the project.

Project Cycle
Formalised sequence of activities and decision-
making with feed-back loop
Moving from one stage to the next should not
be automatic and projects can be stopped at
any time
Where necessary, Departments and public bodies should be prepared at any stage,
despite costs having been incurred in appraising, planning and developing a
project, to abandon it if, on balance, continuation would not represent value for
money. (Irish Public Spending Code)
Number of stages not as important as the
discipline a formal project cycle structure
brings to the public investment management
system
Indicative Project Cycle
Preparation
Appraisal
Identification
Evaluation &
Audit
Funding
Approval
Implementation
& Monitoring
Project Cycle: Links
to Budgeting and
Strategic Planning
Preparation
Appraisal
Identication
Evaluation &
Audit
Funding
Approval
Implementation
& Monitoring
Strategic
Planning
Strategic
Planning
Budgeting
Budgeting
Budgeting
UK Project Cycle
Stage 1 Scoping the proposal and
preparing the Strategic Outline Case (SOC)
Making the case for change
Exploring the preferred way forward
Stage 2 Planning the scheme and
preparing the Outline Business Case (OBC)
Determining value for money
Preparing the potential deal
Ascertaining affordability and funding requirement
Planning for successful delivery
Stage 3 Procuring the solution and
preparing the Full Business Case (FBC)
Ireland: Decisions and Approvals Linked to Project
Stages
No Inventory
No strategic
lters; weak
project
screening
Low allocation; New
favored over
completion
Consistent
under
execution;
incomplete
projects
Sporadic audit,
evaluation
Project Identication
(& Strategic Guidance)

Identication: Key Elements
Authoritative and operational strategic
guidance to guide identication
Credible = realistic
Operational = not so vague that it is subject to
interpretation
Authoritative = supported at the highest political
level
Formal projection initiation process, involving:
Preparation of project prole/concept note
Preliminary screening
Decision to proceed to preparation/appraisal
Where Do Project Concepts Come From?
Sector strategies
Problem and stakeholder analysis (framed by sector strategies)
Identication of appropriate project ideas to address an
identied problem (including non-engineering solutions)
Asset management systems
Spontaneously from politicians through consultation with
constituents origin of some good ideas, but also of many
potential white elephants NEED TO FOLLOW SAME
PROJECT CYCLE AS ALL OTHER PROJECTS
Strategic Guidance
Starting point for identifying project concepts
Basis for prioritisation
Investment strategies better when costed,
framed by realistic resource constraints and
specic (not visions)
No blueprint for strategic planning:
National development strategies/plans with
investment/infrastructure components
National investment/infrastructure strategies
Sector investment strategies - better if part of
comprehensive sector plans
13
Ireland
Economic and Social Infrastructure Operational
Programme of 7-year National Development Plan
2000-06 (linked to EU funding cycle)
Sector investment strategies, e.g., Transport 21
2006-2015 (within NDP 2007-13)
United Kingdom
National Infrastructure Plan 2013 a new
instrument for UK
Previously, ministry investment strategies
Netherlands
National Policy Strategy for Infrastructure and
Examples of Advanced Country
Strategic Guidance
14
Focus on the role of the public
sector in a mixed market
economy
Based on realistic estimates of
resource availability, including
EU Structural Funds
Integrated planning
Recurrent and capital
Factors in the Success of Irelands
NDP 2000-2006
15
Ireland: Process for Identifying National
Investment Priorities
16
Structure of UK National Infrastructure
Strategy 2013
Advantages of Preliminary
Screening
Conrms need/demand and claries project
intervention logic and scope
Veries consistency with government policy
priorities policy relevance
Produces early (rough) cost estimates
Promotes development of affordable project
pipeline in line with medium- to long-term
nancial constraints
Allows feedback from monitoring and
evaluation
Raises design issues for further study
18
Ireland
Preliminary appraisal for projects >!5 million to
assess case for in-depth appraisal of fully prepared
project:
Sets out project objectives; assesses needs; and identies
options for in-depth analysis
United Kingdom
Strategic Outline Case for projects prepared with
an emphasis on the Strategic Case:
Examines strategic priority; identies project options for
in-depth analysis; and assesses affordability.
Starting Gate reviews for major projects by
Examples of Formal Project Initiation Processes
19
Each of 5 thematic cases is given more or less
emphasis at different stages of project
development:
1. Strategic Case: sets out rationale for
proposed investment, making the case at the
strategic level
2. Economic Case: assesses economic costs
and benets of the proposal to society as a
whole, and spans the full life cycle of the
project
3. Commercial Case: looks at contractual
20
UK: 5 Thematic Cases to Be Developed and
Monitored at Each Stage of the Project Cycle
Strategic Outline Case Outline Business Case Full Business Case
Strategic Case Completed in full but may
be revised later
Revisited. Revisited and revised if
required.
Economic Case Completed as far as review
of a long-list of options,
recommended way forward
and an initial short-list for
OBC stage
Completed according to
methodological guidance on
appraisal and evaluation in
central government (the
Green Book).
Findings of procurement
included in the economic
analysis and recorded.
Economic case re-assessed.
Commercial Case Addresses the fundamentals
of any potential
procurement or deal, e.g.,
initial identication of
potential PPP options.
Outlines envisaged deal
structure/s and any contractual
clauses and payment
mechanisms.
Recommended deal written
up.
Financial Case Discusses likely affordability
of the proposed project
Detailed analysis of
affordability and any funding
gaps.
Affordability and funding
issues resolved.
Management Case Outlines how the project will
be set up and managed
Develops in more detail how
the project will be delivered
with an outline of the
proposed project management
plan.
Detailed plans for delivery
and arrangements for
realization of benets, the
management of risk and ex
post evaluation are recorded

21
UK: Strategic Outline Case
1. Business case basics
a. Aims & objectives
b. Options is there a proposed option and will it
achieve the aim/s?
c. What are the fallbacks/other options?
d. What must be taken into account and/or cannot
be ignored?
2. Timeline
3. Team capability
4. Finances estimated cost and available
budget
5. Risks

22
UK: Starting Gate Reviews for Major Projects
Examples of Formats for Project Proles
South Africa:
The problem that has given rise to the need for
the project
The statistical data, baseline information and
service-delivery indicators pointing to the need
at this time
The extent and urgency of the need
The consequences if the need is not met
The proportion of the need a given request is
intended to meet
How the project ts into the ministrys long-
Logical Framework Approach
Sets out hierarchy of project objectives based on
cause and effect (internal project logic):
Overall Goal
Project purpose
Outputs
Activities
Identies measurable indicators of achievement and
means of verication
Identies assumptions and risks (external project
logic)
Preparation & Appraisal

Preparation & Appraisal: Key
Elements
Regulated process with main steps, decisions
and allocation of roles and responsibilities
clearly dened and understood by participants
Rigorous methodologies, applied consistently,
but proportionately
Independent review or assessment
Project Preparation
Project concept developed sufciently to verify
good use of public money
More than an engineering analysis; less than a
detailed design (at least for appraisal decision)
Crucial to identify and analyse project
alternatives
Involves:
Technical design and costing
Feasibility studies economic/nancial &
technical/engineering
Pre-feasibility studies for major/complex projects
Impact assessment environmental-social
27
Ireland
Project preparation process regulated by Part B
Appraisal & Planning - of the Public Spending
Code setting out appraisal steps, approvals
required and roles and responsibilities -
http://publicspendingcode.per.gov.ie/appraisal-
and-planning/
The Central Expenditure Evaluation Unit of the
Department (Ministry) for Public Expenditure and
Reform is responsible for system design and
promoting use of good practice
Spot checks required to ensure good process has
been followed
Examples Regulated Project Preparation Processes
28
Strategic Outline Case Outline Business Case Full Business Case
Strategic Case Completed in full but may be
revised later
Revisited. Revisited and revised if
required.
Economic Case Completed as far as review of
a long-list of options,
recommended way forward
and an initial short-list for
OBC stage
Completed according to
methodological guidance on
appraisal and evaluation in
central government (the
Green Book).
Findings of procurement
included in the economic
analysis and recorded.
Economic case re-assessed.
Commercial Case Addresses the fundamentals of
any potential procurement or
deal, e.g., initial
identication of potential PPP
options.
Outlines envisaged deal
structure/s and any
contractual clauses and
payment mechanisms.
Recommended deal written
up.
Financial Case Discusses likely affordability
of the proposed project
Detailed analysis of
affordability and any
funding gaps.
Affordability and funding
issues resolved.
Management Case Outlines how the project will
be set up and managed
Develops in more detail how
the project will be delivered
with an outline of the
proposed project
management plan.
Detailed plans for delivery and
arrangements for realization of
benets, the management of
risk and ex post evaluation are
recorded

29
UK: Outline Business Case
Ireland
Part D Standard Analytical Techniques- of the
Public Spending Code gives guidance on appraisal
methods and techniques, including nancial
analysis and economic cost-benet analysis -
http://publicspendingcode.per.gov.ie/d-standard-
analytical-techniques/
Sector specic guidance developed for key
infrastructure, e.g., National Road Authoritys
2011 Project Appraisal Guidelines -
http://www.nra.ie/policy-publications/project-
appraisal-guideli/ - and supporting parameter
values
United Kingdom
Methodological Guidance
30
1. Introduction and background
2. Overview of appraisal and [ ex post]
evaluation
3. Justifying action [including reasons for
government intervention]
4. Setting objectives: objectives,
outcomes and outputs
5. Appraising the options
a. Creating options
b. Valuing the costs and benets of options
c. Adjustment to values of costs and benets
d. Discounting [including specication of
discount rate]
31
UK Green Book: Appraisal and Evaluation
in Central Government
Ireland
Strong proportionality in the use of assessment
tools [see next slide]:
The complexity of the appraisal or evaluation of a
project or programme and the methods used will
depend on the size and nature of the project or
programme and should be proportionate to its
scale. The resources to be spent on appraisal or
evaluation should be commensurate with the likely
range of cost, the nature of the project or
programme and with the degree of complexity of
the issues involved.
United Kingdom
Proportionality in the Application of Assessment Tools
32
Ireland: Proportionality in Use of Assessment Tools
Project Value (Minimum) Type of Assessment
< ! 0.5 million Simple assessment for minor
projects, such as those involving
minor refurbishment works, t-
outs, etc.
> ! 0.5 million < ! 5.0 million Single appraisal (combining
elements of Preliminary Appraisal
and Detailed Appraisal)
> ! 5.0 million < ! 20.0 million Multi-criteria analysis of options
> ! 20.0 million Cost-benet analysis or cost-
effectiveness analysis (depending
on the extent to which benets can
be readily monetised)
33
Basic Appraisal Criteria
! Is it clear why the government needs to act?
! Does the proposal meet with the
governments published policies and priorities,
and with sector strategies?
! Is it clear what actual needs (rather than
desires) the project is designed to meet, and
how the projects outputs can be expected to
do this?
! Have the objectives and expected results of
the proposed project been expressed clearly in
a manner that is measureable and time-bound?
! Are the claimed benets realistic?
Appraisal Summary Table Date
produced:
Contact:

Name of scheme:
Name
Description of scheme:
Organisati
on

Role Promoter/
Official

Impacts Summary of key impacts Assessment

Quantitative Qualita
tive
Monet
ary
Distribut
ional
(NPV) 7-pt scale/
vulnerabl
e grp
Econo
my
Business users & transport providers Value of journey time
changes()

Net journey time changes ()
0 to
2min
2 to
5min
> 5min

Reliability impact on Business users
Regeneration
Wider Impacts
Enviro
nment
al
Noise
Air Quality
Greenhouse gases Change in non-traded carbon
over 60y (CO2e)

Change in traded carbon over
60y (CO2e)

Landscape
Townscape
Historic Environment
Biodiversity
Water Environment
Social
Commuting and Other users Value of journey time
changes()

Net journey time changes ()
0 to 2 to
> 5min
35
UK: Appraisal Summary Table for Transport Projects
Optimism Bias
Optimism bias is a systematic tendency for
project costs to be under-estimated and for
project benets to be over-estimated.
Research found signicant cost over-runs and
trafc shortfalls in a large (200+) sample of
major transportation projects, irrespective of
country, continent or transport mode, and with
no tendency to diminish.
9/10 projects had cost over-runs: average
(real) cost over-run was 45% for rail, 34% for
bridges and tunnels and 20% for roads.
UK: Adjustment Factors for Optimism
Bias
Project Type Historical Average % Increase at Outline
Business Case
Capital Expenditure Works Duration
Standard buildings 24% 4%
Non-standard
buildings
51% 39%
Standard civil
engineering works
44% 20%
Non-standard civil
engineering works
66% 25%
Ireland
If the value of the capital project exceeds !20m
then the CBA (or CEA) is submitted to the Central
Expenditure Evaluation Unit (CEEU) for their
views prior to approval in principle by the
authority responsible for approving the project.
The CEEU gives its views to the agency
sponsoring the project and may publish their
review of the CBA (or CEA) on their website.
United Kingdom
Business cases for projects above delegated limits
must be reviewed and approved by the economic
and nance ministry at key decision points.
Examples of Independent Review
38
UK: Gateway Review Process
Peer review of a project carried out by
independent experts who are external to the
project and the implementing agency
Initiated as part of 2007 procurement strategy,
Transforming Government Procurement
5 stage review:
Business Justication (SOBC)
Delivery Strategy (OBC)
Investment Decision (FBC)
Readiness for Service
Operations Review and Benets Realisation
39
Independent Assessment: S. Koreas
Preliminary Feasibility Study (PFS)
Short and brief evaluation of a project to produce information for budgetary
decision
Owned by the Ministry of Planning and Budget (MPB) and managed by
PIMAC
While (detailed) feasibility study analyzes technical aspects of a project in
detail, PFS emphasizes broader analysis of a project from a national socio-
economic viewpoint.
Meaning of PRELIMINARY is two-folded:
Provisional, or short and brief; and
PFS costs about 80~100 million Won, and takes about 6 months; Detailed
FS costs about 300 million to 2 billion Won.
Preceding a (detailed) feasibility study
The National Finance Act of 2006 provides the legal basis of PFS.
40
41
Coverage of PFS
All new large-scale projects with total costs amounting to 50 billion Won
(about USD 50 million) or more are subject to PFS.
Local government and PPP (Public-Private Partnership) projects are also
subject to PFS if central government subsidy exceeds 30 bill Won.
Initially focused on economic infrastructure, PFS has expanded to social
infrastructure and non-infrastructure (e.g. R&D, welfare) programs.
Projects with little benet of PFS are exempted
Typical building projects: government ofces and correctional
institutions
Legally required facilities: sewage and waste treatment facility
Rehabilitating projects and restoration from natural disaster
Military facilities and projects related with national security
42
PFS Procedure
Line Ministry MOSF KDI (PIMAC)
Submit PFS
Projects Candidate
Feasibility Study
or Stop
Select PFS
Projects
Request PFS
Make Investment
Decision
Announcement &
Report to the National
Assembly
Submit
PFS Report
Organize Teams/
Conduct PFS
Flowchart of PFS Analyses
Project proposal
Review of statement of purpose
Collect socio-economic, geographic, and
technical data
Brainstorming (Other Alternatives)
Issues to be addressed
Background study
Consistency with higher-level plan
and policy directions
Project risk (nancing and
environmental impacts)
Project-specic evaluation item
Policy analysis
Demand analysis
Cost estimation
Benet estimation
Cost-benet analysis
Sensitivity analysis
Financial analysis
Economic analysis
Overall feasibility
Recommendations
Analytic Hierarchy Process
Regional backwardness index
analysis
Regional economic impact
analysis (IRIO Model)
Balanced regional development
analysis
Review of Appraisal Decision
Ireland
Approval to Proceed to Tender by Sanctioning
Authority after verication that project as
designed is consistent with Approval in
Principle
Check on continued validity of appraisal
decision based on tender prices
United Kingdom
Full Business Case prepared after tender
decision and before contract signature

Funding Approval

Screening vs Selection
Screening is a quality control process -
identication & appraisal - that precedes
budgeting
Selection is done through a funding decision
made through the budget/MTBF process
(depending on preparedness of project):
Involves transparent prioritisation (usually within
sectors/sub-sectors)
Screening results taken into account, but funding
approval should also be a portfolio decision driven
by practical and political factors
Funding approval must also be given in the context
47
Integrating Project Screening and Project
Selection
Advantages of MTBF for PIM
Predictability of MTBF gives a framework for
developing a project pipeline and
programming implementation
Projects that pass preliminary screening can be
programmed for outer years of MTBF
Preparation can be programmed
Prepared projects with positive appraisal can
be programmed for implementation in budget
year or later depending on scal space
48
Annual Roll-Over of MTBF
Previously identied project concepts move
closer to implementation
Preparation of screened concepts is
programmed to precede opening up of scal
space for implementation
Projects ready for implementation (i.e., priority
projects with positive appraisals and necessary
planning approvals and documentation)
proposed for funding in forthcoming budget
year
Other new concepts enter the outer year of the
MTBF
49
Advantages of PIM for MTBF
Good PIM can strengthen the MTBF
MTBF ceilings cannot be set independently of
commitments to ongoing projects or of the
project pipeline
Sector ministries need to prepare baseline
capital expenditure programmes as an input to
ceiling setting
Importance of good nancial monitoring and
accurate forecasting of project completion
rates
50
Project Selection Criteria
Alignment of the project with Governments
expressed national spending priorities and with
sector investment plans.
Priority Government attaches to improving
services to the target beneciaries of the
project.
Consistency of the proposed spending with the
balance of spending between different sub-
sectors within its sector.
Indications that the project will deliver better
value for public money than competing and
Capital Budgeting in Ireland
Performance-oriented budgeting and
management are intended to provide
appropriate incentives and accountability so
that projects are selected in line with national
and sector policy priorities.
Similarly, accountability arrangements for
delivering public sector outputs discourage
budgeting of new projects at the expense of
ongoing projects.
Prioritisation criteria established in medium- to
long-term strategic planning documents,
national and sectoral
Gate-keeping and Project Selection in Chile
Legal provisions prevent unscreened projects
from entering the budget
Projects must have come through the National
Investment System and
Have a positive assessment from the Ministry of
Planning
Congress cannot add projects to the budget
Spending agencies have portfolios of positively
appraised projects greater than their funding
allocations
Prioritisation and selection is required:
53
Capital Budgeting in Botswana and South Africa
Ministries budget within capital ceilings
Structured negotiation process for nalising
ceilings
Distinction between budget for ongoing
projects - capital baseline - and new projects
Finance ministries challenge line ministry
prioritisation decisions
In Botswana projects must be in NDP;
Parliament approves total estimated cost of
project not annual allocation - and annual
ceiling for ministry capital spending, allowing
in-year re-allocations
54
Project Implementation
& Monitoring

Implementation & Monitoring
Tendering and contracting
Agreed resources used to carry out project
activities and deliver outputs
Financial reporting
Periodic checks to assess progress and enable
adjustments
Capital programme monitoring and updating
Systematic and regular information ows from
project implementers to management and
decision makers
N.B. Without good project implementation plans
Simon Groom 56
N.B. Without good project
implementation plans monitoring
progress is very difcult setting up
Ireland: Project Management Structure
Sanctioning Authority: on basis of monitoring
reports must satisfy itself that project is being
delivered within specied costs, to specied
standards and on time
Sponsoring Agency: overall responsibility for
proper management of project; makes legal
commitment with contractor
Steering Group: oversees the execution of the
project; usually chaired by Sponsoring Agency
Project Coordinator: person responsible for
ensuring project is executed on time, to the
requisite quality and within budget
Simon Groom 57
UK: Assurance Process
Independent view of how a project is
progressing.
Involves checking that:
The project remains viable in terms of costs and benets
(business assurance)
Users requirements are being met (user assurance)
The project is delivering a suitable solution (technical
assurance).
Project Monitoring, Re-assessment and
Adjustment in S. Korea
Total Project Cost Management System
(TPCM)
Used to monitor closely the total cost of major
multi-year projects and to prevent signicant
cost escalation
Strict principles limiting the justications for
cost increases and the authority to agree to
such increases.
Re-assessment of Demand Forecast (RDF)
Demand forecasts for major projects are re-
examined when there are important changes in
Evaluation & Audit

Evaluation & Audit
Completes the project cycle
Project results assessed compared to what was
planned as with monitoring, if project
planning is weak evaluation becomes difcult
Ex post studies to assess economy, efciency,
effectiveness and sustainability compared to ex
ante assessments
Lesson learning for design and implementation
of similar projects
Procedures need to be in place to apply lessons
Internal evaluations supplemented by selective
62
Ireland: Post-Project Reviews
All projects >!20 million; at least 5% sample
of the rest
Carried out by project Sponsoring Agency
Those conducting reviews and evaluations
should not be the same people as conducted
the appraisal or managed the implementation
To determine whether:
The basis on which a project was undertaken
proved correct;
The expected benets and outcomes materialised;
The planned outcomes were the appropriate
63
UK National Audit Ofce
Independent body reporting to Parliament
Reports used by Public Accounts Committee
which holds hearings and then reports to
Parliament
NAO has no judicial or administrative
authority
Central government spending only
Legally empowered to carry out performance
audits; does this on a (small) sample basis with
a focus on problem or innovative projects
Recent examples:
64
NAO Performance Audit of FiReControl Project
Project to replace 46 local control centres with
9 regional centres and improve the efciency
and resilience of re and rescue services
Project stopped before completion at a cost of
469 million: nothing to show but 8 deserted
buildings with limited alternative uses
Findings
Lack of consultation at project concept and design
stage stakeholders didnt want the project!
Project launched too quickly without adequate
preparation - unrealistic forecast costs and
savings, nave over-optimism on the deliverability
of the IT solution and under- appreciation or
65
FiReControl Project: Recommendations

Follow proper business case approval
procedures and ensure that an appropriate level
of challenge is applied to the approval process
Follow proper project and programme
management procedures and ensure staff has
right skills
All its future contracts contain terms and
conditions which clearly dene responsibilities
and outputs
Clearly identify roles and responsibilities and
dene clear lines of accountability
66
NAO Guidance
Delivering successful IT-enabled business
change: Case studies of 9 successful projects,
including:
Modernisation of welfare payments system,
London congestion charging
e-procurement system
Guide to initiating successful projects,
including 5 examples of good project planning,
including:
2012 Olympic Games
Building programme academies - for new type of
school
67
NAO Checklist for Successful Project Initiation
1. Purpose
Are priorities and desired outcomes realistic
and understood?
Are the aspirations for what the project should
deliver realistic?
Have stakeholders been engaged
2. Affordability
Is the budget available realistic?
Has sufcient allowance been made for
optimism bias and risk?
3. Pre-commitment
Is the project realistic and feasible?
02-09-2014
1
CONFERENCE
The LogicaI Framework Approach for the Design
and ControI of GovernmentaI Programs and
Projects

Prof. Edgardo S. Mimica
Mail: edgardo.mimica@uai.cl
Ph: 56 (9) 8259 7211

Copyright2007 CRI South-America
2
!"#!$#"!%&
"
What is a Program ?
program [proh-gram, -gruhm] noun1. a plan of action to accomplish a specified end:
a school lunch program. A planned series of future events or performances.
2.a plan or schedule of activities, procedures, etc., to be followed.3.a radio or television perform
ance or production. A sheet or booklet giving details of items or performers at an event or
performance. An item broadcast between stated times on radio or television. Ordered set of
operationaI activities needed to carry out a project. 4.a list of items, pieces, performers,
etc., in a musical, theatrical, or other entertainment.5.an entertainment with reference to its piec
es or numbers: a program of American and French music.verb (used with object), programmed
or programed, programming or programing.9.to schedule as part of a program.10.Compute
rs. to prepare a program for.11.to insert or encode specific operating instructions into (a machin
e or apparatus): We'll program the bells to ring at ten minute intervals.12.to insert
(instructions) into a machine or apparatus: An automatic release has been programmed into
the lock as a safety feature. 13.to cause to absorb or incorporate automatic responses,
attitudes, or the like; condition: Our parents programmed us to respect our elders. Program is
nothing more than either a Iarge integrated project or a set (or portfoIio) of projects. The
program manager has oversight of the purpose and status of the projects in a program and can
use this oversight to support project-level activity to ensure the program goals are met by
providing a decision-making capacity that cannot be achieved at project level or by providing
the project manager with a program perspective when required, or as a sounding board for
ideas and approaches to solving project issues that have program impacts

Copyright2007 CR South-America 3
Source: Merriam-Webster Diccionary
Projects vs Programs
Copyright2007 CR South-America
Investment Phase
Operation and
Ex Post Phase Pre-investment Phase
End of
evaluation
period
nvestment
decision
End of
project
Operation and Ex Post Phase
Design
Phase
Program
decision
Investment Projects
GovernmentaI Programs
02-09-2014
3
Engineering joke
Standing guard
5
ReaI case:
1966 Washington DC. USA. The Pentagon. Like
every morning guards were distributed along the
corridors. Once a sergeant asked: Why are we
leaving one guard in front of this closed door? The
door opened into a small storage room. No one
knew an answer. The only response was: We
always have.

The persistent sergeant kept researching. After a
couple of months the final conclusion was this: In
1951 during the Korean War a general used that
office to keep important war documents and asked
a guard to be left in front of that door.

That was 15 years ago. No one had changed the
order since.
Program Budget in Mexico
6
02-09-2014
4
Program: A set of reIated projects
By project type
Potable water
projects
77
Electrification 62
Drainage 70
Solid floor 102
Roads 120
Education 157
Health 56
CCA 119
Procurement 235
Rural telephones 14
Productive projects 58
Total 1,070 projects

7
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infrastructure
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02-09-2014
5
The importance of Programs
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9
Program and project Iife cycIe
10
They merge in the case of Programs

Pre-investment Investment Operations
Preparation
and
Evaluation
Monitoring and
process
appraisal
Evaluation of
results and
impacts
Ex-Post
Evaluation
Scope
Schedule
Costs
Quality
02-09-2014
6
History and Present
Methodology was developed in 1969 by a
consulting firm for USAD

Later adopted by GTZ in its ZOPP ZieI-
Orientierte Projekt PIanung

Currently used by:

Financial institutions (DB, ADB, WB)
nternational Organizations (UNO)
Agencies (USAD, AusAD, CDA, NORAD)
Countries (Chile, Colombia, Mexico, European Union)
11
LFM in the E.U.
12
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02-09-2014
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LFM in ZOPP - GTZ Cooperation
13
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02-09-2014
8
LFM at the UNO
15
Copyright2007 CRI South-America 16
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02-09-2014
9
Copyright CR-Latin America
17
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to be achieved, you'll be immersed in a sea of immobility for long
)/3,7777
... Alice: "Can you tell me, please, which way ! ought to go from here? "That
depends on where you want to go," said the Cat, "! do not care much where
!'m going to -." Said Alice. "!n this case, it does not matter which way you go,"
said the Cat. Carrol Lewis
829,*)/5,4 -(' 6%-+4
What is the LogicaI Framework Matrix?
LlM ls a sLraLeglc plannlng Lool for programs and
pro[ecLs

LlM sLrengLhens Lhe preparaLlon and
lmplemenLaLlon of programs and pro[ecLs.

LlM summarlzes Lhe maln resulLs of Lhe preparaLlon
of Lhe program or pro[ecL.

LlM provldes a basls for schedullng of
lmplemenLaLlon phase

LlM faclllLaLes monlLorlng, conLrol and ex-posL
evaluaLlon of ouLcomes and lmpacLs.
18
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The LogicaI Framework Matrix
OveraII
Objectives
Project
Purpose
Components
Outputs
Activities
Objectives ndicators
Means of
verification
Critical
Assumptions
89
02-09-2014
11
Objectives
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21

OveraII
Objectives
Project
Purpose
Components
Outputs
Activities
Objectives: Ends
OveraII
Objectives
Project
Purpose
Components
Outputs
Activities
To what strategic objective does this program contribute?
t indicates how does the project or program help
to solve a given development problem
22
To help improve the quality of
life of older adults in vulnerable
situations and / or with family
abandonment, decreasing risk
of malnutrition, disease and
helplessness
The Objective is a bottom line condition of well-being of individuals,
families, or communities. t is usually described in terms of quality of life
improvement towards which the country program will contribute
!"#!$#"!%&
%"
Project / Program Purpose
23
OveraII
Objectives
Project
Purpose
Components
Outputs
Activities
What do you hope to accompIish with this Program?
Describe the direct impact or direct result
obtained from the use of the different components.
The Purpose is determined by asking the question: How
will this Objective be achieved?
Vulnerable older adults and /or
abandoned by their families,
receive comprehensive,
permanent and indefinite care
OveraII
Objectives
Project
Purpose
Components
Outputs
Activities
Components / Outputs
What goods or services are required to be produced?
These are the goods and services that the executing agency
must produce in order to achieve the Project Purpose
C-1
C-2
C-3
24
The Components/Outputs are the deliverables through
which the purpose will be achieved
Self sustainable seniors who
received housing, food, primary
health care, recreation and
emotional support in the elderly
nursing homes
Elderly prostrate and semi-
prostrate who received housing,
food, primary health care,
recreation and emotional support
in the elderly nursing homes
Seniors receiving meals,
recreation and primary health
care in Open Centers
02-09-2014
13
OveraII
Objectives
Project
Purpose
Components
Outputs
Activities
Objectives: Activities
How are the components
going to be produced?
Main activities involving the use of
resources, that the executing
agency must undertake to produce
each component. Activities are
placed, for each component, in
chronological order
The activities that have to be undertaken by the project in order to
produce outputs
Activities Component 01:
Coverage and budget
allocation
Selection of older adults
Program Planning
Delivery of following
benefits
accommodation
feeding
health care
wardrobe
recreation
welfare
emotional support
Monitoring and control
Program Evaluation
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1$23&2.45$ &''.8."5 Mr. !uan erez Pead of Pouslng ollcles Mlnvu
9!!:; <=
:7"5>"(.&/ #"(+.? &' ()$ *+&,+"#
C8!LC1lvL
CCAL: 1o lmprove Lhe quallLy of llfe of low-
lncome famllles Lhrough beLLer houslng
u8CSL: Low lncome famllles llvlng ln
affordable, decenL aparLmenLs locaLed ln hlgh
rlse houslng pro[ecLs LhaL allow Lhem Lo
develop Lhelr famlly, communlLy and clvlc llfe.
CCMCnLn1S
CCMCnLn1 01: 1o offer varlous soclal houslng
alLernaLlves wlLh dlfferenL sLandards and
characLerlsLlcs, locaLed ln houslng complexes
LhaL lncludes communlLy lnfrasLrucLure
CCMCnLn1 02: llnanclal sysLem LhaL enables
effecLlve access Lo houslng for low-lncome
famllles
CCMCnLn1 03: LoLs enabled for Lhe
developmenL of soclal houslng pro[ecLs
Component N 01: Activities
Annual Program Planning
MNVU communicates to the Regions the framework of the
Program
Development of
regional
diagnostic and
regional
demand and
needs analysis
Proposal of Annual Regional nvestment Program (SERVU). t
includes regional proposal of SERVU basic housing program
requirements and investments in land and sanitary macro-
infrastructure
Preliminary draft of the annual investment program (MNVU)
ntroduction to Basic nvestment Statistics System, creation of
Project files (MNVU - PLANNNG MN)
Definition of the National Program - nnitiate the Budget
Discussion (MNVU - FNANCE MN)
Definition of regional goals (SERVU - MNVU - Regional
Government)
Produce identificatory legal decrees of programs and projects
Procurement, execution and reception of basic housing
Determination of final locations, housing types and
characteristics of the housing complexes to be built (SERVU)
@&#3&/$/( !A <BC 98(.7.(.$2
8unnlng Lhe reglsLraLlon sysLem, appllcaLlon and selecLlon of
beneflclarles and allocaLlon and sale of houses
romoLlng publlc houslng supply (SL8vlu - MunlclpallLles)
8eglsLraLlon of appllcanLs / beneflclarles and enLry Lo Lhe
reglsLry slsLem SL8vlu
MalnLenance of reglsLer of appllcanLs (SL8vlu-MunlclpallLy)
ubllc communlcaLlon and promoLlon process (SL8vlu)
Maklng calls for nomlnaLed beneflclarles accordlng Lo
regulaLlons
AppllcaLlon process (beneflclerles / appllcanLs SL8vlu)
CoordlnaLlon wlLh munlclpallLles and banks (SL8vlu)
SelecLlon of beneflclarles process (SL8vlu)
AllocaLlon of houslng among beneflclerles (SL8vlu)
Pouslng hand-over / dellvery (SL8vlu)
uellvery of properLy LlLles (SL8vlu)
rocess ConLrol (Mlnvu)
@&#3&/$/( !A <DC 98(.7.(.$2
AcqulslLlons and openlng of land under lLem 92-001 of
SL8vlu baslc houslng acL for land reclamaLlon provlded for
soclal houslng and preparaLlon of blds/Lenders:
1erms of Lhe procuremenL processes deflne Lhe remalnder
(roll-over) of Lhe Annual rogram (conLracLs)
SLudy of land supply as needed Lo cope wlLh demand and
deflclL (SL8vlu)
ueflnlLlon of land properLles Lo be boughL, negoLlaLlon of
LransacLlon prlces, eLc.. (SL8vlu)
MaLerlallzaLlon land sales, LransacLlon prlces, eLc.. (SL8vlu)
8eporLs Lhe acqulslLlons of land Lo Lhe cenLral level
(SL8vlu)
SeL Lhe sLock of avallable land for fuLure pro[ecLs (SL8vlu)
Lnables, when necessary, Lhe land owned by SL8vlu
02-09-2014
14
OveraII
Objectives
Project
Purpose
Components
Outputs
Activities
Objectives
VerticaI Logic of a Program
f a project/program is well designed, you should be able to
examine the causal relationships or links from the bottom
up: ( if then )
27
The activities are necessary and sufficient to
produce each component
Each component must be necessary to achieve
the purpose
No component is missing
f the purpose is achieved, the project/program
will contribute to the achievement of the Objective
The Overall Objective is a response to a major
problem in the sector or province
The ProbIems-Tree and the
Objectives-Tree
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4$'5 $'6. ,- #$' +'/,-,#,"- "/ ,-+,1)#"&(
28
02-09-2014
15
!"# %&'(
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AnaIysis of a ProbIem
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30
Steps to be foIIowed:
02-09-2014
16
Caution to Project
Engineers
The first is to understand the ProbIem - not the
symptoms i.e. the root causes
!"#$%&'(
*$+&$"%
THE ACTIVITY TRAP
ProbIem Identification
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32
Important guideIines:
Homes for the poor are
missing
There is part of our
popuIation that Iack a decent
pIace to Iive
Traffic Iight is needed
There is a high rate of
accidents
!"#!$#"!%&
%(
IN CLASS EXERCISE
!!
VisuaIization exercise
#$%&'()*+,-../ #01 2$3+*4567'(89
!:
How to visualize success?
magine you are in the future, in 2035, you are 65 years old and you
have lived and worked for the government of your country. Your
country has had 20 years of peace and prosperity, it has become a
middle income country, thanks to people like you. Your country is
one of the Jewels of Africa.

Write down the description of your country in that future: How do
you see it? How are the cities, the families, the neighborhoods, the
roads, the infrastructure, the schools, hospitals, etc.?

Write down the history. Looking back now, what did your country do
to get there? How did it happen? What were the right decisions?
nvestment
decision
2014
Government
decisions
2035
Public Policies
decisions
Government
decisions
Remember the Future
!"#!$#"!%&
%(
Suggested SoIution
VISUALIZATION EXERCISE
!"
Suggested Answers
36

The Vision
By 2035, Sierra Leone aspires to be an inclusive, green,
middle income country with the following features:

Socially, economically and politically empowered women contributing to
national development in various forms
Hunger is eradicated
Less than 5% of people seeking jobs would be without work
Over 80% of population above the poverty line
Free and compulsory education for every child
Over 90% of the population able to read and write
Access to affordable housing for all
A health care and delivery system within a 10 Km radius of every village
An effective and efficient child and family welfare system
Life expectancy of 70 years, where every mother has access to modern
hospital in which she can give birth without fear of loss of child
Less than 11% stunting among children under 2 years of age
02-09-2014
19
Suggested Answers
37

By 2035, Sierra Leone aspires to have the following features:

An independent and accessible judiciary enjoying the confidence of the
people
A system of political governance where governments are voted in and
out of power peacefully, and where citizens can hold governments to
account for efficient and effective delivery of public services
A modern and well developed infrastructure with reliable energy supplies
World Standard CT
A stable export-led economy, based on sound macroeconomic
fundamentals with inflation close to 5% and government revenues
increased significantly to 35% of GDP
Private sector-led growth, creating value-added products, and providing
jobs for our people
An effective environmental management system in place that protects
our biodiversity and is capable of pre-empting environmental disasters
To be a model in responsible and efficient natural resource exploitation
Engineering Joke
Precise information vs. Relevant information
Efficiency vs. Efficacy
38

"# #$%&
'(')*#
+(, -.)
)/-0#1+
$).)

!"#!$#"!%&
"!
($
Thank you for your
kind attention !
Questions?
Contact DetaiIs
Facultad de ngeniera y Ciencias
Universidad Adolfo bez
Avda. Diagonal Las Torres 2700,
Pealoln, Santiago de Chile
Phone: (56 2) 331 1489
Cell: (56 9) 82597211
edgardo.mimica@uai.cl
&!
!"#!$#"!%&
"%
"#$$%% &'%()
!"#$!%%!&#!!%'(%
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Public Investment
Management
Implementing a System to Transform Resources into Assets for Growth
Anand Rajaram, World Bank
September 2, 2014

Challenge for Resource Rich Countries: Minimizing Revenue Leakage

Incompetence in contracting
Corruption in tax collection
Inefcient provision of social services
Extractive company withholds
revenues from government
Public Service Wage Increases
Subsidies/Transfers
Revenues Received by
Treasury
Investible Revenue
Sub-optimal time path
Corruption in contracting
National company inefciency
Poor SWF
investments
Potential State Resource
Revenues
Simandou - Mountain of Iron Ore in
Guinea
Guinea - Losing Investible Revenue

Potential revenue: $140 billion over 25 years
(Guinea annual budget $1.2 billion)
Sold to BSG, a shadowy investor for<$100
mill.
51% stake resold by BSG to mining giant
Vale for $2.5 billion

In April, 2009, the Ministry of Mines in Conakry ratied the
agreement with Steinmetz. A year later, he made a deal with the
Brazilian mining company Valeone of Rio Tintos chief
competitors. Vale agreed to pay two and a half billion dollars in
exchange for a fty-one-per-cent stake in B.S.G.R.s Simandou
operations. This was an extraordinary windfall: B.S.G.R. had paid
nothing up front, as is customary with exploration licenses, and at
that point had invested only a hundred and sixty million dollars. In
less than ve years, B.S.G.R.s investment in Simandou had become
a ve-billion-dollar asset. At that time, the annual budget of the
government of Guinea amounted to just $1.2 billion. Mo Ibrahim,
the Sudanese telecom billionaire, captured the reaction of many
observers when he asked, at a forum in Dakar, Are the Guineans
who did that deal idiots, or criminals, or both? Buried Secrets

Poor Project Selection
Wasteful white elephant projects
Political projects to placate regional demands
Lack of economic screening of projects (ex ante costs may exceed benets, optimism bias
Poor Project Implementation
Poor planning/budgeting strategic misrepresentation
Corrupt or Inefcient procurement
Delays in project completion
Cost-overruns (Sydney Opera 1400%, Denver Airport 200%, Channel tunnel 100%)
Incomplete projects
Failure to operate efciently and maintain assets
No public register/maintenance of assets
Theft of public revenue and assets
No effort to learn from mistakes and improve PIM system
Investible Revenue
What problems may impair efciency and effectiveness of public investment?
Turkey 1981 Public Sector Investment Review
In view of the tendency to spread resources too thinly over too many projects, with long costly delays in the completion of
projects, there is a clear need to concentrate resources, .. on completing a limited number of key projects. .. an improved
system for project preparation be introduced as soon as possible. This should encompass every stage of the project cycle from
project identication and design to monitoring and evaluation.
It is recommended that a start be made for improving project implementation in such key areas as energy and bulk transport.
This would likely start with institutional reforms and improved project management.

Argentina 1986 Public Investment Review
Public sector role justication, reinforcement of public planning agencies, clear denition of public investment objectives
and criteria
Strengthening of the Government's project screening/monitoring functions
Strict observation of sectoral priorities; concentrating resources on highest priority projects

Gradual recognition of challenges of public investment management
PIM system in Ukraine
Most projects avoid scrutiny due to loopholes in classication (lack of denition of a public
investment project);
There is no effective economic appraisal and appraisal review procedures in place due to limited
HR capacity, and no common technical standards;
The PIM system does not block new projects from entering the budget but allows ministries to
delay ongoing ones and squeeze in new ones;
Lack of strategic guidance with which to prioritize makes project selection difcult.
Institutional set up is complicated MoE is responsible for investments, but MoF is fully in
charge of nancing

Source: O. Balabushko (World Bank)

Another country case
The Public Investment Plan is not clear.
Govt. does not possess sufcient analytical/ management
capacity
There are no established templates of submission of applications
The procedure of submission of applications, and budget
planning otherwise, are lax and frequently by-passed

Two Important Ideas: Optimism Bias and Strategic Misrepresentation
Optimism Bias study of 258 projects found average cost-overrun is
27%. Railway projects (58 cases) average cost-overruns of 45%.
Why do project planners consistently under-estimate costs?
Genuine optimism that costs can be contained despite evidence to the contrary
Strategic misrepresentation when a sponsor knowingly understates
costs and overstates benets in order to receive approval. Could be:
Due to vested interest of sponsor/nancier in private benets
Budgetary rules and incentives (passing SCBA screening)
Both problems point to need for independent review of feasibility/
appraisal reports

Project implementation
Ex Ante Project Quality Well executed Poorly executed

Good projects A C

Poor projects B D

The Dilemma: Selection vs Implementation
11
-
1
Gu
id
an
ce
2
Ap
pr
ais
al
3
Indep
ende
nt
Revie
w
4
Se
lec
tio
n
7
Op
er
ati
on
6 5
Im
pl
e
m
en
tat
io
n
8
Ev
al
ua
tio
n
Ad
jus
tm
ent
Link to a development
strategy
Authority to screen
and reject projects
Key to credible
selection
An effective budget and procurement process to
support implementation and operation
Evaluation to improve
system
Maintain asset register, operate
and maintain asset
To go ahead with
the project or not?
Key Features of a Public Investment Management System
What have we learnt?
The diagnostic has been applied and eld tested in over 40 countries including the US, South
Korea, China, Brazil and Mongolia, Lesotho, Zambia, .. and is being currently applied in over a
dozen others
It is a diagnostic tool that is ..intuitively easy to explain and understand .. appears to be easily
learned and applied and should continue to evolve and improve.
What we have learned is that countries that achieve relatively high levels of public investment
efciency (Chile, UK, Rep. Korea, Ireland) do in fact have functionality in these eight aspects of a
PIM system
There are commonalities clear guidance for project preparation, multi-year budgets, arms-length review of
proposals, clarity in roles during project implementation, and rules for tracking and reviewing project costs
But they achieve it through various institutional arrangements ex.
Chile and Rep.Korea have centralized project appraisal systems while UK and Ireland are more decentralized systems
Independent review is achieved through semi-autonomous agencies (Rep.Korea) or by MOP (Chile) or through special
processes (Gateway review UK) and public hearings (UK and Ireland)
Facility operation is achieved through the Gateway process in the UK and efforts are made to assess outcome effects
whereas in Chile and Rep.Korea the focus is on completion of projects to plan
And even these high performers are subject to a host of problems that adversely affect the benet-
Country Studies by Region and classication
Country classication Africa East Asia and Pacic Europe and central Asia South America
1. Advanced economies South Korea Ireland
Slovakia
Slovenia
Spain
UK

2. Emerging and developing
economies

Vietnam Albania
Belarus
Latvia
Macedonia
Montenegro
Poland
Serbia
Brazil
Chile
Peru

3. Natural resource- dependent
states
Angola
Republic of Congo
Equatorial Guinea
East Timor
Mongolia

4. Aid-dependent states D. R. Congo
Republic of Congo
Rwanda
Sierra Leone
Uganda
Zambia
Bosnia
Kosovo

5. Post-conict/fragile states Angola
D. R. Congo
Republic of Congo
Sierra Leone
East Timor

Bosnia
Kosovo

[1]
Countries show weakness in many stages of PIM
For aid-dependent countries, there is a duality between aid and budget nanced projects
Upstream issues
Can we assume that donors offer objective project selection criteria?
If so, should the focus be on project implementation challenges?
Do donors undermine development of country systems of appraisal and budgeting?
Can independent reviews of project appraisal discipline both government and donors?
Where do we see authority to gate-keep projects most effectively?
Downstream issues
Investment spending subject to unpredictable donor funding, commodity price uctuations, scal policy cutbacks, and
exchange rate-restrictions (as in WAEMU)
Poor project planning, slow procurement processes add to delays in project implementation and little proactive adjustment
to such processes
Donors may use PIUs to do workarounds to limited capacity but can cannibalize limited capacity
Little learning from doing and evaluation so systems stay moribund
In resource rich countries, ad hoc solutions to weak systems resource for infrastructure deals

Thank
You
Assessment of PIM:
Practices in AFE Region
Regional AFE Workshop
Entebbe- Uganda, September 02, 2014

Background: FAD Assessment of the PIM
Practices.
Major Concern:

A relatively high degree of efficiency of public
investment is needed for scaled-up public
investment to:

! Meet huge needs in infrastructure, energy, medical,
and other sectors , and

! Make a significant contribution to growth, while
maintaining fiscal sustainability.
2
Main Areas of Focus
Three key dimensions of PIM:
Ensuring Sustainable Levels of Public Investment
Ensuring Public Investment is Allocated to the Right
Sectors and Projects
Delivering Productive and Durable Public Assets

Analysis and ranking of the practices:
Scoring Rubric:
1 = To no or a lesser extent
2 = To some extent
3 = To a greater extent
N/A = Not Applicable or Other

3
Identification and Ranking of Practices :
Ensuring Sustainable Levels of Public Investment
Fiscal principles or rules: Are there explicit fiscal
principles or rules, and how do they apply to capital
spending?

MTBF: Is capital spending planned over a multi-year
horizon?

Central-Local Coordination: Is capital spending by sub-
national governments monitored by the central
government?

Public-Private Cooperation: Is there effective
collaboration between public and private investment?
4
Identification and Ranking of Practices:
Ensuring Public Investment is Allocated to the Right Sectors and
Projects
Budget Unity: Is there a unified budget process for capital
and current spending?

Sectoral and Inter-sectoral Planning: Are investment
allocation decisions based on sectoral and inter-sectoral
strategies?
Project Appraisal: Are project proposals subject to
systematic project appraisal?

Project Selection: Are there criteria and institutions in place
to guide project selection?
5
Identification and Ranking of Practices:
Delivering Productive and Durable Public Assets
Appropriation of Investment expenditure: Are investment
projects protected during budget implementation?

Are total project outlays appropriated by Parliament at the
time of commencement of a project?

Transparency of Project Execution: Are major investment
projects executed transparently and subject to audit?

ts: Are the value of assets accounted and rMonitoring of
Public Asseeflected in financial statements?

6
Guidelines for the Assessment by Country delegation:
Ranking of the current practices, and provision of
brief explanations.

Quotation of the instruments: ie policy, legal
framework and or instructions that guide the
respective practice.

Suggestions to further improve the scope and design
of the template.

7

Thank you.
8
Sustainable Funding for Public Investments
Interactive Session
Regional AFE Workshop
Entebbe- Uganda, September 02, 2014

Interactive Session
Determination of public resource allocation to
investments.

Why is the development budget persistently
under-spent?

Country specific reforms to address the issues:
Achievements
Constraints

2
Budgeting for Public Investments
Lets examine the budgetary decision-making
processes in our countries . Do they to ensure that:

the most beneficial investment projects are selected?
adequate public resources, including external flows
are allocated to priority and best designed
investments?

What are related challenges?
3
Major issues that constrain budgeting for
public investments-raised by participants.
Clear and transparent planning, prioritization and budgeting
framework for development projects exists in all countries.

However, compliance with the framework is weak and constrained
by the following:
Sector Development Plans not always resource constrained and do not
necessarily guide the selection of investments in some sectors.

Lack of a systematic appraisal and prioritization(including sequencing) of
projects for funding within the budget & medium-term at national level. No
clear and transparency criteria to guide selection of projects.

Some countries do not issue MTEF ceilings required to guide on the
prioritization at sector level. Even in cases where ceilings are issued,
Ministries continue to submit long list of non-bankable projects.

Separate institutional responsibilities for approval and budgeting for
Investment projects.
4
Execution of the Development budget has
been persistently

Development Budget:

Estimates versus Out-turn
in
Selected Countries in SSA

5
In addition, execution rate of the development budget as
compared to the recurrent budget is a long standing issue.
Kenya : Deviation between Devt
Estimates & Outturn

6
The execution rate of the development versus
recurrent budget in Uganda is also a long standing
issue.
7
Project support is also under-spent by a
greater margin.
8
Critical Issue to be addressed

Why is the execution rate for the
development/capital budget
persistently low ?

9
Reasons for persistent under-spending of the
development budget as submitted by participants
Spreading thin budgetary resources to numerous investments:
some of which had not been fully developed thus were not ready for
funding and failure to weed out irrelevant or nonperforming
projects.

Limited funding predictability attributed to lower than expected
annual cash release and poor procurement plans that can hardly
guide on the annual cash flows of the investments.

Lack political commitment to investment priorities resulting into
supplementary funding for new projects during budget execution.

Lack of adequate institutional structures and/ or adequate level of
staffing within government to provide professional monitoring and
oversight of major investment projects.

Limited capacity (technology ) among local contractors, to
implement the projects as scheduled.

10
Emerging concern:
Credibility of the annual budget process remains weak
undermining capital budgeting
Top down process is well defined but:
Construction of credible expenditure baselines and two-outer years for
MTEF is a challenge.
Construction of overall development ceiling is largely incremental.
Off-budget arrangement constrain a strategic allocation and
appropriation of public resources (including donor funds) to priority and
well developed investments.

Bottom-up process remains weak:
Weak capacity in line ministries for prioritization, sequencing and costing
of investment projects.
Forward estimates of multi-annual investments are not reliable
Multiple donor funding encourages fragmented resource allocation
decisions, in some countries, donor projects are off-budget

11
Emerging concern:
Credibility of the annual budget process remains weak
undermining capital budgeting

Institutional arrangements & procedures for coordination of MTEF,
including multi-annual expenditure estimates for investments :
Inadequate political commitment from Cabinet
Capacity and coordination issues in merged Ministries of Finance
&Planning
Coordination issues between Ministries of Finance, Planning and/or
National Planning Agencies

12

Thank you

Asante sana

Zikomo

Amesegnall
13
Recap on Budgeting for Public Investment
Significant improvements to the budget process
have been achieved within region.

However, prioritization of Investments for funding
is still a challenge for funding:
MTP do not necessarily guide the selection of
investments in some sectors but not always resource
constrained.
Dual budgeting tendencies still remain.
Lack of a clear and transparency criteria
Lack of a systematic assessment of medium-term
financial implications for multi-year investments, and
affordability.

14
1
!"#$%&%#!%
'()*+,-.'/01)2 '+(,4-(56)75 8'''59 )4 :4;(+5,(/2,/(- '(<=-2,5
> ?6- !6)1-+4 !+5-

Mail: edgardo.mimica@uai.cl
Ph: 56 (9) 8259 7211
Sectors in infrastructure
P.P.P.

Energy
Transport
Justice
Health
Water
Demands
FiscaI
Budget
2
2
3
Private-PubIic Partnerships (PPP) in
Infrastructure - Introduction
PPP is the chief new user of
project financing techniques
Big infrastructure projects that
traditionally had been financed
and managed by governments
Demand for infrastructure has
been growing faster than available
government funding, particularly in
emerging economies
Recent trend has been to involve
the private sector in the supply
and provision of these services
There has to be a clear benefit for
both the public and the private
partners in order PPPs to succeed
4
3
Infrastructure

P3s lie somewhere between simple contractingout and a fully private market
in the spectrum of private versus public involvement
3 Main characteristics of P3s are:
1) 1) They are an extension of contracting-out to a larger number of the
tasks
Defining and designing the project
Financing the capital costs of the project
Building the capital physical assets (roads, bridges, etc)
Operating and maintaining the assets in order to deliver the
product/service normally for a long period of time (10, 15, 20 or
30 years)
2) 2) Bundling of responsibilities or the allocation of two or more tasks to a
unique partner/s
3) 3) Allocation of the financing task is through private financing
5
Infrastructure
Why P3s has become particularly alternative to traditional methods for the
provision of public services? There are 6 reasons
1). You produce an !"#$%&' Competition
Marshaling the market forces to governments advantage by introducing
competition among private companies
Competition is done at the bidding state, !" $%&!
Less government guarantees that tax payers will get the value for money
6
4
Infrastructure

2). Scarce skiIIs, capacities and know-how
Private sector has skills that are not
available in the public sector
Allocate certain tasks to a private partner
who has the management capacities, the
skills and also the right incentives to get
reforms at a high level
7
Infrastructure

3). Poor Labor ReIations
Private sector, through the forces of competition, may offer skilled,
efficient and flexible labor where the public sector labor
management has not produced results
8
5
Infrastructure

4). Innovation
Some parts of the project may need new
approaches and innovative thinking
The extend of P3s will depend on
complementarities between the task
9
Infrastructure

5). Risk
Major risk can be managed
better by private sector (ex.
construction-delay risk, being
designer, contractor and operator
gives the right incentive to
minimize such risk)
However, political risk is better
managed by the public sector
The physical assets can not be
seized by a court, can not be
sold, not be mortgaged because
-at the end- its public property
10
6
PubIic Private Partnerships (P3s)

6). Economies of scaIe
Private sector is taking advantage of economies of scale from the
operation of similar project in other jurisdictions, the P3s option
becomes more attractive
Infrastructure
7). AbsorbabiIity and measurabiIity
of quaIity
Concerns about the quality of
services and to reflect those in the
contract
The partnership agreement should
always specify the required quality,
provide the measurement of
verification of quality and provide
for enforcement of the contracts
requirement
What has to be nailed down are
the service standards not the
technical standards
12
7
Infrastructure
8). Constrains on pubIic sector
borrowing
Being in debt and further
borrowing risks on deteriorating of
government, credit rating; cost of
borrowing increases for
government
Allocating the financial tasks to the
private sector
P3s should be embraced only
when they allow government to
provide services of an acceptable
quality at lower cost to taxpayers
(consumers)
13
Infrastructure
Why do governments
adopt PPP programs?
1. f it is well done, it is more efficient
providing the service cheaper and
in less time
2. System is fair because those who
pay are only those who use the
infrastructure
3. Government avoids public sector
union
4. To move debt off the governments
balance sheet
5. To hide information from the public
6. To deflect the blame to the
contractors (private sector)
14
8
Infrastructure
Keep in mind that:
Private sector involvement requires
commercial rates of return
Projects have to lend themselves
to generating these returns. For
example, a toll road is likely to
attract private sector involvement
with ease (its a cash cow)
The public partner typically gains in
the sense that a desired project is
implemented without any financial
strain on the fiscal budget
15

Win-Win Situations in Contract Criteria
n PPPs you can not look merely at the costs. Therefore, to shift all
project risks to the other party, would be simply a zero-sum game,
(i.e. the other party would compensate through a higher price)
n PPPs you have to be more clever that that. You must have an
efficiency perspective, This is through adequate contract clauses
one party must be able to gain without raising the costs to the other
party. n other words you must find Win-Win Situations. (Game Theory, how
to cut the cake? System: one cuts but the other chooses. How do you cut strategically?)
The objective is to re-distribute the costs to those who can better handle
them. The key is to find asymmetries in risk attitudes
To negotiate contractual clauses in project contracts with suppliers,
clients and/or workers allows you to share risks in an efficient manner
16
!
Game: How wouId you cut the cake?
Zero Sum Game
Kids: One cuts but
the other chooses!!
50%
50%
17
Pedro
Mara

How to get away from a Zero Sum Game Iogic?
Maria Ioves chocoIate, she wiII onIy eat the
frosting she wiII throw away the cake
Pedro Ioves the cake but he hates the
chocoIate frosting, he throw it away
100%
100%
#$
Game: How wouId you cut the cake?
10
Different schemes of PPPs


There are different schemes for
Public-Private-Projects PPP based on
the level of risks and responsibilities
that the government wants to transfer
to the private sector:

BOT = BuildOperate-Transfer
DBO = DesignBuildOperate
BOR = BuildOperate-Renew
LDO = Lease -Development-Operate
ROT = RehabilitateOperateTransfer
19
PubIic-Private Associations
MEGA PROJECTS
n many instances, the
governments receive tax
payments from the
project and -in certain
cases- a share of the
profits
The structure of the
partnership can vary
along a spectrum from a
leading private sector
role to a marginal one
Example: Costanera
Center, Santiago Private
Mega Project for the
bicentennial
20
11
CLASS EXERCISE
21
22
Innovation Project IRIDIUM
ridium was a megaproject by Motorola, at the end of the 80s with the
objective of providing a worldwide voice and data communication from
hand-held satellite phones and other transceiver units through a
constellation of 77 satellites. n 1991, Motorola founded: ridium Satellite
LLC, an independent company that was worth US$15 BiIIion
The satellites are frequently visible in the night sky as satellite flares
12
23
Project IRIDIUM
The ridium network is unique in that it covers the whole Earth,
including poles, oceans and airways
Everyone congratulated what seemed to be a great success. First
phone call was done in November 1998 by Vice President, Al Gore
amid cheers and applause
Nine months later, the firm filed for bankruptcy. Although the satellites
and other assets and technology behind ridium were estimated to have
cost on the order of US$ 6 biIIion, the investors bought the firm for about
US$ 25 miIIion
Suggested answers
24
IRIDIUM = Great FaiIure !
Question: Whos responsible?
Design? Engineering? Constructors? mplementers? Sales?
Operations?
The handsets could not operate as promoted until the entire constellation
of satellites was in place, requiring a massive initial CAPEX running into
the billions of dollars

The cost of service was prohibitive for many users, reception indoors was
difficult and the bulkiness and expense of the hand held devices when
compared to terrestrial cellular mobile phones discouraged adoption
among potential users

So, they all have a share of guiltiness

However, Business Case Design -that seemed to be optimal in its time-
was the principal cause
13

25
Stage A). Ideas and Project Definition
Sources of ideas for investments:
The Key Question:
a) Where is the demand?

26
!"#$%&'() +),-.%/), 012)%1"2&-1"34 01/5
6"2&1 7#)%&/"
SOME ELEMENTS OF
PROJECT FINANCING
14
FINANCIAL
MATHEMETICS
Project Financing
an inter-discipIinary topic
LAW
INVESTMENT PROJECTS RISK ANALYSIS
ACCOUNTING
TAXES
STATISTICS
MARKETING INNOVATION
MICROECONOMICS
PROJECT
FINANCING
LOG FRAMEWORK
STRATEGIC PLANNING
PUBLIC POLICIES
PROJECT MANAGEMENT
COMPUTER MODELING
DECISION
THEORIES
ENVIRONMENTAL
MANAGEMENT
CONTRACTS
HUMAN
RESOURCES
ETHICS
MARKETING STUDIES
INVESTMENTS
27
PROJECT
FINANCE
The way to Ieverage Mega-
Projects
Necessity is the mother
of invention
t all started with the oil
business, given the
high exploration risks
This financing method
serves when
developers or project
owners do not have
deep pockets but, they
do have good projects
with good cash flows,
i.e. predictable and
stable (w/r risk)
28
15
PROJECT FINANCE
What is Project Finance?
There is no universally accepted definition of the term
Project Financing vs Corporate Finance. Different
people use it in different ways
Project financing refers to a type of financing in which
lenders to a project look primarily to the cash flow and
assets of that project, as the source of repayment of their
loans

These are loans that require no collateral, mortgages
or joint debtors and where the assets of the owners
of the project play no part in the financial operation
29
PROJECT FINANCE
These are loans that require no collateral,
mortgages or joint debtors and where the
assets of the owners of the project play no
part in the financial operation
The trick is to legally Ring Fence (i.e. to isolate)
the Assets and the Cash FIow of the project
in order to serve as collateral for the consortium
of banks. (because, usually, these are
syndicated loans)
How to make a project bankable
without receiving any guarantees from
the owners corporations (i.e. 100%
off-balance sheet)?
How to lend money to a s.p.v or paper
company ? (i.e without a banking
history and, initially, with no assets)
30
16
31
Origins and DeveIopment of
Project Finance
Project financing had its origins in the energy industry in
industrialized countries (oil & gas production loans)
Later extended to transportation (mainly gas and oil pipelines),
mining, utilities and large industrial projects
Scope further expanded to include all kinds of infrastructure projects
Today even medium-scale projects (US $5 million) can use project
finance (transaction costs have been significantly lowered)
32
Main Characteristics of SuitabIe
Investments for Projects Financing
The ideal candidates for project financing are
capital investment projects that:
Are capable of functioning as independent economic
units (Special Purpose Vehicles - SPV)
Can be completed without undue uncertainty, and
When completed, it will be worth demonstrably-
more, than what it costs to complete

17
33

FuII Recourse - lenders look initially to the cash flow and assets of the
project for debt repayment but ultimately can look to a creditworthy
sponsor for any shortfalls
Non-Recourse - lenders look solely to the cash flow and assets of the
project for debt repayment. There is no guarantee that they will be
paid.
Limited Recourse - all financing between full and non-recourse.
Lenders look partially to project cash flow and assets for debt
repayment. n defined circumstances they look to project sponsors for
debt repayment. Two categories:
Fall away, initially full-recourse then non-recourse (e.g. post-
completion)
True limited recourse - residual risks to sponsors (e.g. market)
Three Categories of Project Financing

Each party should pick that risk
!"#$%& $("$ )*+,)-. " ,%/-& %0-&",,
risk for the entire business.

(On the contrary projects will not be attractive for private
investors or they will become too expensive)

THE GOLDEN RULE
34
18

Project Finance is the Lawyers
best Friend
35
CLASS EXERCISE
36
19
ACME COAL Corp
Power Holdings nc.
(Special Purpose Vehicle, SPV)
ACME Construction Co.
Commercial Bank
Development Bank
Energen nc.
SPV: Power Manager nc.
ACME COAL Corp
Energen nc.
Commercial Bank
EXAMPLE: STRUCTURE FOR A PROJECT FINANCE SCHEME
Sponsors
MOU & Joint Venture Contract
Owner of the Power Plant
Constructor of the Power Plant
Supplier of Coal Electricity Buyer
Financiers
Operator-Manager
70% 30%
40%
60%
Long Term COAL Supply
Contract
Long Term ENERGY
Acquisition Contract
Turn key construction
contract
Management
Contract
Bank
guarantee
contract
$$
$$
$$
EIectric Power
PIant
Construction
Joint Venture Contract
37
CLASS EXERCISE
nvent a Case or an Outline of a 'project financing scheme'
like the one in the example

Describe the project in detail, the various contracts and
companies that need to be created

Explain the participation of banks and investors

Explain the participation of government

Explain the incentives that will be put in place in order to
generate centripetal forces

This is to be done in Groups of Three in 30 minutes
38
20
39
NUMBER ONE
ISSUE IN PPPs
is
MANAGING
CONTINGENT
LIABILITIES
39
40
Types of PubIic Sector LiabiIities
Governments face four types of fiscal liabilities: explicit or
implicit, and these can be both, direct or contingent.
Explicit liabilities are specific obligations of the
government established by a particular law or contract.
Common example is: the repayment of sovereign debt
mplicit liabilities involve a moral obligation or expected
responsibility of the government that is not established by
law or contract but, instead is based on public
expectations and political pressures. Examples of implicit
liabilities are: disaster relief for uninsured victims, and
compensation to savers from the default of a large bank
on non-guaranteed obligations
21
41
Types of PubIic Sector LiabiIities
Direct IiabiIities are obligations that will arise in any
event and are therefore are certain. For example: future
public pensions specified by law are a direct liability
whose size reflects the expected amount of the benefit,
eligibility factors, and future demographic and economic
developments
Contingent IiabiIities are obligations triggered by a
discrete event that may or may not occur. The
probability of the contingency occurring and the
magnitude of the government outlay required to settle
(such as sovereign debt) the ensuing obligation, are both
difficult to forecast
42
The FiscaI Risk Matrix
LiabiIities
Direct (Obligation
in any event)
Contingent (obligation if a particular
event occurs)
ExpIicit
Government
liability is
recognized
by law or
contract

Foreign and
domestic sovereign
borrowing

Expenditures by
budget law

Budget
expenditures legally
binding in the long
term (civil service
salaries, civil
service pensions)
State guarantees for non-sovereign
borrowing and obligations issued to sub-
national governments and public and
private sector entities (development
banks)
Umbrella state guarantees for various
types of loans (such as for mortgages,
students studying, agriculture and small
businesses)
State guarantees for service purchase
agreements e.g. electricity, water, roads.
State guarantees (for trade and the
exchange rate, borrowing by a foreign
sovereign state, private investments)
State insurance schemes (for deposits,
minimum returns from private pension
funds, crops, floods, war risk)
22
43
The FiscaI Risk Matrix
LiabiIities
Direct (Obligation
in any event)
Contingent (obligation if a particular
event occurs
ImpIicit

A moraI
obligation of
the
government
that mainly
reflects public
expectations
and pressures
by interest
groups
Future recurrent
costs of public
investment projects

Future public
pensions (as
opposed to civil
service pensions) if
not required by law

Social security
schemes if not
required by law

Future health care
financing if not
specified by law
Default of a sub national government and
public or private entity on nonguaranteed debt
and other liabilities
Cleanup of the liabilities of privatized entities
Bank failure (beyond state insurance)
nvestment failure of a nonguaranteed
pension fund, employment fund, or social
security fund (social protection of small
investors)
Default of the central bank on its obligations
(foreign exchange contracts, currency defense,
balance of payments stability)
Bailouts following a reversal in private capital
flows
Residual environmental damage, disaster
relief, military financing, and the like
Financial collapse of private provider of public
service- electric company
44
The Increasing ProbIem of FiscaI Risks
Recently, the high volumes and volatility of private capital flows and
increasing economic dependence of countries on foreign capital have
exacerbated the vulnerability of their domestic financial and corporate
sectors and, implicitly, of the government
States have been transforming their role, moving from directly providing and
financing services, to guaranteeing that the private sector will accomplish
certain outcomes
Governments may be biased toward off-budget policies, which pose more
financial risk but require less immediate financing
Explicit state guarantees and insurance schemes, or any implicit
understanding that a government will come to the rescue in the case of
various market failures, generate serious moraI hazard probIems in the
markets.
For exampIe: loans and investments with a full guarantee, suffer from
insufficient analysis and supervision by creditors
23
45
SPECIFIC
EXAMPLE OF
CONTINGENT
LIABILITY

GOVERNMENT
GUARANTEES
45
46
GOVERNMENT GUARANTEES
A financial incentive often used by governments
Firm borrows from commercial financial institution and governments
guarantee interest and principal (i.e. like providing an insurance)
t is a future obligation and, the Magnitude and Timing of the outlay,
are unknown
Cost depends on the future economic performance of firm whose
securities are guaranteed
Guarantees usuaIIy are not subject to budgetary oversight
Programs that are not subject to budgetary oversights are not
as carefuIIy evaIuated
UsuaIIy onIy incIuded in the budget when they resuIt in cash
outIays, and then it is too Iate !
24
47
Outlay was NOT included in budget in the past because, there was no
operational measure of cost
Other forms of financial assistance such as: cash grant or tax
incentives are often brought into the budget
Evaluation techniques now exist for the calculation of cash grant
equivalents of complex financial contracts, including guarantees
f you have guarantees of many small loans then, the expenditure on
defaults in a normal year will reflect the approximate cost of a year of
guarantees
Guarantees of a few big loans will cause only periodic large defaults.
Hence, annual budget of a normal year will not reflect true accrued cost
for that year
Cost of guarantee = (Amount of Ioan) * (ProbabiIity of defauIt)
48
Probability of default = inverse function (1/Financial Health of Firm)
Cost of Guarantee much higher for under-capitalized risky ventures
where probability of default is high
These ventures yield lower social benefits but, higher costs of
guarantee
ShouId budget for subsidy content of the guarantee, not for
the totaI amount of Ioan
Cost measure of guarantee should permit comparisons across
different types of subsidies
Cash grant equivaIent = Present VaIue of (Future Transfers)
appropriateIy adjusted for risk
Contingent claims analysis: (see Jones and Mason, 1989, Journal
of Banking and Finance 4: 89-107)
25
49
VaIue of contingent cIaim = f(Amount of Guarantee,
FinanciaI risk + Business risk), where business risk =
f(standard deviation of annuaI returns)

FinanciaI risk = f((Current IiabiIities + Loan and Debt
interest + dividends) / (TotaI vaIue of firm))
50
IDEAS FOR BUDGETING
FOR CONTINGENT CLAIMS
Charge: a Cash Grant EquivaIent (CGE) to the annual budget when
the guarantee is given to the private sector firm
Alternatively, it could be spread out over time if it is a large contingent
obligation
Need to create a fund out of CGE charges. This is to provide guarantee
to finance loans going into default
There is an advantage of pooling the accounts for loan guarantees
As any portfolio, it needs to be administered
26
51
Cost Overruns
Usually cost overruns are a function of poor quality of work
done at pre-feasibility and feasibility stages and project design
There needs to be full information shared by all the parties
Surprises are costly
Ability of PPP sponsor and SPV to implement the project is
critical, see track record
Management of Contingent
LiabiIities
52
LiabiIities
Accounting for Contingent Liabilities
There needs to be transparent accountability for all contingent liabilities
borne by the government
Surprises cause capital outflows, therefore leading to exchange rate
fluctuation and banking crisis that increases the financial and business
risks of the project
Matching of Life of Project and Terms of financing. PPPs in
infrastructure have lives of 15 to 30 years. Often financing can only be
obtained with 7 to 10 years term
This forces high tariffs to be charged in early years of the project
f prices are higher than quantity demanded, revenues will decrease
causing a cash flow liquidity problems
27
53
Contingent LiabiIities In
Infrastructure
54
Sources of Contingent LiabiIities
Transportation Road Projects
Government guaranteed minimum revenues
Problem with overly optimistic demand projections (i.e. the
optimism bias)
Cost overruns
28
55
EIectric Power Sector
Contingent liabilities arise through take-or-pay contracts
PPP strategy allows for rapid expansion of generation capacity
However, contingent liabilities can be large if demand for
electricity does not materialize
There have been disputes in ndonesia, Pakistan and Thailand

56
How to Manage Risk
Contingent LiabiIities Better
Should have more competition in electricity generation sector
Often contracts are far too costly
Electricity distribution rates to final customers have to be more
flexible, not so much price capped

29
57
Risk Management
Reducing the risk of source
Transfer risk to parties better able to bear the risk
Monitor and manage any residual risks
Actions:
Need to reduce vulnerability of country to shocks

Chile used privatization for less risky sectors
Electricity and Water sectors
Used more competition to reduce costs
Privatization done to reduce costs (get more efficiency)

Malaysia:
Privatized sectors that were hard to serve- risky- transportation
and sewerage
Costs that could no be controlled, were privatized
58
LiabiIities
1. Macroeconomic stability is very important
A stable growing economy reduces the incidence of contingent
liabilities coming due
E.g. exchange rate, market risk

2. Political Risk
Governments need to avoid creating political risks
f greater macroeconomic instability or political risk, then private
sector will require greater rates of return. This creates an economic
cost to the country because the consumers will have to pay a
higher prices
30
59
Market risk is dangerous for contingent liabilities
There should be clear evidence of an adequate demand,
before any PPP is implemented
Perhaps, it would be better for governments to make the
investment themselves and then, let it out as a
concession, if demand for the project is uncertain
LiabiIities
60
LeveI of Risk associated
with various types of Contracts
100%
Owner Risk Contractor Risk
100%
0%
0%
Turnkey
Lump sum (Fixed price )
Unit price
GMP
Cost pIus
Owner direct force

COST for the
owner
Revenues
for the
contractor
31
The Chilean Case
THE PROBLEM

61
Infrastructure Investment Needs
(19952000 in MiIIion US$)

GENERAL INVESTMENTS
Roads and Highways
4.250
Urban speed roads
2.000
Water treatment plants
1.480
Potable Water
950
Communal Equipments
810
Ports
450
Railways
470
rrigation
370
Airports
100
Rain Water Control
200
TotaI
11.080
Fuente: MOP 1995
According to Ministry of Public
Works studies -in 1995- Chile
needed to make infrastructure
investments of:
US$ 11 BiIIion
62
32
AnnuaI Loss in Competitiveness
due to infrastructure deficit in highways
(in US$ MiIIion)

According to 1997
assessment done by the
Chilean Chamber of
Construction, the
deterioration of roads
produced losses in
competitiveness for:
US$ 1,7 BiIIion/year
Concept US$
MiIIion
Car congestion in Santiago 475
Damage to export fruit in trucks 120
Overtime in highways and
vehicle wear and tear
510
Physical damage because of
accidents
140
Health effects (pollution) 360
Waiting time in ports 105
TotaI 1.710
Fuente: Cmara ChiIena de Ia Construccin 1997
63
Project idea generation process

64
Origin
of a
project
idea
Private
Public
Ministry of
Public
Works
(MPW)
Pre-
qualifica
-tion
bidding
process
Other
Ministries
Declaration
of Public
nterest
Public
Bidding
Process
Awarding
the
Contract
n the grand majority of
cases, the projects originate
in the Concessions
Department of the MPW
There is space Ieft for private
sector initiatives (224). If pre-
feasibiIity study is decIared of
Public Interest (So far 10
pIus 27 under study). The
project sponsor gets a prize of
10-15% of the Investment Cost
in the bidding process
Give mandate to
the MPW
33

The Chilean Case
THE RESULTS
after 12 years of experience

65
Different schemes of PPP

Chilean Public Sector had invested, in 12 years, US$
1.5 BiIIion and has achieved to associate a private
investment of US$ 6.5 BiIIion. Thus, in Chile, a new
concessions industry was created
Total nvestment
Fiscal participation (18%)
+
Private Equity (32%)
Financing (Project Financing) (50%)
+
(100 %)
+
66
34

0
500
1000
1500
2000
2500
1993 1996 1999 2002 2005
Ao
Inversin en Infraestructura PbIica (1993-2006)
Aporte privado a
concesiones millones de
dlares
Aporte fiscal a
concesiones millones de
dlares
nversin Fiscal Pura
millones de dlares
67
68
The First ResuIts
The main infrastructure projects have already been
materialized

The first PPP projects resolved the most critical deficits

First PPP projects were simple in its pricing and tariff
structures and had higher returns for the private sector

Chile shows the lower contract renegotiation rate in Latin
America (9%)

n the near future there will be more complex PPP projects
but lucrative both from the private point of view as of the
public point of view (i.e hospitals, secondary road system,
Regional connectivity, etc.)

New business models, less known, with more complex
price structures and contracts

35
69
The Steps
Step 01: nterurban highway system
and airports

Step 02: Urban highway system,
dams, juvenile justice centers, jails
Step 03: Urban transport, new
urban and interurban roads
Step 04: Hospitals, schools, other
public buildings, new private
proposals
!"#$%
'( )*" +!,-"..
,/ -,0+1")',(
2($"!
-,(.)!2-)',(
2($"!
"3+1,!#)',(
70
Future tendency
Chile already did the first selection and skimmed the best and easiest
PPP projects, the business of PPPs is mature

There has been an evolutions towards less requirement of equity and a
higher proportion of project financing, this could compensate the
decrease in returns of the projects

N Chile the principal source of financing has been issuing bonds
(49%), then equity (34%) and lastly, debt with banking sector (17%)

Chilean capital market is deep and allows long term financing. Bond
markets exist in Chile thanks to the nsurance Companies and our early
pension reform, the private administrators of retirement funds

Financial investment in concessions is approximately US$ 6.5 billions

The 2006-2010 Ministry of Public Works portfolio considers 51 new
projects for another US$ 3.5 billions with an emphasis in new roads

The future of the system will tend to greater functional specification of
the projects and a central emphasis in assuring quality of service

36
71
CriticaI factors for success
n order to fulfill the rest of project portfolio, the following factors or
bottlenecks will become the most important :

The time it takes to approve the appraisal in the (SEA) Environmental
mpact Evaluation System. (On average it takes 2 years to get an
approval)

The swift response of local or expatriate engineering design firms for all
those project that are in the pipeline to be bided

The rapidness of Ministry of Public Works to resolve necessary
expropriations

The speed of bidding questions to be responded in formal process of
clarifying meetings

The capacity to negotiate on financing conditions given the risk
structure and specific guarantees of each project

n Chile the construction process in itself has proven NOT to be a
slowdown factor. Construction doesnt get paralyzed because of labor
strikes

CLASS EXERCISE
72
37
73
TRANSANTIAGO CASE
PubIic-Private Transportation Mega-Project
PIace
Location Santiago de Chile
Description
Type Rapid Transit Buses plus Santiago
Subway System
nauguration October 22, 2005 (first phase)
February 10, 2008 (second phase)
TechnicaI Characteristics
Bus Stations 9.119
Operation
N buses 6.298
Passengers/day 4.500.000 aprox.
Medium speed 65 km/h (40,39 mph)
Private Operators 7 Companies (primary and secondary)
TRANSANTIAGO CASE
PubIic Transportation Project, operated by Private
Sector
38
75
Chilean Ex-President Ricardo Lagos told -in an interview to
ADN Radio- with respect to the Transantiago Project: Ok..
one thing is to accept responsibility over its design, all
international authorities validated and applauded our
design but, the way it was implemented, Im sorry but, that
was not done under my administration
The ridium project has many things in common with
Transantiago. The comparison helps to get perspective and
to respond the question that divided Mr. President Lagos
and Mrs. President Bachelet:

Was it bad design or bad impIementation?
TRANSANTIAGO CASE
There are 4 reasons to understand this faiIure
4 reasons to understand a faiIure
1st Reason for faiIure

t is true, as Mr. President Lagos said, both designs, Iridiums and
Transantiagos, were much praised at its time. However, when a
standing ovation is given to the design of an initiative that is still on
paper, the applauses are not about the solution but, rather about the
ambition of the project

World Resources nstitute said:"Transantiago reform was the most
ambitious transport system carried out by any developing
country." But, to be ambitious, is not to say that its design is optimal

Before the operation there is not the necessary information to ensure
its merits. So, Transantiago could be very valued in forums and
seminars but, then -to make it work- had a long way to go
76
Suggested Answers
39
2nd Reason for faiIure

ridium and Transantiago are examples of engineering systems*,
these are large-scale systems are enabled by technology and they
affect and are affected by social, economic and political environment of
where they operate; they present dynamic properties and are subjected
to uncertainty, ambiguity and risk, they are highly complex and have
"emergent properties"

This means that some problems and behaviors in part or all of its
components appear only at the operation stage. These systems not
only affect society, but also are affected by it, so that their behavior is
not 100% predictable, to be modeled or simulated

There are no few initiatives, counting with the "best data, best
professionals, consultants and the best of intentions," that end up
producing the worst results when put into practice, without conducting
experiments or prototypes with at least some of its components.

Note: Definition of the Engineering Systems Division at MT-USA
77
3rd Reason for faiIure

ridium and Transantiago are examples of "grand design, large and
complex initiatives, where there are too many variables to control
and get to know, all of them with a high degree of uncertainty and
risk, and they all begin to operate simultaneously, at once

Another common aspect of these type of mega-projects is that,
whatever is not be known, you will know it but, when it is too late..
Normally, during its operation phase. Thus, a design that does not
include partial or complete experiment previously will be unable to
detect what may not work

With these projects, given their emergent properties, you cant learn
before what it will take to reduce your chance of failure (i.e. without
testing the assumptions and theories used in the design of systems)
78
40
4th Reason for faiIure

We also witnessed "political resistance, this is a property of some
complex initiatives such as Transantiago, that -instead of solving the
technical problems- they end up exacerbating them

As a result of this political resistance, the attention of those who
developed the project was then put into trying to validate the original
design that -in many cases- can be tragic. This characteristic
produces a perverse alignment of incentives that tend to ignore,
discard or not to consider people or information that contradict what
was expected and planned by the "establishment". So, no one is able
to put the handbrake to this tragic loss

* Prof. Carlos A. Osorio is PhD en Tecnologa, Gestin y Estrategia, y Master en
Poltica Tecnolgica de la Divisin de Sistemas de ngeniera del MT, Master en
Polticas Pblicas de Harvard, ngeniero de la U. de Chile, y Profesor y Director del
Master en nnovacin de la Universidad Adolfo baez
79
80
Font End Loading (FEL)
FEL is a concept created by Toyota. Today it is used by NASA,
petrochemical, pharmaceutical, etc.

Toyota called "Front End Loading (FEL)" to a method of increasing
workload in the early stages of a project to implementation -previous,
and their implementation in order to identify and remove as soon as
possible potential problems

Before "FEL", 80% of design problems were resolved between the
stages of implementation and operation. After using "FEL" techniques,
80% are identified and resolved before or during the design stage

What implications does this have? That the "unexpected" can be
identified, if working properly with a method

How do load working the early stages of a project? nvesting in
learning as much as possible in areas of high ambiguity and
uncertainty. This through studies, ethnographic analysis and
prototyping
!"
Transantiago Cost
PubIic Subsidy to the System
$"
Figura 3.2. Mitigacin deI riesgo versus eI tiempo.
(Barandiarn, 2007)
RISK Mitigation & Cost vs. Time
Barandarian, 2007
Cost of
Changes
Opportunity of
minimizing Risk
1 MiIIion USD/day
PubIic Private Partnerships in
Infrastructure Projects
$%
42
Contact DetaiIs
Facultad de ngeniera y Ciencias
Universidad Adolfo bez
Avda. Diagonal Las Torres 2700,
Pealoln, Santiago de Chile
Phone: (56 2) 331 1489
Cell: (56 9) 82597211
edgardo.mimica@uai.cl
83
CAPITAL BUDGETING
WORKSHOP, ENTEBBE
UK Private Finance Initiative: Findings
by Treasury Select Committee
Simon Groom
UK: Private Finance Initiative (PFI)
UK uses one type of PPP
PFI is a procurement model where the private
sector manages the design, build, nance and
operation (DBFO) of public infrastructure
Percentage of public sector infrastructure
investment that takes place through PPPs
exceeding 15%.
The United Kingdom tops the list of countries
using PPP, with 648 PPPs, and Korea is a close
second with 567 PPPs. Australia comes in at
third place with 127 PPPs

PFI: Accounting & Budgetary
Incentives
Most PFI debt is invisible in the headline debt
and decit statistics - OBR estimates that
national debt would increase by 2.5% of GDP.
Fiscal rules designed to promote scal
sustainability have had the paradoxical effect
of incentivising the use of off-balance sheet
nance.
PFIs are not included within Departmental
Expenditure Limits
If spending agencies do not have a large enough
capital budget there is a substantial incentive to use
PFI: Financing Costs
Use of PFI has the effect of increasing the cost
of nance for public investment.
Government has always been able to obtain
cheaper funding than private providers
The substantial increase in private nance costs
during nancial crisis means that the PFI
nancing method is now extremely inefcient.
Weighted Average Cost of Capital of a PFI is
double that of government borrowing.
PFI will only provide value for money if
difference in the cost of nance, is outweighed
PFI: Risk Transfer
Allocating risk to the private sector is only
worthwhile if it is better able to manage the
risk and can pass on any subsequent savings to
the client.
Main claimed benet was transfer of
construction risk - PFI contract lasting 30 years
is not necessary to transfer this risk. Other
methods such as turnkey contracts which can
be used for the same ends.
In some cases inappropriate risks have been
given to the private sector to manage. This has
resulted in higher prices and has been
PFI: Other Potential Benets
Theoretical benets
Whole-life costing should encourage the use of
innovative designs in PFI to deliver buildings
of better quality providing cost savings over
the life long term nature of a PFI contract
should also incentivise providers to maintain
buildings to a high quality thus reducing costs
in later life.
The xed nature of PFI contracts means they
are likely to provide more certainty regarding
price and time.
PFI: Other Findings
The nature of PFI means that competition is
likely to be less intense compared to other
forms of procurement because barriers to entry
are high - long, complex and costly
procurement process
Concern that the VfM appraisal system is
biased to favour PFI. Assuming that there will
always be signicant cost over-runs within the
non-PFI option is one example of this bias.
May be merit in making more use of a design
and build (DB) model using a xed price
contract to place risk with the private sector
Potential PFI Bias: Example from a Hospital Project
The Internal Rate of Return: The assessment
tested the VFM case for investors who needed
a IRR of between 13% and 15%. It was
assumed that investors would only demand
13%the lowest rate of return, which has
rarely been achieved in similar projects. At the
14% and 15% level the PFI route was assessed
as poor value for money.
The discount rate: In accordance with
Treasury guidance, a real discount rate of 3.5%
has been used for the rst 30 years of the
projectthis is much higher than the real rate
S. Korea: Unsolicited PPP Proposals
At PPP Law, there are two windows for PPP
proposals:
(i) solicited proposal generated by the government
and (ii) unsolicited proposal generated by the
private sector.
There are two types of PPP schemes: (i) BTO
(Build-Transfer-Operate); and (ii) BTL (Build-
Transfer-Lease).
In case of BTO, unsolicited proposals are
accepted, while in BTL, only solicited PPPs
are accepted. A lot of unsolicited PPP projects
have been taken so far.
South Korea: BOT Projects 2010
Category
Tota
l
Roa
d
Port Rail Logistics Environment Others
National
Projects
In Operation 55 16 13 4 3 5 14
Under
Construction
22 9 3 4 1 5 0
Preparing
Construction
12 8 1 0 1 2 0
Sub Total 89 33 17 8 5 12 14
Local Projects
In Operation 90 36 48 6
Under
Construction
10 1 5 4
Preparing
Construction
10 7 1 2
Sub Total 110 44 0 0 1 55 10
Total
In Operation 145 52 13 4 3 53 20
Under
Construction
32 10 3 4 1 10 4
Preparing
Construction
22 15 1 0 2 4 0
Total 199 77 17 8 6 67 24
South Korea: BTL 2011
Project Phase Total
Primary/Midd
le Schools
Sewage
Systems
Railway
Military
Residential
Facilities
Dorms
of Nat'l
Univ.
Others
In Operation
Number of
Projects
255 162 31 19 15 28
Total Private
Investment
Cost
(W trillion)
10.9 6.1 1.9 1.2 0.9 0.7
Under
Construction
Number of
Projects
121 19 49 3 36 1 13
Total Private
Investment
Cost
(W trillion)
11.2 1 3.9 2.6 2.6 0.4 0.8
Preparing
Construction
Number of
Projects
20 6 10 4
Total Private
Investment
Cost
(W trillion)
1.4 0.4 0.9 0.1
Total
Number of
Projects
396 181 86 3 65 16 45
Total Private
Investment
Cost
(W trillion)
23.6 7.1 6.2 2.6 4.8 1.3 1.5

1
The Bujagali Interconnection Project

Construction of 220kV and 132kV Transmission Lines and Substations
3km section - Change Order
Submitted to AfDB 15 Towers
Bujagali - Kawanda
Total Towers 215
Foundations Completed 45
Towers Erected - 51
Bujagali
Substation
Nalubaale Substation
Mutundwe - Kawanda
Total Towers 74
Soil Analysis Approx 50% complete
Foundations Completed 0
Towers Erected - 0
Kawanda
Substation
Mutundwe
Substation
Kampal
a
Mabir
a
TRANSMISSION LINES

Bujagali Nalubaale 8km 132kV Double Circuit

Bujagali Tororo - 5km, 132kV Double Circuit

Bujagali Kawanda 73km, 220kV Double Circuit

Kawanda Mutundwe - 17.5km, 132kV Double
Circuit
The Bujagali Interconnection Project
Construction of 220kV and 132kV Transmission Lines
and Substations
Bujagali
Nalubaal
e

Luga
zi

Outputs
The project outputs comprise :-
1
A. Construction and Installation
(1) Construction of a 220 kilo Volt (kV) transmission line initially to operate at 132 kV from
the Bujagali switchyard to a new substation at Kawanda (70.5 km).
(2) Construction of a 132 kV line from Bujagali switchyard to the existing 132 kV line from
Owen falls to Tororo (5 km).
(3) Construction of a second 132 kV line extending north from the Bujagali switchyard to
interconnect with the Owen falls switch yard (8 km).
(4) Construction of a new 132 kV line from Kawanda substation to the existing 132 kV
substation at Mutundwe (17.5 km).
(5) Construction of a new substation of 132 kV/ 33 kV at Kawanda.
(6) Internal improvements (new bay and switchyard) at Mutundwe substation to
accommodate the new 132 kV line.
B. Environment and Social Management
(1) Environmental impact mitigation and compliance monitoring.
(2) Resettlement action plan for the compensation and resettlement of Project Affected
Persons (PAPs).

Funding
The project is financed by the African Development Bank (ADB), the Japan Bank for
International Cooperation (JBIC) loans and the Government of Uganda (GOU). The total funding
of the project is about Unit of Account (UA) 31 million and Japanese Yen (JPY) 3,484 million,
equivalent to about Uganda Shillings 219 billion , as at September 2011, as detailed in Table 1.
2

Quarterly Reports
1
1UA = US$ 1.2727; 1US$ = UShs 2797 ; 1JPY = Ushs 31.568
2

Table 1: BIP Disbursements
Source: BIP Quarterly Report of September 2011
Source of Funding
ADF (UA) JBIC (JPY)
GOU Contribution
(UA)
Loan Amount/Budget 19,210,000 3,484,000,000 11,370,000
Disbursements to-date 12,832,055 1,740,635,457 12,461,143
%age of Loan Disbursed 67% 50% 110%

MINISTRY OF FINANCE

CAPITAL BUDGETING PROCESS IN
ERITREA

September 2014
0

Introduction
Information relevant for this workshop:
1.The MoF has adopted GFS 2001 classification on:-
Functional classification the Ten sectors
Organizational classification COFOG
Economic classification current expenses/capital
recurrent/development
2.The MoF is using the cash basis of recording, accrual accounting
is not in place.
3.There are two Ministries that deal with the budget: the MoF
handling the Recurrent Budget and the Ministry of National
Economic Development dealing with the planning and
Development Budget. It lacks coordination.

0

1. The structure of COFOG follows a programme concept,
because the structure of the Budget is based on
1. Sector/
2. Ministry/
3. Department/Program
4. Project/Division.
Departments usually reflect programme concepts or objectives. For
Development budgeting, there could be programmes which cover
several departments. The departments may have projects that
stretch beyond their organizational limit.
2. Programmes are used as vehicles to execute the overall
planning.
3. Budget allocated for a specific department is a limit for that
unit, and the MoF uses programmes for allocation of resources
and control of expenditure of the budgetary bodies accordingly.
0

1. The Process of Development Budgeting follows the
next steps:
1. A decision is made by the Cabinet of Ministers on the
strategic priorities of the year, and each ministry takes
guideline from that decision.
2. Line ministries prepare their specific strategic plan;
3. The MoF sends budget call to Budgetary Bodies to prepare
their Recurrent and Development budget for the year using
specific guideline and formats (Annex 1)
4. The MoF reviews the proposal documents of the line
ministries, and conducts budget hearing; The priorities of the
ministries should be aligned to the national priorities;

0

1. The MoF makes its recommendation based on the proposal
of the line ministries and the availability of financial
resources and other considerations. Regarding the need for
foreign exchange of Development budget is seriously seen
whether the source is secured/pledged. Deficit financing is
usually linked to development budgets.
2. The recommendation of the MoF is reviewed at the
Cabinet of Ministers to see whether it conforms to the
overall national interest.
3. The MoF implements the budget according to the
appropriation made.
4. All budgetary bodies prepare periodic reports on their use
of the resources whether it is domestic or external source .

0

The process of budgeting:
1.Recurrent Budget:
The line-item method of budgeting is used in processing the budget.
2.Development Budget
The Cabinet of Ministers discusses and agrees on national priorities for
the year. Every ministry prepares projects that go in line with those
priorities. For instance at present the Government has set the following
priority areas:
Food Security
Infrastructural Development
Human Resource Development

The Ministry of National Economic Development coordinates the
programmes that have a cross cutting nature, and also any foreign
economic cooperation.
The MoF makes the expenditure payments according to its financial
regulations and the agreements made with development partners.
0

Current Problems on the development budgeting
process
At present Planning is limited to the level of
sectors. National planning scheme is not well
developed; Taking the time horizon there is a need
to develop medium to long term planning .
Line ministries are not provided with a budget
ceiling. This leads to dissatisfaction on the part of
the line ministries, because their efforts are not
rewarded with the amount they expect;
More remains to be done on monitoring and
evaluation of projects;
The budget is not proclaimed.

0

Annex
General Guideline on the Budgeting process
Part I General Description

Part II Recurrent Budget

Part III Development Budget Proposal
0

Part III Development Budget Proposal Submission Form
1.General Description
1.1 Ministry ----------------------
Programme -----------------------
Project -----------------------
1.2 Describe the profile of the project
1.2.1 Background
1.2.2 Objectives
1.2.3 Need and justification of the
project

0

Part III Development Budget Proposal Submission Form

1.2.4 Benefits and Beneficiaries
Economic Benefit
Social Benefits
Other Benefits
1.2.5 Components of the Projects
1.3 Give brief description of past activities;
1.4 Give details of the major project activities to
be undertaken
1.5 Fill in the Development Budget Submission
Forms

0

1. Summary of Programmes and Projects

2.1 Explain briefly the total cost of the programme;

2.2 Describe briefly how the overall programme will
promote the objectives, policies, and strategies of the
sector.

2.3 Indicate the overall monitoring and evaluation
mechanisms and responsibilities of the Ministry;

0

PROJECTS GENERAL INFORMATION Submission Form
1. Project title ________Program ___ Ministry _______

2. Project Location: Site ______Sub-Region _______ Region
3. Project Status (Mark X where appropriate)
3.1 Under Study
Project identication ______
Pre-feasibility study ______
Feasibility study ______
3.2 Under Design ______
3.3 Waiting for funding ______
3.4 Under Implementation ______

0

1. Project Type (mark X where appropriate)
4.1 New ____ 4.2 Expansion ____4.3 Rehabilitation ____

2. Project Duration
5.1 Implementation Period _______ Year
5.2 Starting Date _______
5.3 Completion Date _______

3. Project Executing Body _________________

0

7. Mode of Financing

7.1 Project Total Cost ERN ________

7.2 Local Currency Component in ERN ________

7.3 Foreign Currency Component in USD ________

7.3.1 From Domestic Source __________

7.3.2 From External Source
0

8. Source of Financing
8.1 Domestic source Amount in ERN
Organization/Enterprise Own Fund _________
Domestic Bank Loan __________
Government Budget (Treasury) _________
Community Contribution __________
Others (Specify) __________
Sub-total
0

8.2 External Source
Financing Institution Amount in USD
Grant/Assistance ______________ ________

Loan/Credit ______________ _______

Foreign Equity/Joint Venture _____________ _______

Sub-Total ______________ _______
8.3 Total Domestic & External Sources (8.1+8.2) ERN __________

8.4 The external source is: Secured _Pledged__Under negotiation_____

8.5 Date of Agreement Signed _____________________

0

9. Total Project Cost Distribution by Year in ERN

Period Domestic External Total External Grand Total
Grant Loan
Year 1*___ ________ _______ ________ __________ ________

Year 2 ___ ________ _______ ________ __________ ________

Year 3 ___ ________ _______ ________ _________ _________

Etc ___ _______ ________ _________ __________ _________

Total _______ ________ _________ _________ _________

Indicate Exchange Rates used to convert from USD to ERN (1 USD = ___ ERN)

* Year 1 = Project starting year
0

Note:
With the technical assistance of East AFRITAC, the MoF has
benefited a lot in the area of training regarding Budgeting. The
specific areas include Medium Term Expenditure Framework,
Medium Term Fiscal Framework, Medium Term Budgeting
Frame work.

It is a great opportunity for the Eritrea Team to participate in such
a vital workshop. Participation in this workshop will give us a
unique opportunity to learn from the experience of other nations.
We will be interested to know how to develop programmes and
projects that reflect government objectives and policies, how to
coordinate the different sector plans in to one national plan.

0

Plan of Action
1.Integrate Recurrent and Capital budget processing at the
MoF; MoND preparing the planning part, and the MoF
processing the annual capital budget;
2.Prepare Indicative budget ceiling for Recurrent and
Capital budget; prepare forecasts on fiscal developments;
3.Give more training to staff of the MoF on handling of
Capital projects, including monitoring, preparing reports
on the performance of line ministries;
4.Improve the work guideline or manual on preparing the
annual budget; give training to line ministries on the
manual;

0

Thank You !
0
Capital Project Process in
Ethiopia
Sept 04, 2014

1.How Project identified, appraised
reviewed
1.1 Sector Development program (SDP)
! Project identification is carried out by Federal line ministries and
regional state
! These projects are stored and screened by respected sector ministries
! The candidate projects are captured in the SDP document.
! After the draft document is prepared a consultation meeting will be
held with stakeholders, partners and other relevant bodies.
Project identification cont
! The final document is endorsed by Ministry to council and incorporate in
the GTP document
! As per the priority given to the project appraisal is done prior to the
implementation period for major projects like road, energy, water etc. by
consultants approved by respective sectors
! Approved projects will be submitted to ministry of Finance & Econc Devt
(MoFED) for funding
! Implementation is carried out by the respective sector public bodies
! Monitoring and evaluation is conducted by sector public bodies and
MoFED

1.2 Non SDP Projects
! Identification is carried out by sector public bodies in line with Growth and
Transformation plan (GTP)
! Projects are identified and appraised by line ministries and send to MoFED
for review and approval
! Approved projects will be submitted to ministry of Finance & Econc Devt
(MoFED) for funding
! Implementation is carried out by the respective sector public bodies
! Monitoring and evaluation is conducted by sector public bodies and
MoFED

2. Recurrent and Capital Budget
Ethiopia implements PBB that integrate both budget types under one
program there is a unified budget under MoFED
The newly established National Planning Commission is expected to fully
engaged in long and medium term planning process

3. MTEF/MEFF
Ethiopia uses Macro Economic and Fiscal Frame work (MEFF) which is a
five year rolling plan approved by Council of ministers.
It provides effective guidance and budget ceilings for budgetary institutions.
Zero balance treasury payment system is applied , no cash rationing system.

Public Investment Manual
Pip was exercised in the previous years till it was replaced by PBB.
Public bodies use the PBB manual to prepare their budget.

PPP Unit
PPP is not yet applied in the country.
Strength and Weakness of capital budgeting
Strength
A Ceiling given to Sector Ministries for the forth coming three years.
Capital projects are approved and appropriated according to the
ceiling

Weakness
Proper monitoring and evaluation is not carried out as required.
Measures to Improve Capital Budget/Plan
for Action
Rollout Pbb to Regional Government.
Strengthening Monitoring and Evaluation.
PPP introduction with the necessary legislation.
END!

Thank you!

xmsGlh#!
Capital Budgeting Process
in Kenya
1
The Process
Project Identification

Project Appraisal

Review, Approval & Selection

Implementation and Adjustment

Operation

Evaluation

2
Project Identication
National Vision- Long-term development
goals, where we want to be-Vision 2030:
agship projects of the vision: infrastructure,
manufacturing.
Manifesto of the ruling party- Lap top projects
Public
Development Partners

3
Project Identication- Cont.
Medium term plans- long-term vision broken
down into ve year plans by Sectors.
Strategic plans- apply to individual ministries
or government agencies
SP identify specic activities for achieving the
outlined strategies. Contains
! Timelines
! Cost
! Shows who is responsible for implementation

4
Key Actors
Ministry of Devolution & Planning-MTP,
Vision 2030
Line ministries-SP
Public- through public forums
Development partners
National Assembly
5
Project Appraisal
Consultants identied through competitive
bidding to undertake feasibility studies which
determines the projects viability.
A cost benet analysis is normally undertaken
with emphasis on three levels:
! Economic: NPV and EIRR determined
! Social: demand, change in social setup,
resettlement of displaced communities
! Environmental: environmental impact
assessment, NEMA authority a must.

6
Key Actors
MDAs (users)
Technical ministries-
NEMA
Development partners

7
Project Review, Approval &
Selection
Project Appraisal submitted to the National
Treasury for consideration and approval.
Project with huge nancial implications
submitted to Cabinet for approval
Selection: Projects submitted to the Sector
Working Groups. Selection criteria applied-
projects ranked: Vision 2030 Flagship,
sustainability, core mandate of MDA, core
poverty
8
Approval
Projects included in BPS, forwarded to cabinet
for approval.
BPS then forwarded to Parliament for
approval . MDAs provide information on all
projects to the National Assembly
Departmental Committees

9
Key Actors.
!Cabinet
!Development partners
!The National Treasury
!MDAs
!Sector Working Groups
!National Assembly

10
Establishment of the project implementation
teams
Acquisition of land along the project
Movement of utility lines
Legal and contractual issues
Risk assessment and management eg forex
risk.
11
Regular monitoring through site visits (user,
supervisor, contactor).
Adjustment: involves changing certain
aspects of the project such as the design-
Langata, Mombasa highways
Key actors:
Line ministries, Ofce of the Attorney General,
Ministry of land and Housing, Technical
Ministries.
12
Project Implementation- Cont
Key actors
Project implementation committees
MDAs
Monitoring and evaluation teams
Performance Contracting secretariat

13
Operation
Certicate of practical completion issued by
the project supervisor.
Inspection and receipt committee certies that
the project is as per the contract
Handing over of the project to the user-
handing over minutes.
Operation commences

14
Project Evaluation

Initial evaluation in 6 months-making good
defects.
MDAs required to report on key indicators

Key Actors:
Line ministries, project committee, Parliament
(PIC), vision 2030 Secretariat, consultancies,
Auditor General, EMU.
15
Recurrent and Capital Budgets
Both budgets are separate.
Unied under PBB for presentation in Parliament.

Recurrent costs are taken into consideration during
execution.

16
Funding Predictability
Budget under the MTEF- Three year
budget. Has the current year and two
outer years for predictability.

Treasury circular on budget preparation
insists on prioritizing ongoing projects.
Historical experiences: Several
stalled/white elephant projects in the late
1990s & early 2000.
17
Funding Predictability-Cont.
Pending bills closing committee, stalled
projects completed.
Cash rationing: exists due to revenue
shortfalls from time to time.
Pending bills if any in one year form the rst
charge in a subsequent year.
Projects only start when funds are factored in
the budget. Its an economic crime to undertake
unplanned procurement.
18
PPP
Newly enacted law, PPP Act 2013, regulations
currently being developed.
PPP unit has been established.
The National Treasury receives project
proposal, submits what can not be funded to
the PPP unit
PPP committee approves or rejects proposals
from MDAs on recommendation by PPP unit.
PPP necessary for:
! Infrastructure projects
! ICT
19
Strengths
Guarantees legitimacy of the projects as a
result of all stakeholder participation

Transparency and accountability

Ensures that priority programmes and projects
within the sector are well funded at initial
stage of budgeting.

20
Weaknesses
Lack of independent review after appraisal.

Delayed project implementation due to
compensation issues.

Duplication of effort and lack of development
integration

Unpredictable Cash ow due to revenue
shortfalls.

21
Weaknesses-Cont.
Difculties in measuring non-monetary social
and economic benets
Lack of technical capacity on project
performance auditing
Inadequate capacity of user departments to
implement the projects

22
Proposed Action Plan
Prepare a public investment manual
Provide guidelines for ex post evaluation and
publish results
Establishment of a central monitoring unit for
all capital projects and strengthen e-PROMIS
Strengthen the PPP unit to fund the many
agship projects.

23

THE END

THANKYOU
24
By
Malawi delegation
Denition
The PSIP is a comprehensive listing of
all priority public programs and projects
It is a five-year rolling plan comprised of
carefully selected relevant investment
programs and projects within the context
of the overarching development policy of
the Govt, the MGDS II
Tool for coordinating implementation of
development programs.

Public Sector Investment Program
It serves as a planning tool in coordinating project
preparation and implementation
Provides framework for screening projects and
programs of strategic importance
Provides data on past and projected levels of
capital investment by public sector.
Provides data regarding funding sources on
specific projects within sectors.
Facilitates dialogue & resource mobilization
Assists in resource allocation to priority activities at
all levels
Program/Project development
Programs/Projects are developed by line
ministries
Sectors derive sector policies and plans
from MGDS II
Line Ministries have ministerial strategic
plans and are projects are derived from
gaps noted by these strategies
The process starts with receipt of annual
development requirements by Line Ministries
guided by PSIP Preparation Handbook
Projects under implementation have a clear
relationship with the national development
agenda
Effective utilization of public resources
Ensure adequate counter-part funding
Realistic number of projects in sectors
Adequate impact on growth & poverty reduction
THE PSIP Project Qualication
Criteria
Carefully crafted new and on-going
appraisal matrices are used to vet
projects
New project matrix checks relevance,
efficiency, effectiveness, impact and
sustainability
On-going project matrix checks
continued project relevance and project
performance
Qualication Criteria (New Projects)
Relevance checks alignment to overall
medium term strategy, sectoral
policy/strategy alignment
Efficiency ensures value for money,
technical capacity and time efficiency
Effectiveness checks whether outputs
lead to outcomes, time efficiency (can
outputs be achieved in time frame) and
adequacy and clarity of indicators

New Projects criteria contd.
Impact checks likelihood of achieving overall
objective(availability of complementary
interventions), social economic impact and
environmental impact
Sustainability ascertains financial
requirement for continual operating and
management of output/product,
institutional/management and social cultural
hindrances

On-going Projects
Continued relevance will check the project
against the current medium term strategy,
continued alignment to sector policies and
arising externalities
Performance absorption/utilization of
allocated resources, resource/results ratio
(based on past 2 FYs), time efficiency
(outputs over entire implementation period),
technical efficiency and compliance with
social and environmental safeguards

THE PSIP Link with the Budget
The PSIP is developed by Development
Planning Division in the Department of
Economic Planning and Development
while the recurrent budget by the Budget
Division while project recurrent costs are
part of the Development Budget
The Ministry circulates MTEF ceilings,
however cash rationing occurs in budget
implementation

PSIP Link with the Budget contd.
The PSIP forms the basis for the
Development Budget
The PSIP identifies the priorities that
have to be funded in the budget
The budget division allocates resources
to only those projects that are in the
PSIP
The funded investment priorities within
the PSIP constitute the Development
Budget.

Public Private Partnerships (PPP)
A Privatization Commission unit has
recently been established which also
deals with PPP issues
To date there are few PPPs that have
been entered by govt. namely VALE
(BOT), Railway Concession by CEAR,
Nsanje World inland Port (BOT);
Recreation Center(BOT)

Challenges in Capital Budgeting
There is lack of coordination between Finance and
Development Planning, however the merger allows
for better cooperation
Inadequate capacity in line Ministries in project
development and implementation
Line Ministries sometimes circumvent the PSIP.
Inadequate involvement of private sector
Lack of fiscal discipline in budget implementation
Cash rationing owing to inadequacy of resources
during budget implementation leading to
unpredictability of funding

Recommendations
Further enhance coordination between
Budget, Project planning and Debt & Aid by
speeding Project Negotiation Unit setting up
Improve project management capacity in line
Ministries
Enhance capacity in PPP unit and strengthen
its regulatory frame work
Ensure adherence to fiscal rules
PLAN OF ACTION
1. Enhance coordination of capital budget
process amongst stakeholders
2. Capacity building in project development
and appraisal in line ministries i.e. project
management training, appreciate best
practices from else where
3. Finalize PSIP Project Preparation
Handbook
4. Promote proactivenes of PPP unit

THANKS FOR YOUR ATTENTION
ZIKOMO KWAMBIRI
&
GOD BLESS U

UNITED REPUBLIC OF
TANZANIA
COUNTRY PRESENTATION ON BUDGETING
SYSTEM IN TANZANIA
1

CAPITAL BUDGET
(DEVELOPMENT PROJECTS)
CONT
Projects identification
National priorities e.g. National Vision
2025, MKUKUTA II, Millennium Goals, Big
Result Now (BRN) Five Year Development
Plan etc
Needs arise and challenges
Ruling party manifesto
Humanitarian assistance from
international organizations (NGOs,
NGIs)

2

THE CAPITAL BUDGET
(DEVELOPMENT BUDGETING)
Project Appraisal
is done through feasibility study based on
! Social benefits
! economic analysis(EIRR, NPV & CBAR)
! Financial analysis
! Environmental analysis (Environment
Management Act 2004 EIA, EIA
Certificate)
! Technical analysis affordability of new
technology and Skills development

3

PROJECTS REVIEW
Stakeholders / (POPC)
Due to limited resources/funds it may take
some time to secure funds for implementing
the appraised projects.
So review of project is carried out for
implementation of the appraise projects
once the funds are secured to see if the
needs are still the same as before E.g Change
of land use plan, if there is any development
of similar projects nearby, change of Market
price of material, Change of Technology etc

4

THE CAPITAL BUDGET
Project Approval
Presidents Office Planning Commission (PO
PC) approves new projects after receiving
the Write up of the Projects, Feasibility
Studies and detailed design from the line
Ministries.
Cabinet Approval
Parliamentary Approval

5

THE CAPITAL BUDGET
Projects Implementations
Upon approval of a project proposal line
ministries prepare operation plan (Physical
and Financial) and cash flows submitted to
presidents office Planning Commission for for
approval
Ministry of Finance releases fund.
Upon release of fund, implementing agencies
implements the projects and prepare
quarterly performance report and submit to
Ministry of Finance and POPC for request of
release of fund for next quarter
6

THE CAPITAL BUDGET
Projects Control, Monitoring and Evaluation
Once a capital expenditure has been
evaluated and budgeted, an organisation
should apply project controls to ensure that:
Capital expenditure does not exceed the
amount authorised .
Project implementation is not delayed.
The project benefits are eventually
obtained.

7

PROJECTS CONTROL,
MONITORING AND EVALUATION
CONT..
Monitoring and control keep track of the
performance of the projects, programmes
and activities by comparing level of
implementations achievements and resources
used;
evaluation is done by analysing the effects
of the output in relation to the goals set.
Importance of Monitoring and evaluation of
projects are the following:-
8

PROJECTS CONTROL,
MONITORING AND EVALUATION
CONT..
To ensure Efficient use of
resources
To measure performance
continued action
To ensure value for money
To ensure proper reporting
To identify deviation

9

RECURRENT & CAPITAL
BUDGETS CONT.
The recurrent and development budgets for
each MDA are prepared and executed separately
and appear in separate budget books.
CURRENT MTEF
MTEF provides guidance to the outer year but
not very effective
However the problem is predictability of the
fund
PUBLIC INVESTEMENT MANUAL
Preparation of public Investement Manual is in
progress

10

PPPS UNIT
The Public Private Partnership (PPP) Policy was
issued in 2009.
The Public Private Partnership Act (PPP Act) was
passed in 2010 and the PPP Regulations in 2011.
11

PPP UNIT CONT.
PPP Coordination Unit is instituted within the
Tanzania Investment Centre while PPP
Finance Unit (FU) has been established
within the Ministry of Finance (MoF).
The roles of FU is:-
To assess, manage and monitor fiscal risk,
To assess affordability of projects,
To appraise value for money from PPPs with a
view to recommend PPP projects for approval by
Minister of Finance.
So far no project has been implemented through
ppp mode, there are projects in pipeline
(Mchuchuma - liganga and DSM Chalinze
Express way (100km)

12

CURRENT CAPITAL BUDGETING
SYSTEM
Tanzania has no clear /single capital budgeting
system but we have development budgeting.
Not all spending which is classified as
development spending in the Tanzania budget
should accurately be classified as such.
Also some of recurrent budget have
development nature e.g
Procurement of Vehicles
Procurement of office furniture
Procurement of computer

13

STRENGTH OF DEVELOPMENT
BUDGETING
Its easily to trace capital investments
through GFS Code eg 41011 represents roads
investments
Actual value of the assets easily traced
Its helps to reduce most of the recurrent
expenditure in nature.

14

CURRENT CAPITAL BUDGETING
SYSTEM
Challenges of development
Budgeting
Cash rationing which leads to delays of
project implementation.
Unpredictability of cash inflow.
Budget reallocation- Issue of budget
reallocation is still a problem as may
cause divergence from the original
budget
Some Development budget contains non
capital expenditure

15

RECOMMENDATION

Capacity building both long and
short courses on capital budgeting
and Public Investment Management
More mission to sensitize policyand
decision makers on new initiatives
regarding capital budgeting and PIM

16

THE END
THANK YOU
FOR YOUR
ATTENTION
17

CAPITAL
BUDGETING
PROCESS

1
Project Identication, Appraised,
reviewable,

Table attached

2
Recurrent & Capital budgets

- Recurrent & capital budgets prepared
separately
- Institutional setting is unied
- Recurrent costs of projects taken into account
during implementation (Limited Funding not
withstanding)

3
MTEF

5 Year MTEF in place to guide MDAs
Cash rationing is used in Uganda
the MTEF is reconciled with needs based
on a unied macro economic framework

4
PIM Manual

PIM manual not yet in place
Guidelines are available for Project entry
into the PIP

5
PPP Unit

No PPP unit in existence
Database is being put in place Ugandan
Embassy in Cairo, Bujagali and a number of
others build under PPP
No PPP Manual in place
No framework yet in place for proper
assessment, disclosure and reporting on
PPPs

6

Strengths & Weaknesses of
Current Capital Budgeting
System
No. Strengths Weaknesses
Budget ceilings are
communicated to sectors through
the MTEF
Weak project appraisal systems
Separate Development budget
lines in place
Weak Institutional Frameworks
Sector Working Groups
operational

Strict adherence to budgetary
lines

Three most Important things for
Uganda

Fast tracking PPP

Prioritization and front loading
infrastructure development projects

Land reforms

Thank You
For God & my
Country!
Category Process Actors Actions for successful
implementation
Identication Projects identied by sectors
and discussed by the SWG then
forwarded to MoFPED
Sectors &
MDAs, DPs
Early identication
of ideas &
proling in SDPs
& NDP
Appraisal Proling, economic and
nancial analysis done by the
sector (in some cases, Pre-
feasibility & feasibility studies
are undertaken through special
facilities or arrangements with
potential funders)
MDAs,

MoFPED,

DPs
Comprehensive 5-
Yr PIP is being
developed

Review Projects submitted to DC in
MoFPED for discussion
MoFPED,
NPA, OPM,
MDAs
Guidelines for
approval and
review in place
Approval Projects approved by Cabinet Cabinet More
informationon the
project to Cabinet
Strenthening the
DC
Implementation Code provided to the project
Included in the budget with
source of Funding
OPM;
MoFPED,
MDAs
Quarterly reports
in place,
Field Monitoring
Evaluation Not institutionalized, Donor
driven
NPA Institutionalization
being done under
NDP II;
Evaluation facility
being established
with Donor
Support

PRESENTATION OF THE VFM AUDIT REPORT ON:

IMPLEMENTATION OF BUJAGALI INTERCONNECTION PROJECT
At The AFRITAC East- Regional Workshop

Presented by:
Liz Nambuya, Assistant Director
Presentation Layout
Brief description about the project
Motivation for the audit
Audit objective
Scope
Key risky areas noted in Capital Projects in
Uganda- case study of VFM audit on
implementation of BIP
Lessons learnt

Background to the Project
Implemented by Uganda Electricity
Transmission Company Limited (UETCL) on
behalf of GOU
Evacuate power from Bujagali Hydropower
Station (BHS) to the national grid.
Project outputs: construction & installation of
transmission lines, substations; and
environmental and social management. BIP
Outputs & Funding.docx
As at Sept 2011, GoU together with
development partners had invested an
equivalent of Shs 219 billion (app. US$79m)
in the Bujagali Interconnection Project (BIP).
Motivation of the Audit
Uganda has a low electricity access of 70
kilowatt hour per capita.
Percentage of the population with access to
electricity: Uganda was 9% , Kenya (15%) and
Tanzania (11.5%) in 2008.
By 2011, about 12% of Ugandas population
had access to electricity.
High dependence on wood fuel leading to loss
of forest cover.
Substantial amount of money invested in BIP
equivalent to UGX: 219 billion, which is
approx. US$79million
Project completion date of July 2010 had not
Audit Objective
To evaluate the progress of the BIP
construction and installation, the
implementation of mitigation measures for the
negative environmental and the social impacts
of the project.

Scope
UETCL Headquarters in Kampala, BEL and
Jyoti ofces,
sub-stations: Kawanda and Mutundwe
Sections of the transmission lines:
Bujagali to Kawanda,
Kawanda to Mutundwe,
Bujagali to existing Tororo line
Bujagali to the existing Nalubaale substation.
The audit covered the project period from
January 2007 to November 2011.

Most risky areas
Identication and appraisal;
Use of veriable data at the planning stage,
Ensuring that before the project starts, all
preparation issues have been handled especially
EIAs, Land compensations, hiring of staff
Planning for the procurement cycles within the
project timeframes.
implementation; evaluation
Implementation Stage
Land compensations;
Ination of compensation amounts,
Delays to approve agreed compensation values by
the government valuers,
Collusion between project staff and PAPs to hike
compensation rates,
Forests and wetlands,

Evaluation stage
Use of veriable baseline data to measure
progress of the project,
Ensuring that monitoring reports inform the
current project and future projects
Ensuring the involvement of beneciary
communities and employees of the project in
discussing M&E ndings
Findings
By the time of the audit inspection (Oct 2011), the BIP
completion had delayed by one year and three months and was
still in progress.
Cause; failure by UETCL to handover the power line corridor
on time to the contractor due to;
late commencement of payment of compensations,
increase in the number of Project Affected Persons (PAPs) to
compensate. As a result, by the time of audit, BEL had requisitioned for
additional Shs. 7.73 billion to cater for increase in total compensations.
Futhermore, by the time of audit, more than 4 years of project
implementation, there were still 203 PAPs who had not been
compensated.
delays by the ofce of the Chief Government Valuer (CGV) to approve
valuation packages and
emergence of people claiming ownership/interest in the land in
wetlands of Nansana and Ganda where the lines were meant to pass.
Claimants had to be paid Sh 163million.
Findings continued
Cause; failure by UETCL to handover the power line corridor
on time to the contractor due to;
PAPs disputing compensation amounts/packages offered by UETCL

Due to the above factors, the project had to revise the completion dates
from March 2010 to December 2010, later to March 2011 and then
December 2011

Findings continued
Material handling was poor e.g. strings were
some times pulled on the ground.
Prohibited activities e.g. brick laying, was
taking place on Right of Way.
Vandalism of tower members was rampant. By
time of audit 53 cases of materials theft had
been reported but no values attached yet
Annual environmental audits were not carried
out by NEMA.
Findings continued
Although EIA for the project was carried out,
annual environmental audits were not carried
out by UETCL as required by NEMA.
National Forestry Authority (NFA) received
Shs.588 million towards the implementation of
mitigation measures/activities for the trees cut
in the Central Forest Reserves (CFRs) of
Mabira, Kifu and Namwo, however, the
activities were not implemented due to funds
diversion to other operational activities.
Findings continued
House constructions handled by individuals
were poorly done.
Workers constructing the towers did not have
personal protective equipment.
Delay by the Ministry of Lands, Housing and
Urban Development to process land titles for
transfer to UETCL.
Recommendations
UETCL should ensure that it complies with its
resettlement obligations by timely
compensating PAPs before handing the
transmission corridor to the contractor.
UETCL should set a cutoff date when all
compensations should be effected so as to
avoid new cases coming up.
UETCL and NEMA should in future projects
strengthen coordination in handling PAPs
claiming ownership/interest in the land in
wetlands so as to avoid illegal compensation
and stalling of projects.
Recommendations
UETCL should ensure that it complies with its
resettlement obligations by timely
compensating PAPs before handing the
transmission corridor to the contractor.
UETCL should set a cutoff date when all
compensations should be effected so as to
avoid new cases coming up.
UETCL and NEMA should in future projects
strengthen coordination in handling PAPs
claiming ownership/interest in the land in
wetlands so as to avoid illegal compensation
and stalling of projects.
Lessons learnt
Due to the difculty in stopping the
modication of house designs, UETCL has
dropped/scrapped the material option out of
any future and ongoing projects.
Need for Government to address the issue of
land acquisition for capital projects

Website: www.oag.go.ug

THANK YOU
CAPITAL BUDGETING PROCESS
IN ZANZIBAR

Project process in Zanzibar
Project identication
Idea is developed into concept note (MDA), PC provides
concept note development and submission guideline
The concept note includes;
Project background
Problem and challenges
Need or opportunity; Alignment to national strategies and
sector plan
Objectives, outputs Inputs, responsibilities; timeframe risk
identication, Source of funds

Cont.
Project Appraisal
Involve the process of assessing project's viability
The pre-requisites for project appraisal involves:
Environmental impact assessment; the conditions of PPP
etc,
Relevance and importance with- national priorities;
beneciaries,
Impact and measurement- smart goals and objectives;
indicators,
Organization and planning- clear org structure for a
project,
Budget and cost,
Cont.
Project Approval
ZPC screen the concept note to see the idea is in line
with National priorities
If the project doesnt need feasibility study, the approval is
done at appraisal stages
For a giant projects the feasibility study is conducted
for more justication.
Projects Evaluation
Based on evaluation criteria on Relevance and Importance,
Impact and measurement, Implementation status
The Capital budget
Recurrent and Capital budgets prepares and executed
separately
MoF prepare recurrent budget and Planning Commission
prepare capital budget.
Recurrent costs of projects taken as capital budget
during implementation
The MTEF Budget

The MTEF helps for somehow in providing future
expectation of funds to the line ministries, however,
not very effective
cash basis budget
Cash rationing
off-budget spending. a greater divergence appears between the
actual (Outturn) and estimated budget therefore affect the
budget discipline and future predictability.
Reconciliation are made on the basis on the sector
priority, commitment, project which deliver the
maximum outputs and the rst charge items.

PPP in Zanzibar
The PPP in Zanzibar is in infant stage, the draft PPP
manual and policy are in place.

The PPP unit established in 2011/12 in the department
of Economic Management under the Planning
Commission
Strength and Weaknesses for
the Current Capital
Budgeting
Strength
Good collaboration between PC and MoF
Good domestic revenue projection
Weaknesses
It is not included in the MTEF budget
No breakdown of capital spending in the Budget book
No good coordination between related projects. Eg road
construction and drainage programs
High dependency on donor funds in capital budget -
about 60%
Plan for Action
Immediate Solutions
Finalization and enforcement of Public Investment
Manual and PPP policy and guidelines
Emphasis to mobilize domestic resource improving
strategies for revenue collection
Strengthening coordination between related projects
Improvement of scal rule to strengthening budget
discipline
Adoption of PBB
Capacity buildings to all levels

THANKS ( ASANTE )
Session 5.1: Summary and Recommendations
to enhance Public Investment Management

Entebbe, Uganda
Friday September 5, 2014
Summary and Recommendations (I)
Ensure PIP or Capital spending translate into productive assets
Productive assets should have as large an impact on value added as possible
All spending should be useful whether current or capital the distinction b/n
the two is useful at times but could be counterproductive at other times
MTFF/MTBF are critical instruments to constrain capital spending and
provides an anchor to otherwise overambitious planning documents
Institutional set-up for PIM is important one agency might be better than
two or more (if two, ensure strong coordination)
Prepare current and capital budgets together

Summary and Recommendations (II)
Use a log frame to help nd solutions to policy issues
Integrate Public Investment Management Systems with other sub-systems
such as Technical Economic Analysis; Medium Term Fiscal and Budget
Framework; Monitoring of Annual Budget Execution and Ex-Post
Evaluation
Make PPP an integral part of PIMS identify risks and disclose and report
contingent liabilities
Establish clear and transparent criteria to support independent reviews and/or
appraisal of new and on-going projects
Consider the establishment of an independent, high-level entity to vet and
approve projects (on the basis of the above) and establish a database of
good to go projects (in the form of a Public Investment Sector Investment
Plan or PSIP)

Summary and Recommendations (III)
Consider using a PIM Diagnostic system to identify weaknesses at each stage
of the project cycle
Avoid moving to the next step in case of weaknesses at the previous one -
weak or failing projects must be stopped at any point of the cycle
Apply rigorous appraisal criteria based on quantitative and qualitative
information to weed out bad projects use sophisticated analytical methods
only for large and expensive projects
Carry out project monitoring and evaluation but ensure adequate prior
implementation and performance planning
Promote capacity building in Project Appraisal through university teaching
or otherwise

Summary and Recommendations (IV)
Separate the project cycle from the budget cycle to allow adequate time for
project preparation

Important Take-Aways from Workshop
Pay attention to all 8 stages of PIM chain is only as strong as the weakest link all 8 stages are
must-have functions and include PPP projects

Institutional design is key focus on functionality adapt to local needs
Independent review essential to avoid optimism bias/misrepresentation
Gatekeeping in selection is critical to limit number of political projects
Implementationdont start projects that are not ready
Harmonize regional PIM practices and learn from each other

1
Gu
id
an
ce
2
Ap
pr
ais
al
3
Indep
ende
nt
Revie
w
4
Se
lec
tio
n
7
Op
er
ati
on

Adjustment
6 5
Im
ple
me
nt
ati
on
8
Ev
al
ua
tio
n
Results Chain (log frame) in Agriculture

Crop On-farm
yield (kg/ha)
On-station
yield (kg/ha)
Yield gap
(%)
Banana 5,000 45,000 800
Cassava 3,300 35,000 961
Ground nuts 700 3,500 400
Maize 2,300 7,000 204
Salaries, Goods & services,
Interest, Depreciation or
Capital etc.. Inputs:
resources used in the
delivery of goods/services
Fertilizer distribution,
Research, Irrigation
Production of bananas. Outputs:
Services or goods provided by
MDAs to external stakeholders
(other MDAs; general public;
businesses etc.). E.g.: education
services; inspections; training.
Should focus on key outputs
Increase in productivity of bananas. Outcomes: changes the
government is trying to bring about through provision of
goods/services. Intended results of government actions
Annual increase in per
capita GDP. Also called
sometimes Impact or
Results
PROGRAMS
PROGRAMS

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AFRITAC East Regional Workshop

The Capital Budgeting Process

basic requirements for successful capital budgeting including appropriate institutional

pros and cons of alternative financing and implementation modalities

improving the linkages between strategic planning and capital budgeting.

Capital v/s Current spending

National Planning Strategy, MTFF

The appropriate institutional

PIMAC in South Korea

Major Projects Authority in UK

National Planning Commission in

Chiles National Public Investment

Strategic Planning v/s Economic

Chiles experience with Programs and

Questions, Answers, Discussions

Project identification and Appraisal

Review and Approval

Implementation and Evaluation

What is the Log Frame Approach

Programs and projects

Log frame and Government programs

A PIM assessment system

Typologies of PIM systems

World Bank recommendations

Country delegates will complete a

Externally funded Investment

Borrowing (Concessional & Non

Conceptual framework and different

Prerequisites for successful

Chiles 30 years experience of PPPs

Case studies of PPPs (successful & non

Risks identification and management

Lessons for participants

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