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AsiaInstituteofTechnology

International Professional Development Program


on
Hydropower Financing

Tanatat Puttasuwan, Ph.D.


March 12 & 13, 2015

OurBusiness

Financing Hydropower Projects

WBG
Pakistan Country Development Context

WBG
Project Initiation/Approval Flow
GOP

WB

MOF

Hydropower
Projects

WAPDA
ADB
DFID

IDA/ODA

JBIC

Discussion Topics
1. Project Cycle
2. Project Appraisal and Proposal
Development Objectives & Implementation

3. Financing Projects by International Agencies


World Bank Group (WBG)
Asian Development Bank (ADB)
Japan Bank for International Cooperation (JBIC)

4. Types and Sources of Project Risks


Financial & Operational Risks
Risk Management Techniques & Tools

5. Project Monitoring and Evaluation (M&E)

ProjectCycle

Operationalized
ProjectManagementCycle

Pakistan
Hydropower & Energy Projects
WB: Turbela Fourth Extension Hydropower Project
http://www.worldbank.org/project/P115893/turbela-fourth

WB: Dasu Hydropower Stage I Project


http://www.worldbank.org/projects/P121507?lang=en

ADB: Energy Sector Reform Project


http://www.dawn.com/news/1110634

Japan ODA Loan: Ghazi Barotha Hydropower Project (I & II)


Co-Financed by JIBC/JICA, WB, ADB, and others

The Essence of Project Document


Project Background & Rationale the need, the gap, the
problem intended to be fixed by the project

Project Development Objectives undertaking the project


will result in

Project Description project design, the activities, outputs,


outcomes, technical assistance activities, project components,
project budget/cost, project financing (sources of fund),
replication, lessons learned, beneficiaries

Implementation Project Implementation Unit (PIU),


Monitoring & Evaluation, sustainability

The Essence of Project Document


Key Risks and Risk Mitigation Measures Project
Start-Up Risks, Financial Risk, Operational Risks
Project Management economic analysis, technical
(engineering/processing/manufacturing/relocation),
procurement, governance (anti-corruption measures), financial
management, internal and external audit

Legal and Compliance social and environmental


compliance, governing laws

Country Assistance Strategy

Project Development Process takes time

Project Budget & Financial Forecast

Projectdurationmustbethoroughlyconsidered
Reasonableestimatesoninvestments
Reasonableestimatesonexpenses
Realisticfees,rates,andmanpoweruse
Realisticfinancialassumptions
Transparentprocurementsourcing
Clearoutputsanddeliverableseachperiod

Key Financial Ratios.


Profitability: Gross Profit/Revenues
Net Profit/Total Revenues

Operating Efficiency: Operating Expenses/Revenues


Debt to Equity: Total Debt/Equity
(Short-Term or Long Term Debt)

Return on Investment: Gross Profit/Investment


Net Profit/Investment

Key Financial Ratios.(contd)


Return on Assets: Net Profit/Total Assets
Net Profit/Current Assets

Return on Equity:

Net Profit/Total Equity

Composition Ratio: Cost of Goods Sold


Profit Per Share: Net Profit/#Shares
Employee Productivity: Net Profit/# F/T Emp

Elaboration on Risk Management

Risk is an inherent part of a business, and


effective risk management is critical to
achieving business and/or project objectives,
financial soundness, and profitability
Risk management has to be identified as one of
the core competencies of the business/project

Risk Management Philosophy (contd)

The goal is to understand, measure, reduce, and


monitor the various risks that arise
Identification & understanding sources of risk
and risk management techniques need to done
with all business stakeholders

Risks Faced by Businesses


Firm Wide Risk

Business Risk

Product Risk

Non Business Risk

Event Risk

Financial Risk

Macro Economic Risk


Legal Risk

Market Risk

Reputational Risk

Credit Risk

Disaster Risk

Liquidity Risk

Political / Regulatory Risk

Operational Risk

Technological Risk

Ever Presence Business Risks


What is Risk?
Risks = Uncertainties
Investment, Finance, Exchange Rates, Production, LifeCycle, HR and Management Capacity, Sales Shortfalls,
Collection, Competitors, New Entrants, Import/Export
Quotas, Supplies, Raw Materials, New Business/Project,
Accidents, Legal, Construction, Natural Resources,
Environment, Political, Government Policies

Principles of Risk Management


What is Risk Management?
A process of identification, assessment, and prioritization
and reduction of uncertainties

Identification: Qualitative & Quantitative


Assessment: Cause & Effect
Prioritization: - Top Risks
- Acceptable Risks
- Unavoidable Risks

Monitor: Methods to trail and monitor risk/impacts


Mitigation/Reduction: Accept & Mitigate, Transfer to 3rd
Party, Reduce, Shut Down

TakingStock

FinancialRisks
&
OperationalRisks

Products
and/or
Services

SWOT Analysis
Risk Framework & Exercise
Strengths

Opportunities

Weaknesses

Threats

Qualitative

Quantitative

Thompson P. 105, 108

2. Internal vs. External Risks


Internal
Products/Services
Finance/Investments
Operations: Elect. Supplies,

External
Market Regulations
WB Compliance
Alternative Energy

Production, Sales, Logistics/

Failure

Deliveries

Govt Regulations

Expenditures/Costs

Relationships

Technology/Know How

Economics Downturn

HR Capacities

Energy / Technology

ICT

Environmental Issues

Delays in operation

Political Events / War

Risk Management Matrix

ThankYou!!!