Project Feasibility Study

Project feasibility is a test where

prima facia viability of investment is
evaluated. Evaluation is based on
secondary but comprehensive data.
Rough estimates based on the
experience of others form the basis
of the viability check in the project
feasibility study.

 There are basically three types of

feasibilities evaluated :
Market feasibility
Technical feasibility
Financial feasibility

When projects are evaluated by

government or government agencies,
economic and social feasibilities are also
considered, in addition to the environment
assessment. Market feasibility is carried
out in detail at this stage. Technical
feasibility and financial feasibility are less
emphasized at this stage.

Market Feasibility
Approach for conducting market
feasibility study would vary
depending upon the type of the
proposed product. In case of a novel
product idea, market feasibility check
has to be based on absurd
judgement and wishful thinking. At
the most, indicators of buying
behavior can be taken into account
for estimating potential demand of

 It is divided into five points:

Study of general economic factors and
indicators
Demand estimate
Supply estimate
Identification of critical success factors
Estimating demand-supply gap

I. General economic factors

1. Situation analysis
Situation analysis is especially important if the
project proposal is for adding the capacity.it is
important where the proposal involves
production and sale of new products and
services; new for the company but not new for
the market.

2. Company
The assessment of the company can be done
with opinion-based evaluation of the following
factors:

Number of products
Market perception of the company
Companys strategic plans and goals
Companys culture and values
Companys current technology and technology gap
Overall financial position

3. Collaborators (or partners)

The partners of a company can have the
following information about it :

Companys major customers

Companys distributors
Companys major suppliers
Joint ventures, management agreements
and other alliances, if any

4. Customers
This is about the potential markets for the
product that will be produced as a part of the
project.

Size of the market along with segments

Expected rate of growth of the market
Current demand-supply gap
Potential customers expected behavior and
factors affecting their choices of product
At the customer end, who could be the decision
maker and what would be the decision unit
Where from do these customers currently
purchase the product?
How is the product purchased ?
Trends in consumer tastes
Companys distributors

II. Demand estimate

1. Different end-user profile
2. Influencing factors
3. Regional, national and export market
potential
4. Infrastructure facility
5. Demand forecasting

III. Supply estimate

IV. Estimating demand-supply gap

Technical feasibility
If there is an ample market demand without enough supply,
the focus should shift over to technology. The following
inquiries must be made with respect to technology analysis:
Availability of commercially exploitable technology and its
alternatives
Transferability of those technologies
Other inquiries about the technologies
o
o
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o
o
o
o
o
o

Normal capacity utilization

Requirement of plant and equipment and fabrication facility
Production process needed
Possible product mix
Possible alternate usage
Flexibility
Rate of change
Waste disposal
Risk implications
Resource availability

Infrastructure Projects

A successful society is characterized

by a rising living standard for its
population, increasing investment in
factories an basic infrastructure and
the generation of additional surplus
which is invested in generating new
discoveries in science and technology

-- Robert Trout

Contents
Characteristics of infrastructure
projects
Issues related to infrastructure projects

Land acquisition
Displacement of people
Size of capital needed
High leverage
High risk
Monopolistic position
Severe implications

 New approach for infrastructure

projects
Public-Private-Partnership (PPP)
General structure
Participants
Government
Sponsors
Financiers
Lead bank
Contractors
Project company, the SPV
Credit enhancers
Regulators
Others

Sources of finance
Domestic and international sources
Specialized agencies
Equity finance
Bank finance
Bond finance
Securitization
Viability gap funding

Lenders recourse
Non-recourse loan
Limited recourse loan
Full recourse loan

Formulation, appraisal and approval of PPP

projects in India

 Risk management for infrastructure

projects
Managing project risk
Construction risk
Revenue risk

Management of financing risk

Consortium/syndicated loan
Roll-over loan
Talk-out finance
Escrow account
Irrevocable letter of credit
Guarantees
SPV (Special Purpose Vehicle)

 Mix of government support and

regulation
Special provisions
Types of support
Types of regulations

Definition of Infrastructure Project

Infrastructure is the basic physical and
organizational structures needed for the
operation of the society or enterprise as
per the Online Compact Oxford English
Dictionary

 Characteristics of infrastructure
projects
Long gestation period
Need for a large network in most
infrastructure projects
Highly capital intensive projects
No existing demand for the services of
such projects
Uncertain results as a result of absence
of demand in current time
Returns come over a long life
Funds requirements are for long period

Infrastructure- deficit and eleventh plan physical targets

Sector

Deficit

Eleventh plan target

Roads/
highways

65,590 km of NH comprise only 2%

of network; carry 40% of traffic;
12% four-laned; 50% two-laned
and; 38% single-laned

6-lane 6500 km in GQ; 4-lane

6736 km NS-EW; 4-lane 20,000
km; two-lane 20,000 km; 1000
km Expressway

Ports

Inadequate berth and rail/road

connectivity

New capacity; 485 m MT in

major ports; 345 m MT in minor
ports

Airports

Inadequate runways, aircraft

handling capacity, parking space
and terminal buildings

Modernize 4 metro and 35 nonmetro airports; 3 greenfield in

NER; 7 other greenfield airports

Railways

Old technology; saturated routes;

slow speeds;

8132 km new rail; 7148 km

gauge conversion; modernize
22 stations; dedicated freight
corridors

Power

13.8% peaking deficit; 9.6% energy

shortage; 40% transmission and
distribution losses; absence of
competition

Add 78,577 MW; access to all

rural households

Irrigation

1123 BCM utilizable water

resources; yet near crisis in per
capita availability and shortage;
only 43% of net sown area irrigated

Develop 16mha major and

minor works; 10.25 mha CAD;
2.18 mha flood control

Telecom / IT

Only 18% of market accessed;

Reach 600 m subscrioers- 200

Major Infrastructure Sector Reforms in India

Roads

Model concession agreement for toll highways has been published

The National Highway Act,1956 has been amended to attract pvt
investment in road development, maintenance and operation

Ports

A comprehensive national maritime policy is being formulated to

establish the vision and strategy for the sector until FY2024
Pvt-sector participation including FDI in ports is being encouraged
Establishment of tariff authority for major ports to regulate port
tariffs

Airports

Urban infrastructure

Railways

Power

Major ports are being built or upgraded through PPPs

The process of building 35 smaller city airports using PPPs has
been initiated
100% equity ownership by NRI is permitted in airports
The Airports Authority of India Act has been amended to provide a
legal framework for airport privatization
A new civil aviation policy allowing FDI of up to 74% in domestic
carriers
A model municipal law has been developed to help states and
urban local bodies enact reform legislation and to facilitate the
development and disposal of excess land
The Urban Land Act, 1976 has been repealed
Innovative pricing structures are being adopted for attracting new
customers
PPP-type initiatives are being considered for increasing capacity
through the proposed dedicated freight corridors
The Electricity Act,2003 and the National Electricity Policy,2005
has been designed to facilitate competition, reduce technical and

New Approach for

Infrastructure Projects
Public-Private-Partnership (PPP)
The PPP arrangement is quite complex, in
which government and private parties
come together to serve their own
interests, creatively make arrangements
for risk mitigation and efficiently build and
operate the infrastructure project, while
sharing their strengths during various
phases of the project construction and
operation. The central theme or concern
behind such arrangements is risk
management and protection of
environmental, social and economic

General structure
BOOT (Build Own Operate and Transfer)
This is the same arrangement as BOT. In India and many
other countries, it is called BOT, but in Canada, Australia
and New Zealand it is called BOOT
BOO (Build Own and Operate)
This is a build-own-operate arrangement in which the
project is not transferred to the government at any stage.
The Bangalore International Airport Limited (BIAL) is the
example of BOO arrangement in which the Karnataka
State Government will lend Rs.350crore as interest free
loan for ten years out of the total project cost of
Rs.1400crore. This is a 74% private and 26% public
partnership project. The BIAL and the Karnataka State
Government have executed the concession agreement
state support agreement and land lease agreement.

 BORN (Build Operate and Renewal of

Concession)
This is the same as BOT, but with a provision of
renewal of concession period. If at the end of a fixed
concession period, the sponsor has not been able to
earn the targeted returns., then there is a provision
to review and extend the period of concession to let
the sponsor meet the target returns
BLT or BLT (Build Lease or Rent and Transfer)
The sponsor builds the project facility and
immediately leases it to someone to operate for the
period of concession. Upon the completion of the
concession period, the lease expires and the facility
is transferred to the granter of the concession

 BOLT (Build Operate Lease and Transfer)

In this arrangement, the sponsor builds the facilities
and operates for sometime before leasing it for the
rest of the concession period. After the concession
period, the facility is transferred to the government
BT (Build and Transfer immediately)
As the term indicates, the sponsor will transfer the
facility immediately after building it. This
arrangement is essentially for attaining the project
construction efficiency in government projects
BTO (Build Transfer and Operate)
In a build-transfer-operate arrangement, the sponsor
will build the project facility and immediately transfer
the ownership to the government, but will continue
to operate it on behalf of the government for a fee

 DBFO (Design Building Finance and Operate)

When the sponsor does not own the project facilities
at any point in time, but perform all other tasks
associated with the designing, constructing,
financing and operating of the facility, it is called a
DBFO arrangement. The role of sponsors is limited
to bringing equity capital and efficiently building the
project
DCMF (Design Construct Manage and Finance)
This is the same as DBFO
MOT (Modernize Own/Operate and Transfer)
An infrastructure facility that exists but has become
obsolete is acquired by a sponsor to modernize it
and then own and operate it before it is transferred
to the government

 ROO (Rehabilitate Own and Operate)

Some infrastructure facilities do not become
obsolete but get run-down due to poor
maintenance. A sponsor would rehabilitate such
a facility and then own and operate it.
ROT (Rehabilitate Own and Transfer)
Here a run-down infrastructure is rehabilitated
and owned for some time before it is transferred
back to the government.