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PART II. (Continued)

Illustrations of Phase III: Project Design (Steps 7–11)

Project 1 - A Commercial Fish Hatchery Project in a Mediterranean Country

Following preparation of the prefeasibility study report, which recommended a smaller production figure than originally desired and a nursery located at the lower level of the site, the team leader had returned to the country and presented the report to the investor.

After reviewing the report the investor accepted the recommendation to construct the nursery nearer sea level, but wanted the original production target to be maintained. Without need of further studies, he confirmed the design criteria (Step 8c) in his discussions with a local architect engineering design firm who then offered their proposal (Step 8d) to undertake the work (Step 9) in two stages, preliminary design and final design. On signing the two-part contract for time and materials, he gave the firm the prefeasibility report and bioprogramming document.

After three months the firm presented the preliminary design and revised costs which it estimated were now within about 15% of accuracy. The firm pointed out that the project would now carry increased costs due to the higher costs for blasting a larger area of the foreshore than was originally conceived for both the nursery and the pumping station. Furthermore, the costs of the hatchery would be increased because of the need for materials which would withstand corrosion from seawater, and the pumphouse on the shoreline needed substantial protection from wave exposure.

The cost of implementing the project was now becoming larger than the project sponsor had anticipated. Although it would delay the project by probably a year, he decided to seek an investment subsidy from the EEC which, for a hatchery, could be as high as 70% of construction costs. The architect and engineer firm was requested to complete the final design drawings, and the original consultants were rehired through another lumpsum contract to prepare two feasibility reports. These were for attachment to the proposals for financial assistance, first from the government of the country, as a necessary preliminary stage, before presenting the second to the EEC, as part of a national package of structural projects for aquaculture.

Final design documents were then used to solicit construction bids from three local contractors, which narrowed the accuracy of costs to 5%. Using this figure, the consultants prepared the feasibility reports which included the organization and management plan for the project (Step 10) and the financing plan (Step 11).

Project 2 - A Brackishwater Shrimp Farming Project in a Southeast Asian Country (Steps 7–11)

A project identification team had carried out the preliminary formulation and design (Steps 3–6), investigating the ranking potential sites where traditional fish ponds might be used for shrimp farming through rehabilitation of canals and deepening of ponds.

As part of its interim report, the team had recommended that a national institution should carry out a detailed topographic, soil and water quality survey prior to further engineering design work being undertaken in project preparation. It was decided by DOF that too much time would be lost seeking external assistance for this work but that it should be carried out immediately using national funds (Step 7). The surveys were completed in six months and a land suitability map produced for each of the proposed project areas as part of the report.

In the meanwhile, the interim report was approved by the donor and DOF, and funding for the preparation stage released. The project preparation team was mobilized immediately after the land and water survey had been completed. It consisted of the following disciplines: team leader, economist/financial analyst, shrimp-farming expert, civil engineer, mechanical engineer, institutaions expert, and a credit expert.

The team started its work with the project objectives unchanged (Step 8a). Forming part of this Step but with the work being carried out by the economist in the field and when the report was being prepared, information was collected on farmgate prices for shrimp and milkfish, and an analysis was made of international market trends. The surveys carried out in Step 7 had provided the team with the basic resource information which, combined with other information available on such matters as location and capacities of processing plants, access roads, etc., allowed it to demarcate accurately the project zones in each of the two main regions. It was then a simple matter to select the producer agents who, it was hoped, would participate in the project. The zone demarcation and agent selection in this case confirmed the preliminary work and, similarly, the system and technology remained as previously identified (Steps 3c, 4c).

The team now had the information to have defined project zones the each of the to region assuming in all 40 000 ha and containing 15 000 ha of ponds for about 4 000 farmers. The primary, secondary and tertiary canals associated with these zones were included in the dermarcation (Step 8b).

The topographic soil-and water-quailty surveys enabled the team engineer to estimate fairly closely the amount of work required on the ponds in each of the project zones (Step 9a). In this project, the work required on the production support components (particularly canal rehabilitation but also hatchery and the research centre construction), formed the major part of the project. With the project zones now demarcated and with the information from the survey, the engineers produced outline designs for the canal rehabilitation work, pumps, gates, etc., and working with the shrimp-farming expert they produced outline designs for the hatcheries and research centre. Concomittantly, they made satisfactory estimates of costs, using earthmoving costs provided by the Department of Hydraulics (DOH), building construction costs provided by DOF, and equipment costs obtained from suppliers (Step 11a).

Credit was also seen as an important support component of the project. A credit programme was therefore designed by the credit expert, based on information about the number of farmers and the experience of the agricultural development bank of providing credit to farmers in the agricultural sector in the project areas. The credit expert spent much of the duration of the mission on the design of a scheme acceptable to all the institutions involved (Step 9b), prior to costing it (Step 11a). At this stage, therefore, the assumption made during project identification (Step 4b) that credit was required, was translated into a project component.

With the amount of detailed information available, project scheduling (Step 9d) was considered not to present undue difficulties and the team leader, in consultation with the other team members, produced a simple bar chart (Step 9d).

The organizational choices were regarded as being relatively straight-forward, as it was considered there was no reason why the project should not use the existing organizational structure whereby DOH would be responsible for canal rehabilitation, DOF would be responsible for the construction and operation of the research centre and hatcheries, and for farm activities including extension, and the Agricultural Credit Bank would be responsible for the disbursement of loans to farmers and their recovery (Step 10a). A small PMO was proposed through which all activities would be coordinated and project funds disbursed (Step 10b). Technical Assistance was included within the project for the operation of the hatcheries and research centre, mainly in the form of fellowships. No provision was made for monitoring and evaluation (Step 10c).

Using the individual component costs provided by the engineers and the institutions expert, the economist produced the required costs analyses (Steps 11a, 11b) and, with the price information (Step 7), estimated the revenues of the main agents, that is farms grouped by size in each project zone, the Agricultural Credit Bank, and the Government (in the form of tax receipts) (Step 11c). In earlier discussions between the external assistance agency and the Government, it had been agreed that although the agency did not normally finance expenditures in national currency, it would do for this project since almost all the expenditure was in national currency. A preliminary financing plan was then prepared. This showed not only the financing requirement of the project as a whole but also the income/ expenditure positions of each type of farmer and of the agricultural credit bank (Step 11d). These were satisfactory.

This part of the project formulation process, excluding the topographical, soil and water survey, took four months to complete.

Project 3 - A Shellfish Farming Enhancement Project in Southeast Asia

This public sector regional project concerned increasing the production and upgrading the quality control of farming mussels and oysters in the five Southeast Asian countries, with external assistance from the EEC.

As the whole process of project formulation had been fully budgeted from the beginning, the team embarked directly on the project design phase from the conclusion of the previous phase. This phase was scheduled to take 10 months. Its terms of reference clearly specified that the team's main task was to select critically from among the different options and variants upon them which had been identified, to produce the best possible project within a total budget not exceeding US$ 20 million, with a 5-year implementation period.

Steps 7 and 8 presented no particular difficulties. In the design of the individual components (Step 9), however, where actual choices had to be made to keep or discard more than half of the possible components identified previously, there were intense discussions within the team. Information on some of its preliminary choices leaked to Government representatives, leading to severe criticism from the representatives of two countries in the project steering committee.

The formulation team leader dismissed the team member who appeared to be the source of the leak. This action severely disrupted the work of the team and, after a few weeks, the team leader also left. An acting team leader was selected from within the team who directed the team to analyse each option. Two months later the new team leader prepared a series of component analysis sheets, clearly showing the advantages and disadvantages of each option. These were presented to the steering committee members.

The discussion on the basis of the sheets brought a clear consensus. All production components were discarded, and only a training and extension production support component (Step 9b) retained. It was decided that the project should concentrate on the introduction into the area of a sanitary control network (both at the levels of production and of the harvesting/ marketing process), the transfer of depuration plant technology, and the setting up of an export marketing organization.

From this point the team had no further difficulty in implementing Steps 10 and 11, and keeping the project within the budgetary limits established.

Project design was finally completed 11 months after it started, a remarkable result given the the problems which had arisen.

Discussion Topics

Points for discussion concerning the above illustrations might include the following:

PHASE IV: Analysis of Expected Results

Purpose and Outputs

By the time this phase has been reached, the project has been designed and costed in detail. It is necessary now to make a detailed assessment of the effects and impact of the project once it is implemented. The purpose of Phase IV is to confirm that the tentative conclusions made in the outline specification of a possible project (Step 6) remain valid now that the project has been designed in greater detail.

The approach to the analysis of the results differs considerably between private sector projects and those in the public sector. In the former, analysis is usually confined to the financial analysis and, increasingly, the environmental analysis. The analysis of results in the public sector is usually wider ranging, and the measure of profitability is rarely expressed in the same terms as in the private sector but rather as IRR, net present value, and the benefit/cost ratio.

In the treatment of this phase, attention is directed primarily to the requirements on the project planner of project formulation in the public sector. In Step 12d, however, a brief outline is given of the approach to be adopted where the private sector is concerned.

Two main outputs which should result from this phase are:

  1. A series of assessments with regard to the project's likely impact in terms of:

    1. the income position of the main agents involved and the profitability of their operations;

    2. the efficiency with which the project uses resources which could be used elsewhere in the economy;

    3. the resulting social changes; and

    4. the environmental impact.

  2. Conclusions regarding the extent to which, and manner in which, the project's objectives and rationale conform to the priorities and principles of overall national development policy.

The work in Phase IV has four steps; a financial analysis (Step 12), an economic analysis (Step 13), a social analysis (Step 14), and an environmental impact assessment (Step 15). The activities of these steps are illustrated in Figure 9, and described in detail in the following text.

Step 12 - Financial Analysis

Financial analysis treats the project as a business proposition and assesses whether or not it adds to the net worth of the business or, when a number of different types of agents are involved, how profitable participation in the project is likely to be for each main category of agent. To make this assessment, the team values the costs and benefits of participation by the agents (for example, farmers, processors, credit institutions, government departments, etc.).

Figure 9

Figure 9 Phase IV. Analysis of expected results

Also, in addition to documenting the expected impact of the project on the liquidity, credit-worthiness, financial efficiency, and earnings, etc., of the various agents involved, the team should, as much as possible, use Step 12 to feed back the results of financial analysis into the selection of design criteria. (It is for this reason that the feasibility study of commercial projects in the private sector is often considered to be a task integrated into project design (Phase III), not one which is separate to and following upon that phase).

There are two main approaches in financial analysis, namely (i) cash flow and benefit/cost analysis, and (ii) income and expenditure analysis; the former is the more important analytical tool for project formulation.

Cash flow analysis traces movements of money in and out of the entity concerned (farm, hatchery, company, bank, etc.) when cash receipts and payments actually occur (in practice usually on an annual basis). Two stages are considered in the analysis, namely before financing and after financing. In the former, all credit transactions are excluded from the inflows and outflows. Its purpose is to estimate when and how much money the agents concerned will need to be able to invest as planned (perhaps in the case of farmers), or meet financial targets (perhaps in the case of financing institutions). In after financing analysis, all credit receipts (loans) and payments (debt service) are included. The purpose of cash flow analysis after financing is to determine whether the agents who have to borrow to finance investment will receive sufficient cash income to repay their loans, and retain a part of their increased earnings.

The benefit/cost analysis is similar to the cash flow analysis except that, in addition, it takes account of non-cash receipts and payments (products grown for direct consumption by the household, loans repaid in kind, etc.).

Income and expenditure analysis values inputs and outputs not as they are bought and sold but when they are physically consumed or produced. This takes into account any changes in assets between the beginning and the end of the accounting period. This type of analysis is an essential tool in assessing the viability of project proposals from an individual agent's perspective but does not convey a complete picture of the agent's economic situation; for example, a full assessment of the “income” position of (say) a farm should take into account the changes in assets between the beginning and end of the accounting period.

As noted below (Step 12d), complete financial analysis of enterprises often requires financial data to be presented in a number of different ways, including the balance sheet and sources and applications of funds statement. In general most analyses do not go into any detail in this area and what will almost certainly be required for most types of agents in most projects is cash flow and benefit/cost analysis.

The analyses referred to above are always made to show the expected impact of the project by comparing the “with-” and “without-project” situations, that is, and incremental analysis. It is computed as follows:

incremental)- equalsnet cash flow) - lessnet cash flow
net cash flow)with project)without project


Alternatively, the same result can be obtained by computing:

incremental)- equalsincremental ) - lessincremental
net cash flow)cash inflows)cash outflows

The types of analysis referred to above are made under assumptions of certainty. In practice, of course, farm operations and indeed all commercial operations carry risks. To deal with risk, analysts usually use “sensitivity analysis”. This means simply trying out plausible alternative values for the key variables in the appraisal and seeing what the effect is on the project as a whole. In aquaculture projects, variations in variables, such as the cost of feed, growth rates, survival, prices of product, etc., can be very substantial, so the analyst should take expert advice in selecting variations which are realistic. For example, the team might decide that the maximum the price of feed might increase over that price used in the analysis is 20%, that product prices might be 15% lower than used in the analysis and that survival rates might be 10% lower. These changes would be then used in the analysis to determine the worst possible scenario which is foreseen.

A spin-off from sensitivity analysis is “switching values”. Each variable in the financial model can be altered at will by the analyst. The switching value is the value any variable (as above) would have to reach as a result of a change in any unfavourable direction before the project no longer meets the minimum level of acceptability, as indicated by one of the measures of project worth. For example, if the minimum internal rate of return is determined to be 12%, switching analysis allows the analyst to determine how high the price of feed can rise, or how low prices can fall before the rate of return falls below 12%. The particular value of switching value analysis is that it conveys the relative importance of different variables in terms of the sensitivity of project performance to them.

Step 12a - Analysis at the farm level

In aquaculture production projects the basic economic unit is usually the farm. For the financial analysis the inputs and outputs of the farm are expressed in the farm model. Although models reflect the actual situation as closely as possible, they necessarily have to simplify it. In a project, farms may be of different sizes, using different sizes of ponds, and sometimes there may be different technologies being employed. The project analyst will construct a farm model for each type of farming activity. The basic “building blocks” of farm models are activity budgets in which the inputs and outputs are expressed in unit cost terms. For example, production may be expressed in terms of revenue per hectare (or reference pond, cage, or enclosure) multiplied by the surface area or number of reference units in the model; the unit of seed may be 1000 pieces (or individual fry), and the total cost of seed will be the number of units multiplied by the cost per unit.

This picture of total inflows and outflows represents the farm budget before financing. It may need to be completed by showing any grants, subsidies, taxes, or levies involved. The analyst then adjusts the budget by including any loan to the farmer, and debt service he may incur; this gives the farm budget after financing.

When constructing farm budgets it is important for the team analyst to use prices paid by or to the farm household. These are obtained from field observation, or from parallel or illegal markets, which are used to confirm any official prices. Other points which the analyst should bear in mind are (i) the need to exclude household labour from the calculation, (ii) similarly, the need to exclude the cost of land from the calculation if the household owns it, and (iii) the need to include household consumption of farm production at market prices.

In making models and budgets it is advisable to avoid trying to be over-realistic, so making the model time consuming and complex. It is better to concentrate on capturing the key changes expected between the present, the implementation, and the fully operational stages of the project.

A farm budget should include:

The difference between inflows (positive) and outflows (negative) is the household net benefit from farming, first calculated before financing, and later after financing.

In some cases some members of a farm household work partly or fully outside the farm. It is then necessary to calculate if implementation of the project has an effect on any involvements outside the household budget, including revenues of that activity.

Farm and household budgets are compared “with-” and “without-project” to calculate the incremental farm/household net benefit resulting from the project. This will reveal the attractiveness of the project to the farmers in financial terms.

Table 6 shows the calculation of net incremental benefit in a project in China to a farmer using fish-cum-pig culture. In this example a farming household is working on a contract basis. Here, the institution placing the contract bears the financing charges and consequently they do not have to be carried in the farm budget. In this example, the team has assumed that the price of fish falls from Y.8.0 to Y.3.5/kg, but the return on family labour increases from Y.4 per working day to Y.39 before falling back when pig production declines.

Some caution is due here. Where a farming activity is concerned with one particular activity, for example, fish-cum-pig culture, the adoption of a simple farm budget (an incremental activity budget) which applies only to one hectare of the particular crop is suitable and convenient. In those farming activities where fish culture is one of many farm activities, it is preferable to develop a full farm budget, as in agricultural project analysis, which shows the combination of all farm activities. The failure to do so could result in harmful changes in resource allocation.

Table 6
Net incremental income per 1-ha modified pond with pig (contract household) in China (¥ RMB)
 123456
REVENUES      
fish production(kg)300045005625675067506750
pig production(kg)142528502850285032501425
fish revenue114001710021375256502565025650
pig revenue5700114001140011400118005700
less without project fish revenue655565556555655565556555
total inc income105452194526220304953089524795
COSTS      
fingerlings2250-----
fry225322386386386386
tools-----80
feed21011902446393839383938
maintenance and others240240240240240240
fertilizer207235263290290290
disease prevention213213213213213213
technical service fee171257321385385385
interest for fish working capital (9.9%)374-----
marketing114171214257257257
tax5708551069128312831283
less without project production costs323232323232323232323232
total prod cost13422511919375937593839
production cost for pig6384100541005410054100546384
interest for pig working capital (9.9%)585-----
total incremental gross incomes22341164114248166831708314573
contract fee(20%)100033303330333033303330
net incremental incomes after contract fee1234831110918133531375311243
labour requirement (md)340340340340340340
return to family labour (y/md)42432393928

Naturally, production projects involve farmers putting in additional resources, of seed, fertilizer, labour, and often capital. Very often also farmers have to learn a new technology or apply a higher level of management expertise.

The non-financial factors which have to be taken into account by the team in their estimation of the rate of adoption of the project being introduced will have been incorporated if necessary into the social and technical investigations at the beginning of project preparation. At this point the team is concerned with the attractiveness of the financial inducements.

The team, therefore, has to make a judgement about whether the additional income which is generated for farmers by the project is sufficient to induce them to work harder to pay for the additional inputs which are required. Where the farmer has to make an investment, for a new pond or pump, his main concern will be whether the income generated will, in addition to enabling him to repay his loan and interest obligations, also pay for the additional inputs and generate a sufficient surplus to make worthwhile the investment risk.

Table 7 shows a financial analysis of a project in China for new fish ponds. In this case the ponds were to be constructed in an area previously unused and so no incremental analysis was necessary.

Among the means of measuring the value of investments are the benefit/cost ratio, the net present value, and the internal rate of return (IRR). These measures are dependent upon the discounting of the net cash flow. In the example in the Table, the IRR is 12%; no benefit/cost ratio or net present value is quoted.

Step 12b - Analysis at the level of credit institutions

The project-related cash flow of the credit institutions depends on the lending conditions proposed to the borrowers, as well as on the borrowing conditions borne by the institution itself for the resource it has mobilized or that it has been charged with managing.

The formulation team prepares year by year tables for each institution concerned, showing:

The difference between inflows and outflows results in a yearly cash balance.

Table 7
Financial analysis of a project in China for new shrimp ponds (¥ RMB million)
Years12345678–1920
Production Area (ha)a-6671 3332 0002 0002 0002 0002 0002 000
Shrimp production (ton)b-6001 3342 2012 6012 8673 0003 0003 000
Gross revenuec-9.020.0133.0239.0243.0145.0045.0045.00
Costs         
Investment costs24.5039.5027.20      
Operating costs         
Seedlingd-1.002.003.003.003.003.003.003.00
Feed - processede-2.755.508.258.258.258.258.258.25
- freshf-1.082.163.243.243.243.243.243.24
Fertilizerg-0.020.030.050.050.050.050.050.05
Energy - electricityh-1.292.583.873.873.873.873.873.87
- oili-0.020.050.070.070.070.070.070.07
Labour-0.891.782.662.662.662.662.662.66
Other costsj-0.701.402.112.112.112.112.112.11
Working capitalk3.003.003.00-----(9.00)
Sub-total3.0010.7518.5023.2523.2523.2523.2523.2514.25
Overhead costsl-1.001.602.002.002.002.002.002.00
Total costs27.5051.2547.3025.2525.2525.2525.2525.2525.25
Taxes (5% of sales)-0.451.001.651.952.152.252.252.25
Net revenue(27.50)(42.70)(28.29)6.1211.8215.6117.5017.5026.50
Financial Rate of Return = 12%         

a Construction of 200 ponds (each of 3.33 ha) in each of years 1–3
b Yield assumption: year 1 – 0.9 t/ha; year 2 – 1.1 t/ha; year 3 – 1.3 t/ha; year 4 on - 1.5 t/ha
c Production valued (fresh, head on) at ¥ RMB 15 000/t
d 300 000 seedlings/ha, at ¥ RMB 5/1 000
e 3.75 t/ha at ¥ RMB 1 100/t
f 13.5 t/ha at ¥ RMB 120/t
g 30 kg/ha at ¥ RMB 800/t
h Total of 24 234 kw at ¥ RMB 160/kw
i Total of 90 t at ¥ RMB 800/t
j Maintenance, labour protection, compensation, etc.
k Represents short-term working capital to meet costs prior to harvest. Estimated on the basisof costs being spread over a 6-month operating period (May-October).
l Includes management charge paid to Breeding Company (2% of sales), insurance, other officeoverhead costs, etc.

In this projection it may be necessary to test the sensitivity of the institution's viability to varying proportions of loans having to be written-off.

Step 12c - Analysis at the level of the project entity

If a specific entity, such as a project authority or company, is to be set up, projected financial accounts are prepared. The purpose of this is to check that it will be able to meet all its expenses (capital and recurrent costs) and to anticipate the amount and timing of its financial needs. The cash flows considered are only those received in or paid out by the project entity acting as an agent.

Step 12d - Analysis at the level of other project participants

Other project participants may include fish and shellfish traders, transporters, processing factories, etc., either individual agents or firms, existing or new ones.

The financial analysis for these participating agents follows the general rules for the computation of incremental net benefit (or cash flow), with a display for every future year of:

The net benefit before financing is a measure of the “intrinsic” financial viability of the agent and can be expressed as a return on all resources engaged by the agent (equity plus loan(s)), while the net benefit after financing indicates the return on the agent's equity alone.

Enterprise accountancy is a specialized and complex field. The purpose of presenting expected financial results is to assist decision-making about investment and to justify any particular financial treatment proposed (for example, tax exemptions). In project formulation the financial analyst should concentrate on producing incremental net benefit calculations together with selected financial criteria. After this, attention can be given to preparing a more comprehensive set of financial data (balance sheet, income statement, sources and uses of funds statement, etc.) if required.

Step 12e - Analysis of effects on the government's budget

The budgetary effects of a project are computed in the form of a government cash flow account. For each year of the project life, items which have to be estimated are:

Inflows: - grant receipts from international aid agencies;

Outflows: - debt service payments (capital and interest):

The difference between inflows and outflows may show a deficit (negative cash-flow) or a surplus (positive cash-flow). A cost-recovery ratio is calculated on an incremental basis to measure the proportion of public outlays recovered from participating agents.

Differences in Public/Private Sector Procedures (Step 12)

As noted above the five tasks of Step 12 are all related to public sector projects (Models B, C, & D). In addition to the key task (Step 12d) for private sector projects (Model A), some private sector projects would include Step 12a; for example, where a company intends to produce aquaculture commodities through the formation of a “nucleus estate”, and where it will be necessary to estimate the impact on farmers of different sets of financial conditions.

Step 13 - Economic Analysis

Economic analysis during Phase IV of project formulation is an appraisal of the project in terms of its contribution to the general objectives of economic development policy for the country as a whole.

Common objectives of national economic development policies formulated by most governments, particularly in developing countries, are:

The fourth objective has already been analysed (Step 12e). The other three are addressed below (Steps 13a, 13b, and 13c).

Step 13a - Impact on economic growth

Economic analysis is concerned with flows of “real” resources. These are either inputs, the use of which by the project produces a shortfall in their availability to other projects, or outputs, which add to the community's material well-being or to its stock of wealth.

There are two basic approaches to economic analysis in project formulation, namely the “shadow pricing” (or “accounting pricing”) method and the “effects” method. The approach which is selected will depend mainly on the preference of the sponsoring and financing agencies.

The shadow pricing method has been considerably advocated by international development agencies. Its principle is to define the project costs and benefits in terms of their value to the society as a whole, by:

Table 8 shows the economic analysis of the same shrimp pond project in China for the which the financial analysis was given in Table 7. In the economic analysis shadow prices have been used which have had the result of slightly increasing the IRR over that calculated in the financial analysis.

In the economic analysis the net present value of the investment cost at 12% is computed to be Y. 8.23 million, that is, the sum which is calculated to accrue as a result of the investment over and above that which the same sum would have earned if invested at the opprortunity cost of capital of 12% (the computed average rate of return on new investment elsewhere in the country).

The calculation of shadow prices is a specialized task, and a detailed description of the methods used would not be appropriate here. It is worth noting, however, that because this calculation is a complex task much time may be wasted calculating shadow prices for factors or items which are relatively insignificant to the analysis. It is better for the team to identify the critical values and concentrate on these. In aquaculture the most important shadow price is frequently that of labour. Very often, shadow prices for labour and other key variables, have already been computed by the national planning office.

Table 8
Economic analysis of a project in China for new shrimp ponds (¥ RMB million)
     Years    
 12345678–1920
Economic value of Production 1-8.1918.2130.0435.5039.1340.9540.9540.95
Economic Costs         
Investment Costs22.6036.2025.60------
Operating Costs         
Seedling 2-0.911.822.732.732.732.732.732.73
Feed - Processed 3-2.294.586.876.876.876.876.876.87
- Fresh 4-1.182.353.533.533.533.533.533.53
Fertilizer 5-0.020.040.060.060.060.060.060.06
Energy 6-1.162.323.473.473.473.473.473.47
Labour 7-0.511.011.521.521.521.521.521.52
Other Costs 8-0.761.532.292.292.292.292.292.29
Working Capital2.752.752.75-----(8.25)
Sub-Total2.759.5816.4020.4720.4720.4720.4720.4712.22
Overhead Costs 9-1.322.112.642.642.642.642.642.64
Total Costs25.3547.1044.1123.1123.1123.1123.1123.1114.86
Net Benefits(25.35)(38.91)(25.90)6.9312.3916.0217.8417.8426.09
Economic Rate of Return = 13.5%
NPV at 12% = V8.23 million

1 Production valued (fresh, headon) at Y13, 650/ton.
2 300,000 seedlings/ha, at Y4.55 per 1000.
3 3.75 t/ha, at Y916 per ton.
4 13.5 t/ha. at Y131 per ton.
5 30 kg/ha. at Y985 per ton.
6 Electricity conversion factor of 0.88.
7 Unskilled labour CF of 0.57.
8 Non traded goods CF of 1.0
9 Non traded services CF of 1.33.

The effects method has been developed in France and is used in several developing countries where French cooperation is most active. Economic growth is measured by increases in the national income, i.e. Gross Domestic Product (GDP), or Gross National Product (GNP). The value-added (VA) of an activity is the difference between the market price of the goods and services produced (P) and the cost of the intermediate consumption (IC) required to produce them.

Value-added measures the wealth created by the agent controlling the production process, and represents the value which the agent adds to the initial value of the inputs consumed in producing the new output. To calculate the value added by every participating agent, the cash-flow analysis tables are modified slightly into tables showing the yearly “operating accounts”. In these tables:

The aggregation of the value-added of all the agents directly or indirectly participating in the project represents the gross contribution of the project to:

Thus, incremental value-added measures the effects of the project on economic growth in terms of additions to GDP or GNP.

Whichever method is used, the bottom line of the formulation team's economist's calculations concerning the expected impact of the project on economic growth is an estimate of the economic surpluses or deficits created each year as a result of investment in the project, i.e. project incremental net income benefit (shadow price method terminology), or project incremental net value-added (effects method terminology).

This output is then tested by a sensitivity analysis for all those factors about which there may be some uncertainty.

Step 13b - Impact on foreign exchange balances

Assessment of the project's impact on foreign exchange balances follows general lines of any cash flow analysis. Inflows are gains in foreign currency (increased exports and/or decreased imports), and outflows are losses in foreign currency (increased imports and/or decreased exports).

Prices used in the calculations are actual prices registered at the national border, usually CIF prices for imports and FOB prices for exports. The net foreign exchange flow is the balance of inflows minus outflows. The net incremental foreign exchange flow represents the actual impact of the project by comparing the “with-” and “without-project” situations.

Step 13c - Impact on income distribution

As a general rule aquaculture projects are rarely sufficiently large to justify an analysis of income distribution. Where it does appear to be appropriate, it will be noted from the above that the value added is the sum of incomes accruing to agents, namely:

Thus, the breakdown of incremental income distribution should encompass, in net and incremental forms:

Differences in Public/Private Sector Procedures (Step 13)

As noted in the introduction to Phase IV, all the three tasks of Step 13 apply primarily to public sector projects (Models B, C, & D).

Step 14 - Social Analysis

In this step the formulation team attempts to assess changes in the lives of individuals and communities as a result of the project.

How the analysis will be made will depend on the kind of project and its circumstances. In public sector production projects (Model B) it is often convenient to consider three areas of change, namely production organization, population movements, and standard of living. The work for each requires a synthesis of the knowledge and experience of the team as a whole, although the sociologist will have the responsibility for this part of the report. Each of the possible areas of change is considered below as a separate activity.

Step 14a - Production organization

Three questions indicate the scope of this task:

Access to land or water exploitation rights is usually a sensitive issue. The formulation team must take care that the project not only conforms with existing rules and traditions, but also avoids any risk of appearing to be biased with regard to the “appropriation” of rights from others. For example, the adoption of a new technology by enterpreneurs may lead to the increased profitability of aquatic farming which may in turn lead to either the eviction of tenant farmers or the buying out by the entrepreneurs of small farmers who have not invested, or could not, in the new technology.

Access to other factors of production raises several issues of importance for the team to resolve. For example:

While the more dynamic farmers will quickly grasp the opportunities offered by a project, it is important that the formulation team considers measures to provide all farmers with opportunities to participate, without favouring a particular group.

Changes in the production system often result from projects. It is important that the team assesses the consequences of any such changes to existing relationships between farmers, and with other rural agents, such as terrestrial farmers or fishermen. For example, changes in the organization of production may produce social changes, such as division of labour in the family production unit, or the acceleration of a trend away from traditional extended families into nucleus estates.

Step 14b - Population movements and settlement patterns

Possible changes in settlement patterns should be identified by the formulation team. These may include restrictions on the movement of nomadic fishermen, villge concentrations, and urban migration, etc. Two kinds of changes may occur, namely:

Step 14c - Standard of living indicators

The composition of goods and services which satisfy “basic needs” of any community vary from one area to another. Specific project objectives to help satisfy these needs will therefore differ case by case. However, the following indicators are (in most cases) considered by the formulation team:

Differences in Public/Private Sector Procedures (Step 14)

As with Step 13, all three tasks of Step 14 apply mostly only to public sector projects (Models B, C, & D).

Step 15 - Environmental Impact

Rural and coastal aquaculture development projects invariably modify biological and physical processes which shape the natural environment. The interaction between project activities and the environment at times may be sufficiently complex or extensive to merit through analysis.

The environmental analysis aims at:

Many countries have developed procedures for providing both environmental impact assessments and/or impact statements. In the former, the investor is usually required to make a general statement of the effects of the project on the environment; in the latter the statement is much more rigorous and may require all facts about the project and a detailed estimate of its effects on the environment. These efforts will have been identified by the team in Step 3b, general evaluation of the project area/ sub-sector situation.

Step 15a - Alterations in natural features

For an aquaculture project, potential implications are analysed from two points of view:

So far as possible these effects should be quantified and incorporated within the economic analysis. It is not unusual for formulation teams to follow the approach outlined here with regard to effects on the project; less frequently teams incorporate into the economic analysis quantified estimates of the effect of the project (project externalities).

Step 15b - Conservative measures and management of renewable resources

The formulation team should investigate the likely impact of the project on any renewable resources which are used, such as trash fish for feeds or animal manures for fertilizers, which could be used in other activities, possible adverse effects on local biodiversity and genetic resources, introduction of parasites and/or diseases, etc. A “resource balance sheet” is then constructed which shows the expected impact of the project on such resources.

Differences in Public/Private Sector Procedures (Step 15)

All three tasks of Step 15 are necessary for all types of projects (Models A, D, C and D).

Illustrations of Phase IV: (Steps 12–15)

Project 1 - A Commercial Fish Hatchery Project in a Mediterranean Country

On learning that the estimated costs were higher than anticipated, the investor had decided to seek additional financing through an investment subsidy from the EEC. He had contracted a local architect/engineering design firm to prepare final design drawings and solicit construction bids, and then rehired the original technical consultants to prepare two feasibility reports, one for the national government and the other for submission to the EEC.

As appendixes to the feasibility reports, the investor requested the consultants to include a financial analysis of the project (Step 12a), and prepare cash flow tables and income expenditure tables. Finally, because of the increased area on the foreshore to be blasted, he requested the consultants to expand the environmental assesment (Step 15a).

The additional work in Phase IV by the consultants added a further six months to the project schedule.

Project 2 - A Brackishwater Shrimp Farming Project in a Southeast Asian Country

Financial analysis at the production agent level and for the agricultural credit bank had been carried out as part of Step 11. In Step 12, an incremental financial analysis was undertaken for each project area, and the project as a whole. The opportunity cost of capital had been determined by the national planning office to be 12%. With the exception of one project area, the FIRRs exceeded this level. When switching values at 12% were applied, the project was found to be most sensitive to adverse changes in the prices of feed and of product. However, the team did not consider it likely that the prices of these variables would change sufficiently to bring the FIRR below the opportunity cost of capital.

The EIRRs were found to be rather higher than the FIRRs, mainly because the shadow price of labour had been judged to be 50% higher than the financial price and transfer payments of farmers, notably levies for the use of water, were excluded (Step 13a). The impact on the foreign exchange earnings (Step 13b), was shown to be beneficial, as was the effect on incomes (Step 13c).

The social impact of the project (Step 14) was considered to be negligible. The environmental impact of the project (Step 15) was considered, with the social analysis, as an adjunct to the financial and economic analyses. This phasing, however, had adverse consequences so far as the time required for formulation was concerned. The possible scouring action of the water had been considered during design, and it had been concluded that it would have minimal adverse consequences. Similarly, screen forebays had been included at the design stage to disperse the physical effect of water intake. It became clear, however, when the environmental impact was being considered, that the disposal of spoil from the deepening and widening of canals and the deepening of ponds had been severely underestimated in the design stage. Much of the spoil would have to be dumped on the foreshore. This involved additional work on project design and further analysis to take into account the additional cost. The environmental effects of the dumping, however, were considered to be beneficial for future mangrove growth.

This phase was carried out within the same time frame as the previous phase. Thus no additional time was required.

Project 3 - A Shellfish Farming Enhancement Project in Southeast Asia

This regional project in the public sector was concerned with increasing the production and upgrading the quality control of farmed mussels and oysters in the five Southeast Asian countries, with external assistance from the EEC. During project design all the new production components were discarded, and the focus changed to training and extension in support of existing production, organization of a sanitary control network, and the setting up of a marketing organization.

Some difficulties and complexities arose in the analysis of expected results (Steps 12–15).

In the financial analysis it was found that the costs of establishing a network of water quality controls for the main production areas, and improving the sanitary quality of the production from a number of them, were high in relation to the financial benefits which could be expected, and so the FIRR was very small. In contrast, the economic (Step 13), social (Step 14) and environmental impact benefits (Step 15), were considered to be particularly high.

After discussions between the consultants and Steering Committee, the project was divided into a number of separate projects, some to be funded through grant assistance, including those which had the objective of improving water quality controls and sanitary quality, and the others through loans. Financial, economic, social and environmental analyses were carried out for each project.

The discussions and additional analysis, which were required, extended the schedule for this phase by five months, to ten months in all.

Discussion Topics

Points for discussion concerning the above illustrations might include the following:

PHASE V: Project Documentation and Submission

Purpose and Outputs

The purpose of the last phase of project preparation, Phase V, is to prepare the project report and submit it to the project sponsor.

After preparing and submitting the project report, formulation teams working on projects in the public sector will have generally completed their task. It is not usual for them to be involved in the subsequent administrative and financial negotiations relating to the project. In the private sector, however, the formulation team members, or their associates, may also be involved in the negotiation of the contract which is based on the project report, and subsequently manage and/or carry out project implementation.

The main outputs resulting from Phase V are:

The work of Phase V is contained within one step (16), the activities of which are summarized in Figure 10 and described in detail in the following text.

Figure 10

Figure 10 Phase V. Project documentation and submission

Step 16 - Preparation and Submission of the Project Report

Even the best field work and most careful and sophisticated analysis by the formulation team are all largely wasted if the findings cannot be properly conveyed to the project sponsor. Poor organization of material in a report is unfortunately often a major reason for the final breakdown in communication between the two. This first part of the Step is concerned with organizing the task of report writing and the production of the document. There are four main activities. They are:

Step 16a - The report structure

In most cases the team leader will be familiar with the requirements of the project sponsor regarding preferences for the structure of the report and how the sponsor's requirements fit this particular project. The sooner any project report format is known and communicated to the team members the better, as it is easier to have all provisional documents prepared in the proper format from the beginning rather than to reorganize them at this time. It will be recollected that at step 8d it was suggested that the team leader discussed with the team the structure and contents of the report, and provided them with examples of the type of work expected.

An excellent way for judging what should be the length of the different parts of the report, their scope, and the detail required, is to identify who is going to read all the report, or only certain parts of it. Typical sections and potential readers are:

The summary provides a self-contained pricture of the project and all its implications, understandable without further reference, and in no more than two or three pages.

The main report is written in a consistent style, with well-balanced sections. It is an executive summary of the project based on material presented in appendixes, carefully edited to present a concise description of the objectives, findings, conclusions, and recommendations of the study.

Each appendix is a self-contained analysis of a single major aspect of the proposed project.

Each working paper is essentially a file on basic data, assumptions, estimates, and calculations on which alternative designs for project components in the respective appendix are analysed and subsequently based.

The contents of the main report are organized in sections arranged in sequence, and for a production project usually include the following:

Project formulation is a lengthy undertaking. It is easy to underestimate the time involved producing the report, and all the additional elements of proofreading, correcting, printing, binding, and circulation. Thus the team leader needs to give careful attention to scheduling completion of all working papers and appendixes, as some appendixes are dependent on others, and most appendixes have to be completed before the drafting of the main report can begin.

Step 16b - The contents of the report

Writing a good report is a skilled job. The team leader should follow five recognized basic principles writing reports, namely keeping the report:

While the structure of the report for an institution-building project (Model D) will be similar to that of a production-oriented project in the private sector (Model A), the contents will differ substantially. In the description of report writing below, attention is directed towards production-oriented projects.

The appendixes of a project formulation report are the building blocks from which the main report is constructed. The order in which they are presented in the report follows the logical sequence of formulation itself.

Each appendix is written in the form of a small monograph on a particular aspect or component of the project concerned, with adequate introductory and concluding chapters. Each can contain specialized bibliographies and should be correctly cross-referenced to other appendixes.

In the main report the purpose of the introductory section is to provide the context and setting within which the investment proposals have been formulated.

The background section introduces the important features of current policy on aquacultural development, reviews recent trends in relevant sectors, and describes the organization and functions of the major institutions concerned.

The section on the project area or sub-sector prepares the ground for explaining the project design decisions taken during formulation.

The rationale for the project includes a concise description of all major features of the project, presents a summary cost estimate and financing plan, and explains recommended procurement, accounting, and auditing procedures.

The organization and management section explains how various institutions and agencies will participate in implementing the project, and operating it subsequently.

The markets and prices section, where appropriate, shows how the inputs and outputs of the project will be traded, and indicates what is expected to happen to critical prices and price structures in the future.

The section on financial and/or economic implications describes the results of the financial and economic analyses.

Other impacts and main project risks are presented in the project justification section. This is often the first part of the main report to be read by the major decision-makers. Hence it is important to concentrate on particular benefits of the project rather than list results which may be expected.

Finally, the last section should draw attention to any major outstanding issues which must be resolved before project implementation can proceed. Thus it also contains suggestions of the steps to be taken to hasten progress.

The summary does not attempt to condense all the information contained in the main report. Its purpose is to highlight key findings and conclusions arising from the formulation study, and it gives the essential options upon which the investment authorities base their decisions.

Normally the summary is not longer than two or three pages in length. It is a good approach for the author to put himself in the place of senior managers and administrators who have to deal with a stream of information and briefing papers.

Step 16c - Report submission and presentation

Project sponsors might require that the report prepared at the end of Phase V be first submitted first as a draft final report, sometimes accompanied by a verbal presentation. Adjustments may then have to be made by the team before the report is accepted as the definitive project document.

A covering letter from the team leader, or organization responsible for project formulation, is a useful addition to a project formulation report when it is submitted, particularly if the report is mailed. This letter reminds the project sponsor of the circumstances in which the formulation study was commissioned, who carried out the report, and when. Any important revisions to the original terms of reference are noted. The letter concludes by recommending whether the project should be implemented, or not.

If a verbal presentation is requested, the presentation is made by the team leader, possibly assisted by one or two key team members. This presentation must also be carefully prepared. It should be concise, but complete in relevant detail, and well illustrated by several (about 10–12) visual aids. These are prepared professionally in the form of slides or transparencies. It is important that the presentation is self-sustaining, as often few of those attending have had the time to read the report fully, or at all.

Differences in Public/Private Sector Procedures (Step 16)

The three tasks of this step are applicable to all projects (Models A, B, C, & D).

Illustrations of Phase V (Step 16)

Project 1 - A Commercial Fish Hatchery Project in a Mediterranean Country

The high costs of the project had compelled the investor to seek additional financing through an investment subsidy from the EEC and he had hired the consultant to produce two feasibility reports.

The technical consultants prepared relatively short but detailed reports in English at their home office, complete with several appendixes, which included the technical programme, the financial analysis of the operations and an environmental assessment. One was prepared in the format for submission to the national government for a subsidy for which the report, financial analysis and impact assessment were translated. The second report was prepared in the format for submission by the government in its national package of requests to the EEC for structural projects, seeking an investment subsidy of 70% of construction costs, and remained in English.

The senior partner of the consulting company returned to the country with the documents, and submitted them to the investor (Step 16).

Project 2 - A Brackishwater Shrimp Farming Project in a Southeast Asian Country

The report was drafted and presented, together with the technical appendixes, in the format described in the text above (Step 16b). Working papers which had been prepared during the report writing were retained by the consultants in a form in which they were comprehensive and convenient sources of reference to an appraisal team. At the conclusion of the drafting of the report, the team was disbanded.

Project 3 - A Shellfish Farming Enhancement Project in Southeast Asia

No specific instructions were given by the EEC to the team with regard to the creation of the document outline and writing the report (Step 16), except for the general instruction of preparing it to international aid agencies' standards. The project, by that time, had attracted the interest of the European Development Fund (EDF), the World Bank (WB), the Asian Development Bank (ADB), and the United Nations Develoment Programme (UNDP).

When the report was submitted (Step 16c), it was immediately accepted and the formulation team was disbanded.

Discussion Topics

Points for discussion concerning the above illustrations might include the following:

4. PROJECT APPRAISAL

The third and final stage of project formulation is project appraisal. It only has one Phase (VI), concerned with project negotiation.

PHASE VI: Project Negotiation

Purpose and Outputs

Although the work of the project formulation team may in some cases be finished with Phase V, the project itself will not yet have been accepted for implementation. The transition of the project from completion of formulation to implementation can be negotiated in a number of ways because of different practices between the public and private sectors, and also within the two.

Differences result from differing attention given to the four tasks of project negotiation, and in particular the second, project appraisal. In a number of donor agencies, project appraisal takes the form of a thorough technical review of the entire project as presented by the formulation team. In other agencies, however, and also in the private sector, project appraisal is rarely carried out, and the sponsor negotiates implementation of the project on the merit of the project as presented.

Project negotiation may or may not require the presence of members of the project formulation team. In the public sector it is generally the case that project negotiation including appraisal is undertaken by the principals concerned; for example, between the government of a developing country and a donor agency. In the private sector, the project sponsor may or may not seek further help from the formulation team to represent the sponsor and/or describe the merits of the project to a financial institution.

The purpose of Phase VI is to negotiate the contract for implementation.

The main outputs of this phase are:

Step 17 - Project Negotiation

As noted above, in the public sector the procedures and preferences of the project sponsors differ. Very often, however, the project report is used as a basis for discussion between the project sponsor and other parties which may be involved (preliminary negotiation). The same report or, alternatively, an “appraisal report” prepared by the project sponsor, is used for discussion and agreement by the project sponsor internally (internal negotiation). The final negotiation of the project between the project sponsor and the government and/or implementing agency then follows.

In the private sector, after the project is accepted by the project sponsor it is taken to the financial institution for approval; or, when companies are financing the investment directly from their own resources, the project report will usually be first approved by the technical division concerned before submission to a higher authority for approval.

Project negotiation is often a complex and time consuming process, requiring much patience, understanding, and professionalism. A complete description of all the issues which may arise in negotiation is outside the scope of this document. Negotiation is considered here as only one step (17), with four principal tasks. This is illustrated in Figure 11.

Step 17a - Preliminary negotiation

When the project formulation report of a public sector project is accepted by the project sponsor, it provides the basis for discussions between the sponsor and any other parties concerned, to agree the terms of their participation.

These discussions may result in the need for some changes in the project. Although, for example, the formulated project may be satisfactory (in the sense that it fits both the terms of reference and the requirements of the area/sub-sector), changes in the policy of the project sponsor or government concerned may have occurred during the formulation process which would make some adjustments necessary. In some cases these adjustments may be extensive.

In the private sector, where few projects involve third parties, this step is usually omitted.

Step 17b - Project appraisal

Some project sponsors use the project formulation document throughout negotiation. Most development banks, and some large corporations, however, use a different approach. After analysing the project formulation report and making a decision favourable in principle to project implementation, these institutions prepare internally a project appraisal report. This is

Figure 11

Figure 11 Phase VI. Project negotiation

then presented to the institution's Board of Directors or other decisionmaking committee, for final approval.

The aims of appraisal are to:

Project appraisal is normally a process of verification of the situation in the field and a scrutiny of the report documentation. While the form of appraisal will vary according to the type of project, for production-oriented projects it will normally include the following aspects:

The format and content of any appraisal report is specific to the agency, bank, or corporation concerned, and is their internal reference document. Thus its reflects their views, and not those of the project formulation team. It is on the basis of this report that the project is formally approved. It is also the reference document to which the implementation agreement is linked, and on the basis of which any subsequent evaluation is made.

Step 17c - Fulfillment of conditions by the government and/or implementing agency(ies)

This is usually a step only relevant to projects funded through external assistance. The decision of the board of the project sponsor is generally conditional. It is now time for those conditions to be met by the government and/or executing agency(ies). Such conditions involve:

Governments may be able to comply with these conditions very quickly, but in other cases a period of several months (or even longer) may elapse before this step is completed.

Step 17d - Project agreement

In the public sector, when all the conditions outlined in Step 17c have been met, the agreement can be finalized. It can take different forms, according to the national legislative requirements, and the regulations of the agencies concerned. In general, however, an agreement usually states:

The signature of the project implementation agreement marks the end of project negotiation (Phase VI), and therefore the end of project formulation as a whole. Project implementation can now begin.

In the private sector, agreement by the Board or financing institution will follow upon Step 17b.

Differences in Public/Private Sector Procedures (Step 17)

Negotiation is a part of every project (Models A, B, C, & D). However, the four individual tasks of negotiation are more typical of public sector projects (Models B, C, & D), particularly those which are relatively large and costly. Small private sector projects (Model A) require only two tasks (17a and 17d) to complete negotiation, while larger projects may require the three tasks (17a, 17b, and 17d).

Illustrations of Phase VI (Step 17)

Project 1 - A Commercial Fish Hatchery Project in a Mediterranean Country

The high cost of the project had compelled the investor to seek additional financing through an investment subsidy from the EEC. The investor had accepted the technical reports of the consultants which were required for the request of the financial assistance.

The investor, having already notified the national authorities of his intention to apply for the eec assistance, submitted both reports he had commissioned (see the illustration to Step 16), with a covering letter. The government department concerned, after some discussion with the investor, accepted them for appraisal (Step 17b). Three months later, the investor was notified that his project would receive a grant from the national government in the event of the EEC also providing financial assistance and that his project would be included within a number of aquculture projects to be submitted to the EEC.

The government submitted its proposal to the EEC two months later. It contained an overall appraisal of the seven projects which it was submitting, together with its appraisal of each project attached to that project. The EEC then made its own appraisal (Step 17b), based on the respective project document and the government's appraisal. Nine months later, the investor was notified by the government that his project had been accepted by the EEC with three others out of the seven which had been submitted; as the project included a hatchery, it was eligible for a grant amounting to 70% of the construction costs.

A number of forms were then completed by the investor (Step 17c), and two months later the first payment was made to the bank. Negotiations were finally completed on receipt of this payment.

The investor then signed a contract with the local architect/engineer firm which had designed the hatchery for construction supervision services. A local building contractor was selected for the work, and ground clearance commenced two months later.

The period of negotiation, until implementation began, had taken about 18 months.

Project 2 - A Brackishwater Shrimp Farming Project in a Southeast Asian Country

The project report had been accepted from the consultants by the financing institution concerned (Step 16c). No changes were considered necessary as a result of developments which might have taken place during project formulation (Step 17a), and the financing institution proceeded to mobilize a team to carry out the appraisal (Step 17b). The team consisted of a team leader and an economist/financial analyst (both staff members of the financing institution), a civil engineer and a shrimp-farming expert.

The appraisal team made a two-week visit to the country, having discussions with the government departments concerned and with the agricultural credit bank. It then visited a selected number of project areas before returning to the capital for further technical discussions and to resolve the two “Outstanding Issues” raised in its report by the formulation team.

In other respects, the appraisal team found the report of the formulation team to be acceptable and, on its basis, the appraisal report was written which, thereafter, was the reference document for the project.

The government was able to satisfy the loan conditions with little delay (Step 17c), and the Project Agreement was signed nine months after the completion of project formulation.

Project 3 - A Shellfish Farming Enhancement Project in Southeast Asia

The project report of the formulation team had been accepted and the team disbanded (Step 16). A number of donors had already expressed interest in the project.

The report was circulated among all those donors who had expressed an interest in it. In the meanwhile, a Middle East based donor agency requested a copy. It then expressed a wish to use the project to provide assistance from the Gulf States to the two Muslim countries in the region.

Project discussion (Step 17a), now revolved around two possible projects, one for Indonesia and Malaysia only, with financing from the new potential donor and technical assistance provided through a consultancy company, and the other, for the region as a whole, to be financed through a trust fund established by the European Development Fund (of EEC) and UNDP, together with a loan provided jointly by the European Development Bank (EDB) and the Asian Development Bank (AsDB) for the construction of the depuration plants.

Finally, after further complex negotiations at different levels, it was decided that three project documents should be prepared, each project having its individual emphasis to fulfill the conditions of the donor agencies and the respective national governments (Step 17c). One project was thus prepared, signed and implementation begun, 15 months after delivery of the original project document; another began eight months after than, and the third six months later.

The three projects were:

Discussion Topics

Points for discussion concerning the above illustrations might concern the following:

FURTHER READING

GENERAL

Baum, W.C. and S.M. Talbot, 1985. Investing in Development: Lessons of World Bank Experience, Oxford University Press, Oxford and New York

Baum, W.C., ZOPP (an introduction to the method), Deutsche Gesellschaft fur Technische Zusammenbeit (GTZ) GmbH, Frankfurt am Main

Baum, W.C., 1985. Preparing Agricultural Investment Projects, FAO Investment Centre Technical Paper No. 1, FAO, Rome

Baum, W.C., 1986. Guide for Training in the Formulation of Agricultural and Rural Investment Projects, FAO, Rome

PROJECT MANAGEMENT AND IMPLEMENTATION

Bainbridge, J. and S. Sapire, 1974. Health Project Management: A Manual of Procedures for Formulating and Implementing Health Projects, World Health Organization, Geneva

Bainbridge, J., Agricultural Project Implementation, US Department of Agriculture and US Agency for International Development.

PROJECT PLANNING

Mulvaney, J., 1978. Analysis Bar Charting: A Simplified Critical Path Analysis Technique, EDI, The World Bank, Washington, D.C.

RAPID RURAL APPRAISAL

Gow, D., Rapid Rural Appraisal: Social Science as Investigative Journalism. In Finsterbusch, Kurt, Jay Ingersoll and Lyn Llewellyn, eds., Fitting Projects: Methods for Social Analysis for Projects in Developing Countries, Lynne Rienner Publishers, Boulder, Colorado

Kumar, K., 1987. Rapid Low-Cost Data Collection Methods for A.I.D., USAID Program Design and Evaluation Methodology Report No. 10, US Agency for International Development, Washington, D.C.

Odell, Malcolm, Marcia Odell and S. Franzel, 1985. Informal Survey Methods for Farming Systems Research, in Human Organization, 44(3):215–18

Odell, Malcolm, Marcia Odell, 1986. Diagnosis in Farming Systems Research and Extension, Volumes I and II, for Farming Systems Support Program, University of Florida, Gainesville

DESIGN

Brown, M.L., 1979. Farm Budgets: from Farm Income Analysis to Agricultural Project Analysis, Johns Hopkins University Press, Baltimore and London

Brown, C.M. and C.E. Nash, 1988. Planning an Aquaculture Facility, Aquacultural Development and Coordination Programme (ADCP/REP/87/24), FAO, Rome

Brown, 1989. The Design of Agricultural Projects: lessons from experience, FAO Investment Centre Paper No. 6, FAO, Rome

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