General Guidelines for Preliminary Feasibility Studies ...

1 General Guidelines for Preliminary Feasibility Studies (fifth edition) December 2008 Public and Private Infrastructure investment Management Center (PIMAC) < Research Team > General Guidelines for Preliminary Feasibility Studies (Fifth Edition) Korea Development Institute (KDI ) Researchers: Sanghoon Ahn, Fellow (Project Manager) Sangdal Shim, Senior Fellow Joonkyung Jang, Specialist Seyong Kim, Specialist Gyeongran Seo, Senior Researcher Sukyoung Kim, Associate Specialist Jaekwang You, Associate Specialist Hyunjung Lee, Associate Specialist Jieun Choi, Associate Specialist Daegeun Kim, Associate Specialist Sukjin Cho, Associate Specialist Minyoung Yeo, Assistant Specialist Yuna Lee, Assistant Researcher External Researchers: Kiseok Hong, Professor, Ehwa Women s University Youngsook Eom , Professor, Chonbuk University Jaeman Lim, Professor, Sejong University The research team of the 1999 General Guidelines for Preliminary Feasibility Studies (first edition) included Senior Fellow Jayhyung Kim (lead), Fellow Kiseok Hong, Senior Researcher Honggi Ahn, and Assistant Researcher Eunkyoung Park of KDI; Professor Donggeon Kim in Graduate School of Public Administration at Seoul National University; and Professor Dongseok Ock in Department of Trade at University of Incheon.

2 The 2000 Revised Edition was written by Senior Fellow Jayhyung Kim (lead), Fellow Kiseok Hong, and Senior Researcher Seungtae Lee of KDI; the 2001 Third Edition by Senior Fellow Jayhyung Kim (lead) and Senior Researcher Seungtae Lee of KDI, and Professor Kiseok Hong in Department of Economics at Ehwa Women s University; and the 2004 Fourth Edition by Senior Fellow Sangdal Shim (lead), Fellow Hyeon Park, Visiting Fellow Jaesin Park, and Senior Researcher Yuk Jang; Assistant Researchers Jungku Gang, Seungyeon Lee, and Huiyoung Ma of KDI; Professor Dosung Choi of Seoul National University; and Professor Kiseok Hong in Department of Economics at Ehwa Women s University. Contents CHAPTER 1 Outline 1 I. Background and Purpose of Revising the General Guidelines 1 1.

3 Role of the General Guidelines 1 2. Background and Purpose of Revising the General Guidelines 1 II. Guiding Directions and Major Contents 3 1. Composition and Directions of the General Guidelines 3 2. Major Contents and Methodologies 4 CHAPTER 2 Project Overview and Basic Data Analysis 13 I. Project Overview 13 1. Background and Purpose of a Project 14 2. Project Selection Process and Implementation Agency 14 3. Contents of a Project 15 4. Guidelines for Writing Project Plans for Candidate Projects 16 II. Basic Data Analysis 17 1. Analysis of the Natural and Living Environments 18 2. Analysis of the Social and Economic Environments 18 III. Identification of Issues 20 CHAPTER 3 Economic Analysis 21 I. Demand Estimation 22 1. Transportation Projects 22 2.

4 Water Resources Projects 26 3. Other Projects 32 4. Standards to Reflect Development Plans 32 II. Benefit Estimation 34 1. Transportation Projects 35 2. Water Resources Projects 37 3. Other Projects 38 III. Cost Estimation 40 1. Transportation Projects 41 2. Water Resources Projects 51 3. Other Projects 54 4. Calculation Standards for Land Acquisition Costs 55 5. Calculation Standards for Contingency Reserves 57 IV. Economic Feasibility Evaluation 57 1. Analysis Methods 58 2. Social Discount Rate 60 3. Processing of Transfer Payments Including Taxes 64 4. Base Day of Analysis, Period of Analysis, Etc. 66 5. Processing of Salvage Value 67 6. Sensitivity Analysis 68 V. Ways to Attract Private investment 68 1. Background and Purpose of Review 68 2. Review of the Possibility of Private investment at the Step of Preliminary Feasibility Study 70 VI.

5 Financial Feasibility Analysis 79 1. Comparison between Economic Feasibility Analysis and Financial Feasibility Analysis 79 2. Basic Assumptions 80 A. investment Methods of Projects 80 3. Analysis Methods 83 4. Cost & Income Estimation and Feasibility Analysis 84 5. Financial Discount Rate Calculation 90 6. Calculation of a Minimum Rate of Government Financial Support 95 CHAPTER 4 Policy Analysis 97 I. Policy Analysis System 97 II. Analysis by Evaluation Item 99 1. Balanced Regional Development 99 2. Consistency with Policy and Willingness to Pursue Projects 153 3. Risks in Pursuing Projects 155 4. Project-Specific Evaluation Items 157 CHAPTER 5 Comprehensive Evaluation: AHP Method 159 I. Multi-Criteria Analysis and AHP 159 1. Need for Multi-Criteria Analysis 159 2.

6 Outline of the AHP Method 161 3. Evaluator Selection 163 II. AHP Analysis Process 165 1. Conceptualizing 165 2. Structuring 166 3. Weighting 169 4. Scoring 171 5. Synthesizing 174 6. Feedback 175 7. Concluding 176 III. Matrix Tables Summarizing Preliminary Feasibility Study Results 179 1. Summary Tables to be Included in a Preliminary Feasibility Study Report 179 2. Computer Data to Submit to the KDI Preliminary Feasibility Study Management Team 184 Acronyms 186 References 188 Appendix 1 190 Appendix 2 194 Appendix 3 196 List of Tables Table 1- 1 Preliminary Feasibility Studies by Project Type 2

7 Table 3- 1 Contents of Analysis of Water Supply and Demand 27 Table 3- 2 Water Demand for Different Purposes 29 Table 3- 3 Comparison of Standards to Reflect Development Plans 33 Table 3- 4 Benefits of Road Projects 35 Table 3- 5 Benefits of Railroad Projects 36 Table 3- 6 Benefits of Road and Railroad Projects 37 Table 3- 7 Benefits of Different Water Resources Projects 37 Table 3- 8 Details of Total Project Costs (Road Projects) 44 Table 3- 9 Details of Total Project Costs ( General Railroad Projects: Rough Standards) 46 Table 3-10 Details of Total Project Costs (Regional and Urban Railroad Projects) 49 Table 3-11 Standard Details of Total Project Costs of Dam Construction 52 Table 3-12 Standard Details of Total Project Costs of River Conservation Work 53 Table 3-13 Compensation Ratios Used in Land Acquisition by City and County and Land Category 56 Table 3-14 Survey Results of Compensation Ratios of Land Categories 56 Table 3-15 Compensation Ratios by City and County and Land Category 57 Table 3-16 Comparison of Economic Analysis Methods 60 Table 3-17 Preliminary Feasibility Study Checklist Items to Evaluate the Possibility of Private investment 73 Table 3-18 Infrastructure Types (Article 2, Act on Public-Private Partnerships in Infrastructure) 74 Table 3-19 PPP Project Implementation Method.

8 BTO and BTL 76 Table 3-20 First-Step Checklist Evaluation of Project A (example) 76 Table 3-21 Second-Step Qualitative Evaluation of Project A (example) 78 Table 3-22 Comparison between Economic and Financial Feasibility Analysis 80 Table 3-23 Interest Rates of Government and Corporate Bonds 91 Table 3-24 Calculation Process of a Nominal Financial Discount Rate 94 Table 3-25 Calculation of a Real Financial Discount Rate 95 Table 4- 1 Categorization of Policy Analysis Items 98 Table 4- 2 Indices Used in the Calculation of the Regional Development Index 100 Table 4- 3 Weights for Indices to Calculate the Regional Development Index 101 Table 4- 4 Weights in each Evaluation Area in Preliminary Feasibility Studies 102 Table 4- 5 Designation Standards for Less Developed regions 103 Table 4- 6 Selection Standards for Development Promotion districts (Less Developed Region Type)

9 105 Table 4- 7 Indices for Designation of regions for Revitalization (Step 1) 108 Table 4- 8 Indices and Weights 109 Table 4- 9 Propriety Evaluation of Preliminary Feasibility Studies and Combined Models 111 Table 4-10 Cities and Provinces Regional Development Index and Ranking 112 Table 4-11 Cities and Provinces Ranking in Regional Development Index 113 Table 4-12 Cities and Counties Regional Development Index and Ranking 114 Table 4-13 Cities and Counties Ranking in Regional Development Index 124 Table 4-14 Example of an MRIO Structure (Two regions , Three Industries, & Competitive Input Type) 138 Table 4-15 Regional Classification 139 Table 4-16 Comparison between the MRIO Model and National IO Table 139 Table 4-17 Classification of the Construction Industry under the BOK IO table 143 Table 4-18 Distribution of investment Costs by Industry when Investing 100 billion won in the Road Sector 144 Table 5- 1 Evaluation Items in a Structure Survey Questionnaire ( Project to Improve a Railroad in a Mountainous Area)

10 168 Table 5- 2 Scale of Importance used for Pair-Wise Comparison 169 Table 5- 3 Scope of Preliminary Weight Calculation 170 Table 5- 4 Evaluation Description and Scoring Standards for AHP Evaluation Items 172 Table 5- 5 Opinion Consistency among Evaluators and Conclusion According to AHP Scores 178 List of Figures Figure 1- 1 Basic System of Preliminary Feasibility Studies 12 Figure 3- 2 Flow to Calculate Total Project Costs for Road Construction 43 Figure 3- 3 Preliminary Feasibility Study s Evaluation Model to Determine Whether to Pursue a Project as a Public investment or PPP Project 71 Figure 3- 4 Procedures to Perform a Checklist in Preliminary Feasibility Studies 72 Figure 5- 1 Basic AHP Structure of Preliminary Feasibility Studies 167 General Guidelines for Preliminary Feasibility Studies (fifth edition) Public and Private Infrastructure investment Management Center (PIMAC) CHAPTER 1 Outline I.