FEASIBILITY STUDY Rehabilitation of street lighting in Mariupol BANKABLE FEASIBILITY STUDY 1 PREFACE Feasibility Study “Rehabilitation of street lighting in Mariupol” has been developed according to the international standards feasibility studies using the various IFI-funded similar projects experience in Ukraine and the specific experience of the experts/company. The feasibility study has been developed in close cooperation with the local authorities and the final beneficiary – city street lighting utility. It contains all the key sections: baseline assessment, technical analysis and priority investment programme development, financial analysis and modelling, procurement & implementation plan, comprehensive Environmental and Social Impact Assessment of international standards (appraisal applicate at the feasibility stage). The feasibility study has been developed for the project to be implemented under the Ukraine Municipal Infrastructure Project (EIB-Funded), taking in mind the specifics of the project. The document has been developed in Ukrainian language (as the final beneficiary is Ukrainian utility, promoter (Ministry of Regional Development) – Ukrainian entity as well. Executive Summary is available in English in this document below. About Сompany. Ukrainian Technology Alliance is the UK-based consultancy company which operates primarily in Ukraine and CIS (Russian-speaking) countries. Cooperation with UTA gives a lot of advantages: reasonable costs, language/cultural/legal context, visa-free traveling around CIS and others. UTA provides consultancy & outsourcing/ outstaffing services in the areas of Energy (power, district heating, building energy efficiency), Water/wastewater, Municipal Infrastructure (above-mentioned + civil construction, transport, waste management) and Environment (incl. Environmental and Social Impact Assessment). UTA management & staff is experienced in dealing with the local authorities in Ukraine, as well as required subcontractors and individual experts, providing a single entry to the subcontracting services for the international firms. 2 Executive Summary This Section is developed taking into aLEDLount the Operation Manual for Ukraine Municipal Infrastructure Project published on the Minregion web-page, in particular, considering the Evaluation Criteria of projects. Feasibility Study for “Reconstruction of Street Lighting Network in Mariupol City” (hereinafter – “Feasibility Study”) is developed by British consulting company Ukrainian Technology Alliance LP on order of a public utility enterprise “Misksvitlo” under the Ukraine Municipal Infrastructure Project funded by the EIB. This Feasibility Study is developed based on international standards for development of similar documents; in particular, it comprises the following key sections: baseline assessment, technical analysis and priority investment program development, financial analysis and modelling, procurement & implementation plan, comprehensive Environmental and Social Impact Assessment. A team of consultants, who have a significant experience performing of relevant projects, in particular, development of Feasibility Studies in accordance with international standards for infrastructure projects in Ukraine and abroad, has developed the Feasibility Study. The proposed Project envisages the following investment components (Priority Investment Program): Intervention Cost (including installation), thsd UAH Energy audit, development of 33 333 Feasibility Study and design works Purchase of street lamps, auxiliary 83 333 equipment and materials Dismantling of existing SS, installation 166 667 of new SS and auxiliary equipment Commissioning of street lighting 75 000 system Evaluation of the results: qualitatively 7 500 and quantitively Total VAT, UAH 73 167 Total (VAT incl.) EUR 14 million The aim of the Project is as follows: • Replacement of the app. 29 000 lamps with the LED lamps; • Efficiency improvement of power consumption of 50 – 60% installing modern energy-saving LED lamps with remote control of the luminous flux and the capacity respectively depending on time of the day (pedestrian and motor traffic intensity) 3 • The operating life of new LED lamps is longer compared to traditional-type lamps. This allows to reduce operational and maintenance cost of street lighting and to increase the operational life of street lighting networks more than by 30% Provision of a high-quality, stable, economic and efficient street lighting of public areas in Mariupol city at night. The number of accidents will decrease on the street lighting objects. • Increase of a safety level of residents and visitors of Mariupol city • Reduction of road traffic accidents and the injury rate while road traffic accidents as well as crime reduction. Rehabilitation of street lighting and reconstruction of existing systems follows in view of negative tendencies, which ensure safety movement of people and in the view of the reduction of the aLEDLident rate on roads and improvement of public services and amenities in residential areas • Improvement of an environmental climate of the city. Preservation of the environment reducing of СО2 emissions and other pollutants • Rejection from operation and procurement of gas-lamps, which contain mercury • Improvement of the business, touristic and investment activities. The Project anticipates attraction of the proceeds of a loan in the amount of UAH 439,0 million (EUR 13,937 million) for the period of 10 years. This amount comprises investment costs and funding during years 2017 – 2019. In the result of the implementation of the Project, the IRR is 21,6% and NPV is UAH 609,9 million in the baseline scenario at the discount rate of 7,19%. In some periods, the DCSR shows the value not less than 1,35, an average DCSR is even higher (1,9). The finance model envisages to attract an overdraft for the temporary compensation of DCSR sinking. The EIA is worked out in accordance with standards related to relevant Feasibility Studies of international standards. In particular, Operation Manual for Ukraine Municipal Infrastructure Project, the environmental impact assessment of the present project is structured in accordance with Annex 11 of the abovementioned manual and includes the following sections: Project Summary; Political, legislative, and administrative framework; Project description; Description of basic data; Analysis of alternatives; Environmental impacts of selected alternatives; Mitigation measures; Environmental and Social Management Plan. The Plan examines nature protection and social aspects, and describes possible aLEDLess mechanisms for stakeholders fully. This Project envisages replacement of the existing lamps by new one, as well as replacement of some other elements (cables, teleautomatics) solely, and does not include any elements that will provide new services. Taking into aLEDLount, that the street lighting in Mariupol city does not have any overabundance (it is installed only in places, where it is needed for the citizens), thus, the Project envisages exclusively measures, which meet the requirements of ultimate users (residents of the city). It is described more precisely in the Section related to needs assessment. Technical decisions proposed by the Project meet the best practices for implementation of relevant projects in the world and in Ukraine. They apply to the replacement of components that imply savings (financial, environmental etc.), and emergency components. All elements proposed to be replaced are selected on the basis of scenario analyses of modern and commonly aLEDLepted technologies performed by technical experts (in particular, replacement of lamps using of LED-technologies, which are used in Ukraine, or are proposed to be used by manufacturers), and are appropriate in local conditions in full. The Project meets the following quality indicators: Project value: approximately EUR 10 million VAT exclusive Power saving: reduction of power consumption by street lighting networks by 61,26% (14 266 590 kV/year) Systems to be reconstructed meet the minimum national requirements to reconstruction fully 4 Economic analysis of projects revealed its financial sustainability and effectiveness (sustainability indicators are provided below). In particular, there is provided the project value during its life cycle, which is lower than the net value of power saving, including of external factors Extension or construction of new street lighting systems in Mariupol city is excluded from the Project. Total value of Project is adjusted based on market value of components (proven by corresponding experts through requests by manufacturers), experience in relevant projects and experience of a Contractor. Thus, the project value meets commonly aLEDLepted indicators. Total number of beneficiaries influenced by investment Project is over 400 thousand persons (in fact, this are all residents and guests of the city). Key financial indicators: Indicator Value Debt service coverage ratio (DSCR) Avg 1,9 (cash including) Profitability index 6,0 IRR, % 21,6% [email protected]%, UAH million 609,9 Payback period (discounted pay-back 9,9 years period) The model shows high stability of economic indicators relative to such macroeconomic factors as volatility exchange rates, inflation and lending rate. Project performance indicators are to a considerable extent sensitive to the following indicators: an annual increase (decrease) of electricity cost, an average annual planned cost of 1 kWh, LED lamps cost, reduction of losses in power