Posted: December 4th, 2022

SDG Business Case- Nature based solution projects

Module Title: Project Finance and Appraisal Assignment Number and Weighting Individual Coursework. This counts for 60% of your module mark
SDG Business Case- Nature based solution projects

Total wordcount- Including figures and tables and references

Assignment Information

Module learning outcomes being assessed:
01. Demonstrate an advanced understanding of key concepts, principles and practice of project finance and appraisal in the development context;02. Demonstrate an advanced knowledge of the estimation of project costs and benefits and developing project cashflows in a variety of sector contexts; 03. Demonstrate an advanced understanding of how to interpret appropriate decision criteria for the selection of projects in a variety of project contexts; 04. Demonstrate how to prepare and interpret a project financing plan including loan repayment scheduling; 05. Understand the concept of profitability and how to calculate a project Income Statement; 06. Demonstrate an advanced understanding of how to incorporate
environmental and social externalities and linkages into the project decision making process.

This assignment is an individual assignment. This assignment requires you to prepare a Business Case based on the following case study:

Profile of African Development Bank
The African Development Bank (AfDB) is a multilateral development finance institution headquartered in Abidjan, Ivory Coast, that is primarily responsible for administering civilian foreign aid and development Helpance. With a budget of over $27 billion, AfDB is one of the largest official aid agencies in the world.

Established in 1972, the African Development Fund started operations in 1974. “The African Development Fund and United Nations Convention to Combat Desertification (UNCCD) 2004. It provides development finance on concessional terms to low-income African nations which are unable to borrow on the non- concessional terms of the AfDB.

The SDGs work of AfDB is concentrated in three focus areas; sustainable development, democratic governance and peace building, and climate and disaster resilience.

Mission and vision

The AfDB’s mission is to fight poverty and improve living conditions on the continent through promoting the investment of public and private capital in projects and programs that are likely to contribute to the economic and social development of the region.

There are three proposed development-based solution projects which is to be appraised against the strategic objectives of the AfDB will commission only 1 (one) of these projects in Africa.

The AfDB has three “must have” strategic objectives as listed below. These objectives are determined by the executives and in line with shareholder expectations of ethical, responsible and beneficial outcomes and comply with the organisation’s strategic mission.

1. The selected project must need to meet legal, safety and environmental standards.
2. The selected project must have the ability to deliver sustainable livelihoods and deliver conflict sensitive outputs i.e. the output of the project must not propagate conflicts within the stakeholder communities.
3. The selected project should not have an adverse effect on a current or planned operation within the larger community.

The third objective is in reference to the AfDB’s strategic plan to deliver a similar project in other African countries, hence the need to maintain a neutral political position and engage with stakeholders.

“Want” strategic objectives are assigned relative importance by top management of AfDB. Mapping of all projects will adhere to the already established weighting for their relative importance. Want objective are not critical to the AfDB’s mission and are as follow:

1. The project product will have the potential to be nominated for the SDG project of the year based on its clear link to the UN SDGs
2. Attract and create a strong media attention.
3. Generate additional benefits to communities through enhanced payment for eco services
4. Raise public consciousness about environmental issues.
5. General payback benefits within 2 years of operations. The project must not exceed the budget of
£100 million. It must have a positive NPV given a discount rate of 8%
6. Advance the state-of-the-art nature-based solutions for international development
7. Provide the basis for the developments of a new and scalable solutions

Overview of the project Proposals

Project Proposal 1: Education for Sustainable Development in Africa (ESDA-NMRM) – Natural Mineral Resource Management.

At the time of project formulation, the ESDA Project aimed to contribute to the realization of an environment for sustainable employment and inclusive growth in the natural minerals and extractives industry in Zambia. This operation aimed at upskilling capacity and developing knowledge for sustainable development in natural resources management in the country, addressing a need triggered by the adoption of sustainable development goals. The DO was developed in light of contextual and strategic factors involving the Government of Zambia and the AfDB priorities and the global development agenda. The objective remains highly relevant today, even more so because of climate change.

One of the key challenges facing the Zambian mining sector is a skills mismatch between the type of employees wanted by the mining sector and the type of skills available. The project aims to contribute to youth employment and inclusive economic growth through sustainable mineral resources development (SMRD). Though there were some challenges, delays, and changes in the project categories of expenditure, the planned targets were kept. The project is expected to deliver the below investment costs and benefits, delivered within the £90M budget. It is expected that the project will align with the UN SGDs by, promoting nature-based solutions to mining projects.

Year CY1 CY2 Y1 Y2 Y3 Y4 Y5 Y5 Y7 Y8 Y9 Y10 Y11
Investment Costs 40 50 -40
Operating Costs 3 2 2 2 3 2 2 2 2 3 2
Benefits 30 30 40 40 40 40 40 40 40 40 40

Project Proposal 2: Ethiopia – Kenya Electricity Highway Project Country

Management submits a proposal to provide supplementary financing of £26.51million of AfDB loans to the Republic of Kenya to finance the project. The shortfall arose mainly from the underestimation of the required system reinforcement works identified by the initial feasibility study and design under the ongoing Ethiopia- Kenya Electricity Highway project for the smooth operation of the interconnection.

The Project objective, supporting the Eastern Africa Power Pool (EAPP’s)mission, is to help integrate the power systems of EAPP member countries including Ethiopia, Kenya, Tanzania, Rwanda, and Uganda, promote power trade and regional integration, contribute to social and economic development, and reduce poverty in those countries. Particularly, the project aims at reducing the cost of electricity supply and improving the supply of electricity in Kenya and other EAPP countries in the long run.

However, the initial feasibility study for the interconnector and its design underestimated the required system reinforcement to enable the smooth operation of the interconnector and for the Kenyan network to absorb the initial 400 MW as per the Power Purchase Agreement (PPA). In addition, the development in the power sector in the last six years revealed the need for further system reinforcement including the extension of the 400 kV network, the construction of a 400/220 kV Mariakani substation, and the construction of a 132 kV underground cable. The project’s expected investment costs and benefits are shown below with £100M budget.

Year CY1 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12
Investment Costs 100 -40
Operating Costs 4 4 4 5 5 5 5 5 5 5 5 5
Benefits 35 35 45 45 45 45 45 50 50 50 50 50

Project Proposal 3: Lumwana copper mining project

The project, which is located in the North-western Province of Zambia, involves the development of an opencast mine, the construction of a copper concentrate processing plant, a transmission line from Solwezi to Lumwana, a water dam and tailings storage facilities, and associated infrastructure.

The project has an estimated life span of 18 years and entails the mining of two distinct copper deposits. On average, about 20 million tons of copper ore will be mined each year, producing an average of 450,000 tons per annum of copper concentrate equivalent to 125,000 tons of copper/a over the economic life of the project.

The project has the potential of affecting the stability of the area and other infrastructures close to the site hence delivering conflict-sensitive outcomes. The project is expected to achieve the below investment costs and benefits with a £200M budget.

Year CY1 Y1 Y2 Y3 Y4 Y5 Y5 Y7 Y8 Y9 Y10 Y11 Y12
Investment Costs 200 -30
Operating Costs 5 5 5 5 5 5 5 6 6 6 6 6
Benefits 20 20 30 30 30 30 40 40 40 50 50 50

Your task
Part One (40%) – Project Appraisal and Selection
1a- Project Selection
As a member of the strategic project selection team you are to evaluate each of the submitted proposals. The task is to present a business case beginning with ranking each proposed project according to the strategic objectives of AfDB, and to select a project to be commissioned using the project selection tool below. You MUST show your calculations and utilise analytical tools (such as Excel) to conduct your analysis. You can then present the output of your analysis in your business case under this section. Your analysis must consider the Payback Period and NPV of the projects and the qualitative ‘must’ and ‘want’ objectives of AfDB. You MUST also engage with literature to demonstrate that you understand the analytical tools used (30%).

DO NOT USE appendix for any element of this work

Must Objectives Must meet if applicable Project proposals
meet legal, safety and environmental standard Yes= Y No= N
Not applicable= N/A 1 2 3

deliver sustainable livelihoods and conflict sensitive outputs i.e. the output of the project must not
propagate conflicts within the stakeholder communities Yes= Y No= N
Not applicable= N/A
not have an adverse effect on a current or planned operation within the larger community. Yes= Y No= N
Not applicable= N/A
Want Objective Relative importance
1-100 Single project impact WS* WS* WS*
have the potential to be nominated for the SDP project of the year based
on its clear link to the above SGDs. 60 0=No Potential 1= Low potential
2=High potential
Attract and create a strong positive media attention 10 0=No Potential 1= Low potential
2=High potential
Generate additional benefits to farmers through enhanced functionality and compatibility with existing farming plants and
equipment. 20 0=No Potential 1= Low potential 2=High potential
Raise public consciousness about environmental issues. 55 0=No Potential 1= Low potential
2=High potential
Generate a payback (PB) benefits within 2 years of operations. It must not exceed the budget of £75million. It must have a positive NPV given a discount rate of 8% 70 0= PB＞ 2yrs, – NPV

1= PB ＞ 2 yrs, – or + NPV

2= PB≦2 yrs,
+NPV
Advance the state-of-the-art nature- based solutions for international
development 40 0=No Potential 1=Low potential
2=High potential

Provide the basis for the developments of a new and scalable
solutions 10 0=No Potential 1= Low potential
2=High potential
Total Weighted score
Priority

Part 1b- Project Justification (10%)
Using credible and appropriate project management literature, (i) critically justify your selected project showing how this aligns with the strategic organizational objectives of AfDB.

Part 2 (50%)- Project Finance and Strategy Analysis

In this part you are task with developing proposals to senior management of AfDB on the following:

For your financial and strategic analysis of your selected project, you must consider the following financial information for the investment project:

• Investment Costs – The total project investment cost is £53.5M. This is made up of Land & Buildings
£40M, Construction labour £4.5M, Machinery & Equipment £3M, Vehicles £3M, and Furniture and Fittings £3M. You should assume that land clearance, construction, installation of machinery and commissioning of the project takes 12 months. The machinery and equipment have a useful life of 7 years with a replacement cost of £3M. The vehicles have useful life of 5 years and a replacement cost of 3M. Make your own assumption for residual values of Machinery & Equipment and Vehicles.

You must clearly explain the methodology employed drawing on credible literature and justify any assumptions that you make. In addition to the costs and benefits on the project proposal tables, the following cost and benefits will further be acquired throughout the lifecycle of the project.

• Production – It is estimated that the selected project will produce 600,000 units in the first year of production and will grow at 10% per year for the two subsequent years. Following this there will be no subsequent growth in production.

The project will run for 12 years excluding the investment year.

• Sales – The sales price is £30 per unit.

• Operating Costs – the project will operate and produce irrigation outputs per the years on the costs and benefit table provided for each project. Direct labour costs are approximately 30% of the unit selling price and direct materials are 20% of the unit selling price.

• Fixed Costs – are £6,000 for all operating years.

• Physical Working Capital Costs – should be based on the following assumptions:

o Materials – 2.5 month’s supply kept in stock
o Final goods – 2 month’s stock kept on average
• Financial Working Capital – should be estimated on the following assumptions:

o Accounts receivable – 3.5 months credit allowed before payment due
o Accounts payable – 2 month’s credit given on materials purchased

Using this information, you should answer the following questions to determine whether or not this project acceptable:

(a) Prepare an annual statement of costs and benefits (pre-financing). This must show the step-by-step approach learned in class. Interpret the results and support the use of analytical methods with reference to

the relevant project management literature (15%).

(c) Calculate the Trading and Profit and Loss Account (Income Statement) and the Statement of Financial Planning for the project. Profits are taxable at 15% of annual profit and no tax holiday is available, but earlier losses can be offset against subsequent annual profits where applicable. Using appropriate ratios determine whether the level of profit is acceptable? Interpret the results with reference to the relevant project management literature (20%).

(d) Calculate the NPV and Payback for this project and critically explain why AfDB should not rely on Payback for decision making (15%)

NOTE that it is not enough to present your tables and calculations. You MUST engage with literature to support the application of analytical methods and interpretation of results. Failure to engage with credible literature will result in low marks or even a failed attempt.

DO NOT USE appendix for any element of this work

Report recommended structure:
Your assignment should be presented as a report, using the following structure:
Part 1 – Project Appraisal and Selection Part 1a – Project Selection
In this section you are required to evaluate each project proposal against AfDB’s organizational objectives using the project selection tool. You must present your calculations for all the project options, and you must engage with credible literature to demonstrate you understand the methods use and to interpret your results

Part 1b – Project Justification
Provide a critical justification of the selected project using appropriate and credible project management literature.

Part 2 – Project Finance and Strategy Analysis
Financial and strategic analysis: An annual Statement of Costs and Benefits, Statement of Financial Planning and Trading Profit and Loss Account.

Reference list

Criteria for Assessment
This table details the weightings of the six criteria by which your work will be assessed.

Criteria Proportion of overall module mark
Part One
(1a) Project Selection: Clearly linked the selected project with the “must and want” strategic objectives using the project selected tool provided, whilst utilising credible literature to support the application of analytical methods and interpretation of results (30%)

(1b) Project Justification and Assessment of Required Project management Skills: Provide a critical justification of the selected project using appropriate and credible project management theories and literature (10%)

NOTE: You must draw on credible academic literature to support the application of analytical methods and interpret your results

40%
Part Two
Project Finance and Strategy Analysis
(a) Prepare an annual statement of costs and benefits (pre-financing). This must show the step-by-step approach learned in class. Interpret the results and support the use of analytical methods with reference to the relevant project
management literature (15%). 50%

(b) Calculate the Trading and Profit and Loss Account (Income Statement) and the Statement of Financial Planning for the project. Profits are taxable at 15% of annual profit and no tax holiday is available, but earlier losses can be offset against subsequent annual profits where applicable. Using appropriate ratios determine whether the level of profit is acceptable? Interpret the results with reference to the relevant theoretical literature (20%).

(c) Calculate the NPV and Payback for this project and critically explain why African Development Bank should not rely on Payback for decision making (15%)

NOTE: You must draw on credible academic literature to support the application of analytical methods and interpret your results
Clarity and credibility of overall proposal 10%
Total 100%

GUIDELINES AND BACKGROUND TO THIS ASSIGNMENT
Plagiarism

As part of your study you will be involved in carrying out research and using this when writing up your coursework. It is important that you correctly acknowledge someone else’s writing, thoughts or ideas and that you do not attempt to pass this off as your own work. Doing so is known as plagiarism. It is not acceptable to copy from another source without acknowledging that it is someone else’s writing or thinking. This includes using paraphrasing as well as direct quotations. You are expected to correctly cite and reference the works of others. The Centre for Academic Writing provides documents to help you get this right. If you are unsure, please visit. You can also check your understanding of academic conduct by completing the Good Academic Practice quiz available on Moodle.

Canvas includes a plagiarism detection system and assessors are experienced enough to recognise plagiarism when it occurs. Copying another student’s work, using previous work of your own or copying large sections from a book or the internet are examples of plagiarism and carry serious consequences. Please familiarise yourself with the Reference Style (on Canvas) and use it correctly to avoid a case of plagiarism or cheating being brought. Again, if you are unsure, please contact your Personal Academic Tutor or a member of the course team.

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