MINISTRY OF PUBLIC FINANCE Authority for the Coordination of Structural Instruments

MINISTRY OF ENVIRONMENT Managing Authority for Sectoral Operational Programme Environment

GUIDELINES FOR COST BENEFIT ANALYSIS

OF

SOLID WASTE PROJECTS

TO BE SUPPORTED BY THE

COHESION FUND AND THE EUROPEAN REGIONAL DEVELOPMENT FUND

IN

2007-2013

FINAL DRAFT

May 2009

The present guidelines were prepared under the coordination of Authority for the Coordination of Structural Instruments with JASPERS assistance1. The document reflects the consultations with the representatives of Ministry of Environment and its consultants on the practical details of CBA analysis, as well as the detailed guidance and clarifications received from the Romanian Desk and the Evaluation Unit in DG REGIO.

JASPERS (Joint Assistance to Support Projects in European RegionS) is a major joint policy initiative of the European Investment Bank (EIB), the European Commission (Regional Policy Directorate-General - DG Regio), the European Bank for Reconstruction and Development (EBRD), and KFW. JASPERS is designed for twelve EU Member States to help them better prepare projects proposed for EU Fund financing. More information available at www.jaspers.europa.eu

Table of content
1.Reference framework.....................................................................................6 2. Rationale and Objectives of the Guidelines...................................................7 2.1 Rationale of these Guidelines................................................................7 2.2 What is CBA and why to perform it........................................................7 2.3 When to perform a CBA.........................................................................8 3. General methodological approach.................................................................8 3.1 Steps to be performed within the CBA...................................................8 3.2 General policy considerations for projects in the sector.........................9 3.3 Strategic approach and definition of objectives......................................9 4. Demand 11 5. Option analysis and section of the most suitable alternative........................11 5.1 Identification of alternatives..................................................................11 5.2 Selection of the most suitable alternative.............................................13 6. Financial Analysis .......................................................................................14 6.1 Objectives and scope of the analysis ..................................................14 6.2 Calculation of financial flows................................................................14 6.3 Principles to follow in developing financial projections.........................15 6.4. Analysis of financial projections..........................................................16 6.5. Considerations on tariff/taxes increases..............................................18 7. Funding Gap calculation and financial profitability indicators ......................18 8. Aspects related to financing of solid waste projects under SOP ENV..........20 8.1 Specific financing aspects....................................................................20 8.2 Institutional issues ...............................................................................20 9. Economic analysis.......................................................................................21 9. Sensitivity and risk analysis.........................................................................23 10. Presentation of results...............................................................................25 Annexes.....................................................................................................27 ANNEX I - Model for the Preparation of Financial Projections of Waste Management Projects....................................................................28 ANNEX II - Model for the Calculation of the Funding Gap, the Profitability Indicators and Risk and Sensitivity Analysis..................................32 ANNEX III - Model for the Estimation of Economic Benefits in Waste Management Projects....................................................................38 ANNEX IV - Assumptions and sources of data for forecasts to be performed in the CBA ........................................................................................44 ANNEX V - Itemised Unitary values for Investment and Operating Costs........46 ANNEX VI Template for Project Financing Plan...........................................48

ANNEX VII - Note regarding the institutional structure for integrated waste management projects in regional context .....................................49

1. Reference framework
The Council Regulation (EC) 1083/2006 of 11 July 2006 lays down the general provision ruling programmes and projects financed by the European Regional Development Fund (ERDF), the Cohesion Fund (CF) and the European Social Fund (ESF). In particular, as indicated in Art. 40 (e) of the Regulation, major projects seeking financial support from the Cohesion Fund (CF) and the European Regional Development Fund (ERDF) require the preparation of a Cost-Benefit Analysis (CBA) as part of the applications: Article 40. - The Member State or the managing authority shall provide the Commission with the following information on major projects: [] (e) a cost-benefit analysis, including a risk assessment and the foreseeable impact on the sector concerned and on the socio-economic situation of the Member State and/or the region and, when possible and where appropriate, of other regions of the Community; At the same time, the Regulation required the European Commission to develop indicative guidance regarding the methodology to perform CBA. For the programming period 2007-2013, the Commission has provided a set of working rules to promote consistency in the CBA for CF and ERDF applications (see Working Document 4: Guidance on the methodology for carrying out Cost-Benefit Analysis 2, from now on the WD4). The general methodological framework to carry out CBA in the context of EC Funding is provided in the Guide to Cost-Benefit Analysis of Investment Projects, a manual published by the Commission in 2002 which has been recently updated3. The WD4 provides for generic guidance, and recommends the Member States to produce more detailed CBA guidelines, with the goal to ensure consistency across projects presented for financing in the various sectors, and taking account of specific institutional settings, particularly for the transport and environment sectors. In line with the above regulations, Romanian Government Ordinance HG nr. 28 of 9 th January 2008 on the methodological rules for elaboration and approval of technical and economic documentation for investment projects requires CBA as part of the technical-economic documentation related to public investments. More specifically, HG 28/2008 requires the following steps to be performed and presented as part of the documentation of the proposed investment: 1. investment identification and definition of objectives, including specification of reference period; 2. option analysis; 3. financial analysis, including the calculation of financial performance indicators: cumulated cash -flow, NPV, Financial Rate of Return (FRR) and B/C; 4. economic analysis, including the calculation of economic performance indicators: NPV, Economic Rate of Return (ERR) and B/C; 5. sensitivity analysis 6. risk analysis These national CBA Guidelines build on the following framework:

2 3

Available at http://ec.europa.eu/regional_policy/sources/docoffic/2007/working/wd4_cost_en.pdf Now available at http://ec.europa.eu/regional_policy/sources/docgener/guides/cost/guide2008_en.pdf

Romanian legislation comprising provisions related to the cost benefit analysis (in particular, the government decision HG28/2008 on the methodological rules for elaboration and approval of technical and economic documentation for investment projects) the national programming documents for the implementation of actions to be co-financed by structural instruments (ERDF and CF), namely the National Strategic Reference Framework (NSRF) and the relevant Sectoral Operational Programmes (SOPs); the relevant EC regulations and guidelines, statistics, forecasts and other documents that may provide information to be considered for the development of suitable methodological framework to carry out the CBA.

2. Rationale and Objectives of the Guidelines

2.1 Rationale of these Guidelines
The present document refers to Sectoral Guidelines for Solid Waste projects, and has been prepared in the general context of the waste management projects included in the Action Plans between JASPERS and the beneficiary Member States. The intention was to close the gaps between the existing guidance and the specifics of the projects in the sector, with focus on the information and outputs required in the major project applications. To that extent, while consistent with the general CBA framework mentioned above, the document is based on the experience of project appraisal for the first round of projects applications assessed during 2008. The objective of these guidelines is to provide the basic structure and methodological tools for the CBA of projects in the waste management sector in the context of the preparation of Cohesion Fund and ERDF applications. The concept of CBA here has been expanded from the traditional economic analysis to the wider concept used in the relevant EU regulations and related guidance documents: project definition, financial analysis including the calculation of the funding gap, economic analysis, and risk and sensitivity analysis. A high percentage of the inputs to carry out this analysis will come from other parts of the project feasibility studies and more specifically from the technical feasibility study. With the exception of the calculation of the funding gap, which is specific to EU funding, the methodology here presented is quite standard and applicable to waste management project in any a wide range of contexts.

2.2 What is CBA and why to perform it

CBA is an analytical tool which is used to estimate the socio-economic impact (in term of benefits and costs) related to the implementation of certain policy actions and/or projects. The impact must be assessed against predetermined objectives and the analysis is usually made from the point of view of the society as whole, intended as the sum of all individuals concerned. Typically, CBA analysis works with national boundaries so that the word society usually refers to the sum of the individuals in a nation state. The objective of CBA is to identify and monetise (i.e. attach a monetary value to) all possible impacts of the action or project under scrutiny, in order to determine the related costs and benefits. In principle, all impacts should be assessed: financial, economic, social, environmental, etc. Traditionally, costs and benefits are evaluated by considering the difference between a scenario with the project and an alternative scenario without the project (the so called incremental approach). Then the results are aggregated to identify net benefits and to draw conclusions on whether the project is desirable and worth implementing. To that extent, the CBA could be used as a decisionmaking tool for assessing investment to be financed by public resources. The term CBA within these guidelines and according to EU requirements encompasses both the financial and economic analysis of the project. More specifically, within the framework of preparation and appraisal of CF and ERDF project, the European Commission requires a CBA to:

(1) To assess whether a project is worth co-financing. The goal is to answer to the questions: does it contribute to the goals of EU regional policy? Does it foster growth and boost employment? In simple words, if the net benefits for the society (benefits minus costs) of the project are positive, then society is better off with the project because its benefits exceed its costs. The project should therefore receive the assistance of the Funds and be co-financed. If not, it should be rejected. This assessment is performed using an Economic Analysis. (2) To assess whether a project needs co-financing. Besides being desirable from an economic standpoint a project may also be financially profitable without EU assistance, in which case it would not be co-financed by the Funds. To check if a project should be co-financed requires a Financial Analysis: if the financial value of the investment (project revenues minus project costs) without the contribution of the Funds is negative, then the project can be co-financed. In this case, the EU grant should not exceed the amount of money that makes the project break even, so that no over financing occurs. The CBA is therefore needed to provide evidence that, while fitting within the framework of EU regional policy objectives, the project is both desirable from an economic point of view and needs the contribution of the Funds for it to be financially feasible. Projects in the environment sector result in economic benefits like the improvement of quality of life or the improvement in ambient quality, which are difficult to quantify in monetary terms. For this reason, it is anticipated that CBA for this type of projects is especially challenging and the problem becomes more evident during the calculation of the projects Economic Net Present Value (ENPV) or the Economic Rate of Return (ERR).

2.3 When to perform a CBA

When submitting an application for funding under the CF and ERDF funds, information on the results of CBA is required only for Major Projects, which are defined as operations accomplishing a precise and indivisible task whose total costs is in excess of: - EUR 25 million for environmental projects - EUR 50 million for all other fields. To that extent a full CBA (comprising both a Financial and an Economic Analysis along with a risk assessment) is compulsory only for Major Projects. However, for smaller projects which are not subject to a preventive appraisal and approval by the European Commission, the relevant Managing Authority could decide to include a requirement for results of CBA to be assessed as part of the selection criteria. In those cases, the methodology described by these Guidelines, or a simplified version of it, will apply. Details of the methodology to be followed for smaller projects will be discussed with the Managing Authority and will be reflected in relevant calls for proposal and applicants guides.

3. General methodological approach

3.1 Steps to be performed within the CBA
The proposed sequence for the CBA in the framework of project preparation, which is consistent with the recommendations of the European Commission, is the following: Strategic approach and definition of objectives Identification and selection of the most suitable alternative (in most cases, deriving from the master plan and the feasibility study) Financial Analysis Economic Analysis Risk and Sensitivity analysis Reporting conclusions

Most, if not all of the inputs for the definition of project objectives, the identification of alternatives and even the selection of the most suitable alternative will come from other parts of the project feasibility studies, and more specifically from the analysis of the projects technical, environmental and institutional feasibility. For these sections, what is expected in the CBA is a summary and a presentation of those findings in a rational and consistent way. The following sections provide the general recommendations on the actions to be taken when performing each of the steps mentioned above.

3.2 General policy considerations for projects in the sector

Typically, waste management projects will aim at reducing the total amount of waste going to final disposal, in a manner consistent with the EU policy for the sector: This policy is formulated in COM(2005)666 Taking Sustainable Use of Resources Forward: A Thematic Strategy on the Prevention and Recycling of Waste of 21 December 2005. The ultimate goal of this strategy is the EU becoming a recycling society that avoids waste and uses waste as a resource, with the expected impact of the strategy is less waste to landfills, with more and better recycling and more compost and energy recovery from waste. Roughly speaking, In order to achieve this objective the strategy revolves around three concepts: (i) life-cycle thinking, which aims at minimising environmental impact during the entire life cycle of the resources and not just during the management of the resulting waste; (ii) the application of the so-called waste hierarchy concept for the overall design of projects: first prevention, then re-use, then recovery of materials and, when feasible, energy and finally and as the worst option the disposal in landfill; and (iii) the concept of recovery vs. disposal, which is related to the waste hierarchy since it defines when waste is no longer waste and becomes a resource again.

3.3 Strategic approach and definition of objectives

The basic strategic documents for the implementation of actions to be co-financed by the CF and ERDF are the National Strategic Reference Framework (NSRF) and the relevant Sectoral Operational Programmes (SOPs) As any other Member State, Romania has prepared a National Strategic Reference Framework (NSRF), coherent with the Community Strategic Guidelines on Cohesion 4, which gives the strategic dimension to the Funds in line with the priorities of the Union. The NSRF is the document that defines the strategy chosen by Romania to contribute to achieving those priorities, and lists the SOPs that it endeavor to implement. The SOPs present the priorities of the Member State (and/or regions) as well as the way in which it will lead its programming5. Each SOP summarises the overall objectives and targets sought at a sectoral level, as well as identifies the priority areas of interventions (priority axes), which, in turn, lists specific objectives. Table 1 summarises the objectives of SOP Environment 6 agreed with the European Commission, while table 2 provide the details on the objectives of Priority Axis 1, under which water and wastewater projects have to be submitted.
Table 1: Objectives SOP Environment

Priority Axis 1

Priority Axis 2

Priority Axis 3
4 5

Improve the quality and access to water and wastewater infrastructure, by providing water supply and wastewater services in most urban areas by 2015 and by setting efficient regional water and wastewater management structures; Develop sustainable waste management systems, by improving waste management and reducing the number of historically contaminated sites in a minimum of 30 counties by 2015 Reduce the negative environmental impact and mitigate the climate change caused

Avalaible at http://ec.europa.eu/regional_policy/sources/docoffic/2007/osc/index_en.htm. Please see http://ec.europa.eu/regional_policy/atlas2007/romania/index_en.htm for links to the approved NSRF and summaries for the SOPs. 6 Available at http://www.mmediu.ro/integrare/comp1/POSmediu/POS_Mediu_EN.pdf

Priority Axis 4 Priority Axis 5

by urban heating plants in most polluted localities by 2015. Protect and improve the biodiversity and natural heritage by supporting the protected areas management, including Natura 2000 implementation. Reduce the incidence of natural disasters affecting the population, by implementing preventive measures in most vulnerable areas by 2015.

Table 2: Specific objectives Priority Axis 2 SOP Environment Objective 1 Increase the population covered by municipal waste collection and management services of adequate quality and at affordable tariffs Objective 2 Reduce the quantity of landfilled waste Objective 3 Increase the quantity of recycled and reused waste Objective 4 Set up efficient waste management structures Objective 5 Reduce the number of historically contaminated sites

The objectives of the proposed actions and projects have to be defined in a manner consistent with the overall objectives and priority axes of the SOP, including defining the extent the propose projects will contribute to achieving the results the SOP is aimed at. To that extent, as much as possible, reference shall be made to the set of indicator included in SOP Environment for priority Axis 2. Given the nature of these projects, it can be anticipated that most of the projects in the solid waste management sector will aim at achieving certain minimum standards that are necessary to comply with relevant EU Directives and commitments of the Member State during the negotiations for accession. In this context, the general objective of the project could be defined along the lines of the example in the table 3 below.
Table 3: Example of definition of the projects general objective General Objective: to develop a sustainable waste management system with reduction of environmental impacts in the region of [] by improving the waste management service and reducing the number of the existing uncontrolled dump sites in line with EU practices and policies and in the context of the Priority Axis 2 of the SOP Environment.

Having defined the general objective, the specific objectives of the project will be formulated in a manner consistent with the specific objectives of the above-referred Priority Axis. An example is provided in Table 4. However, the objectives on this table should be adjusted to match the objectives and values that are applicable for each project.

Table 4: Example of definition of the projects specific objectives Specific Objective 1. Increase in coverage of waste management services Value without project (*) Expected value after completion

[]% in urban areas and []% in 100% in both urban and rural areas, rural areas, with final disposal not with final disposal in accordance in accordance with the relevant EU with the relevant EU Directives. Directives. Percentage of total collected waste Percentage of total collected waste going to landfill: []% going to landfill: []% Percentage of total collected biodegradable waste going to landfilll: []% Maximum percentage of total collected biodegradable waste going to landfill (**): 50% Minimum percentage of packaging waste recovered and recycled (***): 60%

2. Reduction of quantity of landfilled waste

3. Increase of quantity of recycled or reused waste

Percentage of packaging waste recovered and recycled: []%

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4. Establishment of efficient waste management structures

Collection of waste is fragmented at the local level, with low standards of operation and cost recovery.

Collection of waste and operation of final disposal facilities have been successfully tendered to waste management operators, with clear standards of operation and clear There are no proper institutional arrangements for the operation of responsibilities of all parties involved to ensure sustainability. final disposal facilities. Number of un-regulated dump sites All un-regulated dumpsites closed in beneficiary region: [] and rehabilitated.

5. Reduction of number of historically contaminated sites

(*) Refers not to the current situation but to the projected situation at the date of the foreseen completion of the project if the project is not implemented (**) Refers to the general benchmark of maximum of 75% in 2010, at least 50% in 2015 and at least 35% in 2020, with the figures from 1995 as baseline. (***) Refers to the general benchmark for the different types of packaging waste, as for example the recycling of at least 60% of carton and paper by 2012.

The standards to be achieved through the project for each of the above-referred specific objectives (that is, the expected value after completion) will normally be closely related to the orientations of the EU waste policy and the compliance with the relevant EU Directives. Moreover, in most cases the target values after project completion will be set by those directives and also by the commitments of the Member State during the negotiations for accession. In fact and depending on the situation without project, these standards will be in some cases so ambitious that in order to accommodate the project to the financial constraints of the final beneficiary, the final standards will have to be achieved in two or more phases and consequently a new set of sub-standard objectives may have to be defined for the project.

4. Demand
The demand for waste management services in the project area will be estimated based on the following variables: (i) current population and expected growth rate during the project horizon; (ii) current waste generation per capita and expected changes during the project horizon; and (iii) current waste composition and expected changes during the project horizon. The estimation of the demand, both in terms of quality and quality of the waste is key factor in the identification of the project alternatives to define the type and capacity of the facilities that will be necessary to achieve the desired. Other relevant aspects to be considered as part of the demand analysis, which will be also used for the identification and comparison of alternatives are (i) composition and calorific value, (ii) socioeconomic conditions and geographic distribution of the customer base, and (iii) potential market for waste sub-products (i.e.: recyclables and compost).

5. Option analysis and section of the most suitable alternative

5.1 Identification of alternatives
In terms of scope, waste management projects will normally be defined from the perspective on an integrated approach, which includes (i) improvement of the collection system (namely with separate collection of different waste streams to facilitate recovery); (ii) a number of intermediate facilities that are necessary for the optimal operation of the system, the minimization of waste going to final disposal, and the compliance with the relevant Directives (for example, sorting of mixed waste into different fractions, composting of the biodegradable fraction, stabilization of mixed waste before final disposal or even recovery of energy through incineration); (iii) disposal solutions for special types of waste included in the scope of the project (i.e.: construction, electric and electronic, hazardous); (iv) final disposal facilities (i.e.: landfills) for the residual waste; and (v) logistics, equipment and transfer stations to ensure the transport of waste between the different facilities. The identification of alternatives will focus on the different options to achieve the specific objectives (and standards after completion) of the project. This is typically done within the framework of the

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technical feasibility study and, if properly done in the first place, there is no reason to duplicate it just for the purposes of the CBA. The identification of alternatives will normally be carried away at two levels: (i) global alternatives, which refer to the structure of the overall system and may imply, for example, the comparison of some waste treatment plus a landfill for final disposal vs. incineration; and (ii) technological options, which refer to the type of technology the facilities already selected as a result of the analysis of the global alternative (i.e.: type of furnace in the case of a waste incinerator). The identification of alternatives will normally start at the level of a National Waste Management Strategy (NWMS) or equivalent document, which should provide the general context in terms of global alternatives. As an example, the NWMS may indicate the need to maximize the separate collection of the different waste streams in order to optimize the efficiency of the waste treatment facilities and improve the quality of waste sub-products (recycling of glass, paper, metals, and production of compost) for their sale in the market. Alternatively, the NWMS may recognize the difficulty of carrying out separate collection or the lack of market for the sub-products, and therefore the focus will be put in the treatment of mixed waste for the stabilization of the organic content before disposal and/or the production of refused derived fuel for incineration in cement kilns or other industrial facilities. Once the general context of the NWMS has been established, the steps normally followed for the identification of alternatives are: 1. Given the basic structure of the project as a result of the NWMS or equivalent document (i.e.: the most adequate global alternative), identification of a number of possible sites for the project facilities. 2. Definition of the technological options for the different facilities to be included in the project (again, based on the strategic assessment in the first point of this section). 3. Screening of the suitability of the possible locations and technologies based on qualitative criteria, like for example the following: a. Potential capacity (i.e.: in the case of a landfill site, estimated economic life after all the cells have been filled in). b. Public acceptance (i.e.: chances of rejection by local communities and/or NGOs). c. Hydro-geology (i.e.: type of soil, stability of slopes, risk of flooding, risk of seismic movements, potential impact on water bodies and aquifers). d. Accessibility (i.e.: proximity and quality of access roads). e. Ownership and zoning (i.e.: land property and use). f. Other factors (i.e.: minimum required distance to airports, negative impact on economic activities in surrounding areas). 4. Taking into account only the sites and technologies that passed the minimal qualitative requirement for each individual criterion above, definition of a number of valid alternatives for the project. Each one of these alternatives have to be understood as a set of treatment and disposal facilities, with their corresponding technologies, plus the necessary improvements in the collection system, transfer stations and technical assistance (including changes in the institutional framework if necessary) so each alternative is self-sufficient to achieve the project objectives.

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5. For each of the identified alternatives, quantification of all investment and operation and maintenance cost, and in particular the ones listed below. All costs will be estimated in annual basis, in real terms, for a period consistent with the economic life of the different facilities (hereafter the reference period), and based on the annual volume and composition of waste estimated for the same period. The typical reference period considered for this type of projects is 30 years. However, this depends on the type of facilities and should be adjusted accordingly. For example, in the case of landfills, the horizon of the analysis has to be adjusted for the design capacity in years. The list of tentative investment and operating costs to be included in the analysis is the following: a. Land property costs, like in the case of purchase, expropriations and/or compensation paid for changes in land use. b. Design and construction costs for the different facilities (at pre-feasibility level), which includes among other elements: (i) in the case of landfills, the periodic costs for opening and closing the different cells; and (ii) the improvement of access roads to the project facilities. c. Purchase cost of equipment to operate the different facilities, with the corresponding replacement cost if applicable when its economic life is lower than the reference period. d. Operation and maintenance cost for the different facilities, including the transport of waste from the place where it is generated to and from the transfer stations and complementary facilities and to the final disposal site. e. Costs associated with the closure of existing dumps, which, when the waste is to be retained at the existing site, includes the cost or periodic monitoring. f. Costs associated to the measures to mitigate the environmental impact of the project, which are normally proposed as part of the projects Environmental Impact Assessment. g. Cost of closure of cells (in the case of landfills) as well as of the final disposal site, with distinction of initial restoration costs and aftercare costs. h. Costs associated with the improvement of the collection system and the establishment of the necessary institutional framework. For the purpose of comparing alternatives, the above-referred costs will be minored by (i) any revenues obtained from the sale of sub-product generated during the operation of the facilities, like compost, recyclables; (ii) any revenues (or cost savings in case of internal consumption) from the sale of heat and/or electricity, as in the case of production of bio-gas from waste treatment facilities or from waste incineration facilities; and (ii) the residual value of the different facilities at the end of the reference period. Notwithstanding this, for the purpose of the financial and economic analysis, costs and revenues will be treated separately (i.e.: without netting).

5.2 Selection of the most suitable alternative

As indicated in the Working Document 4: Guidance on the methodology for carrying out Cost-Benefit Analysis: Evidence should be provided that the selected project is the most suitable alternative between the options considered. This information should typically be found in the results of the feasibility studies that have to be presented to the Commission under Art.40(c). In practice, the selection of the most suitable alternative involves the verification of whether the overall impact expected from each one of the alternatives considered is the same:

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a. If this is the case, the most suitable alternative is the one that delivers the expected impact in a cost effective way. In principle, all the alternatives are originally defined to achieve the same specific project objectives and those objectives in most cases have to do with achieving some standards that are necessary to comply with the relevant EU policy and directives. For this reason, in most of the cases the alternatives are expected to be comparable in terms of impact and therefore the relevant method for the selection of the most suitable alternative is least-cost analysis. b. In those few cases in which the expected impact of the alternatives is significantly different, mainly because of different externalities, then the economic analysis will be necessary to incorporate those externalities and rank the different alternatives.

6. Financial Analysis
6.1 Objectives and scope of the analysis
The purpose of the financial analysis is to ensure the long-term financial sustainability of the project, which implies the following: (i) estimation of the project revenues and costs and their implications in terms of cash-flow; (ii) definition of the project financing structure as well as its financial profitability; and (iii) verification of the sufficiency of the projected cash flow to ensure the adequate operation of the systems and meet all investment and debt service obligations. Finally, for the purpose of the preparation of the application for funding, the financial analysis is necessary in order to provide the basis for the calculation of the funding gap of the selected option and subsequently to calculate the eligible expenditure in revenue-generating projects according to Art. 55(2) of regulation 1083/2006. In practical terms, the financial analysis of the project requires the preparation of detailed financial projections in order to produce a cash flow statement. A specific model for the financial projections is available in the Annex I of these guidelines. Either with this model or with an alternative one with similar outputs, the details for the analysis should meet the basic standards indicated below.

6.2 Calculation of financial flows

The analysis is typically made up of a series of tables that collect the financial flows of the project, broken down as total investment, operating costs and revenues, sources of financing and cash flow analysis for financial sustainability. Generally speaking, except in some cases in which project revenues and costs can be ring-fenced, the assessment of the financial sustainability of the project will require the preparation of financial projections for the overall system. This is typical for projects in the water sector and waste management sectors where the costs of the different components of the system have to be covered with the same source of revenues (i.e.: tariff revenues or collections fees). The recommended methodology is the discounted cash flow analysis (DCF) 7, which uses an incremental method that compares a scenario with the project with an alternative scenario without project. The incremental method is applied as follows: 1. Projections are produced of the overall system operations cash-flows (in term of expected revenues and costs, for each year of operation) in absence of the proposed project
7

The DFC method has the following features: Only cash flows are considered; i.e. the actual amount of cash being paid out or received by the project. Noncash accounting items like depreciation and contingency reserves must not be included. Cash flows must be considered in the year in which they occur and over a given reference period When adding or deducting cash flows occurring in different years, the time value of money has to be considered using a predetermined discount rate.

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(without project scenario). When the proposed project is entirely new, the without project scenario is a scenario of no operations. 2. Similar projections of the operations cash-flows are produced taking into account the proposed projects and its impact in term of system operations ( with project scenario). The project promoter shall take into account the whole investment plan, account for changes in O&M costs; adjusts tariffs (if relevant), taking into account affordability of services. 3. A cash flow for the investment is the difference between the cash flows in the with project scenario and the without project scenario. In case the proposed project is entirely new, the with-project scenario is the basis for the incremental cash-flow. The result of the process above is the incremental impact of the proposed projects in term of a financial cash-flows statement for all years of operation. In light of the methodology used, particular care shall be used in the definition of the without and with project scenario. For each scenario, the key assumptions used shall be duly presented in the CBA report. Clear assumptions shall also be made on financial performance indicators and tariff evolutions (see also section 6.4 below). All the assumptions mentioned above shall be clearly defined in a tabular format as an annex to the final CBA report, specifying the situation in the with and without scenario. The beneficiaries are also requested to present a summary of the underlying assumptions for unitary investments and operating costs as used in the financial analysis following the format attached in Annex V. This shall include details on the specific cost savings that the project will allow to achieve. These assumptions need to be equivalent to those used in the feasibility studies to estimate the investment and operating cost of the proposed priority investment. Please note that failure to duly present, as an annex of CBA reports and in the required format, the assumptions used for the financial analysis can result in delays in project approval and, ultimately, in the rejection of the Proposal.

6.3 Principles to follow in developing financial projections

The financial projections for the project should be prepared on the basis of a financial model under the following principles: Reference period and life of equipment The period of projection is the same as the projects reference period, which is typically 30 years (taking into account also the construction period), but can be different depending on the nature of the project facilities. As a rule of thumb, the reference period can be set at the shorter period between 30 years, and the design capacity of the landfill. As regards to the technical life of equipment, which has an impact on the level of replacement costs that needs to be taken into consideration during the reference period, it is recommended to split the assets into three main categories: - Civil works (including operational buildings, reservoirs, access ways, etc...) 40 years - Trucks and containers 8-10 years - Equipment and installations-12 years The CBA report shall include in the Annexes a table summarising the proposed investment split in the three main categories above, with an indication of the first year for replacement, as well as the related replacement costs taken into account in the analysis. Financial discount rate The financial discount rate (in real term) to be used is 5%, as recommended by the European Commission in WD4.

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Macroeconomic assumptions Macroeconomic inputs shall be based on the relevant statistical sources and be consistent across project proposals. The assumptions to be used for the forecasts, as well as the main sources for the data to be used are detailed are detailed in Annex IV. Features of the financial model The projection should be done in local currency and nominal terms in order to reflect more accurately the reality under the assumption made for inflation. However, for better clarity, data in the model should be input in real terms and then expected the inflation should be added to the calculations. Ideally, all inputs should be concentrated in one spreadsheet. The translation into euros is done using the so-called all-current method, by which income statement values are translated using the average exchange rate for the year, balance sheet values are translated using the ending exchange rate for the year (with the exception of the shareholders equity, which is translated at the historical rate), and the translation gain or loss is recorded directly into the shareholders equity as comprehensive income.

6.4. Analysis of financial projections

The relevant aspects to be considered for the analysis of the output of the financial model in order to ensure that the financial projections for the project are acceptable are the following: 1.Justification and consistency of data: All relevant input data should be justified (in the CBA or with reference to other parts of the project feasibility studies) and consistent with the conclusions of the feasibility studies, the project description and the rest of the data in the financial projections. In particular, this refers to the following: (i) beneficiaries; (ii) demand, in terms of quantities of waste; (iii) investment costs; (iv) revenues; (v) operating costs; and (v) expected changes of those variables during the projection period. Also, there should be sufficient certainty regarding the financial arrangements for the financing of the project, and in particular in the case of direct contributions from national authorities and beneficiaries and loans from local lenders or international financial institutions. 2.Polluter pays principle: The chosen scenario for the collection and disposal fees should reflect the correct application of the Polluter Pays Principle. In the case of waste management projects and according to Art. 15 of Directive 2006/12/EC on Waste, this means that Article 15. In accordance with the polluter pays principle, the cost of disposing of waste must be borne by: a. the holder who has waste handled by a waste collector or by and undertaking as referred in Article 9; and/or b. the previous holders or the producer of the product from which the waste came. The proposed cost recovery system should be clear and transparent, with detail of the different tariffs and/or fees, whether these tariffs and fees are based on quantities of waste, and separation of collection from final disposal (for example, there could be regular tariffs/fees paid by the customers for collection and also gate fees applied to the collection companies and/or non residential customers when they take the waste to some collection points or even the final disposal sites).

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3.Affordability: Notwithstanding the above, Art. 55 of regulation 1083/2006 allows for considerations of equity linked to the relative prosperity of the Member State concerned, which for all practical purposes implies that the collection and disposal fees borne by the users should not exceed certain commonly accepted thresholds. In order to ensure the affordability of collection and disposal fees for low income households, the following steps are required in the analysis: a. Estimation of the average household income for those households subject to the payment of collection and disposal fees. b. Estimation of the number and income of low income households based on the lower deciles of a distribution of income for those households subject to the payment of collection and disposal fees. c. Verification that, with regards to collection and disposal fees, payments do not exceed 1.8% of the monthly average income for households in the lowest income decile. The calculation above implies the definition of collection and disposal fees/taxes that are affordable for all customers, but this does not mean that the same fees apply to all customers. That is, an affordability constraint for low income customer can be overcome with a tariff structure with lower rates for low income customers, but the rest of the customers and in particular the non-residential ones can be subject to different fees that are more consistent with the Polluter Pays Principle. In any case, affordability refers to the total amount paid by the customers, and not just to the incremental fees paid as a result of the project. 4.Financial sustainability: The verification of the project financial sustainability implies a cumulative positive cash flow for each year of the projection. Temporary shortfalls can be covered by a revolving credit (embedded in the models cash flow statement) provided that the assumptions behind this revolving credit are reasonable with regards to the local financial markets. Also, when the financing structure of the project includes a long-term loan to be paid with revenues within the scope on the financial projections, a debt service coverage ratio (measured as EBITDA/DebtService, with EBITDA being the earnings before interest, taxes, depreciation and amortization) of at least 1.2 (or higher if required by the IFI co-financing the project), when applicable will be required for each year of the loan amortization period. As regards the identification of revenues, the Beneficiaries are requested to include in their CBA Report and in the Application Form a tabulation clearly identifying the different revenue sources, with corresponding allocation for each concerned services (see also section 8.2 of this Guidelines) : collection, transport, disposal and treatment. In addition, the possible external revenues shall be clearly detailed (unitary fees / tariffs and corresponding volumes / quantities), such as : 1. 2. 3. 4. sale of heat or energy; sale of compost; revenues generated from the recycled waste; disposal fees for CUU on the regional landfill with the corresponding tariff adopted by the IDA

In the same vein, any contribution from external stakeholders to the project should be clearly identified and reflected in the financial analysis. In particular for some waste producers (WEEE, batteries, packaging waste,) which, according to the relevant Community and national legislation, shall contribute to the corresponding collection and treatment costs, whenever the project would include some facilities or infrastructures in that respect.

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6.5. Considerations on tariff/taxes increases

In light of the points raised above, incremental tariffs or taxes 8 increases shall be considered in the financial analysis with the goal to ensure an adequate level of recovery of the cost of providing the service, as well as financial sustainability of operations once the project is implemented, while at the same time respecting affordability constraints that might apply. Nevertheless, as stated in WD 4, tariffs/taxes shall be set at a level adequate to cover operating and maintenance costs, including replacement costs for the equipment with shorter lifespan, as well as a significant part of the assets depreciation (meant as a proxy of the cost needed to replace the infrastructure in the future). It is expected that the technical feasibility study will establish the incremental cost per unit of produced waste on the basis of an incremental analysis taking into account the overall integrated waste management system at the level of a County. This cost will have to be checked against affordability limits for the consumers, eventually split by urban and rural areas, on the basis of the quantity of waste produced, as forecasted in the feasibility study. The average tariff or tax shall be then set at the maximum level allowed by the affordability limit described above, and applied to all customers, with a view to have a unified tariff systems 9. For those cases where due to low affordability levels, the application of the affordability ceiling detailed above, will cause tariffs to be set at a level that endanger the financial sustainability of the project or do not ensure full cost recovery of operation, alternative or cumulative options shall be explored in order to address the problem and ensure sustainability. These alternative options, deviating from the affordability policy described above, shall be used only if a sound justification exists, and must be discussed and agreed in advance with the Managing Authority. It is anticipated that such options shall include, as a minimum: - a political decision to set tariffs above the affordability, while considering specific measures at the level of IDA to reduce the affordability burden on the poorest households (vouchers, lower social tariffs, etc) - alternative and more sophisticated tariff systems are considered, allowing for example, differentiated tariff systems, with higher tariff for non domestic consumers, up to a level to be agreed with the managing Authority. - a combination of both options above. The CBA will have to duly describe the recommended tariff system.

7. Funding Gap calculation and financial profitability indicators

The calculation of the funding gap as well as of the project profitability indicators (i.e.: financial return on the investment or FRR/C and financial return on own capital or FRR/K, and the corresponding financial net present values FNPV) and in accordance to the Working Document 4: Guidance on the methodology for carrying out Cost-Benefit Analysis (WD4), the analysis will be carried out in according to the incremental method by comparing the scenario with the project with an alternative scenario without project. For the period 2007-2013, art. 55.2 of the Regulation 1083/2006 stipulates that, for revenue generating projects10, the determination of the level of EU co-financing is based on the concept of funding gap, intended as the portion of the proposed (eligible) investment that cannot be covered by
8

Taxes may be considered as direct revenues for the sake of the project and related funding gap calculations according to Art. 55 of Regulation 1083/2006, provided that beneficiaries can demonstrate that are purposely raised for the financing of the waste service and earmarked in that respect, with appropriate justification of the corresponding collection mechanism . 9 As described above, an unified tariff system does not mean that the same fees apply to all customers, but rather than the same set of tariffs, if needed differentiated by categories, are applied consistently across the all project area.

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the net revenues accruing for the investment itself, both expressed in term of their current (present) value. The difference between the two values is considered as Eligible Expenditure when applying the cofinancing rates specified in the relevant SOPs. WD4 gives clear instructions, which are replicated in the box below.

STEPS TO DETERMINE THE EU GRANT 2007-2013 PROGRAMMING PERIOD

Step 1. Find the funding-gap rate (R): R = Max EE/DIC where Max EE is the maximum eligible expenditure = DIC-DNR (Art. 55.2) DIC is the discounted investment cost DNR is the discounted net revenue = discounted revenues discounted operating costs + discounted residual value Step 2. Find the decision amount (DA), i.e. the amount to which the co-financing rate for the priority axis applies (Art. 41.2): DA = EC*R where EC is the eligible cost. Step 3. Find the (maximum) EU grant: EU grant = DA*Max CRpa where Max CRpa is the maximum co-funding rate fixed for the priority axis in the adopting the operational programme (Art. 52.7). Commissions decision

In practical terms, the project incremental revenues and costs will be estimated by running two scenarios of the financial projections: with and without project. These incremental revenues and costs, in nominal euros, will be translated into constant euros and discounted using a rate of 5% in real terms (unless otherwise justified or different instructions provided by the Managing Authority), according to the regulations and more specifically according to the instructions in the Guide to Cost-Benefit Analysis of Investment Projects and the Working Document 4: Guidance on the methodology for carrying out Cost-Benefit Analysis. The resulting funding gap and subsequent grant rate will then feedback to the financial projections in an iterative process. The project profitability will be measured by FRR/C before Community assistance and FRR/K after Community assistance. The value of FRR/C before Community assistance is expected to be low or even negative, which justifies the need for co-financing by the EU funds. FRR/K after Community assistance should not be higher than the required return on equity for companies in the sector since that would show and excessive return to the project promoters at the expense of the EU tax-payer.

10

According to the definition of Art. 55, a revenue generating project means any operation involving an investment in infrastructure the use of which is subject to charges borned directly by the users, any operation involving the sale of rent of land or building, or any other provision of services against payments. On the basis of subsequent clarifications issued by the European Commission, when the projects revenues (without taking into account the residual value of the infrastructure) cannot cover its operating costs, then it has not be considered as non revenue generating, and Art. 55 do not apply.

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Once the incremental revenues and costs have been established, the projects funding gap and the financial profitability indicators can be calculated using the model in presented in the Annex II of these guidelines. While the tariff increases based on the approach recommended in the previous section are the basis for forecasting projects incremental revenues, the discounted cash flow analysis performed to calculate the Funding Gap , however, should not include non-cash accounting items such as depreciation and contingency reserves, as clearly stated in Working Document 4. On the other side, replacement costs that are due to be incurred during the period of analysis (e.g., for equipment with a shorter economic life) are included in the Funding Gap calculation as (discounted) operating and maintenance costs.

8. Aspects related to financing of solid waste projects under SOP ENV

8.1 Specific financing aspects
When establishing the project financing plan, after the calculation of the Funding Gap, it has to be taken into account that the minimum contribution required by project beneficiaries is according to the following table:
Maximum value of financing for total eligible costs Minimum Contribuion of the beneficiary 98% (80% ERDF + 18% State budget ) 211%

Also, when presenting the project financing plan, attention is draw to the fact that the project beneficiaries are Local Authorities, and only part of the VAT related to the investment can be considered as reimbursed the VAT related to the funding gap contribution (according to the provisions of OUG 29/2007). The part of VAT related to the non-funding gap contribution, which is ensured through a co-financing loan, as well as to other non eligible expenditures shall be considered as a non eligible cost, and the Funding Gap adjusted using a pro-rata. The Beneficiaries are requested to present the project financing plan following the model attached in Annex VI. Also, since in many cases the co-financing will be ensured by Local Authorities, either via contracting a loan or through their budgets, the project promoter is advised to present in the project sustainability analysis a brief financial analysis of the Local Authorities in order to prove that they are capable to finance the non-eligible expenditures (from the operating surplus) and that they are allowed to contract the co-financing loan (based on the prevailing legal limitations regarding the maximum debt service level of local authorities).

8.2 Institutional issues

As described above, the CBA analysis and the Funding Gap calculations are made on the basis of an incremental analysis taking into account the overall integrated waste management system at the level of a County. However, the responsibilities for the management of the various services: collection, transport (construction and maintenance of the) transfer stations, (construction and maintenance of the ) landfills/treatment sites, will likely be different from project to project, on the basis of the political agreements reached between the County Councils and the participating municipalities. For a more detailed explanation of the institutional set up for the solid waste sector, see Annex VII.

11

It has to be duly noted that the 2% minimum contribution from the Beneficiaries shall be strictly applied.

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These services, while integral part of the integrated system, will likely be subject of different management contracts, in some cases already in place. To that extent, the project beneficiary, once determined the results of the financial analysis, shall present the prevailing institutional set up on the basis of Annex VII, clearly identifying and describing how the various services will be integrated and, where possible, their respective contractual arrangements (existing or intended) as well as respective financial inflows and outflows. The beneficiaries are also requested to include in their CBA Report a tabulation clearly identifying the different revenue sources, with corresponding allocation for each concerned service.

9. Economic analysis
The purpose of the economic analysis is to ensure that the project has a positive net contribution to society and therefore, in the context of these guidelines, worth to be co-financed by the EU funds. This implies the verification that, for the selected alternative, the project benefits exceed the project costs and more specifically that the PV of the project economic benefits exceeds the PV of the project economic costs. In practical terms, this is expressed as a positive ENPV, in Benefit/Cost (B/C) ratio higher than 1, or when the project ERR exceeds the discount rate used for the calculation of the ENPV. Same as in the case of the funding gap and financial profitability indicators, the analysis will be carried out in according to the incremental method by comparing the scenario with the project with an alternative scenario without project. The calculation of the project economic costs involves the conversion of project investment and operating costs from market to economic prices, which implies the breakdown of the project cost into the different categories listed below, with the required treatment specified for each case: a. Traded items: This category comprises all goods and services included in the project cost that can be valued on the basis of world prices. In a context of an open economy with international tender for the procurement of the equipment, materials and services, this category will normally cover most of the project costs. No specific conversion is required since market prices are assumed to reflect economic prices. b. Non-traded items: This category comprises all goods and services that have to be procured domestically, like for example domestic transport and construction, some raw materials, and water and energy consumption. The conversion from financial to economic prices is usually done through the Standard Conversion Factor (SCF). The SCF is usually computed based on the average differences between domestic and international prices (i.e.: FOB and CIF border prices) due to trade tariffs and barriers. However, given that costs within this category are normally low with regards to the total project costs and that high percentage of the Member State trade is internal to the EU and therefore by definition not subject to trade tariffs, the SCF should be very close to 1 and therefore we can assume to be 1 unless otherwise justified. In any case and since the SCF is common to all projects in the same country, its value should be provided by the Managing Authority. c. Skilled labour: This category comprises the labour component of the project cost that is considered scarce and therefore adequately priced in terms of opportunity cost. No specific conversion is required since market prices are assumed to reflect economic prices. d. Non-skilled labour: This category comprises the labour component of the project cost that is considered in surplus (i.e.: in a context of unemployment) and therefore not adequately priced from the economic point of view. The correction to reflect the opportunity cost of labour is made by multiplying the financial cost of un-skilled workers by the so-called Shadow Wage Rate Factor (SWRF), which can be calculated as (1-u)*(1-t), where u is the regional unemployment rate and t is the rate of social security payments and relevant taxes included in the labour costs. In practice, the SWRF is accounting for the positive impact of the project in a region with high unemployment, since SWRF (always lower than 1) decreases as unemployment increases, resulting in a lower economic costs and therefore a higher economic return. The SWRF is project-specific and therefore should be calculated for each project.

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e. Land acquisition: This category comprises the land implicitly used in the project, even when no financial cost is included as part of the project cost (for example if the land for the landfill was provided free of cost by the project beneficiary). Correction of land costs intends to adjust for the net output that would have been produced on the land if it had not been used by the project. Rather than applying a conversion factor to the financial cost like in the case of nontraded items or non-skilled labour, the economic cost of the land, which is also project-specific, has to be calculated separately. However, in those cases in which the land has been acquired at market value, it can be assumed that the financial cost is a good proxy of the economic cost since the market value should reflect the present value of the future output. f. Transfer payments: This category comprises indirect taxes (i.e.: VAT), subsidies, and pure transfers payments included in the market prices used to estimate the project costs. All these costs have to be eliminated for the purposes of the economic analysis. However, economic prices should be gross of direct taxes. Also, specific indirect taxes/subsidies intended to correct externalities do not need to be eliminated as long as there is no double counting The table below summarizes the corrections from market prices to indicated. The financial costs are converted into the economic costs corresponding conversion factor. Also, note that the relevant costs to economic analysis are the project incremental costs, regardless if the carried out using the remaining historical cost method. economic prices here by multiplying by the be considered for the financial analysis was

Table 5: Applicable conversion factor per cost item Cost item Traded goods Non-traded goods Skilled labour Non-skilled labour Land acquisition Transfer payments Conversion factor 1 Close to 1 1 SWRF n.a. 0 Calculated as (1-u) x (1-t) Case by case calculation instead of conversion factor To be provided by the Managing Authority. Comment

The project economic benefits for waste management projects can be grouped into three main categories: (a) resource cost savings; (b) reduction of visual disamenities, odours and direct health risks; and (c) reduction of greenhouse gas emissions. The specific details and suggestions for the quantification for each category are the following: a. The resource cost savings are due to (i) the recovery of recyclable products and the production of compost and energy; and (ii) the reduction of the total amount of waste finally going to final disposal, which extends the economic life of the landfills. The quantification of these benefits can be done based on (i) proceeds for the sale of recyclable products, compost and energy (which can be taken for the financial projections or the calculation of the project funding gap and financial profitability indicators); and (ii) when applicable to the project, avoided investment and operating costs at the landfill site (which can be estimated at a certain standard amount per tonne of waste diverted from the landfill).

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b. The reduction of visual disamenities, odours and direct health risks is due to (i) the elimination of uncontrolled dump sites; and (ii) the avoidance or proper collection and treatment of waste leachate. The quantification of these benefits can be done based on (i) increase in land values in the areas surrounding the rehabilitated dump sites (which can be estimated at a certain amount per hectare of rehabilitated dumpsite); (ii) avoided cleaning costs for not having to treat impact of uncontrolled discharges of leachate and/or the cost to develop alternative water sources when applicable (which can be estimated at a certain standard amount per tonne of waste either diverted from the landfill or properly disposed at the landfill). c. The reduction of greenhouse gas emissions is due to (i) the avoidance (or proper collection) of methane and carbon dioxide emissions, which typically account for 64% and 34% in volume, respectively, of all gas generated from decomposing waste; and (ii) the emissions saved when the project results in the generation of heat and/or electricity and the alternative source for this heat and/or energy implies the use of fossil fuels. The quantification of these benefits can be done based on estimation of the annual expected reduction in tonnes of methane and carbon dioxide (CO2) due to the project, transformation of the methane quantities into CO2-equivalent using a standard conversion factor and monetization of the resulting quantities of CO2 and CO2-equivalent using a standard value of EUR per tonne of CO212. The specifics and standard values for the above-referred methodology for the quantification of economic benefits are specified in the Annex III of these guidelines, which also includes a model for the calculation. Note that the increase of economic activity in the region as a result of the project is not a project benefit per se since this is inherent to all projects involving employment generation regardless of the objectives to be achieved. However, the economic impact of employment generation will indirectly be considered when correcting the cost of un-skilled labour with the shadow wage as explained with more detail below. Also, these potential benefits may be minored by the negative effect (in terms of disamenities) in the areas surrounding the final disposal facilities. The final step in the project economic analysis is the calculation of the projects ENPV, the B/C ratio and the ERR. The social discount rate for the calculation of the ENPV and B/C is 5.5%. Once the economic benefits have been estimated (as per Annex III of these guidelines) and the different economic costs and corresponding conversion factors have been established, they need to be transferred to the model for the calculation of the projects funding gap and the financial profitability indicators (as per Annex II of these guidelines) for the automatic calculation of the projects economic profitability indicators.

9. Sensitivity and risk analysis

The purpose of the sensitivity and risk analysis is to asses the robustness of the project profitability indicators. For this purpose, the first part of the analysis (sensitivity analysis) aims at identifying the key variables and their potential impact in terms of changes in the profitability indicators, and the second part (risk analysis) aims at estimating the probability of these changes actually taking place, with the results expressed as a estimated mean and standard deviation for those indicators. The relevant profitability indicators to be considered for the sensitivity and risk analysis are FRR/K and corresponding FNPV/K (calculated after Community assistance), and ERR and corresponding ENPV. The sensitivity and risk analysis consists of three steps, with the result of each one of them having to be reflected in the application for funding:

12

If the project is generating savings in terms of greenhouse emissions, the possible subsequent revenues generated by the sale of green certificates will have to be taken into account also in the financial analysis. Would it be the case, attention will then have to be paid to avoid double counting in the economic analysis

23

1.Identification of key variables: This basically implies the calculation of the values of the profitability indicators after variations of +/- 1% in the following variables: (i) project outturn cost; (ii) revenues; (iii) operation and maintenance costs; (iv) economic benefits; (v) economic costs (investment); and (vi) economic costs (operation and maintenance). The +/- 1% variations will be applied across the board to the annual costs for the base case scenario, and the results will be presented in a like the following:

Table 6: Summary of results of sensitivity analysis Variation of FNPV/K (in % of base case) [calculate] [calculate] [calculate] [calculate] [calculate] [calculate] n.a. n.a. n.a. n.a. n.a. n.a. Variation of ENPV (in % of base case) n.a. n.a. n.a. n.a. n.a. n.a. [calculate] [calculate] [calculate] [calculate] [calculate] [calculate]

Variable tested

new FRR/K

new ERR

Project investment cost (decrease of 1%) Project investment cost (increase of 1%) Revenues (decrease of 1%) Revenues (increase of 1%) O&M cost (increase of 1%) O&M cost (decrease of 1%) Economic benefits (increase of 1%) Economic benefits (decrease of 1%) Economic costs (investment) (increase of 1%) Economic costs (investment) (decrease of 1%) Economic costs (O&M) (increase of 1%) Economic costs (O&M) (decrease of 1%)

[calculate] [calculate] [calculate] [calculate] [calculate] [calculate] n.a. n.a. n.a. n.a. n.a. n.a.

n.a. n.a. n.a. n.a. n.a. n.a. [calculate] [calculate] [calculate] [calculate] [calculate] [calculate]

Given the results of the table above, any variable for which a variation of 1% results in a variation of more than 1 percentage point in the base case FRR/K of ERR or more than 5% in the value of the base case FNPV/K or ENPV will be considered a key variable. 2.Calculation of switching values for the key variables: The key variables require the calculation of the so-called switching values, which is the maximum variation (in percentage) in the key variable that is permitted before the FNPV or ENPV (whichever is relevant for that specific key variable) turns negative.

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3.Estimation of probability distribution for the profitability indicators: First of all, this implies a qualitative assessment of the relevant factors that may affect the values of the key variables as well as the mitigating measures already included in the project in order to the impact of those factors. For example, project investment cost could be a key variable, poor definition of the different investments included in the project and their cost could pose a relevant risk in terms of project outturn cost, and the preparation of detailed designs and tender documents with realistic cost estimates as part of the feasibility studies could be a mitigating measure to control this risk. After this qualitative assessment, there are two options for the quantification of the level of certainty of the calculated values for the profitability indicators: a. If there is reasonable information to define a probability distribution for the key variables, then the Monte Carlo method can be applied. This method consists on assigning random values to all the key variables simultaneously (assuming a normal distribution between a maximum and minimum possible value) for a number or repetitions sufficiently high in order to come up with a probability distribution for each one of the profitability indicators. Then each profitability indicator will be expressed as the mean and standard deviation of the values obtained after all the repetitions. b. If there is no reasonable information to define a probability distribution for the key variables, then the risk assessment will be carried out by defining an optimistic and a pessimistic scenario that includes all the key variables, and then calculating the two extreme values for the profitability indicators based on those two scenarios.

10. Presentation of results

The conclusions of the CBA will be presented in a document with the following sections: 1.Project area and beneficiaries, with detail of the demand projections (in this case, waste generation with the corresponding waste flows through the different waste treatment and disposal facilities before and after project). 2.Project objectives, with detail of the context within the relevant sector operational programme and the main indicators (in terms of standards) before and after the project. 3.Project description and cost, with the following sub-sections: (i) description of the alternatives considered and their corresponding cost; (ii) justification of the selection of the alternative considered as most suitable; and (iii) breakdown of project cost by component and type of expenditure. 4.Financial analysis, with details of the financial projections and conclusions of the analysis in terms of application of the polluter pays principle, affordability, financial sustainability and profitability indicators (FRR/C before Community assistance and corresponding FNPV, and FRR/K after Community assistance and corresponding FNPV). 5.Co-financing rate, with details of the assumptions made for the calculation (for example, the allocation of non-eligible costs between DIC and (DNR) and the results of the calculation. 6.Tariffs and affordability, with details of the proposed tariff and fee structure for and adequate level of cost recovery and compliance with the Polluter Pays Principle as well as how the affordability constraints have been reflected in this structure. 7.Economic analysis, with identification and quantification in monetary terms of the project benefits, correction of project cost with economic prices and calculation of the ENPV, B/C ratio and ERR.

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8.Sensitivity and risk analysis, with details of the key variables, the switching value on each case, the relevant factors and mitigated measures related to changes in these key variables, and the estimated probability distribution for the financial profitability indicators or, failing that, simply their values under an optimistic and pessimistic scenario.

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Annexes

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ANNEX I - Model for the Preparation of Financial Projections of Waste Management Projects
The purpose of the financial model (see attached spreadsheet FinWM.xls) is to facilitate the preparation of financial projections for waste management systems in order to assess the financial sustainability of the service as well as the corresponding projects. This annex provides the instructions to use the model and explains the basic assumptions behind the calculations. Structure of the spreadsheet The model consists of three worksheets: (i) Input; (ii) Output; and (iii) Equiv EUR. The content of each worksheet is the following: Input: All the necessary inputs for the calculations are entered in this worksheet, with the cells coloured in four colours depending on the type of data: blue if the required data is non-monetary data (like for example percentages or years), green if the require data is in nominal EUR, yellow if the required data is in constant EUR, and white for formulas. For the purpose of this model, constant EUR refers to the price level of the year immediately before the base year. The specific instructions to enter the data are provided in the next section. Output: This worksheet is the core of the model and it is here where the most of the relevant calculations are carried out. These calculations result in the projected financial statements in nominal local currency as well as the calculation of a number of relevant operating and financial ratios. For this purpose, this worksheet is divided into five modules: revenues, income statement, cash flow statement, balance sheet and ratios. Equiv EUR: This worksheet translates the financial statements from the Output worksheet (Income Statement, Cash-flow Statement and Balance Sheet) into current euros. Specific instructions for entering the model inputs The tables below provide specific instructions for entering the input data into the Input worksheet. For simplicity, the worksheet has been divided into modules and each line is numbered. Some of the information required will come from the project feasibility study (like in the case of population, coverage of the services, waste generation, project investment costs), whereas some other information will have to will have to be estimated specifically for this model (like for example the user fees and other revenues, the operating costs of the whole system, and the overall financial situation of the service, which includes for example the initial balance sheet with existing assets and liabilities).

FinWM(Protected).xl s

Sheet: Input

Module: General Parameters

Lines: 1-13

Subject:

General parameters

Remarks: This module requires the input of general parameters for the projections. The projection period (line 3) should be consistent with the economic life of the project in the context of which the projections are being prepared. Note that The financial projections are prepared for the overall service that contains the project to be submitted to the European Commission to obtain the support CF or ERDF support. The model covers a period of up to 30 years of projections, but all years beyond the projection period will not show. The magnitude of units for local currency (line 5) tells the model whether the data will be entered in units, thousands or millions. For the exchange rate, there are two options: automatic calculation based on the exchange rate of the base year and the different inflation rates for the local currency and the Euro, or direct input of the values based on official estimations. The selection of one or the other option in made in line 12.

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Sheet: Input

Module: Revenues

Lines: 14-21

Subject:

Waste generation

Remarks: The headings for the different lines in this section are self-explanatory. The important remark here is that any improvement in coverage of the services has to be supported with the corresponding investments further below in the module Investment Plan, either as part of the project or in parallel to the project. Sheet: Input

Module: Revenues

Lines: 22-32

Subject:

Revenues

Remarks: The revenues to be considered in the projection refer to the overall system and are split into three parts: user fees (lines 22 to 25), sale of sub-products (lines 26 to 31) and other revenues (line 32). Generally speaking, under the assumption that the user fees should cover all costs associated with the provision of the services and not just the collection, gate fees are considered transfer prices between the different facilities and not accounted for as revenues. That is, gate fees are ultimately paid by the users and therefore embedded into the user fees. The percentage of taxes in user fees (line 25) is used only for the calculation of the affordability of the used fees with regards to the household income, and nowhere else in the projections. Finally, in the case of revenues from sale of sub-products (lines 26 to 31), average prices should be used when there are different types of sub-products into the same category (for example, paper, cardboard, ferrous metals, aluminium, etc. under recyclable materials; different qualities of compost under compost; or heat and power under energy). Sheet: Input

Module: Operating costs

Lines: 33-45

Subject:

Operating costs

Remarks: For the purpose of the model, the operating costs of the systems have been split into the different stages of waste management (collection, in lines 33 to 35; sorting and treatment, in lines 36 to 38; incineration, in lines 39 to 41; and landfilling, in lines 42 to 44). On each case, costs are divided into fixed costs and variable cost, with the latter in the form or unitary cost per ton of waste going through each stage. Other operating cost that cannot be included in any of the above-referred categories can be entered in line 45. Operating costs DO NOT include depreciation, provisions, financial costs, or income taxes. Sheet: Inputs Module: Investment plan

Lines: 46-47

Subject:

Investment costs

Remarks: Investment costs are entered in two lines. Line 46 refers to the project investment costs (i.e.: the eligible costs for the CF or ERDF project under the context of which the financial projections are being prepared), whereas line 47 refers to the non-eligible costs of the investments as well as any other relevant investments in the waste management system, including the replacement of the project assets. The overall investment costs (i.e.: project plus other) should be consistent with the expected improvements in the system (for example the increase of coverage of the service) as well as the projected operating costs in lines 33 to 45. Sheet: Inputs Module: Investment plan

Lines: 48-51

Subject:

Depreciation

Remarks: For the purpose of calculating the depreciation costs, fixed assets are divided into three categories: existing assets (lines 48 and 49), project assets (line 50) and other capital investments (line 51). With the exception of line 48, which requires entering the actual depreciation in the last three years, annual depreciation is projected based on an annual percentage of the purchase values. This percentage should be calculated by dividing 1 by the average economic life of the corresponding assets (i.e.: an estimated average economic life of 20 years will result in an annual depreciation of 5%.

29

Sheet: Inputs

Module: Investment plan

Lines: 52-56

Subject:

Financing sources

Remarks: This section refers to the project financing sources, which can be the support from the CF or ERDF (line 52), a grant from the regional or central government (line 53), a loan from an IFI (line 54) or an equity contribution from the project promoter (line 55). The remaining balance (line 56) is assumed to be covered by internal cash generation and does not require any input because it is an automatic calculation. These percentages are applied to the project eligible costs (line 46) to calculate the corresponding amounts. The sources of financing for the project non-eligible cost, the replacement of project assets and other investments (see line 47) are entered in lines 63 and 64. The IFI loan is assumed to be taken in euros, with the conversion to local currency at the exchange rate of the corresponding year. Sheet: Inputs Debt service IFI loan

Module: Investment plan

Lines: 57-62

Subject:

Remarks: The service of the IFI loan is calculated by the model automatically based on the parameters to be entered in lines 57 to 62. The option in line 62 allows for the selection of either servicing the loan with a constant annuity of principal and interest or with the payment of equal instalments of principal (or therefore decreasing interest payments). The interest rate and other fees (line 59 to 61) are nominal, not real. Since the IFI loan is assumed to be taken in euros, the debt service is also in euros, at the exchange rate of the corresponding year. Sheet: Inputs Debt service other loans

Module: Investment plan

Lines: 64-65

Subject:

Remarks: The service of other loans (either an already existing loan or a loan taken in addition to the IFI loan to finance other investments) has to be entered manually, with separation of principal and interest payments. Sheet: Inputs Module: Other financial parameters

Lines: 66

Subject:

Interest

Remarks: The amount to be entered in line 66 is simply the actual net financial expenditures in the last three years. This for the income statement of the historical period before the projections and has no impact in the projections themselves. Sheet: Inputs Module: Other financial parameters Taxes and dividends

Lines: 67-70

Subject:

Remarks: Same as in the case of net financial expenditures in line 66, the income taxes paid during the last three years has to be entered n line 67 (for the income statement of the historical period before the projections and with no impact in the projections themselves). Also, the applicable income tax rate for each year has to be entered in line 68, the VAT rate in line 71 and the dividend pay-out rate in line 70. Line 69 provides the option, for the calculation of the annual income tax, of compensating the income before tax with losses from previous years. Sheet: Inputs Module: Other financial parameters

Lines: 72-74

Subject:

Working capital

Remarks: The basis for the calculation of working capital needs is provided in this section with the percentage of collections (which applies to the total revenues) in line 72, the days of stock in line 73 and the days of account payables in line 74, the latter two in relation to the total operating costs.

30

Sheet: Inputs

Module: Other financial parameters

Lines: 75-91

Subject:

Balance sheet

Remarks: The historical balance sheet for the three years before the projections is entered in lines 75 to 91, with the last of these three years is used as the opening balance for the projections. Sheet: Inputs Module: Other financial parameters

Lines: 92-94

Subject:

Cash management

Remarks: The projection of the cash-flow statement in the worksheet Output includes the automatic calculation of a revolving credit to provide liquidity in case of small shortfalls at the end of a given year. The basic parameters for this calculation are entered in lines 92 to 94 in the form of minimum cash in had required at the end of each year, maximum credit in terms of days of revenues, and interest rate for the credit balances. Accounts receivable management

Sheet: Inputs

Module: Other financial parameters

Lines: 95-96

Subject:

Remarks: Line 95 provides the option to regularise the accounts receivable balance at the beginning of the projections, with manual write-offs during the first three years. For the rest of the projections, the write-off is calculated automatically. Also, line 96 provides to options for VAT regime: payment upon billing or payment upon collections. This is particularly relevant when the collection rate is line 72 is low, since there is an additional loss to the amount not collected if the VAT that was already paid upon billing.

Other comments Using the data from the Inputs worksheet, the Output worksheet presents the financial projections for the reference period in nominal local currency and the Equiv EUR worksheet translates there projections into nominal euros. The projections are made using standard accounting rules and result into an income statement, a cash flow statement and a balance sheet. Also, some basic operational and financial ratios are calculated in order to assess the robustness of the results. The model is not protected and there are no hidden formulas. However, it is important to note that inserting and deleting rows or columns and/or changing formulas could seriously affect the outputs. It is therefore recommended that all auxiliary calculations are made on a separate spreadsheet and then the results of these auxiliary calculations pasted (i.e.: Edit > Paste Special > Values) or linked to the corresponding cells in the Inputs worksheet.

31

ANNEX II - Model for the Calculation of the Funding Gap, the Profitability Indicators and Risk and Sensitivity Analysis
The purpose of the attached spreadsheet (ezCBA.xls) is to facilitate the calculation of the funding gap as well as the financial and economic profitability indicators in Cohesion Fund and ERDF projects in accordance to the relevant regulations and guidance for the programming period 2007-2013. This annex provides the instructions to use the model and explains the basic assumptions behind the calculations. Structure of the spreadsheet The model consists of five worksheets: (i) Input; (ii) Calculation; (iii) Sensitivity; (iv) Output-E; and (v) Output-H. The content of each worksheet is the following: Input: All the necessary inputs for the calculations are entered in this worksheet, with the cells coloured in four colours depending on the type of data: blue if the required data is in nominal EUR, yellow if the required data is in constant EUR, green if the require data is non-monetary data (like for example percentages or years) and white for formulas. For the purpose of this model, constant EUR refers to the price level of the year immediately before the base year. The specific instructions to enter the data are provided in the next section. Calculation: This worksheet is the core of the model and it is here where most of the relevant calculations are carried out. These calculations are split into five groups: investment cost, financing gap, project financial profitability (FRR/C), promoters financial profitability (FRR/K) and projects economic profitability (ERR). The specific assumptions for these calculations are explained in a section below. Sensitivity: This worksheet should be in fact hidden, since its purpose is just to contain the auxiliary calculations that are necessary for the sensitivity analysis of the project financial and economic profitability indicators. The only reason it is visible is to provide transparency with regards to the structure of the spreadsheet and the methods and formulas used for the calculation. This worksheet is not intended for printing when presenting the model outputs. Output-E: This worksheet summarizes the results of the calculations in a format consistent with the section E of the Major Project Application, with all the required tables for the application being generated automatically. Also, the worksheet includes a risk assessment through Monte Carlo, which is implemented through a VBA macro included in the spreadsheet. This risk assessment concludes with the probability distribution for FNPV/C and ENPV as well as the assessment of the probability of these indicators being above zero. Output-H: This worksheet summarizes the results of the calculations in a format consistent with the section H of the Major Project Application, with all the required tables for the application being generated automatically. Assumptions made for the calculations The calculation of the Funding Gap is based on the guidelines and formulas provided in Working Document 4: Guidance on the methodology for carrying out Cost-Benefit Analysis. For those aspects in which the methodology is not clear, the following key assumptions were made:

ezCBA(protected).xl s

32

1.

Contingencies are not considered as actual cash-flows and therefore they are not taken into account for the calculation of the funding gap as part of the Discounted Investment cost (DIC) or the project profitability indicators. However, contingencies are considered as part of the eligible costs without exceeding 10% of the total investment cost net of contingencies. With the exception of the contingencies, as explained above, the DIC includes both eligible and non-eligible investment costs. The model is flexible enough to allow for the following types of non-eligible investment costs: (i) non-eligible investment cost during the implementation period (for example, planning and design fees incurred paid before January 1, 2007 or land purchase costs over the allowed limit); (ii) additional projectrelated investments that take place after the implementation period (for example, closing of the first landfill cell and opening and closing of the subsequent ones); and (iii) replacement costs of project assets, including of those that take place after the implementation period (for example, periodic renewal of machinery at the end of its economic life in mechanical-biological treatment plants). However and in accordance to the current methodology for the calculation of the funding gap, only the non-eligible investment cost during the implementation period should be considered, with the other two types to be treated as additional operating costs (that is, as part of the DNR). The calculation of the funding gap and the contribution of the funds is done in accordance to the methodology outlined in the above-referred Working Document 4: Guidance on the methodology for carrying out Cost-Benefit Analysis. This differs for the methodology being proposed in a new note from the Commission related to clarifications on Article 55 (Information Note to the COCOF Guidance Note on Article 55 of Council Regulation 1083/2006: Revenue-Generating Projects), although the results of both methodologies, if properly applied, is exactly the same.

2.

3.

Specific instructions for entering the model inputs The tables below provide specific instructions for entering the input data into the Inputs worksheet. For simplicity, the worksheet has been divided into modules and each line is numbered. Some of the information required will come from the project feasibility study (like in the case of the project investment costs and operation and maintenance costs). Other information will come from the financial projections (like the project revenues and, again, the project investment cost and the project operation and maintenance costs, and the project financing arrangements. Finally, some information, like in the case of the project economic benefits and the conversion factors for the project economic costs will have to be estimated specifically for this model following the general guidelines for all the projects in the same sector.
Sheet: Input Module: General Parameters Lines: 2-9 Subject: General parameters

Remarks: This module requires the input of general parameters for the calculations. Note that since the calculations will be carried out with constant euros, the discount rates are real and not nominal. The inflation rate of the EUR during the implementation period (line 5) is required only for the investment cost during the implementation period, which are the only amounts to be introduced in nominal euros (see below). The description in the corresponding cells is self-explanatory. The reference period (line 4) refers to the overall economic life of the project (i.e.: the period in which the facilities will be fully operational with regards to the project objectives). Investment costs during implementation

Sheet: Input

Module: Investment costs

Lines: 10-21

Subject:

33

Remarks: The project investments costs have to be introduced in nominal EUR, with detail of their nature, the year of disbursement and whether they are eligible or ineligible. The fact that these costs are introduced in nominal terms implies that the price contingencies are already being considered and therefore the contingencies in line 14 refer only to technical contingencies. However, for the calculation of the DIC, these investment cost will be automatically deflated using the inflation rate in line 5. Also, depending on the implementation period introduced in line 3, the cells corresponding to the years beyond this implementation period will appear with a grey shadow and any values entered in these cells will be ignored. Investment costs after implementation

Sheet: Input

Module: Investment costs

Lines: 22-31

Subject:

Remarks: In theory, this would be the area in the input worksheet to enter the project investments costs beyond the implementation period in constant EUR and with detail of their nature and the year of disbursement. The cells corresponding to the years of implementation appear with a grey shadow and any values in these cells are ignored. However, as explained as part of the assumptions made for the calculations (see assumption #2), only the initial investment costs can be considered for the calculation of the DIC, so any other investment costs beyond the implementation period (for example replacement of assets) will be included not here, but in the DNR as part of the operation and maintenance costs in line 43. Sheet: Input Module: Investment costs Economic life of project assets

Lines: 32-34

Subject:

Remarks: For the purpose of calculating the depreciation costs associated to the projects, assets are divided into three categories: building and construction, plant and machinery, and intangible assets. The latter refer to the cost of project preparation and design, supervision of works, publicity and technical assistance, for example. These costs are subject to amortization instead of depreciation. The economic life of some project assets can exceed the reference period, in which case there will be a residual value at the end of the reference period. Note that the economic life of project assets is NOT used to calculate the automatic renewal of those assets. Sheet: Input Module: Project revenues and costs

Lines: 35-42

Subject:

Revenues

Remarks: The project revenues have to be calculated on incremental basis (scenario with project minus scenario without project) and they have to be introduced in constant EUR. Typically, in the case of water supply, wastewater treatment and waste management projects these incremental revenues will come from additional customers added to the system and from tariff increases that apply to all customers (regardless if they are new or already existent). Other incremental revenues (to be specified in lines 37-42) may come from the sale of sub- products generated as a result of the project, like for example energy and heat in waste incineration projects. The cells corresponding to the years beyond the reference period for the project (from line 4) will appear with a grey shadow and any values in these cells will be ignored. Sheet: Input Module: Project revenues and costs Operation and maintenance costs

Lines: 43

Subject:

34

Remarks: As in the case of the project revenues, the project operation and maintenance costs have to be calculated on incremental basis (scenario with project minus scenario without project) and they have to be introduced in constant EUR. These costs DO NOT include depreciation, provisions, financial costs, income taxes, or any other item that is not cash-based and directly related to the operation of the project facilities. Note that as indicated in the section Assumptions made for the calculations above (see assumption #2), all investment cost taking place after the implementation period should be entered in this row as operation and maintenance costs. The justification for this, which seems to be against financial logic and may distort the calculation of the financial profitability indicators is the following: i. As indicated in Working Document 4: Guidance on the methodology for carrying out CostBenefit Analysis, determination of the level or Community assistance is based on the fundinggap rate of the project; i.e., the share of discounted cost of the initial investment not covered by the discounted net revenue of the project. Typically, for waste management projects, investment costs after the implementation period refer to replacement of equipment, closing of the first landfill cell, and opening and closing of the subsequent landfill cells. These costs could be considered as normal operating costs that instead of taking place in a uniform manner during the whole reference period, take place in a more concentrated manner every few years.

ii .

Sheet: Input

Module: Loans

Lines: 44-56

Subject:

Loans

Remarks: The information about the loans to be taken by the promoter to finance the project does not affect the calculation of the funding gap of the financial or economic profitability of the project (FRR/C, FNPV/C, ERR and ENPV), but it is necessary to calculate the financial return on the capital invested by the promoter (FRR/K and FNPV/K). There are two options: to introduce the basic data and allow the model to make the calculations (lines 44-50) or to introduce the annual drawdown and payments manually (lines 51-56). A combination of the two options (i.e.: as two separate loans) is also possible. In order to make the resulting cash-flow consistent with the rest of the data in the model (which is in constant EUR), it is recommended that the interest rate in the automatic option is introduced in real terms and not nominal terms. Also, if the manual option is chosen, then the interest payments should be calculated using the real interest rate and not the nominal interest rate. For this purpose, the real interest rate is defined as the normal interest rate minus the inflation rate. More precisely, the real interest rate can be defined as r = (1+i)/(1+p)-1 where r is the real interest rate, i the nominal interest rate and p the inflation rate. The cells corresponding to the years beyond the reference period for the project (from line 4) will appear with a grey shadow and any values in these cells will be ignored. If there is any remaining balance at the end of the reference period, the model will automatically consider that this remaining balance is paid on the last year of the reference period. Sheet: Input Module: Economic benefits Resource savings and externalities

Lines: 57-62

Subject:

Remarks: Lines 57 to 59 refer to the most standard benefits for environment projects, as they are generally valid not also for waste management projects, but also for projects in water supply and sewerage or wastewater collection and treatment. For the waste management projects in particular, a more detailed methodology and spreadsheet to estimate these benefits can be found in the Annex III of this document. Other type of economic benefits can also be added in lines 60 to 62. Sheet: Input Module: Economic costs

Lines: 63-68

Subject:

Breakdown of costs

35

Remarks: The project economic costs are calculated on the basis of the project financial costs (i.e.: investment cost and O&M cost), which are corrected with conversion factors to transform financial prices into economic prices. In order to do that, the model requires a break down of cost into traded goods, non-traded goods, skilled labour, non-skilled labour, and transfer payments. This is done (in percentages) in lines 63 to 67 with differentiation for the construction phase and the operation phase. The conversion factor for skilled labor and transfer payments are 1 and 0 respectively, by definition. For the non-traded goods, unless otherwise justified, the conversion factor as been set to 1. Finally, for the un-skilled labour, the conversion factor is calculated automatically using the regional unemployment level and the percentage of social security payments and taxes included in the salaries. Note that the value of land is excluded for the above-referred breakdown of costs and treated separately in line 68. This is because in the case of public land, the land is normally given free of charge to the project and therefore a conversion factor could not be applied. Instead, the economic value of land has to be calculated separately (base for example on the loss of future production if the land had been maintained for other uses) and entered directly in the model. Sheet: Input Range of variation of variables

Module: Risk analysis

Lines: 69-74

Subject:

Remarks: The range of variation for the main project parameters (investment cost, revenues, O&M costs, economic benefits, economic cost of the investments and economic cost of the operation and maintenance of the resulting facilities) is necessary to carry out a risk analysis using Monte Carlo . For each case, a minimum and maximum variation for those parameters (in % of the base case) has to be entered in the form of a lower and upper limit. Also, a number of iterations for Monte Carlo is required (line 75). It is recommended for this number to be set at, or close to, the maximum number indicated in the worksheet (25,000). For the simulation, the model will assume that these variables follow a normal distribution with 99.7% of values falling between the lower and upper limits set in lines 69-74.

Overview of the calculations Using the data from the Inputs worksheet, the calculation worksheet calculates the project funding gap and the financial and economic profitability indicators. As indicated, this worksheet consists of five modules: investment cost, financing gap, project financial profitability (FRR/C), promoters financial profitability (FRR/K) and projects economic profitability (ERR). The first module (Investment cost) in lines 76 to 94 of the Output worksheet is devoted to calculate the annual depreciation expenses for each category of investment. Note that, following the applicable guidelines issued by the Commission, depreciation is NOT directly used for the calculation of the funding gap, but indirectly used in the calculation of the income tax and the residual value of the investments at the end of the reference period. Note also that depreciation of assets does not start until the construction phase has been fully completed. The second module (Financing gap) in lines 95 to 107 of the Output worksheet calculates the level of Community assistance to the project in accordance to the Commissions Working
Document 4: Guidance on the methodology for carrying out Cost-Benefit Analysis.

The third module (FRR/C) in lines 108 to 119 of the Output worksheet refers to the calculation of the projects financial profitability before and after Community assistance using the value for the EU grant calculated in the second module. The fourth module (FRR/K) in lines 120 to 139 of the Output worksheet refers to the calculation of the promoters financial profitability, which is calculated after taking into account the loan(s) disbursement and reimbursements, all interest expenses. As in the case of the FRR/C, the calculation is done before and after Community assistance using the value for the EU grant calculated in the second module. Finally, the fifth module (ERR) in lines 140 to 160 of the Output worksheet refers to the projects economic profitability by considering the project benefits and externalities instead of revenues and converting financial costs into economic costs.

36

All calculations are made in constant EUR to avoid distortions from exchange rate and inflation. Also, this allows for a single discount rate (5% or 5.5% depending whether it is the financial or social discount rate, as per the values normally to be entered in lines 6 and 7 of the input worksheet respectively) for all projects during the whole programming period rather than different discount rates depending on the assumed inflation scenarios. The only exception to this rule is that the investment costs are introduced in current EUR and then transformed automatically into constant EUR for the calculations. This is done in order to account for the projects price contingencies in a transparent manner. The sensitivity and risk analysis is also carried out on the basis of the Commissions Working Document 4: Guidance on the methodology for carrying out Cost-Benefit Analysis, including Monte Carlo. The simulation is launched by clicking a button at the end of the Inputs worksheet and the results, including the chart with the probability distributions for ENPV and ENPV are displayed in the Output-E worksheet. The model is not protected and there are no hidden formulas. However, it is important to note that inserting and deleting rows or columns and/or changing formulas could seriously affect either the outputs or the proper functioning of the Monte Carlo macro. It is therefore recommended that all auxiliary calculations are made on a separate spreadsheet and then the results of these auxiliary calculations pasted (i.e.: Edit > Paste Special > Values) or linked to the corresponding cells in the Inputs worksheet. Output worksheets As indicated at the beginning of this annex, the worksheets Output-E and Output-H summarize the results of the calculations in the same tables and formats that are required for the sections E and H respectively of the Commissions major project application form.

37

ANNEX III - Model for the Estimation of Economic Benefits in Waste Management Projects
The purpose of the attached spreadsheet (ecobenefitsWM.xls) is to facilitate the estimation of the typical economic benefits in waste management projects. This annex provides the instructions to use the model and explains the basic assumptions behind the calculations. Structure of the spreadsheet The model consists of one single spreadsheet that combines input and calculations. The output of this worksheet (lines 60 to 65) should be used to fill up lines 57-62 of the Input worksheet of the model (ezCBA.xls), as explained in the Annex II of these guidelines (see Annex II: Model for the Calculation of the Funding Gap, the Profitability Indicators and Risk and Sensitivity Analysis). Basis for the estimation and quantification of the economic benefits The economic benefits of waste management project are estimated on the basis of the methodology outlined in section 10 (Economic Analysis) of the main body of these guidelines. The different standard values proposed for the quantification of the economic benefits have been taken from the three documents listed below. The specific sections of these documents that were used as a reference are indicated when discussing each one of the specific benefits. Costs for Municipal Waste Management in the EU, prepared by EUNOMIA RESEARCH AND CONSULTING in 2001 for the European Commission, DG Environment. A Study on the Economic Valuation of Environmental Externalities from Landfill Disposal and Incineration of Waste, prepared by COWI in October 2000 for the European Commission, DG Environment. Waste Management Options and Climate Change (ISBN 92-894-1733-1) prepared by AEA Technology in July 2001 for the European Commission, DG Environment. The proposed values to monetize the reduction in CO2 emission correspond to the latest EIB energy price scenario, going from 25 EUR per tonne of CO2 until 2010 and then assuming a gradual increase to 45 EUR per tonne of CO2 until 2030. Specific assumptions for the estimation and quantification of benefits The tables below illustrate the specific assumptions made for the calculation of the economic benefits, with reference to the corresponding lines of the worksheet ecobenefitsWM.xls specially prepared for the calculation.
Section: Changes in waste flow Reference document to support proposed standard values: n.a. Lines: 5-25 Subject: Waste flow with and without project

ecobenefitsWM(prot ected).xls

38

Remarks: The purpose of this section of the spreadsheet is to present the waste flow in the project area with and without the project in order to have the necessary basis for the calculation of economic benefits. Note that the sum of the amounts entered in for each column in lines 6 to 14 need to match the total waste generated in the project area (line 5), and the same applies to lines 16 to 24. The total waste going to landfill in line 15 refers to compliant and not compliant landfills (lines 6 and 7) plus the rejects from the composting in MBT referred to in line 13. The same applies for line 25 with regards to lines 16, 17, and 23.

Section: Resource cost savings Reference document to support proposed standard values: n.a.

Lines: 26-31

Subject: Recovery of materials and energy

Remarks: The value of the recovered recyclable materials (like plastic, glass and metals), the production of compost from biodegradable waste and the production of energy and heat should be estimated at the corresponding market values for each sub-product. This market value should be justified in the feasibility study along two dimensions (i) existence of a market for those products; and (ii) consistency of the proposed units prices with the existing market prices and comparable qualities for the sub-products. Then the value of the recyclable materials and energy actually sold to third parties should be entered in lines 26-28. If the market prices are assumed to reflect the true economic value of these products, the totals in there lines should coincide with the corresponding totals in the financial projections. The value of the recyclable materials and energy not sold for a price but used by the promoter or even third parties to some specific purposes (as for example, auto-consumption of energy, or use of low quality compost as a cover material for a landfill or to improve the quality of soils) should be entered in lines 29 to 31.

Section: Resource cost savings Reference document to support proposed standard values:

Lines: 32-33

Subject: Extension of economic life of landfills

Costs for Municipal Waste Management in the EU

39

Remarks: The cost of landfill disposal per tonne varies depending on the size of the landfills, since there are significant economies of scale. The chart below compares the total cost of disposal in landfill (taking into account both investment costs and operating and maintenance costs) depending on the amount of waste received per year using available data from France, Germany, Italy and the UK taken from the above referred reference document (pages A-305 to A-325).

Total costs of landfill disposal 90 80 70 60 50 40 30 20 10 0 0 100 200 300 400 500 600 Capacity in Ton/year

For the purpose of the economic analysis of waste management projects, every tonne of waste that is not going to the landfill for final disposal as a result of the project should be credited with a monetary value per tonne based on the chart above. This unit value should be consistent with the total annual waste generation in the project area that would otherwise go to the landfill. In those cases in which the project includes a component to build a new landfill or to extend the existing one, the value from the chart above can be fine-tuned with the project specific values.

Section: Reduction of visual disamenities, odours and health risks Reference document to support proposed standard values:

Total cost in EUR/Ton

Lines: 35-38

Subject: Closure of uncontrolled dump sites

A Study on the Economic Valuation of Environmental Externalities from Landfill Disposal and Incineration of Waste

40

Remarks: The negative impact of a landfill site, a waste incinerator or another major waste facility in terms or disamenities is normally a fixed amount that does not vary significantly with the amount of waste being disposed of or treated at the site but that depends on the mere existence of the waste facility at the site. This impact can be measured in a number or ways, one of then being the decrease in property values in the areas surrounding the site. As indicated in section 6.4.3 of the above referred reference document, this impact can be quantified as follows: Distance from the site (in km) House price reduction (in %)

0 1.6 3.2 4.8 5.5

12.8% 9.0% 5.2% 1.5% 0.0%

NOTE: Distance has been converted from miles in the reference document to kilometers.

The ultimate source from these figures is Brisson I.E. and Pearce, Literature Survey on Hedonic Property Prices Studies in Landfill Disamenities, 1998, and corresponds to surveys carried out in North America. For the purpose of our analysis, this reduction in property prices can be averaged at 5% for all properties between 0 and 5.5 km from the site. Also, the total surface occupied by these properties have to be adapted to the specific size of the sites (i.e.: the larger the site, the longer its perimeter and therefore the larger the area of affected properties between 0 and 5.5 km of this perimeter). With some calculations, the total surface affected by the proposed 5% decrease in property value is as follows: AA = 95 + 5.5 * SA, where AA is the affected area in Ha and SA is the site area in Ha
(Source: own calculations)

This reduction in property prices is assumed to be all-inclusive of all other negative effects of being in the proximity of the waste management facility, like for example the traffic and/or noise levels. If the proximity to a major waste management site or facility causes property values to decrease, then the closing of existing dumpsites should have the opposite effect. With this in mind, the economic benefits of the closing of existing dump sites in terms or reduction of visual disamenities and other nuisances can be quantified, using the same values indicated above, by multiplying the average value per Ha of land in areas beyond 5.5 km from the site(s) by the total affected (in this case benefited) area as per the formula above, and by a 5% increase in value.

Section: Reduction of visual disamenities, odours and health risks Reference document to support proposed standard values:

Lines: 39-40

Subject: Avoidance of proper collection and treatment of waste leachate

A Study on the Economic Valuation of Environmental Externalities from Landfill Disposal and Incineration of Waste

Remarks: The benefits from the avoidance and proper collection and treatment of leachate can be estimated using the avoided costs of not having to clean the affected areas and also using marginal damage approach. With all the caveats and uncertainty associated to assign a standard value, the above-referred reference document (in section 6.4.2) settles for using 1.52 EUR per tonne of waste either not going to the landfill or going to a landfill with a proper system of collection and treatment of leachate. Of course, this also depends a lot from the composition of the leachate and the hydrological conditions of the terrain, so this value of 1.52 EUR/tonne should be use only in absence of a better estimate.

Section: Reduction of visual disamenities, odours and health risks

Lines: 41-44

Subject: Negative impact of project facilities

41

Reference document to support proposed standard values:

A Study on the Economic Valuation of Environmental Externalities from Landfill Disposal and Incineration of Waste

Remarks: Similarly to the increase of property values when the existing dumpsites are closed, some of the project facilities (for example a new landfill site or a waste incinerator) will have a negative impact in the value of the surrounding properties. The calculation follows the same logic as for Closure of uncontrolled dump sites above.

Section: Reduction of greenhouse emissions Reference document to support proposed standard values:

Lines: 46-58

Subject: Avoidance of emissions due to treatment and proper disposal of waste

Waste Management Options and Climate Change

Remarks: The estimation of the project economic benefits resulting from the reduction of greenhouse gas emissions requires two parameters: standard values to quantify the reduction of emissions and standard values to monetize them. In terms of the quantification of the reduction of emissions, the following table, taken from the above-referred reference document (and with detail of the relevant figures and tables from where the data was extracted) estimates typical emissions from different waste streams after being subject to specific treatment of type of disposal. The abbreviation of MSW stands for Municipal Solid Waste and refers to mixed waste.

Waste fraction within the overall waste flow MSW going untreated to basic landfill with limited gas collection MSW going to "best practice landfill" with proper gas collection MSW going directly to incineration (*) MSW being transformed into RDF and going to incineration (*) Biodegradable waste collected separately and with aerobic composting (**) Biodegradable waste collected separately and with anaerobic composting (**) Packaging waste collected separately and recycled (**) MSW going to MBT for compost, with rejects going to landfill (**) MSW going to MBT for compost, with rejects going to incineration (**)
(**) Without considering displaced energy and materials.

kg CO2/tonne 833 250 181 236 26 8 -1037 161 272

Reference Fig 9, page 28 Fig 9, page 28 Fig 11, page 30 Fig 13, page 33 (1) Table A5.52 in page 159 Table A6.55 in page 165 Table 10 in page 39 Fig 14 in page 35 (3) Fig 14 in page 35 (3)

(*) Without considering energy generation, which has additional benefits in terms of displaced emissions (1) Average of fluidised bed combustors, power stations and cement kilns. (2) Average of aerobic and anaerobic composting. (3) Average of highly stabilised compost and lees stabilised compost

Therefore, by comparing the situation with and without project (in tonnes per year) of the waste streams and fractions indicated above, it is possible to estimate the change in terms of emissions due to the project. The amounts of kg of CO2/tonne indicated in the table do not include the additional reduction in emissions due to energy generation from non-fossil fuels (which is considered next under Avoidance of emissions due to generation of energy from clean sources) or the savings in materials (which was already considered under Recovery of recyclable products). In terms of monetizing the reduction of CO2 emissions, as already indicated, the assumption is to use 25 EUR/ton until 2010 and to increase this gradually to reach 45 EUR/ton in 2030.

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Section: Reduction of greenhouse emissions Reference document to support proposed standard values:

Lines: 59-65

Subject: Displaced emissions through generation from clean sources

Waste Management Options and Climate Change

Remarks: Finally, the project benefits may yield additional economic benefits in terms of displaced emissions through the generation of energy from non-fossil fuels. This energy may come from biogas or from waste incineration. CO2 emissions in the generation of electricity depends on the type of technology used and ranges from 0.40 kg CO2/kWh in the Case of Combine Cycle Turbines (CCGT) to 0.95 kg CO2/kWh in the case of coal, with an average of 0.45 for the EU generating mix is considered (see Figure 5 in page 22 of the above-referred reference document). Similarly, CO2 emissions in the generation of heat also depends on the type of technology used and ranges from 0.27 kg CO2/kWh in the case of gas boilers to 0.45 kg CO2/kWh in the case of electric heating, with an average of 0.28 for the EU generating mix is considered (see Figure 6 in page 22). Consequently the proposed values for the quantification of these benefits are: 0.45 kg of CO2 per kWh of electricity and 0.28 kg CO2 per kWh of heat. As in the case of other avoided greenhouse gas emissions, the monetization is made assuming 25 EUR per tonne of CO2 until 2010, with a gradual increase to reach 45 EUR per tonne of CO2 in 2030.

Section: Total economic benefits Reference document to support proposed standard values:

Lines: 67-71

Subject: Total economic benefits

n.a.

Remarks: This section summarizes all the economic benefits from the previous sections and allows adding additional benefits (In lines 63 to 65) for other benefits (or negative externalities if entered with minus sign) not considered above. As indicated, the values in this section need to be copied to lines 57-62 of the Input worksheet of the

model (ezCBA.xls) in order to continue with the calculation of the projects ERR and ENPV.

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ANNEX IV - Assumptions and sources of data for forecasts to be performed in the CBA
1. Rationale This guidance is to be provided as part of the National CBA Guidelines to establish the framework for analysis to be performed by the Applicants (and their Consultants). The data presented below are consistent with the macroeconomic assumptions used for the development of the National Strategic Reference Framework (NSFR), which is the guiding document for the preparation of Operational Programmes, and their related projects. 2. Macroeconomic and population growth assumptions a) GDP Growth Forecasts shall be based on the latest available official prognosis of the Comisia Nationala de Prognoza (CNP). The current version of the Guidelines builds on the data provided by CNP in June 2009, data are to be considered indicative in anticipation of a revised Prognosis de primavera pe termen lung soon to be available at www.cnp.ro. The following table summarises the assumptions to be used.
Table 1 GDP growth assumptions (% per annum)

2006 7.9 2015 6.0

2007 6.2 2016 5.7

2008 7.1 2017 5.3

2009 -4.0 2018 4.9

2010 0.1 2019 4.8

2011 2.4 2020 5.0

2012 3.7 4.4

2013 4.4

2014 5.2

2021 and beyond

The table above refers to data at a National level, as published by CNP. For period after 2021, and for all remaining years of the analysis, the forecasts will take into account a stable average 4.4% GDP growth rate (in real terms) per annum. b) Inflation Data on inflation are based on the development of the yearly Consumer Price Index (CPI), where inflation is calculated deducting 100 from the yearly CPI. The current version of the Guidelines builds on the data provided by CNP in June 2009, data are to be considered indicative in anticipation of a revised Prognosis de primavera pe termen lung soon to be available at www.cnp.ro. The following table summarises the assumptions to be used.
Table 2 Inflation dynamics assumptions (growth rate per annum in %)

2006 6.56 2015 2.0

2007 4.84 2016 2.0

2008 7.85 2017 2.0

2009 5.8 2018 2.0

2010 3.5 2019 2.0

2011 3.2 2020 2.0

2012 2.8 2.0

2013 2.5

2014 2.3

2021 and beyond

For period after 2021, and for all remaining years of the analysis, the forecasts will take into account a stable average 2,0% inflation rate per annum. c) Exchange rate Forecasts will be based on the latest available prognosis of CNP. The current version of the Guidelines builds on the data provided by CNP in June 2009, data are to be considered

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indicative in anticipation of a revised Prognosis de primavera pe termen lung soon to be available at www.cnp.ro. The following table summarises the assumptions to be used.
Table 3 Exchange rate assumptions (RON/EUR)

2006 3.53 2015 4.0

2007 3.34 2016 4.0

2008 3.68 2017 4.0

2009 4.25 2018 4.0

2010 4.2 2019 4.0

2011 4.17 2020 4.0

2012 4.12

2013 4.07

2014 4.0

2021 and beyond 4.0

For period after 2014, and for all remaining years of the analysis, the forecasts will take into account a stable exchange rate of 4.0 RON/Euro. d) Population Growth The latest available prognosis of CNP on population growth (PROIECIA PRINCIPALILOR INDICATORI MACROECONOMICI N PERIOADA 2008 2013 Prognosa de Primavara available at www.cnp.ro) indicates the following prognosis for population growth at a national level:
Table 4 Population dynamics assumptions (% growth per annum)

2006 -0.2

2007 -0.2

2008 -0.2

2009 -0.4

2010 -0.3

2011 -0.3

2012 -0.4

2013 -0.4

2014+ -0.3

If more detailed official data are available for population growth at local level, then it is recommended to use those, clearly specifying the source of the data 13. If not, reasonable assumptions shall be used (and duly presented in the CBA) to derive population growth at local level from National values. 3. Data on Household Income for affordability assessment Current Unless more detailed official data at the local level are available (sources needs to be clearly specified in any CBA to be presented), data from the Family Budget Surveys on INSSE (the Statistical office) shall be used for establishing disposable income at local level. The latest INSSEs Statistical Yearbook includes a chapter summarising statistics taken from Family Budget Surveys. Forecasts It is recommended considering households disposable income growth as equal to nominal GDP growth (obtained by summing the real GDP growth rate and the rate of inflation, as detailed in section 2 above). As a result, current data collected, split by income decile, will be projected using a growth rate equal to the nominal GDP growth. Please note that the income of the lower three deciles are likely to evolve at a lower pace than the average income, which is indexed fully to GDP growth. To that extent, it is recommended to use historical averages during (at least) the last 5 years to determine the percentage of growth rate that can be attached to the income of the last three deciles.
13

As a information, please note that in September 2008, the INS has published a new population forecast at national level with a horizon to 2050, which provides information about population data for the years 2007 and 2050, including detail of population at County Level.

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ANNEX V - Itemised Unitary values for Investment and Operating Costs

Item Unitary value () INVESTMENT COSTS Landfill Construction Construction of landfill* (composed of x cells) with a capacity of x m3 for the first cell Landfill/dumpsite Closure Temp. Closure of compliant landfill*, first cell, with an area of x ha Final Closure of compliant landfill*, first cell, with an area of x ha (Final) Closure of (non-compliant) urban dumpsites with a total area of x ha in the whole county (Final) Closure of (non-compliant) rural dumpsites with total area of x ha Sorting Plant Construction of sorting plant* with a capacity of x ton/year Composting Plant Construction of composting plant* with a capacity of x ton/year Transfer Stations/Points Construction of transfer station*, without compaction, with a total capacity of x ton/year Construction of x bring and drop centres for y different waste streams with a total capacity of x ton/year EUR/ton EUR/ton Input material, maturation degree, preparation of final product(s) EUR/ton Input material/type, nr. of separated streams, further treatment EUR/ha EUR/ha EUR/ha EUR/ha all urban landfills together EUR/m3 Incl. all general landfill-infrastructure, gas- and leachate collection for cell 1, and for full capacity, without access road Comments

EUR/ton

Input material

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MBT(1), with (pre-)sorting and biology MBT(2), with (pre-)sorting and RdF-production and biology Bins, Containers: 1,1 cbm(metal/plastic)/660l/240l//120l

EUR/ton EUR/ton EUR/EUR/EUR/EUR/pcs

Input material, describe nr. of separated waste streams and maturation degree of organic material and further treatment Input material, describe nr. of separated waste streams and maturation degree of organic material and further treatment Specify total nr. of containers/type

OPERATING AND MAINTENANCE COSTS (ON ANNUAL BASIS) Landfill Post Closure monitoring and control(?) Sorting Plant Composting Plant Collection to transfer station or direct to landfill Transfer stations (total capacity of x tons) Or/and: Transfer stations (total capacity of x tons) and haul to final landfill(s)/(or MBT) Other (specify): MBT(1)/(2) EUR/ton EUR/ha EUR/ton EUR/ton EUR/ton EUR/ton EUR/ton EUR/ton Savings and External Revenues Recyclables, compost, RdF. Details to be presented in the CBA Report Details to be presented in the CBA Report Input material For the first 5 years, different for compliant/non-compliant? Total capacity, nr of output-streams Total capacity Type of collection, frequency?

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ANNEX VI Template for Project Financing Plan

Total value of the project (Total cost = eligible + ineligible costs) Eligible cost Funding Gap EU grant (max 80%)

State Budget contribution (18%)

Local Budget contribution (2%)

Non Funding Gap (County Council contribution)

Ineligible cost (others Local Budget (County Council contribution or County Council + Local Council) categories than eligible)

VAT

reclaimed

nonreclaimed

others

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ANNEX VII - Note regarding the institutional structure for integrated waste management projects in regional context
This note reflects several key elements that can be applied by the local beneficiaries of SOP Environment in setting the institutional mechanism associated with the implementation of an IWMS at county or more regional level. The note is a result of several consultations initiated by the MA for SOP ENV with relevant stakeholders in the field (Consultants, local beneficiaries, JASPERS experts). The objective of the note is to support the local authorities in taking decisions during the preparation of SOP Environment projects in the waste sector.

Key elements for institutional set-up - waste sector The local circumstances regarding the infrastructure and the waste management system are to a certain extent different from one County to another. That would be the reason why the basic principles are established at a central level while the relevant details for each county are determined at a local level, based on specific option analysis, considering the regional and county plan. 1. Role of IDA (Intercommunity Development Association) The basis of the institutional mechanism for regional waste management projects is represented by the Statute and the Constitutive Deed of the Intercommunity Development Association. The association statute will include aspects regarding: Long term investment plan for the waste management infrastructure. The role and competences of IDA, the role of County Council (CC) and of other local authorities (LA) in implementing the project The obligations for the projects co financing The ownership on the newly created infrastructure The mechanism of operating the infrastructure (collection, transport, transfer, storage) The mechanism of paying the waste management services (fees, taxes or mixt) The fees and taxes multiannual evolution plan Note: The solution of an integrated waste management system for each county represents a new approach of the waste management, compared to the current situation, its efficiency and sustainability requires the agreement and involvement of all administrative and territorial units of the respective county. On the other hand, it is required that all administrative and territorial units be members of the IDA from its very establishment since the exploitation of the integrated management system will be conducted through delegation of management contracts that will be assigned after public tenders. Therefore, an administrative and territorial unit which would become a member of IDA after the assignment of the contracts will not be able to become part in the delegation contract signed by IDA (on behalf and ......of the involved administrative and territorial units) The IDAs statute will include, in addition to the aspects already mentioned, the competences of the local authorities for which IDA received a mandate and the means of exercising these competences. As a general rule, the IDAs statute will mention that the administrative and territorial units will nominate the CC as beneficiary of the project.

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2. The role of the CC As beneficiary, in accordance with The European Regulation (applicable to all member states that have been granted structural funds), the CC is responsible for tendering, contracting and payment for the services, works and supply related to the investment project. The CC will create a Project Implementation Unit which will monitor these activities. CC will also cover the project implementation costs (logistics, payment of the PIUs members wages) and will be responsible for the entire organisation and functioning of this unit. CC will inform the general assembly of IDA on the projects progress and will take into consideration its notification/ approval. As a general rule, the CC will be the owner of the newly created infrastructure and the main or the only co-financer of the project. Note: The legal basis of the Countys ownership right is represented by art. 10 alin. (6) of the Public Utility Community Services Law no. 51/2006 as amended and modified by EGO 13/2008 which stipulates that: the public utilities systems or their component parts, commonly performed through new investments within the framework of the Association for Intercommunity Development having as object of activity the public utilities services, belong to the public ownership of the administrative and territorial member units and are registered in their patrimony in conformity with the stipulations of Law no. 213/1998 regarding public ownership and its legal regime, as modified and amended, based on the following criteria: (...) let. b) the goods situated in the area of several different administrative and territorial units and/or serving of several administrative and territorial units will belong to the public domain of the county, if all administrative and territorial units involved are situated in the same county and the county is a member of the association. Considering the fact that the goods that will be created by the project represent the infrastructure related to the component activities of the sanitation services regarding the waste management, the County will establish the county sanitation service, upon the agreement of the administrative and territorial units which are members of the IDA, as expressed by IDAs statute and constitutive act (the competency of the CC to manage the county waste services also reflected in the legal framework amending Law 101 on sanitation services) 3. Operating the integrated waste management system As regards the operational phase, - The CC will sign the contract for management and operation of Integrate Waste Management Centre - IWMC (including landfill and treatment facilities to be built) with a private operator (selected after tendering); the CC will inform the general assembly of the IDA regarding the implementation of the operation contract for IWMC. The IDA will sign the contracts for waste collection and transfer at local level (outside the regional landfill, the waste management system will be correlated with a certain division into zones of the county depending on technical, economic, geographic relief criteria, etc) As regards the activities related to the transfer stations (operation and waste transport to the IWMC) the contracting authority will be either CC or IDA.

The contract will contain annexes and detailed stipulations that are specific to each municipality of the area o If a fee, tariff or dual system is applied in the respective municipality

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In the case of the tariff, it will be stated that the operator will pay the fees To the CC if the goods granted belong solely to CC To the CC and LC if a part of the goods have been granted by the LC

The CC will probably contract a loan in order to insure the projects co financing. Therefore the CC will pay the interest during the construction of the infrastructure and when the infrastructure becomes operational, the credit will be reimbursed from the fees received from the landfill operator. In case several LA agree to finance the project (from loans or from local budget), the payment of the projects cofinancing will be performed by CC based on the amounts received from the respective LCs.

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