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Class 6 financing development project project cycle 2018

Development Finance, MPP, VJU

Prof. Koji Fujimoto

Class 6 Financing Development Project -Project Cycle1. Definition of Development Project
The project concept essentially provides a disciplined and systematic approach to
analyzing and managing a set of investment activities. However diverse the specific
activities they embrace, projects are likely to include several or all of the following
elements, although in varying proportions and with different emphases:
 Capital investment in civil works, equipment, or both (the so-called bricks and
mortar of the project)
 Provision of services for design and engineering, supervision of construction, and
improvement of operations and maintenance
 Strengthening of local institutions concerned with implementing and operating
the project, including the training of local managers and staff
 Improvement in policies – such as those on pricing, subsidies, and cost recovery
– that affect project performance and the relationship of the project both to the
sector in which it falls and to broader national development objectives
 A plan for implementing the above activities to achieve the project’s objectives
within a given time.
(From Investing in Development ~Lessons of World Bank Experience~ by Warren

C. Baum and Stokes M. Tolbert)

2. Project Cycle
Any infra project cannot be realized without going through a certain sequential
procedure. This procedure is generally called “the project cycle”, which has long been
developed by the World Bank. The simplest presentation of the project cycle is “PlanDo-See (or Plan-Do-Check-Action)” procedure. The infra project is planned first
(Plan), is then implemented (Do) as planned, and is finally evaluated to measure its
performance after the project is completed (See).
The project cycle of the World Bank is a little more complicated as the World
Bank engages in the project as an external financier. It encompasses six phases: (i)
identification, (ii) preparation, (iii) appraisal, (iv) L/A negotiation and board
presentation, (v) implementation and (vi) evaluation.
(i)
Project identification: The first phase of the cycle is concerned with
identifying project ideas that appear to represent a high-priority use of the
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Development Finance, MPP, VJU

Prof. Koji Fujimoto

country’s resources to achieve an important development objective. Such

aid agency
project ideas should meet an initial test of feasibility; that is, there should
T/A: technical assitant

(ii)

thẩm định
dự án

(iii)

(iv)

(v)

consultant



be some assurance that technical and institutional solutions -at costs
commensurate with the expected benefits- will be found and suitable
policies adopted.
Development projects are identified in a variety of plan documents such
as national/regional/sector development plans, mater plans and so forth.
Project preparation: Once a project idea has passed the identification “test,”
it must be advanced to the point at which a firm decision can be made
whether or not to proceed with it. This requires a progressive refinement or
the design of the project in all its dimensions; technical, economic, financial,
social, institutional and so on. In other words, project feasibility (F/S) is
examined intensively and extensively. tính khả thi
As a result of feasibility study, the feasibility study report is prepared.
Project appraisal: Before approving a loan, the World Bank as financier
normally requires a formal process of appraisal to assess the overall
soundness of the project and its readiness for implementation. For an
internally generated and financed investment, the extent of formal appraisal
varies widely in accordance with government practice. Some explicit
appraisal, however, is necessary, or at least a desirable, part of the decisionmaking process before funds are committed.
The World Bank staff are responsible for the appraisal work and prepare
the appraisal report as a crucial document to decide its lending.
L/A Negotiation and Board Presentation: Once the project appraisal is
completed, the case is presented to the board meeting of the World Bank. A
set of concerned documents such as the appraisal report, the draft loan
agreement which is negotiated with the Borrower before the board meeting
and so forth are examined at the board meeting from the lender’s point of
view.
The loan agreement is the document which is prepared at this phase.
Project implementation: The implementation phase covers the actual
implementation or construction of the project, up to the point at which it
becomes fully operational or project completion. It includes monitoring of
all aspects of the work or activities as it proceeds, and supervision by
“oversight” agencies within the country or by the World Bank.
During this phase, a variety of documents are prepared. The most
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Development Finance, MPP, VJU

completion

nghiên cứu kĩ
có trong đề thi
very important

(vi)

Prof. Koji Fujimoto

important are (quarterly or bi-monthly) project progress reports and a
project completion report, which summarize project progress status
periodically.
Project evaluation: The ex-post evaluation of a completed project seeks to
determine whether the project objectives have been achieved and to draw
lessons from experience with the project that can be applied to similar
projects in the future. Although the World Bank and other lending agencies
such as JICA of Japan routinely require an ex-post evaluation of all projects

that they finance, few developing countries have established a
comprehensive system for evaluating the results of their project investment
portfolio.
The result of post-evaluation is summarized in a report called the postevaluation report.
(Reference 1 The Project Cycle by Mr. Warren C. Baum)
3. Stakeholders and Their Roles
Each phase of the project cycle involves a variety of stakeholders and they play their
own roles. The stakeholders are those who are responsible for taking care of real
works concerned and their roles are what the stakeholders perform in the project cycle
phases.
Generally speaking, there are 5 types of stakeholders as shown vertically on the
left-hand side of Figure 1; namely, governments of the DCs/recipient governments,
multilateral and bilateral aid agencies, consultants, CSOs/NGOs and contractors,
while the project cycle is shown in a little more detailed fashion horizontally on the
upper extreme side of the figure. The roles of the stakeholders are spelled out in
accordance with project cycle phases in the inner cell boxes of the figure.
During the project identification phase, the national development plan is usually
prepared. The government of developing country is responsible for plan formulation.
The DC government, however, is often in short supply of expertise and manpower.
Therefore, it requests the TA agency to provide TA for development plan formulation.
The TA agency makes it a rule to employ a consultant who undertakes real planning
work for the plan. During the course of the planning work, the consultant is obliged
to invite CSOs/NGOs’ request and opinion to reflect in the plan. Similarly, the
stakeholders play different roles in the other phases of the project cycle. (Figure 1)
During the project preparation phase, an individual project is generally studied
carefully to prove its feasibility. In other words, the feasibility study (F/S) is
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Development Finance, MPP, VJU

Prof. Koji Fujimoto

undertaken and its report is produced (F/S report). The DC government can take care
of this business by itself. However, it is often faces difficulties in terms of manpower,
expertise, and fund. Therefore, T/A of bilateral and multilateral aid organizations is
often utilized and consultants get engaged in F/S report preparation as a consultant
job.
During the appraisal phase, as this is the job of aid organization, the donor agency
is responsible for the phase. Generally speaking, the donor agency appraises the
project from financier’s point of view by utilizing the F/S report. Staff concerned in
the donor agency prepare the appraisal report which is scrutinized for the fund
commitment. The fund is committed usually at the board meeting of the aid agency.
During the L/A negotiation and board presentation phase, since this phase is
primarily the World Bank’s responsibility, the stakeholder is the World Bank.
During the implementation phase, the actual construction starts and the project
gets completed in the end of the phase. The project executing agency of the DC
government first employs the consultant and then the contractor. The consultant
provides various services such as bidding documents preparation, bid evaluation,
monitoring, training and so on and the appointed contractor starts procurement of
goods and services. The World Bank as well as the executing agency
monitor/supervise the progress of project implementation/construction. On behalf of
these agencies, the consultant engages in project monitoring job and prepares project
progress reports regularly (quarterly) and the project completion report (PCR) in the
end.
After the project completion, the project enters into the post-implementation
phase where the project is post-evaluated under new circumstances of operation. The
World Bank takes care of project post-evaluation. In order to maintain objectivity of
the evaluation, the World Bank has established an independent evaluation mechanism
within the Bank. Some donor agencies tend to let third-party undertake postevaluation. The evaluation result is published in the form of report, namely the
evaluation report.

4


5

CSOs/NGOs

Contractors
(Construction
Companies)

Participation
in Planning
as
Representati
ve of
Residents

TA for
Formulation
of National
Development
Plan

Participation
in Planning
as
Representati
ve of
Residents

TA for Preinvestment
Studies

TA for
Formulation
of
Regional/Sec
tor
Development
Plan

Beneficiaris/
Clients of TA
for National
Development
Plan

Consultants

Beneficiaries
/Clients of
TA for Preinvestment
Studies

Beneficiaries
/Clients of
TA for
Regional/Sec
tor
Development
Plan

Regional/Sec
tor
Development
Plan
Formulation
as Consultant
Job

Financial
Assistance
Agencies

Feasibility
Study

Preinvestment
Studies

Regional/Sec
tor
Development
Plan

National
Development
Plan

Documentati
on of
Feasibility
Study as
Consultant
Job
Participation
in F/S as
Representati
ve of
Residents

Documentati
on of Preinvestment
Studies as
Consultant
Job
Participation
in Preinvestment
Studies as
Representati
ve of
Residents

TA for
Feasibility
Study

Beneficiaries
/Clients of
TA for
Feasibility
Study

Project
Preparation

Project Identification

National
Development
Plan
Formulation
as Consultant
Business

Aid
Organizatio
ns (Muitiand BiAgencies)

Technical
Assistance
Agencies

Governments of
DCs/Recipient
Governments

Consulting Services

Project Cycle

Sources: Engineering Consulting Firms Association of Japan, Overseas Economic Cooperation Fund of Japan and Author

Stakeholders

Figure 1 Project Cycle, Stakeholders and Their Roles

Partial
Support for
Appraisal, if
necessary, as
Consultant
Job

Appraisal
Report
Documentati
on by FA
Agencies
(Internal
Procedure in
principle)

Supporting
Services for
Appraisal

Project
Appraisal

FA
Agencies'
Own
Responsibility
(Internal
Procedure)

(No
Services)

L/A Nego.
And Board
Presentation

Detaied
Design &
Bidding
Documents
Preparation
as Consultant
Job

Documentati
on of Bid
Evaluation
Report as
Consultant
Job

Approval of
Bid
Evaluation by
FA Agencies

Beneficiaries
/Clients of
FA
(Recipient of
Consulting
Services)

Beneficiaries
/Clients of
FA for
Design &
Bid
Preparation
(Recipient of
Consulting
Services)

Approval of
Bidding
Documents
by FA
Agencies

Bid
Evaluation

Design &
Bidding
Document
Preparation

Construction
Contract with
Recipient
Government

Documentati
on of
Progress
Report as
Consultant
Job

Monitoring as
FA Agencies

Beneficiaries
/Clients of
FA
(Recipient of
Consulting
Services)

Monitoring

Project Implementation

(Local Staff
Training for
Operation as
a Part of
Constraction
Contract)

Local Staff
Training for
Operation as
Consultant
Job

(A
Component
of FA)

Beneficiaries
/Clients of
FA
(Recipient of
Consulting
Services)

Training for
Operation

Project
Completion

(Local Staff Training for O
& M as a Part of
Construction Contract)

Post-Evaluation Partly or
Fully by Third Party
Consultant as Consultant
Job, O & M Services as
Consultant Job

Objevtive Post-Evaluation
by FA Agencies and/or
Third Party, O & M is
Taken Care of by Recipient
Governments

Beneficiaries/Clients of
Post-Evaluation Undertaken
by FA Agencies, O & M is
Taken Care of by
Recipient Governments

O & M Services

Project Performance
Evaluation

Project Post-Evaluation

Development Finance, MPP, VJU

Prof. Koji Fujimoto


Development Finance, MPP, VJU

Prof. Koji Fujimoto

4. Project Cycle of Japan’s ODA Loan (Yen Loan)
(1) Project Identification and Preparation
Unlike the World Bank’s project cycle, Japanese ODA treats “Identification” and
“Preparation” as one phase of the project cycle.
(i) Identification
Project identification is carried out in various ways. Projects are identified by
governmental agencies when preparing a national/regional or sectoral development
plan, by bilateral aid agencies (such as JICA, USAID, KfW, DfID and AFD) or
multilateral aid agencies (such as the World Bank and ADB) in the course of
country economic/sector survey or post-evaluation of a completed project, by
public or private entities of the country itself or other potential donor countries
when conducting a project-finding survey, or by local municipalities, local
residents, non-governmental organizations (NGOs), academics, etc.
(ii) Preparation
Project preparation brings a project defined in a preliminary way to the point which
it can be appraised, i.e., at which it is possible to determine whether the project is
such as may be effectively implemented (and if so, how it might be implemented),
whether the project cost is acceptable in the light of its expected contribution to
economic and social development, and whether the project is environmentally
sound. Project preparation is usually carried out by means of a “Feasibility Study.”
The T/A wing of the Japan International Cooperation Agency (JICA) provides
T/A for feasibility studies (F/S) on projects under its technical cooperation scheme
and on a grant basis. In addition, the Yen loan wing of JICA (the former JBIC) has
a facility called Special Assistance for Project Formation (SAPROF) to assist
prospective Borrowers in preparing projects.
➢ Feasibility Study (F/S)
The Feasibility Study is a study whose purpose is to enable the prospective
project-sponsoring authority and other organizations concerned, including lenders,
to decide whether a project should be launched/financed or not. The F/S is
normally carried out by the LDC Government itself, or by qualified consultant(s)
hired by the LDC Government for the purpose. The F/S is a basic study on the
project covering its economic, technical, financial, environmental and social
aspects, and must be based on a thorough and extensive survey carried out to
internationally accepted standards. The F/S report is known as the Feasibility
Report.

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Development Finance, MPP, VJU

Prof. Koji Fujimoto

The F/S must include the following points:
① Background information on the project, such as data indicating the
recent economic situation of the country and of the sector targeted by
the project, information on the project site and surrounding area, history
of project formulation, etc.
② Major policy issues regarding the targeted sector (tariff, subsidy,
structural adjustment, privatization, etc.) and the government’s
development policy.
③ Objectives of the project
④ Analysis of the need for the project, including supply-and-demand
analysis and determination of the relative priority of the project in the
country’s national/regional/sector economic development plan
⑤ Detailed comparison of the various potentially viable alternatives
⑥ Detailed description of the project (purpose, scope, site, etc.)
⑦ Preliminary engineering design and analysis of technical feasibility,
taking into account natural and site conditions, availability of materials
and labor, possible construction methods
⑧ Cost estimate for the project (both foreign and local currency
components and financing plan)
⑨ Implementation schedule
⑩ Project implementation, operation and maintenance (O&M) scheme
⑪ Executing agency and institutional arrangements (including analysis of
the technical and financial capability of project-related institutions and
the need or not for consultant’s assistance)
⑫ Evaluation of the technical soundness, economic and financial viability
⑬ Evaluation of environmental and social impacts and mitigation
measures (the potential impacts should be carefully reviewed in the
EIA)
⑭ Possible project risks
⑮ Recommendations and procedures necessary for implementation of the
project (e.g. government approval for the project or of the findings of
the EIA for the project, land acquisition, planning for resettlement of
local population affected by the project, etc.), if any.

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Development Finance, MPP, VJU

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A Sample of Contents of Feasibility Study Report (An Agricultural Irrigation Project)
Chapter 1
Chapter 2

Summary and Conclusion
General Economic and Agricultural Background
2.1 T he Country and Its Characteristics
2.2 Current Economic Situation
2.3 Importance of Agriculture in the Economy and Recent Achievements
2.4 National Development Program
2.5 Relevant Existing Projects
2.6 Existing Study Reports

Chapter 3

T he Project Area
3.1 Physical Features:
T opography, Geology, Soils and Lands, Climate, Water Resources, etc.
3.2 Infrastructures
3.3 Land T enure:
Land T enure System
Land Reform
3.4 Land Use and Agricultural Production:
Land Use
Agricultural Production
3.5 Human resources
3.6 Agricultural Support Services
Extension Services
Researches
Credits
Cooperatives
Marketing Services
3.7 Agricultural Economic Policies

Chapter 4

T he Project
4.1 Project Concept and Description
4.2 Selection of Areas for Deveopment
4.3 Agricultural Development Orientation and Structure of the Development:
Future Project Output
Market and Price Prospects
Agricultural Sector Income
Individual Farm Income
Irrigation Requirements
4.4 Proposed Works and Other Project Components
4.5 Preliminary Design and Implementation Schedule
4.6 Cost Estimates
4.7 Procurement

Chapter 5

Organization and Management
5.1 General Aspects
5.2 Specific Aspects:
Construction
O&M of the Irrigation and Drainage Systems
Farm Management and Other Agrarian Measures

Chapter 6

Benefits and Justification: (including FIRR, and EIRR, NPV and B/C Ratio )

Chapter 7

Environmental Analysis

Chapter 8

Social Aspects Analysis

Chapter 9

Outstanding Issues
Annexes and Supporting Data

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Development Finance, MPP, VJU

Prof. Koji Fujimoto

(2) Project Appraisal
(i)
Purpose of and Steps in Appraisal
➢ Purpose of Appraisal
The purpose of JICA appraisal is to ascertain if and to what extent the project
concerned will contribute to the economic and social development, or economic
stabilization of the recipient country, whether the project is planned appropriately
and in sufficient detail, and whether successful implementation and sustainable
operation and project benefits may be expected.
➢ Steps in Appraisal
Project appraisal is, in principle, carried out by two JICA staff, a country operation
officer and an engineering-oriented staff, in line with the following processes.
Examination of Project-related Documents and Information

Appraisal Staffing and Mission Schedule

Request for Supplementary Information and Data to the Recipient

Sending of Appraisal Mission to the Field

JICA Board Presentation of the Appraisal Results

(Publication of the Appraisal Results)
(ii)
Appraisal Report (Contents of Appraisal)
The general structure of the Appraisal Report is as follows.
Chap. 1 History of the Project
Chap. 2 Economy of Borrower’s Country and its Development Policy
Chap. 3 Needs for the Project
Chap. 4 Project Plan
Chap. 5 Project Costs and Financing Plan
Chap. 6 Project Implementation, Management and Operation Plan
Chap. 7 Financial Evaluation (FIRR)
Chap. 8 Economic Evaluation (EIRR, NPV and B/C Ratio)
Chap. 9 Operation and Effect Indicators (Performance Indicators)
Chap. 10 Environmental Consideration
Chap. 11 Social Dimension
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Development Finance, MPP, VJU

Prof. Koji Fujimoto

(iii)

Chap. 12 Monitoring
Chap. 13 Conclusion
Prior Notification, Exchange of Notes and Loan Agreement
➢ Prior Notification
The Government of Japan normally announces its decision to extend a loan to a
Borrower at an international conference, such as a consultative group meeting or
through the Japanese embassy in the Borrower’s country. This is termed “Prior
Notification.”

➢ Exchange of Notes (E/N)
Following Prior Notification, the two governments enter into negotiations on a
formal agreement. When an agreement is reached, the two governments sign and
exchange notes confirming the matters agreed upon.
The E/N spells out the principal terms and conditions of the Loan, with the details
being stipulated in the Loan Agreement. The E/N generally contains or refers to
the following items and matters:
① Names of the Borrower and Project
② Loan Amount
③ Terms of the Loan (interest rate, repayment period, grace period, disbursement
period)
④ Conclusion of Loan Agreement between JICA and the Borrower
⑤ Procurement Conditions: Tied or Untied, Contract(s) to be financed by JICA
and Application of JICA’s Guidelines for Procurement
⑥ Provision for:
> The principle of fair and free competition among the shipping and
maritime insurance companies/entities of Japan and the country of the
Borrower with regard to products procured under the Loan
> Exemption of taxes on the principal and interest of the Loan, etc.
> Guarantee by the Government of the Borrower’s country (in cases where
the Borrower is not the Government)
> A clause requiring deposit and utilization of counterpart funds
> Commodity list
➢ Loan Agreement
The Loan Agreement is prepared, concluded and implemented between JICA and
the Government of the Borrower in the light of the contents of the E/N. The Loan
Agreement covers almost all the items of the E/N mentioned above. The principal
differences between the E/N and the Loan Agreement are as follows:
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Development Finance, MPP, VJU

Prof. Koji Fujimoto

The E/N gives an outline of the Loan, while actual implementation of the
Loan is carried out in accordance with the provisions of the Loan Agreement,
which include technical and other details of the Loan not specifically stipulated
in the E/N.
(3) Project Implementation vis-à-vis Procurement and Disbursement, and Supervision
The project implementation phase is the same as the case of the World Bank. But the
Japanese case elaborates on “employment of consultants, and procurement of goods
and services”, “disbursement of funds”, and “supervision of construction by JICA as
the lending agency”.
(i)
Selection of Consultants and Contractor/Supplier
➢ Guidelines for the Employment of Consultants under JICA ODA Loan
After the loan agreement is signed, the project enters the construction stage. First,
consultants will be employed, in accordance with JICA’s “Guidelines for the
Employment of Consultants under ODA Loans”, as consultants play an important
role in ensuring the efficient and effective preparation and implementation of the
project, by their services relating to engineering design, supervision and
management of the project and also in capacity-building for the project-related
entities.
➢ Guidelines for Procurement under JICA ODA Loans
Procurement of goods and services needed for construction of the project follows,
in principle, through the international competitive bidding (ICB) process.
Procurement is carried out in line with JICA’s “Guidelines of Procurement under
ODA Loans”, which stipulates policies and procedures with regard to prequalification (P/Q), tender documents, evaluation of tendering and contract, on the
principle of economy, efficiency, transparency and non-discrimination. JICA
reviews these procurement procedures as specified in the loan agreement, in order
to ensure that a project will be implemented by a well-qualified contractor.
(ii)
Disbursement and Procurement
➢ Commitment Procedure
Commitment Procedure is a disbursement procedure that involves the use of a
Letter of Credit (L/C), which is commonly used for general export and import
settlements. Under the JICA’s Commitment Procedure, a Letter of Credit issued by
the issuing bank is not effective by itself, it becomes effective and payment to the
supplier can be ensured when a Letter of Commitment (L/COM), which guarantees
JICA’s payment under such Letter of Credit, is issued by JICA. For each shipment,
the supplier requests the negotiating bank (Corresponding Bank of the Supplier) to
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Development Finance, MPP, VJU

Prof. Koji Fujimoto

negotiate the necessary documents, and in response, the Corresponding Bank of
the Supplier asks JICA to make disbursements through the Japanese bank
designated in the Loan Agreement (“Japanese Bank”). In turn, JICA makes
disbursements to the corresponding Bank through the Japanese Bank.
Figure 1 Flow Chart of Commitment Procedure
JICA






Borrower



Issuing Bank

⑭ ⑬ ⑧ ⑦
Japanese Bank

③ ④


⑮ ⑫ ⑨

Executing Agency


Correspondent
Bank of the
Supplier






Supplier

① Conclusion of Loan Agreement
② Conclusion of Contract
③ Request for Review of Contract
④ Notice of Contract Concurrence
⑤ Request for Issuance of Letter of Credit
(L/C)
⑥ Issuance of Letter of Credit
⑦ Request for Issuance of Letter of
Commitment (L/Com)
⑧ Issuance of L/Com

⑨ Advising of Issuance of L/C
⑩ Performing the Contract
⑪ Negotiation (for Shipping
Documents)
⑫ Request for Reimbursement
⑬ Request for Disbursement
⑭ Disbursement
⑮ Reimbursement
⑯ Notice of Disbursement

➢ Reimbursement Procedure
Within the Reimbursement Procedure, the Borrower or the Executing Agency
makes payments to the Supplier first and then requests JICA to reimburse such
payment, together with evidence of payments. JICA makes disbursements once it
confirms that such payments are in accordance with the L/A and the concurred
contract. Disbursements are made by paying into the non-resident yen account that
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Prof. Koji Fujimoto

the Borrower opened with an authorized foreign exchange bank.
Reimbursement Procedure can be used regardless of the contract currency. It
is commonly used for projects in which the contract currency is the local currency.
It is also used for commodity loans or structural adjustment loans where payments
have already been made before the effective date of the L/A (i.e. retroactive
reimbursement).
Figure 2 Flow Chart of Reimbursement Procedure

JICA







Borrower

⑩⑦④③
Executing
Agency




⑥ ⑤ ②
[Borrower's
Account]
Japanese
Bank

Supplier

① Conclusion of Loan Agreement
② Conclusion of Contract
③ Request for Review of Conract
④ Notice of Contract Concurrence
⑤ Performing the Contract
⑥ Payment
⑦ Evidence of Payment
⑧ Request for Reimbursement
⑨ Reinbursement
⑩ Remittance
⑪ Notice of Disbursement

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Development Finance, MPP, VJU

Prof. Koji Fujimoto

(iii)

Supervision
➢ Supervision during the Implementation Period
During implementation of the project, JICA supervises the progress of project,
where necessary, discussing matters with the Borrower with a view to ensuring the
smooth and successful implementation of the project. JICA’s supervision covers
both the implementation of the project (including physical construction,
engineering, and institutional development of project-related and beneficiary
entities) and loan procedures (including entry into force of the loan agreement,
procurement, disbursement, payment of interest and repayment of principal, etc.)

➢ Methods of Supervision (including SAPI)
JICA supervision missions review project implementation progress, discussing
with the Executing Agency how any problem encountered might be resolved and
doing everything possible to ensure that all necessary action takes place in a timely
and effective manner. The periodic progress reports on the project to be prepared
by the Executing Agency required by the Loan Agreement are useful for
identifying, at an early stage, any problem in the course of project implementation.
JICA has a grant facility called Special Assistance for Project Implementation
(SAPI) to assist Borrowers to implement and supervise the project effectively and
efficiently. This facility may be used to address obstacles and problems affecting
project implementation.
(4) Evaluation
(i) Lessons Learned
Post-evaluation is carried out in order to learn lessons from the completed project
for better planning and more effective implementation of future projects.
(ii) Performance Review
JICA’s post-evaluation also analyses the performance of the project in comparison
with the project plan at the time of project appraisal (this analysis covers scope,
design, estimated benefits: FIRR, and EIRR, NPV and B/C Ratio), based on the
project completion report (PCR) submitted by the Borrower as required by the
respective loan agreement.
(5) Monitoring after Completion (including SAPS)
Post-evaluation gives JICA a detailed knowledge of the operational aspects after
project completion. JICA carries out the monitoring of the operational and
maintenance performance of projects for a certain period of time after project
completion in order to ensure effective medium and long-term operation and
maintenance and sustainability of project benefits. If post-evaluation or follow-up
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Development Finance, MPP, VJU

Prof. Koji Fujimoto

monitoring reveals that operation and maintenance need to be improved, JICA gives
advice as appropriate, in the interest of improving operation and maintenance of the
project. JICA has a facility known as Special Assistance for Project Sustainability
(SAPI) under which consultants employed by JICA undertake an intensive study of
obstacles or constraints hindering the effective operation and maintenance of a
project.
Reference 1 The Project Cycle
Reference 2 Financial Internal Rate of Return and Economic Internal Rate of Return of
Education Sector Projects

Appendix 1: Calculation of FIRR, EIRR, NPV and B/C Ratio
Table 1 below clarifies differences between financial analysis and economic analysis,
and sorts out the hypothetical case projects analyzed in “Reference 2 Financial Internal
Rate of Return and Economic Internal Rate of Return of Education Sector Projects.”
Table 1 Financial analysis and Economic Analysis vis-à-vis FIRR, EIRR, NPV and B/C Ratio for Investment Project
Analytical
Approach

Financial Analysis

Economic Analysis

Targeted Sector
Project

Private Sector Project

Public Sector Project

Specific Method
of Analysis

Cost-Profit Analysis based on Cash
Flows

Value for
Investment
Decision

FIRR

School Construction Project

Financial Cost-Benefit Analysis
(Cost-Benefit Analysis at Finaicial
Prices) based on Calculated Cash
Flows

Economic Cost-Benefit Analysis
(Cost-Benefit Analysis at Economic
Prices) based on Calculated Cash
Flows

Quasi EIRR

EIRR

Quasi NPV

NPV

Quasi B/C Ratio

B/C Ratio

Bintang University Project at
Financial Prices

Bintang University Project at
Economic Prices

Sample Projects Life-long Education Project

University Student Project

15


Development Finance, MPP, VJU

Prof. Koji Fujimoto

Table 2 below is a hypothetical ample cash-flow table for cost profit analysis (in
financial analysis) of a private sector project.
Table 2 Cash Flows for Cost-Profit Analysis (Private Project)
(Unit: US$ million)
Year in Counting

Year (n) for PV
Calculation

Investment Cost (IC)

Profit (P)

1st Year

Year 0

30

0

2nd Year

Year 1

55

0

3rd Year

Year 2

0

30

4th Year

Year 3

0

40

5th Year

Year 4

0

45

Table 3 below is a hypothetical sample cash-flow table for cost-benefit analysis at
financial (market) prices of a public (government) sector project.
Table 3. Cash Flows for Financial Cost-Benefit Analysis (Public Project)
(Unit: US$ million)
Year (n) for PV
Year in Counting
Investment Cost(FC)
Financial Benefit (FB)
Calculation
1st Year

Year 0

40

0

2nd Year

Year 1

60

0

3rd Year

Year 2

0

40

4th Year

Year 3

0

40

5th Year

Year 4

0

40

16


Development Finance, MPP, VJU

Prof. Koji Fujimoto

Table 4 below is a hypothetical sample cash-flow table for cost-benefit analysis at
economic prices of a public (government) sector project.
Table 4 Cash Flows for Economic Cost-Benefit Analysis (Public Project)
(Unit: US$ million)
Year (n) for PV
Year in Counting
Investment Cost (EC) Economic Benefit (EB)
Calculation
1st Year

Year 0

30

0

2nd Year

Year 1

50

0

3rd Year

Year 2

0

45

4th Year

Year 3

0

45

5th Year

Year 4

0

45

Table 5 below shows IRR, NPV and B/C Ratio which are calculated on the basis of
cash flows of “Table” 3 above.
Table 5. IRR, NPV and B/C Ratio of Table 3
(Unit: US$ million)
Year

Cost (FC)

Benefit (FB)

Net Benefit

D.Factor(7%)

0

40

0

-40

1

40.000

0.000

1

60

0

-60

0.934579439

56.075

0.000

2

0

40

40

0.873438728

0.000

34.938

3

0

40

40

0.816297877

0.000

32.652

4

0

40

40

0.762895212

0.000

30.516

Total

96.075

98.105

NPV

2.031

B/C Ratio

1.021

IRR

0.079

17

PV (FC)

PV (FB)


Development Finance, MPP, VJU

Prof. Koji Fujimoto

Appendix 2: Calculation of Economic Internal Rate of Return (A Case Study of Table 4)
RIRR of Table 4 above is calculated manually by hand without using computer. It is
possible to calculate EIRR by inserting 2 different assumed EIRR values in the
equation of EIRR calculation: namely,
m

m

 C /(1  r )   B /(1  r )
i

*

i

i 0

i 0

*

i

i

(1) Assume that(EIRR)r* is 0.2 (20%), and obtain a total present value of EC
from table 4.
EC = 30/(1+0.2)0 + 50/(1+0.2)1
= 30 + 41.67
= 71.67
Similarly, obtain a total present value of EB from table 4.
EB



45/(1+0.2)2




31.25
78.99



+ 45/(1+0.2)3


26.04



45/(1+0.2)4

21.70

Thus, it is proved that, at r*=0.2, EB is bigger than EC by $7.32 million.
(2) Assume that r* (EIRR) is 0.3 (30%), and obtain a total present value of EC
from table 4.
EC =



30/(1+0.3)0
30 +
68.46



50/(1+0.3)1

38.46

Similarly, obtain a total present value of EB from table 4.
EB

= 45/(1+0.3)2 + 45/(1+0.3)3
= 26.63 + 20.48 + 15.76
= 62.87



45/(1+0.3)4

Thus, it is proved that, at r* = 0.3, EC is bigger than EB by $5.59 million.
18


Development Finance, MPP, VJU

Prof. Koji Fujimoto

(3) It is possible that we can repeat the above process many times until we obtain a
value of r* where EB = EC. Here, however, we can seek the value by using a
simple geometric method. Take two points, 20% point and 30% point, on a
horizontal axis. When EB is bigger than EC, indicate the difference above the
axis, and when EC is bigger than EB, indicate the difference below the axis.
From the discussion of (1), (2) and (3) above, we can draw the following
geometric figure.

EB>EC



7.32
e

a
(20% point)

(10-χ)

b (30% point)

χ

5.59

EC>EB
f

Where ae isχ, eb is (10-χ). As a triangle aed is analogous to a triangle bef, the
following proportional expression (proportion) can be held. Therefore, the
product of the extremes is equal to the product of the means.
ad:bf =
7.32:5.59
5.59χ =
12.91χ =
therefore, χ

χ:(10-χ),
= χ:(10-χ),
73.2-7.32χ,
73.2,
= 5.67.

We can, then, obtain a value of r*, namely r* =
The EIRR is 0.2567 or 25.67%.

20



5.67



25.67.


19



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