1 Financial/Investment Plan/Tariff Studies

Business planning is important to assess the financial feasibility of the proposed

projects against the designed objectives. It helps to plan the operations, investments
and finance of the town water utilities in a sustainable and affordable way. Business
plan is an important tool to develop better governance structures at town level, in
particular in the establishment of autonomous water utilities, taking decisions and
having responsibility at a local level. It helps to improve regulation of town water
supply and sanitation, because utilities are better able to generate performance data and
awareness of other information that is important to successful services provisions.
Accordingly, this section will be thoroughly studied. The study will include major
points such as investment cost, operation and maintenance cost, willingness to pay;
appropriate design; financial modelling and tariffs and connections fees. The following
major issues will be included in the study:

 Appropriate capital investment plan through modular (phased) approach will be

prepared to ensure that planning is affordable. This approach enables to set
affordable tariff. Getting this balance right and making sure that design matches
demand based on what customers are prepared to pay for connections. The
developed cost recovery tariff, which shows source of finance (internal & external)
for future needs.
 Financial analysis will be calculated to measure the viability of the project using
different economic parameters such as Net Present Value, Cost Benefit Ratio and
Internal Rate of Return. The financial cash flow is taken for a period of 20 years
assuming the period to be useful service life of the capital investment items.
 Sensitivity analysis will be undertaken to consider various assumptions that would
affect investment worth.
 The financial plan, which shows the full cost recovery tariff over time, will be
prepared to ensure that the running cost could be covered by internal sources and
seek external financial sources for expansion.
 The annual operation and maintenance cost will be calculated for the lifetime of the
project.
 Management and operation plan will be prepared to cover staff arrangements and
trainings.
 An adequate and appropriate financial management and reporting plan will be
developed to monitor performance against plan and meet regulatory obligations.
 Appropriate system of arrangement for local contribution savings will be
formulated.
 Based on the connection policy, a detailed demand assessment will be made on an
individual potential customers’ willingness to pay for connection fee.
 The consultant will exhaustively follow the developed business plan guidelines and
toolkit program to maintain its consistency.