Project Application for an International Credit Organization

Project Title
Project Summary (Resume)
Applicant Information
Project Type
Project Description
Legal Aspects related to project implementation
Information and Publicity
General issues requiring a comprehensive approach
Typical mistakes when drawing up a project proposal

1. Project Title

The project title must be formulated in such a way that it can be immediately identified. The project title must contain the following information:

subject of the project;
project implementation site;
project implementation stage (if the project is part of a larger project).

The project title must be clear and specific to avoid misunderstandings or confusion with other projects implemented by this or another applicant.

The title should reflect the essence of the project and identify the infrastructure object that this project concerns. For example, project titles may be as follows:

"Modernization of road N 78 on the section between the villages of Petropavlivka and Oleksandrivka",
"Modernization of the wastewater treatment plant in the city of Chernihiv",
"Reconstruction of the water supply system in the city of Lviv — Stage 1".

It should be remembered that the same wording of the project title must be used in all parts of the project application, as well as in all appendices (for example, in the feasibility study of the reality of project implementation, the environmental impact assessment report, etc.).

2. Project Summary (Resume)

This part of the project proposal must contain a summary of the information submitted by the applicant and must not exceed 1 page.

In particular, the following information must be provided:

project justification (based on an analysis of the problems to be solved through the implementation of the project);
project implementation site;
project goal (general goal and specific objectives) — must correspond to their wording in the logical framework (logical matrix) of the project;
a brief description of actions regarding the implementation of the project, which includes a list of key project activities and their timeframes;
total project cost;
other important information for the project (it may be different, but essential given the specifics of a particular project: for example, emphasizing the special relevance of the project for the community, the effectiveness of the approach to solving the problem, or confirming the presence of certain prerequisites that will facilitate the implementation of the project).

3. Applicant Information

Part 3 of the project application contains basic information about the applicant, i.e., the organization applying for funding (utility enterprise, etc.).

3.1. Organization Name and Contact Information

In clause 3.1, you must provide the full name of the organization, for example, Utility Enterprise "Kharkivvodokanal", and the address of the organization in the form in which it is contained in the certificate of state registration of a legal entity. You must also specify the contact information of the person responsible for the development of the project, his/her name, telephone and fax number, email address for further information about the project, etc.

3.2. Description of the Applicant Organization

In clause 3.2, the applicant should provide information about the organization according to the following structure:

a brief history of the creation and activities of the organization;
the administrative and organizational structure of the organization (necessary to assess the capacity to implement the proposed project);
a description of the experience that the organization possesses in the field of implementing and managing similar projects.

4. Project Type

Usually, there are 2 main types of projects, so it is important to identify exactly which type a particular project belongs to.

Individual project.
Group of projects.

As a rule, applicants apply for funding for individual projects, for example, "Construction of a bridge in the city of Poltava". Thus, an individual project is an economically integrated investment related to activities that have clearly defined technical functions and tasks. In some cases, applicants submit requests for funding for a group of projects that are interconnected or pursue a common goal, for example:

"Improving the management of the water supply and wastewater treatment system in the city of Kyiv by: building a sewerage system, modernizing a wastewater treatment plant, reconstructing a water supply network and a water purification station".

5. Project Description

The project description is the most important part of the project application, presenting the results of the analysis conducted to justify the importance and feasibility of implementing the project. Usually, this part is a summary of a feasibility study of the reality of implementing an infrastructure project or a business plan for a commercial project or any other technical and economic analysis, which in full should be contained in the appendix to the project application.

The project description consists of several parts, namely:

project justification;
goals, objectives, and indicators;
activity implementation schedule;
project management;
results of technical, financial, and economic analysis;
other issues, such as legal support, environmental impact of the project, social aspects, etc.

5.1. Project Justification

The project justification should not exceed 3 pages and should contain the elements specified above. The information must be presented clearly, including for persons who do not possess special technical knowledge in the field to which the project relates, and contain a description of the current state of the area in which the project is planned to be implemented.

It is best to limit yourself to a description of the situation and the necessary data that are directly related to the type of project. For example, in the case of projects to modernize the water supply and sewerage system, you must:

indicate the population in the specific area and make a forecast for its growth in the coming years;
provide information on the state of the existing water supply and sewerage system (length, technical condition, material from which the pipes are made, etc.);
indicate the problems that arise in connection with the existing situation and force local authorities to implement this project.

It is important to note that the lack of appropriate infrastructure is not a problem, but only a statement. Thus, the formulation: "The problem of the city of Sviatohirsk is the inadequate state of the sewerage system and wastewater treatment plants" cannot be considered a problem, because it is a description of the present situation.

A true description of the problem in this case could be, for example, "poor drinking water quality" or "a threat to the health of city residents due to pollution of groundwater and surface water".

In the case of road construction projects, the formulation of the problem may sound, for example, like this: "difficult access to a certain village" or "a threat to the safety of road users due to the poor condition of the road".

That is, the description of the problem should indicate certain negative consequences for the community or discomfort of its members, which the project will be aimed at eliminating; the reasons that force local authorities or utility enterprises to undertake the implementation of the project. They may consist, for example, in the fact that "insufficient access to such public services causes emissions of untreated waste into canals and local rivers, which in turn causes pollution of soil and water, which accordingly seriously affects the health of the local population".

It must be stated:

information on how the proposed project will allow solving these problems (must justify that the situation will improve precisely thanks to the implementation of the project, confirm the connection between the problem, goals, and project activities);
general information regarding the products (material result) of the project.

That is, what exactly will be made or constructed through the implementation of the project (for example, 10 kilometers of sewer pipes and a wastewater treatment plant using mechanical/biological tools).

To justify the project, it is very useful to conduct a preliminary analysis of the parties most interested in the project (beneficiaries) and the nature of their needs (this could be, for example, the community as a whole or parts of it — utility enterprises and other legal entities, private entrepreneurs, men and women, individual socially vulnerable categories of the population, or even tourists visiting the city, etc.). Such an analysis will allow defining existing problems and ways to solve them more clearly, as well as formulating the goals, tasks, and implementation indicators of the project (these characteristics of the project will be discussed below).

5.2. Project Activity Implementation Schedule

In clause 5.2 of the project proposal, you must submit a list of all project activities, i.e., activities that will be performed to implement the project.

For example, activities may include the following:

holding a tender;
signing contracts for the provision of services and making appropriate deliveries;
land surveying works;
construction works;
installation and setup of equipment;
obtaining certain permits;
commissioning of the object;
start of the object's operation and its functioning.

The entire project should be divided into no more than 10 activities. Usually, project activities and their implementation schedule are presented in one table. Each type of activity contains a description of the scope of work to be performed, the duration of their execution, taking into account the start and completion dates (month and year), and the expected costs necessary to perform each type of activity.

It is important to remember that the total amount of costs for all activities must correspond to the total cost of the project, presented in other parts of the project application, as shown below in the subsections.

5.3. Goals, Objectives, and Indicators

When evaluating project applications, donor and credit organizations and institutions pay considerable attention to whether the implementation of the project will contribute to achieving the general development goals defined in the State Strategy for Regional Development, the regional development strategy, the city development plan, etc.

Thus, when preparing a project application, one should focus not only on achieving the individual immediate goals of a particular organization, i.e., the goals set by the utility enterprise or local authorities (local beneficiaries), but also pay attention to general goals that are beyond the direct influence of direct beneficiaries. When preparing a project application, special attention should be paid to defining these goals and tasks.

General goal — is a goal that is achieved indirectly as a result of implementing a certain project, the scale of which is much broader than the direct results achieved by beneficiaries after project implementation. The achievement of such a general goal is measured only after the completion of the project, usually over the next 2-5 years. Examples of a general goal can be:

environmental pollution reduction;
economic development of the region;
improving the health of local community residents, etc.

Specific goal — is a direct result of project implementation, which can be measured immediately after the project is completed. Examples of fulfilling immediate goals can be: supplying residents of a settlement with good quality drinking water; reducing river pollution through the construction of a wastewater treatment plant; improving road safety, etc.

Result — is the direct material product of implementing project activities (for example: a built road or a wastewater treatment plant; a created water supply system, etc.).

Actions — are sequential tasks that must be performed to achieve the planned results.

Prerequisites — are the basic requirements that must be met in order to start implementing the project. Usually, basic requirements are agreed upon with state authorities and are contained in such documents as, for example, the city master plan, capital investment plan, regional development strategy, state environmental protection program, etc.

All of the above elements, which are components of the project's logical framework, must be clearly interconnected (cause-and-effect relationship) in the following way:

if there are necessary prerequisites for implementing the project (for example, the project is part of a development strategy), you can start performing individual project activities;
the execution of project activities leads to obtaining expected results (if the necessary conditions for project implementation have not changed);
obtaining project results will lead to achieving the expected specific goals (if the necessary conditions for project implementation have not changed);
achieving the specific goals of the project will contribute to achieving the general goal of the project (if the necessary conditions for project implementation have not changed).

5.4. Project Management

Clause 5.4 of the project application must contain a description of the administrative and organizational structure of the project, which involves project and fund management throughout the entire project implementation period.

It is necessary to clearly present the organizational structure of the project, describe the roles and procedures related to project implementation management. A diagram of the project's organizational structure can be included in the project application as an appendix.

When preparing this part of the project application, it is necessary to clearly define who will be responsible for individual stages of project implementation. Similar information should also be provided regarding who will be responsible for the functioning of the project (object) in the future.

In some cases, two (or more) different organizations/institutions may be involved, of which, for example, the city council is responsible for creating the sewerage system, and the operation of the object will be supported by a utility enterprise for water supply. This is very important information, as some international donors or credit institutions include a clause in financing contracts regarding the impossibility of transferring a completed project to another organization, for example, within three years after the object is commissioned.

This part of the project application should also contain a description of issues related to financial management and the method of monitoring project implementation, especially during the stage preceding investments and the project implementation stage, as well as reporting issues.

5.5. Technical and/or Technological Analysis of the Project (if equipment installation is required)

An extremely important element of the project application is the technical analysis of the planned project, which contains an assessment of the proposed technologies. Such analysis shows the donor or creditor the feasibility of implementing the project. In clause 5.5, it is worth indicating why the proposed technical/technological solution was chosen.

The technical analysis of the project should start with the following elements:

Description of the project location, which must indicate:

topographic conditions (terrain and slope of the site, presence of water streams, etc.);
hydrological conditions (soil type, groundwater level, geological structure, etc.);
location relative to existing infrastructure (distance to the road, residential areas, etc.);
availability of communications (water, gas, sewerage, electricity, etc.).

Description of the proposed technical/technological concept, which provides:

a diagram of the proposed solution (basic technical and technological parameters, description of main equipment and installations);
requirements for power supply, road access, protection zones, etc.;
requirements for construction site safety (methods of drainage of pits, etc.).

The technical analysis must determine whether the communications necessary for the normal operation of the project already exist, such as roads, buildings, and other necessary structures and equipment, or whether they need to be constructed/installed within the framework of project implementation, which will increase its cost.

5.6. Results of the Financial and Economic Analysis of the Project

Financial and economic analysis is the most complex part of any project proposal. Clause 5.6 requires providing the numbers resulting from the financial and economic analysis and providing a brief interpretation of the analysis results. Therefore, the project proposal must provide "only" 5 indicators (coefficients), considering NPV, ENPV, IRR, ERR, and BCR.

Necessary explanations regarding the indicators:

NPV — Net Present Value — indicates what benefit the project will bring, or how financially effective the project will be. This indicator is defined as the difference between the funds received from the project (total receipts) and the funds spent on its implementation and operation, calculated over the entire period analyzed, taking into account an acceptable discount rate. It is calculated in hryvnias, i.e., in the project currency. Accordingly, the project will bring either a surplus (profit) or losses.
ENPV – Economic Net Present Value – determines the size of the economic effect (taking into account direct and indirect benefits from the project, calculated using a certain methodology). It can also be positive or negative (in case of a negative value of the indicator).
IRR — Internal Rate of Return. It means the internal rate of return or internal return rate of the investment. In fact — it is the discount rate at which NPV = 0. This indicator points to what percentage of total project costs, from the point of view of financial analysis, will be returned to the investor during the year of project implementation.
ERR — Economic Rate of Return — a similar indicator, but considering the results of the economic analysis of the project.
BCR — Benefits / Costs Ratio — shows the ratio of the actual full cost of effects (benefits) to the full value of investments (costs, including capital and operating) for the project. It is defined as a coefficient that can be greater than 1 (the project is approved), less than 1 (the project is rejected), or equal to 1 (boundary case, the project is evaluated by other indicators).

Conducting a financial analysis is especially important in the case of implementing revenue-generating projects. On the other hand, in the process of economic analysis, the project is considered from an economic point of view, that is, all potential costs and benefits are taken into account (social, environmental; aspects related to health care, economic development, etc.).

5.6.1. Financial Analysis

Clause 5.6.1 contains information on how to conduct a financial analysis. A financial analysis of projects involving revenue generation, such as water treatment plants, sewerage networks, gas, water, and electricity supply systems, solid waste management, etc., is mandatory. At the same time, financial analysis is the basis for conducting an economic analysis.

The fact of conducting and the results of the financial analysis are used by the donor organization to determine whether the project has an adequate financial plan, the profitability of the project from the point of view of the owners or beneficiaries of the project. Financial analysis also helps to adequately plan and track the course of project implementation and operation, providing management information to both external and internal users.

In order to determine the value of the project, it is necessary to compare the costs and benefits associated with its implementation. Financial analysis is the first step in determining the key performance indicators of the project, including NPV, which informs whether the project's benefits will be greater than the costs, and IRR, which indicates the discount rate at which NPV equals 0, allowing you to proceed to the evaluation of economic indicators ENPV, ERR, and BCR.

When a comparison of costs and benefits is made, the problem of price fluctuations may arise. This happens for two reasons. First, there are changes in the general price level due to inflation and, secondly, there are changes in relative prices due to the fact that prices for different goods/services change differently. Therefore, estimating project costs and benefits can be done in terms of constant or variable prices, where the baseline is the year in which the project is planned to be implemented.

In the case of infrastructure projects, the analysis is most often carried out on the basis of constant prices in order to eliminate the distortion effect caused by inflation by putting pressure on the value of costs and benefits from project implementation.

One of the most important aspects to consider when conducting a financial (and then economic) analysis is discounting. In general, the goal of discounting when evaluating a project is to take into account the economic aspect of time, that is, recognizing in the analysis the fact that resources are used and created in the process of implementing the project and its operation at different stages in different time intervals. Thus, for project analysis, it is necessary to use an appropriate discount rate, which will allow adjusting the assessment of project costs/benefits taking into account costs and revenues that will take place in different time intervals. Donor organizations or financial institutions always determine the discount rate on the basis of which the analysis should be conducted.

5.6.2. Economic Analysis

Usually, economic analysis is used precisely to evaluate those infrastructure projects that do not bring income, but it can also be used to evaluate projects that generate income. Such an analysis contains additional costs and benefits (economic, social, particularly regarding healthcare and the environment, etc.), which cannot easily be expressed in monetary terms. Its purpose is to evaluate how sustainable the project's achievements are and verify the following:

whether the distribution of project benefits and costs corresponds to its goals;
whether the project provides enough incentives for the development of the local community;
whether environmental impact consequences are included in the analysis.

The main difference between economic and financial analysis is that in economic analysis, a much wider range of benefits is considered than in financial analysis. In an economic analysis, total benefits (revenues, as well as other benefits — for example, cost savings, environmental benefits, etc.) are evaluated relative to costs.

Also, the overall impact of the project on improving the economic well-being of residents of a specific region in the context of the local economy is evaluated. For revenue-generating projects (water, gas, electricity supply, sewerage, waste management projects), the main benefits are revenues from the sale of products and services. It is important to determine whether the volume of provided utility services increases production activity within the framework of the proposed project. Demand for such services will depend on specific factors, such as the population growth rate and medical services. For most projects that do not generate income (roads, medical care, schools, etc.), benefits can be calculated using such factors as time and money savings, better access to public services.

6. Legal Aspects related to project implementation

Part 6 of the project application should demonstrate whether the planned project will comply with national legislation in terms of its implementation and whether any legal obstacles will appear, as well as indicate whether it will be necessary to obtain certain permits and certificates.

6.1. Compliance with National Legislation

In clause 6.1, it is necessary to indicate the relevant regulatory acts related to the project, as well as describe how these legislative acts can affect its implementation. These legal acts may cover such areas of legal regulation as public procurement, environmental protection, state aid, etc. When it comes to public procurement, it would be a good idea to specify the public procurement procedures (tenders, negotiations, etc.) required for different types of contracts (e.g., for conducting research, works, purchasing consumables or services), and one could also describe vendor selection procedures. If state aid is required for project implementation, details such as amounts of state aid should be described, indicate whether the de minimis rule applies, and whether state aid is registered, etc.

6.2. Lawsuits and Other Obstacles

In clause 6.2, you need to state whether the implementation of the project and its completion depend on the outcome of any lawsuit or other similar actions taking place currently (this also applies to situations where a lawsuit has not formally begun, but the case is planned to be submitted to court).

6.3. Permits and Certificates

In clause 6.3 of the project application, the applicant must describe all licenses, certificates, and permits required prior to and/or during project implementation. The description should specify the type of certificate or permit, its number, date of issue (if the certificate or permit has already been issued) or the expected date of receipt of the document, as well as its validity if the validity date is limited. Examples of such documents can be as follows: a permit to conduct construction works, an environmental permit, a decision of a body responsible for the preservation of historical monuments, etc.

7. Information and Publicity

In part 7 of the project application, you need to submit a summary of information and a plan for its dissemination, which includes a brief description of the goals of informing about the project and the target audience, ways and methods of executing the plan, as well as the budget for this type of activity. You must make sure that the budget for this type of activity is the same as the budget presented in the detailed breakdown of the project budget.

Most donors require the aid recipient to assure that information about the donor/creditor will be disseminated among other possible recipients and the general public. There is a whole range of means and methods for preparing such information and disseminating it. For example, a separate webpage or printed materials such as brochures, leaflets, and posters that can convey such information. All informational materials (such as booklets, leaflets, newsletters, posters) about the project must contain clear information about the donor and its logo.

Other means of information dissemination include national, regional, and local media, which can be used to distribute press releases, hold press conferences, organize interviews, radio briefings, etc.

8. General Issues requiring a comprehensive approach

Most donors or organizations financing projects attach great importance to the issues of so-called "sustainable development". Accordingly, they expect that the projects offered to them contribute to sustainable development, which unites several aspects — environmental, economic, and social.

Accordingly, in part 8 of the project application, attention should be paid to such common comprehensive issues that can be reflected in the process of implementing a specific project.

9. Typical mistakes when drawing up a project proposal

Vague formulation of the project topic and its location indicated in the proposal title.
Lack of full contact information regarding the person responsible for project implementation.
Too brief a project description that does not fully present the current situation and does not point to the real problem.
Weak justification of the necessity of implementing the proposed project and lack of description of its impact on local and regional development.
Lack of information on project co-financing within the local budget (not less than 10%).
Lack of information on reinvestment funds in the project's capital expenditure table (costs for replacing equipment after a certain period of operation).
Overly optimistic assumptions in the project revenue tables.

Source:

Guide to preparing applications for financing projects for the development of engineering infrastructure of territorial communities // Z. Jędrzejewski; ed.: D. Litch, V. Lysenko. — K.: "K.I.S.", 2009. — 128 p. — Parallel title page, foreword in English. — Bibliogr.: p. 126.