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BuildoperatetransferWikipedia,thefreeencyclopedia

Buildoperatetransfer
FromWikipedia,thefreeencyclopedia

Buildoperatetransfer(BOT)orbuildownoperatetransfer(BOOT)isaformofprojectfinancing,
whereinaprivateentityreceivesaconcessionfromtheprivateorpublicsectortofinance,design,construct,
andoperateafacilitystatedintheconcessioncontract.Thisenablestheprojectproponenttorecoverits
investment,operatingandmaintenanceexpensesintheproject.
Duetothelongtermnatureofthearrangement,thefeesareusuallyraisedduringtheconcessionperiod.
Therateofincreaseisoftentiedtoacombinationofinternalandexternalvariables,allowingtheproponent
toreachasatisfactoryinternalrateofreturnforitsinvestment.
ExamplesofcountriesusingBOTareThailand,Turkey,Taiwan,SaudiArabia,[1]Israel,India,Iran,
Croatia,Japan,China,Vietnam,Malaysia,Philippines,Egypt,MyanmarandafewUSstates(California,
Florida,Indiana,Texas,andVirginia).However,insomecountries,suchasCanada,Australia,New
ZealandandNepal,[2]thetermusedisbuildownoperatetransfer(BOOT).Traditionally,suchprojects
providefortheinfrastructuretobetransferredtothegovernmentattheendoftheconcessionperiod.In
Australia,primarilyforreasonsrelatedtotheborrowingpowersofstates,thetransferobligationmaybe
omitted.FortheAliceSpringsDarwinsectionoftheAdelaideDarwinrailwaytheleaseperiodis50
years,seeAustralAsiaRailCorporation.
Formsofprojectfinancearelistedinthesectionsbelow.

Contents
1BOT(buildoperatetransfer)
2BOOT(buildownoperatetransfer)
3BOO(buildownoperate)
4BLT(buildleasetransfer)
5DBFO(designbuildfinanceoperate)
6DBOT(designbuildoperatetransfer)
7DCMF(designconstructmanagefinance)
8Seealso
9References

BOT(buildoperatetransfer)
BOTfindsextensiveapplicationininfrastructureprojectsandinpublicprivatepartnership.IntheBOT
frameworkathirdparty,forexamplethepublicadministration,delegatestoaprivatesectorentitytodesign
andbuildinfrastructureandtooperateandmaintainthesefacilitiesforacertainperiod.Duringthisperiod
theprivatepartyhastheresponsibilitytoraisethefinancefortheprojectandisentitledtoretainall
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revenuesgeneratedbytheprojectandistheowneroftheregardedfacility.Thefacilitywillbethen
transferredtothepublicadministrationattheendoftheconcessionagreement,[3]withoutanyremuneration
oftheprivateentityinvolved.Someorevenallofthefollowingdifferentpartiescouldbeinvolvedinany
BOTproject:
Thehostgovernment:Normally,thegovernmentistheinitiatoroftheinfrastructureprojectand
decidesiftheBOTmodelisappropriatetomeetitsneeds.Inaddition,thepoliticalandeconomic
circumstancesaremainfactorsforthisdecision.Thegovernmentprovidesnormallysupportforthe
projectinsomeform.(provisionoftheland/changedlaws)
Theconcessionaire:Theprojectsponsorswhoactasconcessionairecreateaspecialpurposeentity
whichiscapitalisedthroughtheirfinancialcontributions.
Lendingbanks:MostBOTprojectarefundedtoabigextentbycommercialdebt.Thebankwillbe
expectedtofinancetheprojectonnonrecoursebasismeaningthatithasrecoursetothespecial
purposeentityandallitsassetsfortherepaymentofthedebt.
Otherlenders:Thespecialpurposeentitymighthaveotherlenderssuchasnationalorregional
developmentbanks
Partiestotheprojectcontracts:Becausethespecialpurposeentityhasonlylimitedworkforce,itwill
subcontractathirdpartytoperformitsobligationsundertheconcessionagreement.Additionally,it
hastoassurethatithasadequatesupplycontractsinplaceforthesupplyofrawmaterialsandother
resourcesnecessaryfortheproject
ABOTProject(buildoperatetransferproject)istypicallyusedto
developadiscreteassetratherthanawholenetworkandisgenerally
entirelyneworgreenfieldinnature(althoughrefurbishmentmaybe
involved).InaBOTProjecttheprojectcompanyoroperator
generallyobtainsitsrevenuesthroughafeechargedtotheutility/
governmentratherthantariffschargedtoconsumers.Anumberof
projectsarecalledconcessions,suchastollroadprojects,whichare
newbuildandhaveanumberofsimilaritiestoBOTs.[4]
BOTmodel
Ingeneral,aprojectisfinanciallyviablefortheprivateentityifthe
revenuesgeneratedbytheprojectcoveritscostandprovide
sufficientreturnoninvestment.Ontheotherhand,theviabilityoftheprojectforthehostgovernment
dependsonitsefficiencyincomparisonwiththeeconomicsoffinancingtheprojectwithpublicfunds.
Evenifthehostgovernmentcouldborrowmoneyonbetterconditionsthanaprivatecompanycould,other
factorscouldoffsetthisparticularadvantage.Forexample,theexpertiseandefficiencythattheprivate
entityisexpectedtobringaswellastherisktransfer.Thereforetheprivateentitybearsasubstantialpartof
therisk.Thesearesometypesofthemostcommonrisksinvolved:
Politicalrisk:especiallyinthedevelopingcountriesbecauseofthepossibilityofdramaticovernight
politicalchange.
Technicalrisk:constructiondifficulties,forexampleunforeseensoilconditions,breakdownof
equipment
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Financingrisk:foreignexchangerateriskandinterestratefluctuation,marketrisk(changeinthe
priceofrawmaterials),incomerisk(overoptimisticcashflowforecasts),costoverrunrisk[5][6][7]

BOOT(buildownoperatetransfer)
ABOOTstructurediffersfromBOTinthattheprivateentityownstheworks.Duringtheconcession
periodtheprivatecompanyownsandoperatesthefacilitywiththeprimegoaltorecoverthecostsof
investmentandmaintenancewhiletryingtoachievehighermarginonproject.Thespecificcharacteristics
ofBOOTmakeitsuitableforinfrastructureprojectslikehighways,roadsmasstransit,railwaytransport
andpowergenerationandassuchtheyhavepoliticalimportanceforthesocialwelfarebutarenotattractive
forothertypesofprivateinvestments.BOOT&BOTaremethodswhichfindveryextensiveapplicationin
countrieswhichdesireownershiptransferandoperationsincluding.SomeadvantagesofBOOTprojects
are:
Encourageprivateinvestment
Injectnewforeigncapitaltothecountry
Transferoftechnologyandknowhow
Completingprojectwithintimeframeandplannedbudget
Providingadditionalfinancialsourceforotherpriorityprojects
Releasingtheburdenonpublicbudgetforinfrastructuredevelopment[8]

BOO(buildownoperate)
InaBOOprojectownershipoftheprojectremainsusuallywiththeprojectcompanyforexampleamobile
phonenetwork.Thereforetheprivatecompanygetsthebenefitsofanyresidualvalueoftheproject.This
frameworkisusedwhenthephysicallifeoftheprojectcoincideswiththeconcessionperiod.ABOO
schemeinvolveslargeamountsoffinanceandlongpaybackperiod.SomeexamplesofBOOprojectscome
fromthewatertreatmentplants.Thisfacilitiesrunbyprivatecompaniesprocessrawwater,providedbythe
publicsectorentity,intofilteredwater,whichisafterreturnedtothepublicsectorutilitytodelivertothe
customers.[9]

BLT(buildleasetransfer)
UnderBLTaprivateentitybuildsacompleteprojectandleasesittothegovernment.Onthiswaythe
controlovertheprojectistransferredfromtheprojectownertoalessee.Inotherwordstheownership
remainsbytheshareholdersbutoperationpurposesareleased.Aftertheexpiryoftheleasingtheownership
oftheassetandtheoperationalresponsibilityaretransferredtothegovernmentatapreviouslyagreedprice.
ForforeigninvestorstakingintoaccountthecountryriskBLTprovidesgoodconditionsbecausetheproject
companymaintainsthepropertyrightswhileavoidingoperationalrisk.

DBFO(designbuildfinanceoperate)
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DesignbuildfinanceoperateisaprojectdeliverymethodverysimilartoBOOTexceptthatthereisno
actualownershiptransfer.Moreover,thecontractorassumestheriskoffinancingtilltheendofthecontract
period.Theownerthenassumestheresponsibilityformaintenanceandoperation.Somedisadvantagesof
DBFOarethedifficultywithlongtermrelationshipsandthethreatofpossiblefuturepoliticalchanges
whichmaynotagreewithpriorcommitments.Thismodelisextensivelyusedinspecificinfrastructure
projectssuchastollroads.Theprivateconstructioncompanyisresponsibleforthedesignandconstruction
ofapieceofinfrastructureforthegovernment,whichisthetrueowner.Moreovertheprivateentityhasthe
responsibilitytoraisefinanceduringtheconstructionandtheexploitationperiod.Thecashflowsserveto
repaytheinvestmentandrewarditsshareholders.Theyendupinformofperiodicalpaymenttothe
governmentfortheuseoftheinfrastructure.Thegovernmenthastheadvantagethatitremainstheownerof
thefacilityandatthesametimeavoidsdirectpaymentfromtheusers.Additionally,thegovernment
succeedstoavoidgettingintodebtandtospreadoutthecostfortheroadovertheyearsofexploitation.[10]

DBOT(designbuildoperatetransfer)
[11]

DCMF(designconstructmanagefinance)
SomeexamplesfortheDCMFmodelaretheprisonsorthepublichospitals.Aprivateentityisbuiltto
design,construct,manage,andfinanceafacility,basedonthespecificationsofthegovernment.Project
cashflowsresultfromthegovernmentspaymentfortherentofthefacility.Inthecaseofthehospitals,the
governmenthastheownershipoverthefacilityandhasthepriceandqualitycontrol.Thesamefinancial
modelcouldbeappliedonotherprojectssuchasprisons.Thereforethismodelcouldbeinterpretedasa
meantoavoidnewindebtednessofpublicfinance.

Seealso
AdelaideDarwinrailway
CentralTexasTurnpikeSystem
Payonproduction
Publicprivatepartnership
Privatization
Projectfinance
PrivateFinanceInitiative
Shadowtoll

References
1. P.K.AbdulGhafour(6April2009)."NorthSouthRailwaytobereadyforfreightmovementby2010"
(http://archive.arabnews.com/?page=1&section=0&article=121242&d=6&m=4&y=2009).ArabNews.Retrieved
7June2011.
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2. ASHISHGAJUREL(20130707)."Promotionofpublicprivatepartnership"
(http://www.thehimalayantimes.com/fullNews.php?headline=Promotion+of+public
private+partnership++&NewsID=382881).TheHimalayanTimes.Retrieved15September2013.
3. "BOTPPPinInfrastructureResourceCenter"(http://pppirc.worldbank.org/publicprivate
partnership/agreements/concessionsbotsdbos).WorldBank.March13,2012.
4. "BOTPPPinInfrastructureResourceCenter"(http://pppirc.worldbank.org/publicprivate
partnership/agreements/concessionsbotsdbos).WorldBank.March13,2012.
5. Walker,Smith,AdrianCharles(1995).Privatizedinfrastructure:thebuildoperatetransferapproach.Thomas
Telford.p.258.ISBN9780727720535.
6. WildeSapteLLP,Denton(2006).PublicPrivatePartnerships:BotTechniquesandProjectFinance.London:
EuromoneyBooks.p.224.ISBN9781843742753.
7. Mishra,R.C.(2006).ModernProjectManagement.NewAgeInternational.p.234.ISBN9788122416169.
8. Gatti,Stafano(2007).ProjectFinanceintheoryandpractice.AcademicPress.p.414.ISBN978012373699
4.
9. Lewis/Grimsey,Mervyn/Darrin.PublicPrivatePartnerships:theworldwiderevolutionininfrastructure
provisionandprojectfinance.EdwardElgarPublishing.p.268.ISBN9781847202260.
10. Pekka,Pakkala(2002).InnovativeProjectDeliveryMethodsforInfrastructure.FinnishRoadEnterprise.p.120.
ISBN9789525408058.
11. DesignBuildApproacheshttp://www.dnaindia.com/mumbai/report_worlihajialisealinkwillbereadyin4
years_1402669

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