Build-operate-transfer model for infrastructure developments in Asia: reasons for successes and failures

Abstract

In recent years, there has been a growing trend for governments in the Southeast Asian region to allow private participation in some major public investments, especially for infrastructure projects. Many large infrastructure projects, such as expressways and power plants, are being constructed or have been operated by private firms under a procurement system called build-operate-transfer (BOT). Under the system, the franchisee (project sponsor) is responsible for financing, construction, and operating a facility and he, in return, has been granted a right to generate revenue from the facility for a specific period. After the concession period, the facility will be transferred at no cost to the franchiser, who usually is the government. The major motivator for the BOT system is that the host government need not spend any public funding but still can provide a public facility to her people. Meanwhile, the franchisees can enjoy a high potential profit from a successful BOT project. Experience from Hong Kong has proven the benefits of the system. However, the system can be very risky potentially. The three transportation projects in Thailand, including the Second Expressway System, Don Muang Tollway and the Bangkok Elevated Transport System, have given investors a painful experience. Analyzing these successful and failing examples, this study has concluded the ingredients of a successful BOT project. They include an experienced, equitable and simple governing body and structure, an uncorrupted and honest political regime, an intact contractual agreement, a structured set of BOT regulations and legal system, a large and reliable consortium, an experienced construction organisation, and lastly, but most importantly, no intervention of politics.