BOT Project Research Articles

The Mechanism Design for Franchise Bidding in BOT Project

The Mechanism Design for Franchise Bidding in BOT Project

Research on the Relationship among Cost Control, Technical Investment and Franchising Period in BOT Projects

Under the double win constraint condition between the public and private party, this paper takes VFM (Value for Money) as the evaluating indicator of the government’s earnings, uses the rate of return on investment as the evaluating indicator of the project company’s earnings in order to analyze the relationship among cost control, technical investment and franchising period. We found that the effective cost control can shorten the franchising period and hardly depend on the technical investment. If the contribution of the technical investment to the reduction of the maintenance cost is comparatively high, increasing technical investment can effectively shorten the franchising period, otherwise it has to postpone the franchising period so as to meet the earnings target of both the public and private parties when increasing the technical investment

Integrating system dynamics and fuzzy logic modeling to determine concession period in BOT projects

Abstract The concession period is one of the most important decision variables in arranging a BOT-type contract which should be determined considering the existing risks and uncertainties. This research presents an integrated fuzzy-system dynamics (SD) approach for determination of concession period. The complex inter-related structure of different factors affecting a BOT project is modeled using the system dynamics approach. Owing to the imprecise and uncertain nature of different factors affecting the concession period, fuzzy logic is integrated into the system dynamics modeling structure. The values of different factors affecting the concession period are determined by fuzzy numbers based on the opinions of different experts involved in the project. The application of Zadeh's extension principle and interval arithmetic is proposed for the system dynamics to enable the system outcomes to be presented considering uncertainties in the input variables. To evaluate the performance of the proposed method, it has been employed in a highway project.

Risk-Neutral Pricing Approach for Evaluating BOT Highway Projects with Government Minimum Revenue Guarantee Options

AbstractBuild-operate-transfer (BOT) is a public-private partnership (PPP) project delivery system for the financing, development, and operations of highway projects around the world. Uncertainty about future traffic demands is one of the most important risk factors in the operations phase of a BOT project. There is a considerable amount of evidence indicating that the improper consideration of this uncertainty contributes to the financial failure of BOT projects. The inherent limitation of conventional economic analysis methods contributes to this uncertainty; most notably the net present value (NPV) approach that is typically used in the economic valuation of BOT projects. In addition, the NPV approach is insufficient to determine the correct market value of minimum revenue guarantee (MRG) options. The government offers MRG options to the concessionaire as a revenue risk-sharing strategy in BOT projects. The authors apply the real options theory from finance/decision science to explicitly price MRG opti...

Applied Research on Fuzzy Comprehensive Evaluation of BOT Projects in the Transfer Phase

To ensure good operations of BOT project and to prevent the project company's "malicious operation" (overload production, not timely maintenance and repair, management of confusion, etc.), in the transfer phase a set of scientific methods and procedures for the identification must be established. Fuzzy comprehensive evaluation is a kind of evaluation method based on fuzzy mathematics, which makes the quantitative description of the vague concept, then the overall evaluation can be quantified, thus reducing the subjectivity and one-sidedness. In this paper, by the analysis and research on application of multi-layer fuzzy comprehensive evaluation method in the transfer phase of the BOT project, a set of work procedure and system of evaluation will be established, which provides ideas and methods for the practical application in the transfer phase .

The lesson learn of non-self financing ability BOT project: large-scale rail transportation systems in Taiwan

Finance–base or Service Delivery approaches were utilized to dominate BOT projects but both approaches require a reasonable self–financing ability ratio (SFA). In addition, few studies show successfully implemented BOT schemes with low SFA. To examine the heuristic rule, two cases including one of the largest BOT projects, Taiwan High Speed Rail (THSR) Transportation Plan, are used to conduct interview correspondence, close examination, and analysis of the document of concessionaire selection. We draw on the experience of the process of the Large–scale Rail Transportation concessionaire selection practices where the story of PPP s projects remains limited worldwide. In our case, government involves financing the BOT project to provide a long–term loan guarantee for the private sector on the finance aspect. The issues which cause BOT construction to be costly as well as

APPRAISAL OF COMBINED AGREEMENTS IN BOT PROJECT FINANCE: FOCUSED ON MINIMUM REVENUE GUARANTEE AND REVENUE CAP AGREEMENTS

Limited public funds for infrastructures have the government consider joining the private in a BOT project finance scheme. Generally, the BOT projects entail lots of managerial flexibilities that may induce the radical change of project's cash flows, an asymmetric payoff, when facing on the uncertainties due to the BOT project finance's unique characteristics. Among various managerial flexibilities in the BOT projects, the MRG (Minimum Revenue Guarantee) and the RCP (Revenue Cap) agreements are frequently used to protect the government and the developer from the operational risk. However, the combined effect of the MRG and RCP on the project value is not understood well because the traditional capital budgeting theory, the NPV (Net Present Value) analysis, is limited to assess the contingency of these agreements. So, the purpose of this paper is to develop the numerical model to assess the combined impact of the MRG and RCP agreements on the project value based on the option pricing theory and to suggest a theoretical framework. The approach applied in this paper is justified with the hypothetical BOT toll case and some meaningful conclusions are drawn from. The results by the option pricing concept are analyzed over those by NPV analysis and, finally, the combined value of the MRG and RCP agreements appears significant relative to the project value. Santruka Del ribotu viešojo sektoriaus lešu vyriausybe nusprende sujungti privačias lešas pagal SVP (angl. BOT) projektu finansavimo schema. Paprastai SVP projektai yra lanksčiai valdomi, todel gali sukelti radikaliu pokyčiu grynuosiuose projekto pinigu srautuose asimetrini atsipirkima del unikaliu SVP projektu finansavimo savybiu. Tarp ivairiu lanksčiu SVP projektu valdymo pavyzdžiu minetini minimalios pajamu garantijos (angl. MRG) ir pajamu kapitalizacijos (angl. RCP) susitarimai. Jie dažnai naudojami siekiant apsaugoti valdžia ir vystytoja nuo veiklos rizikos. Tačiau bendras minimaliu pajamu garantiju ir pajamu kapitalizacijos susitarimu poveikis projekto vertei nesuprantamas ir del to, kad tradicine kapitalo teorija, grynosios dabartines vertes (angl. NPV) analize yra ribotos vertinant nenumatytus šiu susitarimu atvejus. Taigi šio straipsnio tikslas ‐ pletoti skaitmenini modeli, ivertinti bendra minetu susitarimu poveiki projekto vertei, pagristai pasirinkto sandorio ikainojimo teorija, ir pasiūlyti teorini pagrindima. Šiame straipsnyje taikomas metodas pagristas hipotetiniais SVP rinkliavos atvejais ir kai kuriomis padarytomis išvadomis. Pasirinkto sandorio ikainojimo samprata analizuojama atliekant grynosios dabartines vertes analize, kol bendra minimaliu pajamu garantiju ir pajamu kapitalizacijos susitarimu verte tampa labai svarbi, palyginti su projekto verte.

Study on Application of BOT model in Sewage Sludge Treatment and disposal of China

Sewage sludge treatment and disposal is becoming an essential issue in China. By analyzing current situation and problems in sludge treatment and disposal sector, this paper presented the feasibility of BOT model in sludge treatment and disposal facilities construction, and further established a specific BOT framework for sewage sludge treatment and disposal. This study identified two different BOT operational modes according to the sewage sludge production status in China. Based on summarizing the current challenges in China's sludge treatment and disposal BOT projects, suggestions were proposed.

PPPs in road renovation and maintenance: a case study of the East Coast Road project

PurposePublic‐private partnerships (PPPs) are being frequently used today to private sector investment in road projects. Most of the road PPP projects are either for new roads or for those that involve significant expansion of existing capacity. There are limited instances of PPPs for renovating and maintenance of existing roads. The purpose of this paper is to highlight the applicability of using PPPs for road renovation and maintenance projects.Design/methodology/approachThis paper uses a case‐study approach since it is an appropriate strategy to investigate a phenomenon within its real life context. The East Coast Road project was chosen for the study because it was the first project in India to use PPP for road renovation and maintenance, and being the first project of its kind, the case was of general public interest.FindingsThe paper indicates that risk levels in Rehabilitate, Improve, Maintain, Operate and Transfer (RIMOT) projects are lower than Greenfield BOT projects. Even in areas like renovation and maintenance, PPP structures can bring many advantages over traditional procurement.Research limitations/implicationsThis paper has the limitations attributable to single case studies. There is a need to extend this paper to include more such case studies to evaluate their relevance for infrastructure development, particularly in emerging countries.Practical implicationsPPP structures can be useful for renovating and maintaining the existing roads. Modalities such as the RIMOT framework can have greater potential than the conventional BOT structures. Private investments in infrastructure can also be through a corporate finance structure.Originality/valueThis paper describes and analyzes the experience of India's first PPP for renovation and maintenance. The findings of this paper would have value for policy makers who are interested in attracting private sector finance and expertise in infrastructure and more specifically in roads.

Using bi-level programming to analyze the royalty for private–public partnership projects: the operational quantity-based model

This paper develops a royalty negotiation model based on the operating quantity of Build, Operate, and Transfer (BOT) projects for both government and the private sector using a bi-level programming (BLP) approach. The royalty negotiation is one of many critical negotiation items of a concession contract. This study develops a royalty negotiation model to simulate the negotiation behavior of two parties, and derives the heuristic algorithm for the BLP problem. A number of factors are incorporated into this algorithm including the concession rate, the time value discount rate, the learning rate, and the number of negotiations. The paper includes a case study of the Taipei Port Container Logistic BOT Project. The results show that the two parties involved completed royalty negotiation at the sixth negotiation stage. The findings show that the government can receive a royalty from the concessionaire, calculated at 0.00386% of the operating quantity of this BOT project. Therefore, the royalty negotiation model developed here could be employed to explain negotiation behavior.

Appraisal of Revenue Cap Agreement in BOT Project Finance

Limited public funds for infrastructures have the government consider joining the private in a BOT project finance scheme. Generally, the BOT projects entail lots of managerial flexibilities that may induce the radical change of project's cash flows, an asymmetric payoff, when facing on the uncertainties comes from the BOT project finance's unique characteristics. Among various managerial flexibilities occur in the BOT projects, the revenue cap agreement is frequently used to protect the government from the private's revenue exploitation. However, its impact on the project value is not well understood because the popular capital budgeting theory, NPV(Net Present Value) analysis, is limited to assess the contingency of this agreement. The purpose of this paper is to develop the numerical model to better assess the impact of the revenue cap agreement on the project value with the concept of the option pricing theory and to suggest a theoretical framework in quantitatively evaluating this agreement. The approach applied in this paper is justified with the hypothetical BOT toll case to show its applicability and some meaningful conclusions are drawn from. The results by the option pricing concept are scrutinized over those by NPV analysis and, finally, the revenue cap value appears significant relative to the project value.

Valuation of multi‐stage BOT projects involving dedicated asset investments: a sequential compound option approach

The valuation of multi‐stage build‐operate‐transfer projects is not a trivial task. It needs to deal with uncertain project values in future expansions and the possibility of expansions or abandonment in the presence of project risks. The valuation problem becomes more difficult when multi‐stage projects require upfront and intermediate dedicated asset investments for future expansions. Dedicated asset investments may or may not create project values, depending on whether future expansions could be justified and realized. A sequential compound option model is proposed to tackle these important valuation issues.

Risk identification and assessment for build–operate–transfer projects: A fuzzy multi attribute decision making model

In recent years, BOT approach has provided an increasingly popular project financing to move toward infrastructure development in Asian countries such as Iran. There are many complexities in projects because of the variety of factors in project’s trend and also the dependence of project on mainly national factors. Due to these complexities and their long-term operating, the projects meet with uncertainty and numerous risks. In this paper, an attempt is made at identifying common risks in BOT projects. A novel hierarchical structure of risks is presented on the basis of the project-oriented point of view; next, some effective criteria for risk ranking in BOT projects are introduced. Then, the problem is defined in Fuzzy Multi Attribute Decision Making (FMADM) field. Therefore, Fuzzy Technique for Order Preference by Similarity to Ideal Solution (FTOPSIS) and Fuzzy Linear Programming Technique for Multidimensional Analysis of Preference (FLINMAP) methods are presented in order to rank high risks in BOT projects. In this study, these two methods are compared in four respects: separation among alternatives, fuzzy error in criteria’s weights, risk response planning, and numerousness of alternatives in proportion to criteria. The proposed model is used for identifying and assessing risks in Iran BOT power plant project. Finally, the rankings of high risks are determined according to their results at the end of this paper.

Risk measurement and risk identification for BOT projects: A multi-attribute utility approach

This paper aims to identify and assess the potential risks faced by private sectors in holding BOT projects through the risk assessment model developed herein. The multi-attribute utility function and aggregation utility are established using the multi-attribute utility theory to evaluate the risk state of each uncertainty, and in turn to determine whether such an uncertainty is a risk factor or not from the negotiator group’s viewpoint. This model shows that the uncertainty is regarded as a risk factor only when the aggregation utility value is less than the average aggregation utility value when the outcome, attribute, and states of a factor as well as its occurrence probability are all independent. A numerical example is also utilized to demonstrate the application of the developed risk assessment model. Results of the numerical example reveal that the concession period of a BOT project is the primary risk factor whereas the foreign exchange ratio is the secondary risk factor. Accordingly, the concession period dominates the negotiation results of BOT projects.

Variance models for project financial risk analysis with applications to greenfield BOT highway projects

Assessment of BOT project financial risk is generally performed by combining Monte Carlo simulation with discounted cash flow analysis. The outcomes of this risk assessment depend, to a significant extent, upon the total project uncertainty, which aggregates aleatory and epistemic uncertainties of key risk variables. Unlike aleatory uncertainty, modelling epistemic uncertainty is a rather difficult endeavour. In fact, BOT epistemic uncertainty may vary according to the significant information disclosed during the concession period. Two properties generally characterize the stochastic behaviour of the uncertainty of BOT epistemic variables: (1) the learning property and (2) the increasing uncertainty property. A new family of Markovian processes, the Martingale variance model and the general variance model, are proposed as an alternative modelling tool for BOT risk variables. Unlike current stochastic models, the proposed models can be adapted to incorporate a risk analyst's view of properties (1) and (2). A case study, a hypothetical BOT transportation project, illustrates that failing to properly model a project's epistemic uncertainty may lead to a biased estimate of the project's financial risk. The variance models may support, guide and extend the thinking process of risk analysts who face the challenging task of representing subjective assessments of key risk factors.

Control Strategy on Road Toll Pricing under a BOT Scheme

Abstract On the basis of the game theory, this article deals with the problem for the government to control the pricing of private toll roads under a BOT scheme. The discusses whether the toll road can bring benefits to society when the private sector determines the toll road price independently in pursuit of maximizing his own profit. Moreover, the principles, by which the government controls private road pricing, are deduced. Some useful findings are obtained, which can provide important support for the government to manage the BOT project.

STUDY ON SWOT ANALYSIS FOR PROMOTING OF PPP IN URBAN ENVIRONMENT INFRASTRUCTURE IN CHINA

Recent years, with rapid economic development, Chinese government could not meet the continually growing demand for services alone. It is estimated that in the 11th five-years (2006-2010), total 660 billion RMB are necessary for urban environmental infrastructures. Under such circumstance, Chinese government began to promote Public-Private-Partnership (PPP) model for allowing the private sector to participate in providing public services, which aims to attract private investment, improve efficiency of public services through market and competition mechanisms and create new jobs and new service industries, thereby promoting economic growth. SWOT analysis was implemented for countermeasures on promoting BOT model in UEI projects. A SWOT Matrix, in which the SO, ST, WO, WT strategic alternatives available indentified, was developed. The results shows, development of detailed and operational guidelines and a special law for promoting PPP, increase collection rate, rise of treatment and disposal fees and well planning for avoiding waste of investment and increase of utilizing rate of facilities etc. were considered as most important countermeasures for promoting BOT projects in China.

An approach for optimizing pavement design–redesign parameters in PPP projects

Modeling the elasticity modulus of unbound granular pavement materials has attracted significant research interest because of its importance in pavement design particularly in PPP/BOT projects. These efforts have been hampered by three factors: (i) inability to capture the correlations between the asphalt and granular layers and the subgrade, (ii) inadequate modeling of the effects of external factors on the elasticity modulus of unbound materials, and (iii) widespread use of linear statistical relationships to model a complex and non-linear phenomenon. In this paper genetically optimized neural networks and falling weight deflectometer (FWD) back-analysis results from a newly constructed BOT project in Athens, Greece, are employed in order to evaluate pavement section design parameters. It is shown that parameter values adopted during design do not co-inside with those observed from the back-analysis studies. Further, the results indicate that the relative estimation error for the modulus of elasticity of the unbound material does not exceed 25%, while the correlation between actual and predicted values is 86%, both suggesting that the proposed approach models the physical phenomenon adequately, a finding with important practical implications particularly in PPP projects.

Valuing Simple Multiple-Exercise Real Options in Infrastructure Projects

The revenue risk is considerable in infrastructure project financing arrangements such as build-operate-transfer BOT .A potential mitigation strategy for the revenue risk is a governmental revenue guarantee, where the government secures a minimum amount of revenue for a project. Such a guarantee is: 1 only redeemable at distinct points in time; and 2 more economical if the government limits the guarantee's availability to the early portions of a BOT's concession period. Hence, a guarantee characterized by this type of structure takes the form of either a Bermudan or a simple multiple-exercise real option, depending upon the number of exercise opportunities afforded. The multi-least-squares Monte Carlo technique is presented and illustrated as a promising approach to determine the fair value of this variety of real option. This method is far more flexible than prevailing approaches, so it represents an important step toward improving risk mitigation and facilitating contractual and financial negotiations in BOT projects.

The real cost of desalted water and how to reduce it further

Freshwater scarcity on a worldwide level is now a burning problem, widely discussed in media interviews and in major newspapers. In this context, the majority of the media are underlining the importance of seawater desalination as an attractive and logical alternative source to fight the freshwater scarcity. Unfortunately the majority of all these discussions are providing a totally wrong picture of the real cost of freshwater production from seawater. Figures for desalted water costs from below 0.25 €/m 3 to over 0.6 €/m 3 for large-scale realisation are frequently quoted. In some media, however, the costs given for desalted water production are too prohibitive for large-scale applications. Many so-called experts are enhancing the confusion with incorrect or in incomplete statements. Even simple considerations, such as water cost ex desalination plant vs. water cost at consumer tap, are neglected. Yet another neglected point is that freshwater of any kind is either highly subsidised or overpriced to finance costs which are not water-related costs. Even in the EU Commission the real cost of seawater desalination is sometimes incorrectly perceived. In principle, the calculation of specific freshwater cost is simple and based on a few clear parameters such as investment cost for a given desalting capacity, energy cost, cost for distribution, amortisation period and concept, financing cost, inflation rate, operation and maintenance cost and, last but not least, plant availability and lifetime. A typical example to illustrate the reigning confusion is the primary energy cost. Today, the barrel of crude oil costs in the world market approximately 70 US$ or more. However, many tenders or BOT projects compare the water and energy cost on a 5 US$/barrel level. With this energy cost level and other unrealistic conditions even oldfashioned, low-GOR MSF plant can produce freshwater for a nominal cost of 0.60 €/m 3. With today's world market prices for crude oil, realistic cost and conditions for financing and all other costs fully covered, the real specific desalted water cost will exceed the 2 €/m 3 level for the same plant. It is clear that the freshwater has to be produced at socially acceptable cost and this would be about 1.0 €/m 3 or below. However, the calculation of the specific water cost has to be compatible with realistic parameters in order to be able to compare them and to draw correct conclusions and decisions. Therefore, in this paper an attempt has been made to calculate a realistic cost of freshwater from seawater for various types and sizes of desalination plants in combination with various energy sources and with comprehensible realistic conditions utilizing as a basis some older studies. The basic conclusion of our investigation is that large thermal and membrane desalination plants may reach in the future the same level of specific water cost and that a water production cost of 1.00 €/m 3, with energy cost of the year 2006 can be achieved with moderate R&D efforts. However, it is difficult (not impossible) to reach 0.50 €/m 3 and it will require time-consuming and intensive R&D work to achieve this goal.