Build-operate-transfer Projects Research Articles

Public Financing into Build-Operate-Transfer Hospital Projects in Italy

AbstractAn empirical analysis is presented to investigate the factors that have significant influence on the share of public financing into the total initial investment required to develop build-operate-transfer (BOT) health-care projects. Based on a model describing the main risks associated with public participation in BOT projects, a linear regression analysis has been conducted on a data set of Italian BOT hospital projects to yield implications. Outcomes reveal that the size of investment, the financial strength of the concessionaire, the duration of the concession period, the number of services, and the level of borrowing of the local health-care granting agency are significant factors of the level of public funding. The study confirms that public funding is provided not only to cover the non-self-financing portion of investment but also as a way to undertake a project in periods of scarce public financial resources. The methodology may be useful to refine the decision criteria for determining the l...

A real options based traffic risk mitigation model for build-operate-transfer highway projects in India

Build-operate-transfer (BOT) has been one of the preferred models of public–private partnership (PPP) for attracting private capital in the Indian highway sector. In BOT projects the traffic demand is considered a critical risk. Through a concession agreement called the model concession agreement (MCA) a standardized risk allocation framework has been adopted for BOT highway projects in India. If the actual traffic volume deviates from the projected traffic, the MCA suggests varying the length of the concession period (by a pre-agreed formula) to mitigate the traffic demand risk. This arrangement has the limitation of guaranteeing the concessionaire against the shortfall in traffic demand while it bestows unlimited gain otherwise. Past researchers have also examined only the possibility of revenue guarantees to protect the concessionaire from downside risks due to variation in traffic. Therefore, a traffic band is proposed: a combination of traffic floor and traffic cap—which can ensure certainty as to the revenue streams of the private investor, while preventing him from appropriating windfall gains due to higher-than-expected traffic demand through an equitable risk and revenue sharing mechanism. A traffic band being quite analogous to financial options, the paper suggests use of a ‘put’ option held by the concessionaire to determine the traffic floor, while a ‘call’ option held by the government serves as the traffic ceiling. Application of the real options analogy to a real life case study using binomial lattice method indicates enhancement to the net present value of the project.

Status and Psychology of DBB and BOT Construction Project Participants

Adopting the BOT (build-operate-transfer) delivery method for construction projects has brought opportunities for desired performance. Studies have investigated many issues of BOT projects such as concessionaire selection criteria or risk factors, but the soft issue of the status and psychology change of project participants from traditional DBB (design-bid-build) method is not investigated. This research explored the status and psychology of DBB and BOT project participants and drew implication for performance. By using the case study method, this study selected ten projects in which five from DBB and five from BOT methods; interviewed 36 owners, designers, constructors and other participants in 14 times; and analyzed and compared their design and construction work interaction, designer and constructor status, and owner and concessionaire psychology. It is found that for DBB civil projects performance would be stable because of completed design, more cautious owner, and respected designer that is good to performance. For BOT civil projects, performance would vary and the designer and constructor can better cooperate. The flexibility and vitality brought by the BOT mechanism should be better used to create better performance.

UTILITY-BASED MULTICRITERIA MODEL FOR EVALUATING BOT PROJECTS SEP PROJEKTŲ VERTINIMO MODELIS PAGRĮSTAS DAUGIAKRITERINE NAUDINGUMO TEORIJA / SEP PROJEKTŲ VERTINIMO MODELIS PAGRĮSTAS DAUGIAKRITERINE NAUDINGUMO TEORIJA

Owing to the urgent demands for new developments and maintenances of the existing infrastructures under limited government budget and time, increasing BOT (build-operate-transfer) projects have been a significant factor affecting the economic developments in many countries. However, as BOT projects usually induce huge capital investments, government sectors must prudently evaluate the project feasibility from both financial and nonfinancial aspects before the implementation. Therefore, how to establish an objective evaluation model which can comprehensively assess the feasibility of each BOT project and determine the priority of its implementation has become an important issue. This study incorporates analytic hierarchy process (AHP) and utility theory to develop a utility-based multicriteria model for supporting the selection of BOT projects. A case study is provided to demonstrate that the implementation of the proposed model can effectively help decision-making teams participate in economical evaluations so that the feasibility of as-planed BOT projects can be determined and project priority can be set efficiently and consistently. Santrauka Dėl esamos infrastruktūros plėtros ir atnaujinimo būtinybės, esant ribotam valstybės biudžetui ir laikui, SEP (Statyba-Eksploatacija-Perdavimas) projektų vykdymas ženkliai prisidėjo prie daugelio šalių ekonominių pokyčių. Dažnai SEP projektai reikalauja didelių kapitalo investicijų, todėl valstybės sektorius turi įvertinti projekto įgyvendinimo galimybes tiek finansiniu tiek nefinansiu aspektu. Koks turi būti objektyvaus vertinimo modelis, kuris leistų visapusiškai įvertinti kiekvieno SEP projeto pagrįstumą ir nustatyti jo įgyvendinimo prioritetus? Šiame straipsnyje, naudojant analitinę hierarchinio proceso (AHP) struktūrą ir naudingumo teoriją, SEP projektų atrinkimui sukurtas daugiakriterine naudingumo teorija pagrįstas modelis. Skaitmeninis pavyzdys įrodo, kad siūlomas modelis gali sėkmingai pagelbėti atrenkant ekonomiškai efektyvius SEP projektus.

A royalty negotiation model for BOT (build–operate–transfer) projects: The operational revenue-based model

Whilst few studies have explored royalty negotiations for build, operate and transfer (BOT) projects, some works have proposed numerous royalty formulas to evaluate royalty amounts or franchise fees for a BOT project. Despite this, the royalty negotiation process is one of the many critical negotiation items of a concession contract. This study not only developed a royalty negotiation model for BOT projects, but also developed the iterative algorithm for the BLP problem for the government and the private sector. In addition, the factors incorporated into the iterative algorithm for the BLP problem include the concession rate, learning rate, and the time value discount rate for both parties. Moreover, this paper conducted a case study of the Taipei Port Container Logistic BOT Project using LINGO and MATLAB programming. The results show that the two parties involved completed royalty negotiation at the sixth negotiation. The objective function value for lower-level programming was 1.062 and the government finance recovery rate for higher-level programming was 11.832. The findings show that the government can receive the royalty, which is calculated by using 0.012% of the operating revenue of this BOT project, from the concessionaire. Therefore, the royalty negotiation model based on the operating revenue developed herein; could be employed to explain the negotiation behavior.

Examining Construction Quality Supervision and Organization Procedures for BOT Projects by Comparing with DBB Projects

Adopting the BOT (build-operate-transfer) delivery method has brought opportunities and challenges in construction time and quality for urban infrastructure. Many studies investigate the upstream issues of BOT projects such as concessionaire selection criteria and risk factors. But the project execution becomes complicated such as the escalated quality supervision organization and procedure at the construction stage. This extra supervision may have constituted hidden redundancies as waste to economic sustainability. This paper investigated construction quality supervision of BOT projects to pinpoint adequate degree of supervision and detect redundant organization and procedures. The study adopted ten subway construction projects as cases in which five were from the traditional design-bid-build (DBB) and five from the BOT methods. Thirty six project participants including owners, contractors, designers, and concessionaire managers of the ten projects were interviewed to tell their views on these issues. The quality supervision measures of the DBB projects were used as the baseline and compared with those of the BOT projects. The research results show that the construction quality seems no difference for the DBB and BOT projects. Construction quality comes out of supervision but excessive supervision organization and procedures do not necessarily improve quality. This finding indicates that adequate degree of supervision is enough to achieve required quality to save immense paperwork for large construction projects.

Identifying the Pareto‐front approximation for negotiations of BOT contracts with a multi‐objective genetic algorithm

The build‐operate‐transfer (BOT) project is formulated based upon cooperative partnerships among various public and private parties. Win‐win negotiation solutions are especially essential for parties that usually have conflicts of interests. A simulation‐based multi‐objective genetic algorithm (SMOGA) procedure is developed to address conflicts among the objectives of three parties: government and consumer interests that focus on users’ rights and social welfare; the private investor’s pursuit of profit maximization; and lenders who want to control the solvency risk of the concessionaire. Taking the Kaohsiung cable car project in Taiwan as an example, the SMOGA procedure is used to seek terms and conditions lying on or near the Pareto frontier for BOT projects with multi‐objectives. Monte Carlo simulation is conducted first to determine the project risks and generate the sample data used as the input of the genetic algorithm (GA). The GA subsequently generates a number of combinations of concessional terms and conditions that approximately and simultaneously optimize the three conflicting objectives. The GA‐generated approximate Pareto frontier provides a decision space of financial and concessional terms and conditions that satisfies all parties and facilitates the negotiations of BOT contracts.

BOT 프로젝트 파이낸스의 금융구조 및 특성의 채무불이행 위험완화 효과

BOT(Build-Operate-Transfer) 프로젝트 파이낸스(PF: Project Finance)는 민간이 자본조달, 건설, 그리고 운영을 맡고 운영수입에서 투자비와 수익을 회수하므로 사업의 위험으로부터 정부를 보호하며 사업자도 특수목적회사를 설립하고 부외 및 비소구 금융을 통해 자본을 조달하기 때문에 채무불이행의 책임으로부터 보호되는 특징을 지닌다. 이와 함께 BOT PF 사업의 금융구조와 특성에 의한 채무불이행위험 완화는 금융시장 경색, 새로운 국제회계기준(IFRS) 도입, 그리고 건설사의 우발채무 등과 맞물려 그 중요성이 부각되고 있으나 현금흐름의 불확실성과 여러 계약조항들이 유발하는 비대칭수익으로 인해 전통 금융 경제이론에 기반한 평가가 어려웠다. 그러므로 본 연구는 BOT PF 고유의 금융구조와 특성에 의한 채무불이행위험 완화효과의 평가를 위해 옵션가격결정 및 관련 금융 경제이론을 토대로 이론모델을 구성하고 사례를 분석함으로써 BOT 사업의 위험관리를 위한 이론적인 틀을 제시하고자 한다. 연구결과에 의하면 BOT 사업의 금융구조 및 특성이 사업자의 채무불이행위험을 완화시키며 특히 관련변수들이 수익성을 악화시키는 방향으로 변화할 때 그 효과가 증가함을 알 수 있었다. One of the advantages of BOT PF(Project Finance) is the government can be protected from risks involved in projects as the private finances, builds, and operates relevant projects. Moreover, the private may avoid outstanding responsibility in case of default thanks to BOT PF's unique financial structure and characteristics. However, despite increasing attention on risk mitigation effect of financial structure and characteristic of BOT PF to default risk with emerging controversies of capital crunch, introduction of IFRS, and contingent liabilities, valuation of default risk mitigation effect caused by financial structure and characteristics of BOT PF still seems sophisticated due to uncertain cash flows, complexly layered contracts, and their interaction. So, this paper is to show the theoretical frame to assess the default risk mitigation effect of financial structure and characteristic of BOT PF with option pricing and related financial economic theories and to provide some meaningful implications. Finally, this research shows that the financial structure and characteristics of BOT PF help mitigate the default risk and default risk mitigation effect increases as change of relevant variables on financial feasibility gets the BOT project less financially feasible.

Incentive genetic algorithm based time–cost trade-off analysis across a build–operate–transfer project concession period

The build–operate–transfer (BOT) scheme is widely applied to finance new infrastructure projects with private sector (concessionaire) participation. For a predetermined concession period (CP), assuming that CP consists of the construction duration (CD) and the concession operation period (OP), different construction durations result in different profits for the concessionaire. Meanwhile, according to the time–cost trade-off (TCT) principle, shortening the CD increases the construction cost; shortening the CD also prolongs the OP, which could increase the total benefit of BOT projects. Hence, how to arrange construction reasonably to maximize the whole profit is a key issue for a concessionary. This paper proposes a methodological framework including optimization, sensitivity analysis, and improved (incentive) genetic algorithms (GA) for BOT projects. Through the proposed methodological framework, the reasonable construction duration of a BOT project can be obtained. A numerical example is used to verify the proposed methodology.

Owner-Controlled Insurance Program and Construction Project Management for Taiwan High Speed Rail Project

The Taiwan High Speed Rail project connects two major cities of Taiwan—Taipei and Kaohsiung. The US$15 billion project is Taiwan’s first build-operate-transfer (BOT) project and is also the world’ s largest BOT project. Taiwan’s government contracted with Taiwan High Speed Rail Corporation (THSRC) for the railway’s construction and operation. Upon the expiration of the concession period lasting 35 years, the system will be transferred to the Taiwanese government. This paper focuses on the civil works contracts for the project and discusses the procurement strategy, tender process, construction project management and the owner-controlled insurance program. The author finds that officials for the Taiwan High Speed Rail project placed too much emphasis on the issue of whether or not the government would need to spend public funds on the project to make a fair and prudent judgment in evaluating the tender. Although the railway system was built on schedule due to effective and sound construction management and insurance strategies, THSRC now faces an impossible financial challenge operating the railroad and a government takeover may be necessary to rescue the corporation.

Revisiting the BOT Structure in Direct Foreign Investment Transactions

Revisiting the BOT Structure in Direct Foreign Investment Transactions

중국 수처리 민관협력사업 사례분석을 통한 시사점 도출: 위험 및 성공 요인 도출

중국은 지난 20년간 급속한 도시화와 산업화를 경험하면서 빠른 물수요 증가와 심각한 수질오염문제가 발생하였고 이를 해결하기 위한 효율적 물관리 방식의 도입이 절실하였다. 중앙 정부는 해결 방안 중 하나로 1995년 외국인 투자 활성화를 위해 "BOT(Build-Operate-Transfer) 통지"를 공표하고 청두 제6정수장 BOT 시범사업을 실시하였다. 또한 2002년 정부가 해외투자자/운영자의 관망분야 참여를 허용하면서 해외자본/기술 유입이 더욱 가속화 되었다. 현재 중국에서는 다양한 형태의 BOT 사업을 포함한 각종 민관협력사업(PPP)이 진행되고 있으나 현재까지의 연구 범위는 1개의 시범사업을 포함한 BOT모델 사업에 대한 위험요인 및 성공요인 도출에 제한되었다. 본 연구는 기존의 연구 한계를 극복하여 중국 PPP 프로젝트 데이터를 취합하고 주요 PPP 유형 및 사례분석을 실시하여 위험과 성공요인 및 대처방안을 도출하였다. 본 연구결과 중국 수처리 시장에서 다국적 물 기업은 외부 사업 환경의 변화에 능동적으로 대처하여 다양한 유형의 PPP 사업을 전개하고 있고 그런 유형은 지속가능한 사업모델로 자리매김하고 있다. 본 연구는 여기에서 논의한 다양한 유형별 성공 및 위험 요인들이 국내기업의 향후 중국 수처리 시장 진출에 유익한 정보로 활용되기를 기대한다. In China, the enhancement of water services has become the most crucial issue confronted with the rapid urbanization and industrialization process. A huge financial gap to meet the demand for water infrastructure and need for adopting advanced operation technology precipitated the rapid growth of PPP over the last 10 years. Diverse schemes of PPP such as TOT, Divestiture, and Management Contract and Lease have been practiced. Local governments and private investors/operator have adjusted their objectives and strategies to avoid potential pitfalls behind BOT projects in China. However, current academic research outcomes do not properly reflect important issues of BOT projects or related case studies in China. This limitation has brought in the lack of assessment of important risks and success factors required for the improvement of the body of risk management. In this regard, this study uses the market analysis method to identify major schemes of PPP water projects and conducts case studies on five PPP projects to identify key risk and success factors in association with each different scheme. It is expected that the risk and success factors identified from the cases will be used as reference to Korean companies which plan to enter the Chinese water market.

Risks and Mitigation Measures in Build-Operate-Transfer Projects

Infrastructure investments are important in developing countries, it will not only help to foster the economic growth of a nation, but it will also act as a platform in which new forms of partnership and collaboration can be developed mainly in East Asian countries. Since the last two decades, many infrastructure projects had been completed through build-operate-transfer (BOT) type of procurement. The developments of BOT have attracted participation of local and foreign private sector investor to secure funding and to deliver projects on time, within the budget and to the required specifications. Private sectors are preferred by the government in East Asia to participate in BOT projects due to lack of public funding. The finding has resulted that the private sector or promoter of the BOT projects is exposed to multiple risks which have been discussed in this paper. Effective risk management methods and good managerial skills are required in ensuring the success of the project. The review indicated that mitigation measures should be employed by the promoter throughout the concession period and support from the host government is also required in ensuring the success of the BOT project. Keywords—BOT project, risks management, concessionaire, consortium.

BOT projects: Incentives and efficiency

In recent years, governments have been increasingly adopting Build–Operate–Transfer (BOT) contracts for large infrastructure projects. However, BOT contracts have received little attention from economists. The apparent agency problem in BOT projects has never been analyzed. In this paper, we develop a model to examine the incentives, efficiency and regulation in BOT contracts. We show that a BOT contract with a price regulation during the concession period and a license extension after the concession period is capable of achieving full efficiency. Both license extension and price control are observed in many real-world BOT projects. We also investigate the efficiency in such contracts by considering other factors, including time consistency, price ceiling, foreign ownership, and the lack of price regulation.

Evaluating schedule delay causes for private participating public construction works under the Build-Operate-Transfer model

Project delivery method of Build-Operate-Transfer (BOT) increases the commencement probability of public construction works through private investments. Public construction works worldwide that adopt the BOT model as their project delivery method are increasing gradually. Although many BOT projects have been implemented at various stages, some projects encounter major obstacles for advancement. This study attempts to identify the delay causes in various stages of BOT projects. Opinions of BOT participants’ replies are solicited using two questionnaire surveys. Those outcomes are analyzed using by traditional statistical methods and structural equation modeling method. Study results reveal that the stage of ‘negotiation and signing of concession agreement’ is the most essential stage, in which ‘improper contract planning,’ ‘debt problem’ and ‘uncertainty on political issues and government-finished items’ are the most significant delay causes. Identified causes of delay can be used to prevent the postponement of future BOT projects.

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.

Is BOT the best financing model to procure infrastructure projects?

PurposeSeveral major infrastructure projects in the Hong Kong Special Administrative Region (HKSAR) have been delivered by the build‐operate‐transfer (BOT) model since the 1960s. Although the benefits of using BOT have been reported abundantly in the contemporary literature, some BOT projects were less successful than the others. This paper aims to find out why this is so and to explore whether BOT is the best financing model to procure major infrastructure projects.Design/methodology/approachThe benefits of BOT will first be reviewed. Some completed BOT projects in Hong Kong will be examined to ascertain how far the perceived benefits of BOT have been materialized in these projects. A highly profiled project, the Hong Kong‐Zhuhai‐Macau Bridge, which has long been promoted by the governments of the People's Republic of China, Macau Special Administrative Region and the HKSAR that BOT is the preferred financing model, but suddenly reverted back to the traditional financing model to be funded primarily by the three governments with public money instead, will be studied to explore the true value of the BOT financial model.FindingsSix main reasons for this radical change are derived from the analysis: shorter take‐off time for the project; difference in legal systems causing difficulties in drafting BOT agreements; more government control on tolls; private sector uninterested due to unattractive economic package; avoid allegation of collusion between business and the governments; and a comfortable financial reserve possessed by the host governments.Originality/valueThe findings from this paper are believed to provide a better understanding to the real benefits of BOT and the governments' main decision criteria in delivering major infrastructure projects.

Can the pilot BOT Project provide a template for future projects? A case study of the Chengdu No. 6 Water Plant B Project

The Chengdu No. 6 Water Plant B Project is a central government promoted pilot Build Operate Transfer (BOT) project in Chinese water sector, but the mode of the Chengdu project has not been well applied to the following BOT water supply projects. First hand data about the Chengdu project was collected focusing on project development process and organization, and lessons learned were identified in terms of factors impacting project viability as well as their re-applicability towards future BOT water supply projects in China. Main factors include (1) flagship project status with strong commitment of the central government, local government and an international multilateral organization; (2) local government taking multiple risks and responsibilities; (3) engaging lenders in decision making; (4) procurement of local products and services in construction and maintenance; (5) utilization of proven and cost saving technology; and (6) time-consuming project development process and complex approval system. Why the following BOT water supply projects are often of small size and how the mode of the Chengdu project can be applied to future projects of similar or larger size are discussed. The study provides implications for governments to re-define their role and improve the institutional settings for BOT project delivery and for infrastructure developers and investors to better understand and participate into the enormous Chinese water market through the BOT method.

Automated Approach to Negotiations of BOT Contracts with the Consideration of Project Risk

The terms of concession including tariff and concession period are often discussed intensively during negotiations of build-operate-transfer (BOT) contracts. Based on prior studies on negotiation terms and risk of BOT contracts, this paper incorporates risk attributes of the BOT project into the formulation of a contractual-negotiation model. The proposed model allows the government and the sponsor to reach a consensus on the terms should the financial return as well as the risk of the project be determined. The pro forma cash flow of a BOT project is developed and used to generate the probability distribution of net present values (NPV) from the owner’s viewpoint by using Monte Carlo simulation. High- and low-risk scenarios are obtained to determine whether the contractual-negotiation models vary in accordance with risk levels. Results show that, given the expected NPV, the sponsor should be offered more favorable concessional terms for projects with high risk than that with low risk. We suggest that the government and industry practitioners embody the risk attributes of the project in the automated contractual-negotiation model.

Time-dependent transport network improvement and tolling strategies

In times of constrained resources, the government has three strategies, among others, to improve the transportation network over the planning horizon without relying on public expenditures to finance these improvements. The first is the government-as-the-provider strategy where the government acts as the toll road operator who builds the infrastructure and collects enough tolls to maximize social surplus. The second is that the private sector acts as a monopoly, who builds all the toll roads based on the build-operate-transfer (BOT) scheme. The third is the competitive market strategy, in which the government allows multiple operators to build different toll roads and collect tolls in a competitive manner. Which strategy is the best? To answer this question, this paper develops appropriate time-dependent network design models for each of these strategies, and examines the performances of these strategies in terms of consumer surplus, travel cost, social surplus, and profit over the planning horizon through numerical examples. A proof is given to point out that the government-as-the-provider strategy is the best in terms of social efficiency under some mild assumptions. This paper also discusses the practical and policy aspects of these strategies and the possible need of government regulations to constrain the design and management of BOT projects.