Build-operate-transfer Research Articles

Options Framework and Valuation of Highway Infrastructure under Real and Financial Uncertainties

AbstractThis study builds and applies a framework that addresses the twin uncertainties of traffic flow and interest rates in build-operate-transfer (BOT) projects. Existing valuation methods addre...

ЮРИДИЧНЕ РЕГУЛЮВАННЯ ВІДНОСИН У СФЕРІ УПРАВЛІННЯ ПРОЕКТАМИ ПУБЛІЧНО-ПРИВАТНОГО ПАРТНЕРСТВА У СВІТІ

Background. This article is devoted to the researching of PPP’s projects management models (world experience) and development of ways concerning settlement of management’s legislative problems. Methods. Methodological basis of the research is a set of theoretical and methodological means of comprehension of social phenomena and processes, which is predetermined by the purpose and peculiarities of the problem under study, as well as the general principles of scientific knowledge, approaches and methods traditionally related to the methodological apparatus of the humanities. As a result, the methodological basis of the study included methods as follows: dialectical, formal-logical methods, the method of legal comparison, the method of system analysis, the method of legal modeling, the interdisciplinary method of legal research and some others. With the help of the dialectical method, the peculiarities of the PPP projects legal nature were researched. The formal-logical method facilitated in studying of legal regulation of PPP models, the justification of the directions and prospects for their further settlement. The method of legal comparison was used for the comparative characteristic of the PPP projects implementation in Ukraine and in foreign countries such as Canada, Austria, Belgium, Argentina, Mexico and others. Application of the method of system analysis allowed to consider specific elements of PPP legal relations comprehensively and objectively, to distinguish the problems of legal regulation and to develop ways of their solution. The methods of legal modeling and the interdisciplinary method of legal research were used to develop draft of relevant legal acts, definition of PPP project etc. Results. The necessity of the development and adoption of the special codified Law – the Code of PPP relations is substantiated, also the Typical structure of this Code is proposed. An international practice of PPP projects realization is analyzed and the necessity of the advanced world experience’s implementation in the field of PPP is proved. Besides the Code should contain legal provisions concerning the most prevalent models of PPP as follows: BOT (Build – Operate-Transfer), DBFO (Design – Build – Finance – Operate), Concessions of different types (including commercial concessions), public procurements and so on. It is substantiated that the sponsors or creditors are mandatory participants of PPP projects in most cases. So it must be implemented so-called “the right to intervene” into PPP project for such members. Also the author describes peculiarities of this right’s implementation. Financial balance of PPP project should be the basic element of PPP agreement in any case. With that when choosing the type of PPP project’s financing (carried out by the public sector or private), the key role is played by the fact in which case the “value for money” ratio will be optimal. The procedure of private partner’s choosing must be unified independently of PPP direction (concessions, public procurements etc.). Also it is proved that under the PPP projects (corporate form) realization there is strong need to use special economically-operative technologies, for instance, public buyout of shares by a public partner of a company established by private individuals, that is, the organization of a “special purpose” company. In particular, after winning a concession (obtaining a concession), the concessionaire will have the right to establish the appropriate company with the status of a legal entity that will act with the same functions and the purpose of which will be to achieve the same results. In this case, the mode of obtaining international grants or payments by such a company, the rules of liability of shareholder partners and investor shareholders, the relationship of the company with credit institutions (in particular, banks) should be fixed. Also the author proposes the definition of PPP project, highlights international experience in commercial/innovative PPP projects realization, particularities of PPP agreement and so on. Conclusions. Currently, the PPP in the areas of infrastructure networks’ construction and operation, also in areas of public services is developing rapidly and is of increasing interest in the world. However, the absence of a sufficient scientific study of a specific PPP project’s implementation significantly slows down this development. Taking into account the foregoing, the conducted scientific study of the issues covered in this paper allows us to assert the relevance and practical necessity of making scientific articles on the topic of PPP.

Principles of the toll roads pricing

In this paper the authors refer to the method of commercial provision of road infrastructure called BOT (build-operate-transfer) under Public-private partnerships (PPPs) scheme. First we present the investment criteria for transportation PPP projects as well as application of price theory. Then we recognize that the different participants in PPP projects have distinct goals and requirements that must be met in order for them to be able to participate in an effective partnership. The main challenge for the toll road pricing is to determine the economically viable toll rate that takes into consideration the diverse and sometimes conflicting interests of different stakeholders involved in the project. The main objective is to review the theory of economic principles for optimal toll roads pricing and to review the existing approaches to transportation projects appraisal. Then the authors show how to formally derive the condition for toll rate that meets 2 criteria: 1) is socially optimal and 2) covers operator’s costs. For this purpose we use II type Tőrnquist function, a member of an Engel family of functions. This function models the relationship between income and consumption of inferior and normal goods. Tőrnquist function is a mathematical representation of the well-known Engel curves. We deem the highway trip to be a “second necessity good”.

Impacts of pavement deterioration and maintenance cost on Pareto-efficient contracts for highway franchising

In a build-operate-transfer (BOT) highway project, pavement roughness progression generally has a direct impact on the highway maintenance cost and user costs. Given two common rehabilitation strategies, this study respectively investigates the optimally designed highway capacity and tolls of multi-type vehicles in Pareto-efficient contracts. Under supplementary conditions, it proves that the optimal toll revenue could fully cover the highway construction and maintenance cost in these contracts, no matter with or without the regulated traffic composition. Further extensions are made to evaluate and identify properties of the highway v/c ratio, rehabilitation period or critical roughness under the two rehabilitation strategies, respectively.

Impact of government subsidy on BOT contract design: Price, demand, and concession period

Private provision of logistics infrastructure through build-operate-transfer (BOT) contracts has become increasingly popular worldwide. These contracts involve incentive conflicts between private sector concerning profit and government concerning social welfare. To coordinate the incentive conflicts, the government usually subsidizes the private sector in practice. In this paper, we propose a stylized model to illustrate how to design an optimal BOT contract with government subsidy. We first derive optimal subsidy levels for the government to obtain optimal social welfare, given concession periods. We further observe that there exist both a substitution effect and a complementary effect between the concession period and the subsidy level. For the former (latter), the subsidy is decreasing (increasing) in the concession period, and the substitution effect can be strengthened if the government has subsidy budget constraint. Interestingly, we find that the private sector does not always prefer the longest concession period. A concession period less than the lifetime of the infrastructure may be more beneficial for the private sector. In contrast, the government's preferred concession period can be either zero or the longest concession period, depending on the unit construction cost and the government's inefficiency cost. We further find that, the incentives of the government and the private sector over the concession period can be aligned when the unit construction cost is low and the government's inefficiency cost is high. We also find that their incentives over the infrastructure's capacity utilization are always aligned throughout the BOT periods.

DETERMINATION OF CONCESSION PERIOD IN BUILD-OPERATE-TRANSFER PROJECTS USING FUZZY LOGIC

The build-operate-transfer (BOT) projects are a popular method of privatization of public infrastructure development. There are several risks which might affect a BOT project negatively. 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. A longer concession period is more beneficial to the private investor, whereas a prolonged concession period may result in loss for government investments. On the other hand, if the concession period were too short, the investor would either reject the contract offer or would be forced to increase the operation fees in order to recover the investment costs and to make a certain level of profit. In this paper, the concession period is determined using a new fuzzy logic based methodology. The proposed approach accounts for the existing risks and uncertainties. In the proposed methodology, the interests of both parties would be ensured and a win-win solution would be achieved. To evaluate the performance of the proposed methodology, the methodology was implemented in a highway project.

Techno-economic assessment of a grid connected photovoltaic system for the University of Jordan

The high electricity consumption and cost at the University of Jordan has motivated the university to adopt a renewable energy and energy efficiency as one of its strategic objectives for the coming decade. The university has set forth an ambitious goal to achieve 100% electrical energy independence, relying mainly on renewable solar energy using photovoltaic (PV) panels.This study investigates different technical solutions of the grid connected solar PV system; fixed, single-axis and double–axis tracking PV modules. Moreover, two engineering models for the construction of such a project have been investigated; the Build Operate Transfer (BOT) model and the Engineering Procurement Construction (EPC) engineering model.The performance analysis was conducted in terms of final yield, land use and conversion efficiency, while the economic analysis investigates the simple payback period and internal rate of return. The simulation was carried out using a Trnsys model that has been experimentally validated by the authors.It was found that the most attractive choice is the EPC model using the fixed PV system for installation with 32% internal rate of return (IRR) and 3 years payback period. The required system size was 15030 kWp, with an estimated area of 150 thousand squared meters.

DEVELOPMENT MODEL OF BUILT OPERATE AND TRANSFER (BOT) OVER WAQF LAND PRODUCTIVITY

Build, Operate, Transfer (BOT) is an agreement that provides solutions between parties that have common interests but with their respective limitations that require the ability or ability of others to realize mutual benefits, for example one party has a plot of land that can be optimized for the benefit of the business to take advantage of the assets owned but due to limited funds or expertise in the field of asset management owned by inviting third parties to optimize the land to be utilized. From the BOT agreement there are many things that can be done and many advantages from third party communities including landowners, so that the land is not abandoned land or sleeping land. Waqf in the context of positive law as Law No. 41 of 2004 on Waqf, has inherited the rigid, closed, and narrow nature of its movement space permanently. This is due to the excessive concerns of the Naqwa waqf and the people around the land of waqf. Due to the nature of this rigidity, many land waqf which became the land of sleep, especially the manager of education and social activities, whereas land waqf land in a strategic location. This study aims to find a way out of the legal deadlock by harmonizing the law of land waqf with the approach of the law of covenant and the law of civil and land law as a pillar of increasing land productivity waqf. The research method used is a normative juridical approach with secondary legal materials from experts as well as comparative studies abroad that have implemented BOT on waqf land or utilizing objects on land waqf in perspective Islamic Business Law.Keywords : Built Operate Transfer (BOT), Waqf Law, Horizontal Separation Principle

Build-operate-transfer projects as a hybrid mode of market entry: The case of Yavuz Sultan Selim Bridge in Istanbul

BOT (Build- Operate-Transfer) projects are well known to sponsors and contractors of mega infrastructure projects around the world. The massive scale and long-term time frame of these construction projects require non-traditional business relationships among the sponsors, prime contractors, sub-contractors, and a host of other vendors. The BOT model is typically sought by local and national governments that cannot independently finance complex mega projects.A BOT deal refers to a large-scale project where the sponsor (typically a governmental agency) contracts with a prime contractor, that assumes the responsibility for completing the construction and operating it for a predetermined period, before turning ownership back over to the sponsor. During this predetermined period, the contractor can recoup its investment through its operations and/or through a guaranteed rate of return from the sponsor.This paper reports on such a project – the case of Yavuz Sultan Selim Bridge, the third bridge linking Asia and Europe in Istanbul, a sprawling metropolis of roughly 15 million people. The bid also called for the construction of the connecting highways. It was initiated in 2012 and was completed in 2016. Named after a celebrated Ottoman Sultan, the bridge is widely acknowledged to address a much-needed infrastructure project for Istanbul.We detail BOT projects – rarely discussed in the IB literature – as a hybrid mode of international market entry, with unique features, benefits, and risks. The insights offered in this manuscript were gathered from a series of unstructured interviews with senior executives of the prime contractors.

Pareto Analysis of Critical Risk Factors of Build Operate and Transfer (BOT) Projects in Nigeria

The need to meet the massive infrastructural gaps has led to the adoption of alternative procurement methods. Build Operate and Transfer (BOT) is one of the new ways used for procuring infrastructure. In developing countries, BOT projects are characterised by high-risk profile discouraging private investment. Therefore, it is imperative to identify the critical risk factors inherent in such arrangements with the view to attracting the desired level of private investment. This study employed Pareto Analysis to identify vital risk factors of BOT projects in Nigeria. Structured questionnaires were used to establish critical risk factors based on the perception of key stakeholders (government, concessionaire, lenders, and developers) in Abuja. Kaduna, Port Harcourt and Lagos. Descriptive statistics were used to obtain Standard Deviation of the risk factors indicating their impacts and severity. Based on the results, Pareto Analysis was carried out to separate the /'vital few' from the 'trivial many'. The results indicated nine risk factors as the vital few responsible for 80% contribution. The risk factors include; changes in government policies, hostile general business environment, project company default, time performance risk, cost performance risk, excessive development cost, instability in government, failure to raise finance for the project and lack of experience in handling the project. Therefore, for effective implementation of BOT projects, it is necessary for stakeholders to focus on the /'vital few' risk factors responsible for 80% of the risk impacts. The results of the study may not be generalised for use by clients and contractors operating in environments with different political and economic climate with Nigeria as the impact and likelihood of occurrence of risks may vary.
 Keywords: Build-operate-transfer, Nigeria, Pareto analysis, Risk factors.

Post Implementation Evaluation of Lahore - Sheikhupura - Faisalabad Dual Carriageway - A Built Operate Transfer (BOT) Project

The transportation systems generally constitute the largest public-sector investment by any society. Despite of funding limitations, highway agencies continue striving to develop road network to meet needs of the society. In order to ensure optimal utilization of public money, there is a dire need of best project evaluation practices and monitoring of the expected impacts of highway investment decisions. Present study focused on post implementation evaluation of Lahore-Sheikhupura-Faisalabad Dual Carriageway, a 4-lane divided highway 115 Kilometer long that was constructed in 2006 through Build-Operate-Transfer (BOT) financing with a concession period of 22 years. For post-implementation evaluation five performance criteria were considered: safety, vehicle operating cost, fuel cost, lifecycle agency maintenance and operations cost, and lifecycle toll collection. Post-implementation evaluation was carried out using highway maintenance and rehabilitation strategies proposed by facility operator (concessioner). Present worth (2007 constant US$) of travel time, safety and fuel saving was found to be $US 429.290, -1.790, 65.080 Million respectively. Using facility operator’s maintenance and rehabilitation strategy total maintenance and operations cost was found to be $US 234.442 Million (2007 constant US$). Also, present worth of toll collection was estimated as $US 131.410 Million (2007 constant US$). Positive net present value revealed that project is economically viable for society. Also, methodology used in present study can be used by highway agencies for carrying out post-construction evaluation of their projects.

Sustainable infrastructure delivery in Nigeria: implementation of the analytic network process for contractor selection

Purpose: This paper presents research findings that involve the use of analytic network process (ANP) to select contractors for build–operate–transfer (BOT) infrastructure in Nigeria. To deliver sustainable infrastructure (SI), a responsive methodology is required for contractors' selection process, which combines judgement and data for an effective outcomes prediction. Design/methodology/approach: Theoretically grounded on a system theory, sustainable infrastructure delivery (SID) model has been developed in this study. At the deductive phase of the model is the integration of the ANP (a multicriteria decision-making technique) for data synthesis. To obtain decision criteria, 55 sustainability indicators for contractor selection were identified from the literature review. The criteria were first developed to a web-based questionnaire where respondents were requested to rank the importance of the criteria towards selecting contractors that deliver SI, using Likert scale of 1–5 (where “5” is very important and “1” is not important). The results were analysed using factor analysis. Data were further reduced to 16 variables after multicollinearity issues in the data set had been resolved. To weigh the relative importance of the 16 criteria among contractors, ANP methodology was adopted for the second-round questionnaire. The seven-man decision panel that completed the pairwise comparison survey was selected through a purposeful sampling technique. The final survey results were synthesised by Super Decisions (computer package that implements ANP) trial version to rank contractors' options and predict outcomes. Findings/results: Sensitivity analysis of the research findings reveals that the 16 criteria have differential comparative advantages, which requires critical judgement during contractor's pre-evaluation process. Although the overall priorities rank multinational construction corporations (MCC) higher than local construction companies (LCC), MCC are not absolute to deliver SI. LCC are sensitive to some key criteria that are critical to the actualisation SI agenda. Originality/value: This study fills the gap in the knowledge of SID in Nigeria. The study theoretically suggests a framework to harmonise sustainability indicators in contractor selection. The findings further provide feedbacks that can be incorporated to Government's Ministries, Department and Agencies (MDAs) procurement policy to promote SID.

Revenue Risk Modelling and Assessment on BOT Highway Project

The infrastructure project which is considered as a public-private partnership approach under BOT (Build-Operate-Transfer) arrangement, such as a highway, is risky. Therefore, assessment on risk factors is essential as the project have a concession period and is influenced by macroeconomic factors and consensus period. In this study, pre-construction risks of a highway were examined by using a Delphi method to create a space for offline expert discussions; a fault tree analysis to map intuition of experts and to create a model from the underlying risk events; a fuzzy logic to interpret the linguistic data of risk models. The loss of revenue for risk tariff, traffic volume, force majeure, and income were then measured. The results showed that the loss of revenue caused by the risk tariff was 10.5% of the normal total revenue. The loss of revenue caused by the risk of traffic volume was 21.0% of total revenue. The loss of revenue caused by the force majeure was 12.2% of the normal income. The loss of income caused by the non-revenue events was 6.9% of the normal revenue. It was also found that the volume of traffic was the major risk of a highway project because it related to customer preferences.

A Comprehensive Study of Dispute Resolution using Artificial Neural Network in Build Operate and Transfer (BOT) Project

A Comprehensive Study of Dispute Resolution using Artificial Neural Network in Build Operate and Transfer (BOT) Project

Critical success factors for build–operate–transfer (BOT) projects in China

Abstract This study aims to create a list of CSFs for China’s BOT projects to help organizations achieve project success. We first describe the role of CSFs in terms of three broad categories of whether BOT projects adopt strategies for risk transfer, the degree to which BOT projects foster the ‘whole- life approach’ to project design and management and extent to which BOT projects ensure timely delivery and supplies good-quality products and services. Based on an initial CSF list, a questionnaire survey was conducted to identify the relatively important CSFs for BOT projects in China. Our initial assessment shows that the key CSFs corresponded to our defined categories of BOT projects’ success factors. We then provide an updated list of CSFs with the top ten factors in ranking analysis. This list of CSFs could play a useful role in the phases of preparing, bidding, constructing, operating and transferring of BOT projects.

The effects of concession period structures on BOT road contracts

Under the build-operate-transfer (BOT) approach, the private firm builds and operates a road within the concession period and transfers the project at no cost to the government at the end of the concession period. Based on whether the construction period and the private operation period are defined together or separately, there are two concession period structures: single-period concession structure (SPCS) and two-period concession structure (TPCS). This paper simultaneously compares socially optimal toll prices in both private and public operation periods, road quality, and concession period under SPCS and TPCS, respectively. We find that if the marginal social welfare with respect to toll price in private operation period is sufficiently more responsive than to road quality, then the optimal road capacity and toll prices under SPCS are higher than those under TPCS. Otherwise if marginal social welfare in public operation period is sufficiently more responsive to road quality, then the optimal toll prices under SPCS are lower while the optimal road quality under SPCS is higher. We also find that the optimal concession periods are independent of concession period structures. This paper has made three extensions to further investigate the effects of concession period structures (1) when the toll price is determined by the private firm; (2) when renegotiation takes place; and (3) when government support policies are present. Based on our model results, this paper derives several policy implications regarding BOT road contract design under different concession period structures.

Performance of New Rice Variety (Inpari 24) at Subak Amerta Nadi Kerta Village Payangan Sub-district of Gianyar Bali

Model development of rice farming in the production centre area at Payangan Sub-district of Gianyar is designed to introduce a model called rice field laboratory. The principle of the model used is "build, operate and transfer (BOT), refering to a the disseminated model of innovation which is a large scale pilot model at the grass root level. The study introduced new varieties “Inpari”24 as an attempt to replace the old varieties that has lower productivity. Cultivation technology by implementing Legowo System 2: 1. The aim of this study was to determine the performance of new variety Inpari 24 in the cropping system in Subak Amerta Nadi, Kerta Village, Sub-district of Payangan Gianyar in the growing season 2014. This study used a randomized block design with two treatments of different cropping systems, namely: Legowo 2: 1 (40 x 20 x 10 cm) and tiles (20 x 20 cm), repeated 10 times. Variables observed in this study were: plant height, number of tillers, panicle length, number of grains per panicle and empty grains and yield per hectare. Data were analysed through analysis of variance, then followed by LSD test at 5% level. It was concluded that: (a) cropping systems significantly affected all variables of rice production, (b) the highest productivity was Legowo System which was 7.50 tons / ha, increased by 26.68% compared to tiles cropping system (the method used by farmers).Keywords: Inpari 24; planting system; rice

Using bargaining-game model to negotiate compensation for the early termination of BOT highway projects

Build-operate-transfer (BOT) highway projects are widespread around the world. However, many BOT highway projects are terminated before the expiry of the concession period for a variety of reasons, such as unreasonable decisions and a lack of a risk allocation mechanism. As the most concerning issue for the government and private sector, compensation for early termination has been a major controversy due to the lack of a fair and reasonable decision approach. This paper proposes an effective method to evaluate the compensation amount for projects with incomplete contracts using game theory. First, a bargaining-game model with complete information is constructed to analyse the process of negotiation, for which the influences of the government investing in a new road and the traffic demand changes of the early terminated project on bargaining are taken into consideration. Then, the Nash equilibrium solution of the model is derived by backward induction, and a discussion of the properties of the solution is presented. Finally, the model results are verified using the Wutong Mountain Tunnel BOT project in China. This paper provides a solution to compensation for early termination of BOT highway projects with incomplete contracts.

LEGAL PRINCIPLES IN FUNCTION AND PERFORMANCE OF BOT CONTRACT

Build, Operate and Transfer (BOT) represents a long term partnership of the government and private sector. In BOT project, either the government or a private sector identifies a need for a development project. The philosophy in BOT contract begins from the increasing infrastructural needs in all areas and with a limited budget, government are required to commit the duties and functions state governance so that the concept of BOT give a solution through a partnership with the private sector. The government then gives a concession to the private sector to build the project and operate it for a fixed period years, after the period ended, the building shall be transferred to the government. Through BOT, the country is able to gain asset without government spending while maintaining a measure of regulatory control over the project. BOT permits the government to use private sector fund to finance public infrastructure development. The main issues elaborated in this article are the legal principle in the formation of BOT contract and the legal principle in the performance of BOT contract. There are two results; firstly, in the formation of a BOT contract, the principles of partnership and the principle of transparency should be emphasized. Secondly, in performance of the BOT contract, the principle of risk management and the principle of proportionality should be clearly stated in the rules and legal norms.

PRINSIP PROPORSIONALITAS DAN GOVERNANCE TERHADAP ALOKASI DAN TRANSFER RISIKO DALAM SKEMA KERJASAMA PUBLIC-PRIVATE PARTNERSHIP (PPP)

The high level of Foreign Direct Investment (FDI) is also supported by the availability of infrastructure to the remote area where the investment will be implemented. However, with limited funds from both APBN and APBD, infrastructure development can not be fully done by the government. Therefore, the government will cooperate with the investor (private) in the implementation of infrastructure development known as public private partnership. The main problem in implementing PPP is the allocation of risk to PPP projects. The different bargaining positions between the government and the private sector resulted in the fact that most of them impose risks on private parties (private). Implementation of PPP is closely related to the emergence of various risks including and not limited to regulatory risks, force majeure, etc. If there is no risk allocation arrangement proportionally based on governance principles, it weakens the pattern of PPP cooperation in Indonesia. PPP as one form of risk sharing in infrastructure investment should not release the role and government support to private parties / investors. Even in practice, PPP implementation in Indonesia only relies on BOT (Build Operate and Transfer) scheme which is expected to minimize government support in project implementation. This will ultimately lead to project failure.