BOT MODEL.pdf

BUILD OPERATE AND TRANSFER
(BOT) MODEL
Presented By:
Puneet Israni
Sweety Singh
Darshil Shah
Rutwik Gori
Global Network of Quantity Surveyors (QS) and Project Managers (PM) Linkedin Group

WHAT IS BUILD-OPERATE-
TRANSFER (BOT)?
Build Operate Transfer (BOT) is a project financing and operating approach that has found
an application in recent years primarily in the area of infrastructure privatization in the
developing countries. It enables direct private sector investment in large scale
infrastructure projects.
In BOT the private contractor constructs and operates the facility for a specified period.
The public agency pays the contractor a fee, which may be a fixed sum, linked to output or,
more likely, a combination of the two. The fee will cover the operators fixed and variable
costs, including recovery of the capital invested by the contractor. In this case, ownership
of the facility rests with the public agency.

BUILD
OPERATE
TRANSFER
A private company (or consortium) agrees with a government to invest in a
public infrastructure project. The company then secures their own
financing to construct the project.
The private developer then operates, maintains, and manages the facility
for an agreed concession period and recoups their investment through
charges or tolls.
After the concessionary period the company transfers ownership and
operation of the facility to the government or relevant state authority.

HOW BOT MODEL WORKS?
In a BOT arrangement, the private sector designs and builds the infrastructure,
finances its construction and operates and maintains it over a period, often as long as
20 or 30 years. This period is referred to as the “concession” period.
In short, under a BOT structure, a government typically grants a concession to a
project company under which the project company has the right to build and operate a
facility. The project company borrows from the lending institutions in order to finance
the construction of the facility. The loans are repaid from “tariffs” paid by the
government under the off take agreement during the life of the concession.
At the end of the concession period the facility is usually transferred back to the
government.

Private entities/concessionaire
Banks
Other parties to the contract
They come together to form a special purpose entity and contribute towards the financial
requirement of the project.
The bank will finance the project on a ‘non-recourse’ basis which means it has recourse to the
special purpose entity and all its assets for the repayment of the debt.
The special purpose entity will subcontract to perform its obligation under the contract such
as the supply of raw materials and other resources necessary to a third party.
Government agency
The government is the initiator of the infrastructure project and decides if the BOT model is
appropriate to meet its needs taking into account other economic and political factors as well.
WHO ARE THE PARTIES INVOLVED IN BOT
CONTRACTS?

Build-own-operate (BOO)
Build-lease-transfer (BLT)
Build-lease-operate-transfer (BLOT)
Here, a private organization builds, owns, and operates a part of a facility with encouragement
from the government. In return, the organization receives financial incentives such as tax-
exempt status. This mostly applies to BPO companies in different countries.
Upon completion of a project, the company sets a joint venture agreement with the public
sector for the ownership of the facility. Then they will lease it back for a minimum of 10 years
to operate as a business. This is usually common in healthcare facilities and institutions.
Lastly, in this method, the private organization builds and operates a facility in a publicly
leased land for a limited time. Once the lease duration is due, the organization transfers back
the leased land to the public institution that owns it.
Build-own-operate-transfer (BOOT)
A company owns and operates the facility to recover the investment costs while gaining
margin profit on the project. This method usually involves large infrastructure projects done
through private funding.
VARIATIONS OF BUILD-OPERATE-TRANSFER (BOT)

RELATIONSHIP BETWEEN PUBLIC-
PRIVATE PARTNERSHIP (PPP) AND BOT?
Public-private partnerships (PPP) refer to project agreements where a private entity takes
over the building and operation part of a government-owned infrastructure.
This helps to improve public infrastructures and services in coordination with the private
sector. Some of the examples include roads, schools, airports, and government buildings.
PPP takes in several forms of participation. This includes build-operate-transfer (BOT) and
design-build-operate (DBO). Through these models, the public sector can allow private
companies and institutions to invest in infrastructures depending on its requirements.

The Government gets the benefit of the private sector to
mobilize finance and to use the best management skills in the
construction, operation and maintenance of the project.
The private participation also ensures efficiency and quality by
using the best equipment.
BOT provides a mechanism and incentives for enterprises to
improve efficiency through performance-based contracts and
output-oriented targets.
The projects are conducted in a fully competitive bidding
situation and are thus completed at the lowest possible cost.
The risks of the project are shared by the private sector.
ADVANTAGES OF BOT MODEL

DISADVANTAGES OF BOT MODEL
There is a profit element in the equity portion of the
financing, which is higher than the debt cost. This is the price
paid for passing of the risk to the private sector.
It may take a long time and considerable up front expenses to
prepare and close a BOT financing deal as it involves multiple
entities and requires a relatively complicated legal and
institutional framework. There the BOT may not be suitable
for small projects.
It may take time to develop the necessary institutional
capacity to ensure that the full benefits of BOT are realized,
such as development and enforcement of transparent and fair
bidding and evaluation procedures and the resolution of
potential disputes during implementation.

SOME PROJECTS RESULTING OUT OF BOT MODEL
IN INDIA
Nhava Sheva International Container Terminal (Jawaharlal Nehru Port Trust of the Government of India and DP WORLD, Dubai, U.A.E)

Amritsar Interstate Bus Terminal (Department of Transportation, Government of Punjab with the consortium of Rohan Builders (India)
Pvt Ltd., Rajdeep Buildcon Pvt Ltd and Rajdeep Road Developers Pvt. Ltd.)

Delhi Gurgaon Expressway (National Highways Authority of India with the consortium of Jaypee Industries and DS Construction Ltd.)

Hyderabad Metro (Government of Andhra Pradesh with the consortium of Maytas Infrastructure, Nav Bharat Ventures, IL&FS and Ital-Thai).
Global Network of Quantity Surveyors (QS) and Project Managers (PM) Linkedin GroupGlobal Network of Quantity Surveyors (QS) and Project
Managers (PM) Linkedin Group

Salt Lake Water Supply and Sewage Disposal System (Kolkata Metropolitan Development Authority and Naba Diganta Industrial
Township Authority and Jamshedpur Utilities and Services Company Limited and Voltas Limited).

Tuni Anakapalli Project (National Highways Authority of India with the consortium of The GMR Group and United Engineers Malaysia
Berhad Group).

Alandur Underground Sewerage Project (The Alandur Municipality worked in partnership with the Tamil Nadu Urban Infrastructure
Financial Services Limited, the state asset management company and with USAID’s Financial Institution Reform and Expansion
Project).

Kakinada Deep Water Port (Government of Andhra Pradesh with the consortium of Larsen & Toubro Ltd, India, Stevedoring Services of
America, USA, Precious Shipping Company, Thailand, Konsortium Perkaplan Berhard, Malaysia)
BHADANIS INSTITUTE FOR QUANTITY SURVEYORS
WWW.BILLINGENGINEER.COM THANKS !!

BHADANIS INSTITUTE FOR QUANTITY SURVEYORS
WWW.BILLINGENGINEER.COM THANKS !!

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