BOT (Build, Operate and Transfer) an alternative to traditional data conversion and management
How long would it last?
The capital required for equipment or facilities upgrades will be the main determinant in setting
the length-for a BOT contract. Infrastructure- development projects funded by means of
BOT contracts in developing countries will typically require capital investments of $50 million
or more and an operating period of greater than 10 years. A number of dynamic factors affect
the overall structure of the contract and particularly the length of time required for the concessionaire
to achieve a break-even on the capital investment. In proposing a BOT concession to
an existing owner, the following factors m-ust be considered and allowed for:
| Factor |
Consideration |
| Capital Requirement |
Capital The greater the capital amount required to upgrade the facility or
Requirement purchase equipment, the longer the operating contract period should
be.
|
| Profit Sharing Formula |
A 50:50 profit sharing formula is a useful starting point and is quite
Formula a common arrangement in international projects. The impact of other
factors will increase or decrease the proportional breakdown.
|
| Business Operating Risk |
The nature of the enterprise will dictate a longer or shorter period of
return based on a risk factor used within that industry. Similarly, for
the concessionaire, risk may be mitigated or augmented by lengthening
the period of the operating contract.
|
| Cost of Capital |
Lower cost of capital will allow the concessionaire to achieve a
break-even point in a shorter period of time, all things being equal. |
| Nature of Revenue Stream |
Certain types of revenue offer greater security in terms of a con-
tinuing revenue stream. Enterprises in which the customer usage
levels are discretionary (customers have a choice of competitors or
may choose to forego the service being offered) entail a higher level
of risk and will impact the other factors.
|
In the case of a BOT project, the project team, acting as the releasing authority for the work, must
establish the financial feasibility of the BOT project as a stand-alone business operation. This will
entail the collection of the necessary detail to allow a bidding consortium to develop a business
plan for their intended operation of the work. The key information for the project team will be the
necessary return on investment to be derived from the profit-sharing scheme. This will determine
how the revenue will be distributed once a consortium undertakes the work. An RFP will then be
put out for tender and a list of bidders, each providing a business plan, will respond. The bidders
will typically represent a consortium of companies, each bringing a particular skill to the team.
The proponent consortium will be selected from the bidders based on what capital upgrade is being
offered and how large a revenue cut is being proposed for the operator. Flowchart C illustrates this
arrangement.
Flowchatt C - AM/FM BOT Project Methodology
Some thoughts regarding the BOT approach:
When applied to infrastructure development, the BOT approach is often referred to as a publicprivate
partnership. In essence, this partnership is the distinguishing characteristic, whether applied
to a public or a private enterprise. The BOT approach represents an expansive and flexible
means to leverage the capability of the concessionaire while reducing the operating expense
and increasing the service performance for the enterprise owner.
Often, the most effective means of mobilizing resources to undertake a BOT project is the formation
of a consortium of participating companies around a project company formed specifically
for the duration of the project. This approach requires each participant to subcontract to
the project company and offers the advantage of reducing the risk for individual participants.
While infrastructure development projects really developed as national level opportunities, the
clear trend has been toward implementing the same project financing and operating models on
a smaller and smaller scale, making the BOT approach a possible option for many undertakings
previously thought of as unsuitable. More opportunities will be found at the local government
and private industry level as a result of the growing awareness of the advantages that the
BOT approach has to offer.
