2.2.5.3. Build-Operate-Transfer (BOT)

Basic features of BOT

In a Build-Operate-Transfer or BOT (and its other variants namely Build-Transfer-Operate (BTO), Build-Rehabilitate-Operate-Transfer (BROT), Build-Lease-Transfer (BLT)) type of arrangement, the concessionaire undertakes investments and operates the facility for a fixed period of time after which the ownership reverts back to the public sector. In this type of arrangement, operating and investment risks can be substantially transferred to the concessionaire.

Liabilities of government

However, in a BOT type of model the government has explicit and implicit contingent liabilities that may arise due to loan guarantees provided and default of a sub-sovereign government and public or private entity on non-guaranteed loans. By retaining ultimate ownership, the government controls policy and can allocate risks to those parties best suited to bear them or remove them.

How a BOT deal is structured

The concessionaire's revenue in a BOT project comes from managing and marketing of user facilities (for example, toll revenue in a toll road project) and renting of commercial space where possible. Concessions for BOT projects can be structured on either maximum revenue share for a fixed concession period or minimum concession period for a fixed revenue share, a combination of both, or only a minimum concession period.

Government involvement in a BOT project

In a BOT concession, the concessionaire may be required to establish a special purpose vehicle (SPV) for implementing and operating the project. The SPV may be formed as a joint venture company with equity participation from multiple private sector parties and the public sector. In addition to equity participation, the government may also provide capital grants or other financial incentives to a BOT project. However, it is also quite common that the government may not have any equity participation in a BOT project company. 

IDevice Icon Examples of BOT in Asia

BOT is a common form of PPP in all sectors in Asian countries.

The Bangkok Mass Transit System Public (BTS), the elevated train system in Bangkok, is an example of BOT project. The project was implemented under a 30-year BOT concession agreement between the concessionaire and Bangkok Metropolitan Administration (the city Government).

A large number of BOT port and road projects have been implemented in the region. The Nhava Sheva International Container Terminal (NSICT) is an interesting example of efficiency gains through a BOT project in the port sector. In 1997, the Jawaharlal Nehru Port Trust (JNPT), India signed an agreement with a consortium led by P&O Australia for the development of a two-berth container terminal on BOT basis for 30 years at a cost of US$ 200 million. P&O completed the project before schedule and commenced operations at the new terminal in 1999. Already the first year of operation the terminal was handling much more traffic than expected. Private participation also resulted in impressive efficiency gains. Efficiency indicators such as average turnaround time of ships and output per ship-berth-day at the terminal were comparable to other efficiently operated ports in the region. The average turnaround time in 2003-04 for ships and containers were 2.04 and 1.84 days, respectively, which were far superior to corresponding indicators for other comparable terminals in the public sector.

The BOT model is often used to exploit the existing the assets and raise capital resources for modernisation and capacity addition to the existing infrastructure. The Indian Railway is applying this concept for the modernisation of several large city railway stations under the BOT model.


Build-Rehabilitate-Operate-Transfer (BROT) is a variant of the BOT arrangement. Under the BROT arrangement, a private developer builds an add-on to an existing facility or completes a partially built facility and rehabilitates existing assets, then operates and maintains the facility at its own risk for the contract period. BROT is a popular form of PPP in the water sector. Many BROT water sector projects have been implemented in China, Indonesia and Thailand.

IDevice Icon Examples of BROT

Port Klang in Malaysia is a good example of BROT in the transport sector. It is also one of the earliest successful PPP projects in the region. Under a 21-year contract, an award was made in 1986 to a private operator, Port Klang Container Terminal to manage and develop container facilities at the port.

The Siam Reap Airport in Cambodia is an example of BROT in the airport sector.


Difference between franchise and BOT

A key distinction between a franchise and BOT type of concession is that, in a franchise the authority is in the lead in specifying the level of service and is prepared to make payments for doing so, whilst in the BOT type the authority imposes a few basic requirements and may have no direct financial responsibility.

 

Copyright © 2008 by Transport Policy and Development Section, United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).