New Trends in Project Formulation and Execution: Unit 3

UNIT 3
NEW TRENDS IN PROJECT FORMULATION AND

EXECUTION
Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

2016
TYPES OF PROJECT FORMULATION AND EXECUTION
1. BOT (Build- Operate-Transfer)

2. BOOT (Built-Own-Operate-Transfer)
3. BOO (Build-Own-Operate)
4. BLT (Build-Lease-Transfer)
5. DBFO (Design-Build-Finance-Operate)
6. DCMF (Design-Construct-Manage-Finance)

2016
BOT- Built Operate Transfer
Application:
 Infrastructure Projects
 Public-private Participation
The Public Administration delegates to a Private

sector entity to design and build infrastructure
and to operate and maintain these facilities for a
certain period.

2016
Responsibilities of Private Party:

 To raise finance for the project
 Operate and maintain these facilities
 Retain all revenue generated by the project
 Is the owner during the concession agreement
period
 Transfer at the end of the concession
agreement
 No remuneration during transfer

2016
BOT- Build Operate Transfer
Parties involved in BOT projects:
 The Host Government

 The Concessionaire
 Lending Banks
 Other Lenders
 Parties to project contracts

2016
BOT-Built Operate Transfer
The Host Government:
 Is the Initiator
 Political and Economic circumstances
 Support to the project in the form of Land and
Law.

2016
The Concessionaire/ Consortium:

A project sponsor who act as a concessionaire to
create a special purpose entity which is capitalized
through their financial contributions.
Lending Banks:
Most BOT are funded by commercial debt. The bank
will finance the project on “non-recourse” basis,
meaning that it has recourse to the special purpose
entity and all its assets for the repayment of the debt.

2016
Other Lenders:
Lenders such as national or regional development
banks.
Parties to the Project:

 Special purpose entity has only limited workforce
 To subcontract to third party
 To assure it has adequate supply contract for the
raw materials

2016
Model:
 To develop a discrete asset rather than a whole
network
 New or Greenfield in nature
 Fee through a fee charged to the utility/
Government rather than tariffs charged to
consumer
 The projects are called concessions
(Example: Toll Roads)

2016
Viability:
 Project is financially viable for private entity only
if the revenue generated covers its costs and
provides sufficient Return on investment
 Viability for the Host Government depends on its
efficiency to financing the project with public
funds
 Expertise and efficiency is better with private
entity
 Risk Transfer

2016
Risk:
 Political Risk- Dramatic overnight political change
 Technical Risk: Construction difficulties
 Financing Risks:
 Foreign Exchange rate
 Interest rate fluctuations
 Market risk (price of raw material)
 Income risk (Over optimistic cash flow forecasts)
 Cost overrun risk

2016
BOOT-Build Own Operate Transfer
 The Private Entity Owns the works

 Private entity owns and operates the facility
 Prime goal to recover the costs of investment and
maintenance
 To achieve higher margin on project

2016
BOOT-Build Own Operate Transfer
Suitability:
 Infrastructure Projects
 Highways
 Roads mass transit
 Railway transport
 Power Generation

2016
BOOT-Build Own Operate
Transfer
Advantages:
 Encourage private Investment
 Inject new foreign capital to the country
 Transfer of technology and know-how
 Completing the project within time frame and
planned budget
 Providing additional financial source for other
priority projects
 Releasing the burden on public budget for
Infrastructure development
2016
BOO-Build Own Operate
Ownership of the project remains with the

project Company

2016
Advantages
 The private company gets the benefit of the
residual value
 This frame work is used when the physical life of
the project coincides with the concession period
Risk
 This scheme involves large amounts of finance
 Long payback period

2016
Example:
 Mobile phone network Operator
 Water treatment plant

2016
BLT- Build Lease Transfer
A private entity builds a complete project and

lease it to the Government

2016
Operation framework:
 The control over the project is transferred from the
project owner to a lessee.

 Ownership remains with the share holder
 Only operation purposes are leased
 On expiry of the leasing the ownership of the asset
and the operational responsibility are transferred at

a previously agreed price.

2016
Benefit:
 The ideal framework for Foreign Investors
 The country Risk is taken care.
 The project company maintains the property rights
 Operational risk is with the Government

2016
DBFO-Design Build Finance Operate
This is similar to BOOT except that there is no actual

ownership transfer

2016
Frame work:
 The contractor assumes the risk of financing till
the end of the contract period
 After the contract period the owner assumes the
responsibility for maintenance and operation

2016
Operation method:
 The private party is responsible for the design and
construction of the project for the government ,

which is the true owner
 Private entity has the responsibility to raise finance
during the construction and exploitation period.

 The cash flow serve to repay the investment and
reward the shareholders

2016
Disadvantages:
 Long term relationships and threats of possible
future political changes
Advantages for the government

 The government has the advantage that it remains
as the owner of the facility

 Avoids direct payment from the users
 Avoids getting into debts

2016
Example: Toll roads

2016
DCMF-Design Construct Manage
Finance
A private entity is built to design, construct, manage

and finance a facility based on the specifications of
the government

2016
Finance
Operation:
 Government has the ownership
 Has the price and quality control
 Rent for the facility paid to the government

2016
Finance
Example:
 Prisons
 Public Hospitals

2016

New Trends in Project Formulation and Execution: Unit 3

Uploaded by

Copyright:

Available Formats

New Trends in Project Formulation and Execution: Unit 3

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

New Trends in Project Formulation and Execution: Unit 3

Uploaded by

Copyright:

Available Formats

UNIT 3

NEW TRENDS IN PROJECT FORMULATION AND

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

1. BOT (Build- Operate-Transfer)

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

The Public Administration delegates to a Private

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Responsibilities of Private Party:

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Parties involved in BOT projects:

 The Host Government

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

The Host Government:

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

The Concessionaire/ Consortium:

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Parties to the Project:

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

(Example: Toll Roads)

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

 The Private Entity Owns the works

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Ownership of the project remains with the

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

the project coincides with the concession period

 Long payback period

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

A private entity builds a complete project and

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

project owner to a lessee.

 Only operation purposes are leased

 On expiry of the leasing the ownership of the asset

and the operational responsibility are transferred at

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

 The country Risk is taken care.

 The project company maintains the property rights

 Operational risk is with the Government

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

This is similar to BOOT except that there is no actual

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

construction of the project for the government ,

during the construction and exploitation period.

reward the shareholders

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

future political changes

Advantages for the government

as the owner of the facility

 Avoids getting into debts

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

Example: Toll roads

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July

A private entity is built to design, construct, manage

Ar.Stanley, SOAMCE Professional Practice and Ethics II 5th July