Build-Operate-Transfer Contract
A build-operate-transfer (BOT) contract is a model used to finance large projects, typically infrastructure projects developed through public-private partnerships.
The BOT scheme refers to the initial concession by a public entity such as a local government to a private firm to both build and operate the project in question. After a set time frame, typically two or three decades, control of the project is returned to the public entity.
Build-Operate-Transfer (BOT) Contract
Definition
A Build-Operate-Transfer (BOT) contract is a model used to finance large-scale projects, typically infrastructure projects developed through public-private partnerships. In a BOT scheme, a public entity (such as a local government) initially grants a private company the right to build and operate a project. After a certain period, usually two to three decades, control of the project is transferred back to the public entity.
Origin
The BOT model originated in the 1980s and was widely adopted in developing countries, particularly in Asia and Latin America. The aim was to address the lack of public funds for infrastructure development by leveraging private sector capital and management expertise.
Categories and Characteristics
BOT contracts can be categorized as follows:
- Pure BOT: The private company is fully responsible for financing, constructing, operating, and maintaining the project until the end of the contract period, after which the project is transferred to the public entity.
- Variants of BOT: These include BOO (Build-Own-Operate) and BOOT (Build-Own-Operate-Transfer) models, differing in whether the private company owns the project during the contract period.
The main characteristics of BOT contracts include:
- Long-term nature: Contract periods typically range from 20 to 30 years.
- Risk sharing: The private company assumes construction and operational risks, while the public entity provides policy support and market guarantees.
- Diversified funding sources: Private sector participation diversifies the sources of project funding.
Specific Cases
Case 1: Hong Kong Chek Lap Kok Airport
Hong Kong Chek Lap Kok Airport is a typical BOT project. A private company was responsible for the construction and initial operation of the airport, and upon contract completion, the airport was transferred to the Hong Kong government. The project successfully attracted significant private capital and was completed on schedule.
Case 2: Bosphorus Strait Tunnel in Turkey
The Bosphorus Strait Tunnel project in Turkey is another successful BOT example. A private company was responsible for the construction and operation of the tunnel, and upon contract completion, the tunnel was transferred to the Turkish government. The project not only alleviated traffic congestion but also boosted regional economic development.
Common Questions
1. What are the main risks of a BOT contract?
The main risks include construction risk, operational risk, and market risk. These risks need to be clearly defined and allocated in the contract.
2. How does a BOT contract ensure public interest?
Through stringent contract terms and regulatory mechanisms, ensuring that the private company adheres to public interest requirements during the operation.
