BOTBOT

Build, Operate, And Transfer Build, Operate, And Transfer Project Development System In Project Development System In Saudi ArabiaSaudi Arabia

FOR:FOR:

DR. Sadi AssafDR. Sadi Assaf

BY:SUDKI M. JAD

What is BOT?What is BOT?

The granting of a concession by the The granting of a concession by the government to a private promoter, government to a private promoter, known as concessionaire, who is known as concessionaire, who is responsible for responsible for financing, financing, constructing, constructing, operating, operating, and maintaining the facility over the and maintaining the facility over the concession period before finally concession period before finally transferring the fully operational transferring the fully operational facility to the government at no cost. facility to the government at no cost.

Forms of BOT Projects Forms of BOT Projects

Build-Operate-Own (BOO) Build-Transfer-Operate (BTO) Build-Lease-Transfer (BLT)

AdvantagesAdvantages

Private firms Private firms – are more efficient (lower cost).are more efficient (lower cost).– are more innovative in selection of design and are more innovative in selection of design and

operation phases of a project or service.operation phases of a project or service. Private sector invests directly in the development of Private sector invests directly in the development of

infrastructureinfrastructure– reducing public debt, reducing public debt, – balancing the budget deficit, balancing the budget deficit, – and reduced role of public sector.and reduced role of public sector.

Create business opportunities for the local private Create business opportunities for the local private sector,sector,

– create employment create employment – attract substantial foreign direct investment.attract substantial foreign direct investment.

Facilitates transfer of technologyFacilitates transfer of technology

DisadvantagesDisadvantages

High transaction costs (5 – 10% of High transaction costs (5 – 10% of total costs).total costs).

Not suitable for smaller projects.Not suitable for smaller projects. Success depends upon success of Success depends upon success of

raising funds.raising funds. Projects are successful only when Projects are successful only when

substantial revenues are substantial revenues are generated during the operation generated during the operation phase.phase.

Research Plan Research Plan

Literature reviewLiterature review Identification of factors that have an Identification of factors that have an

impact on success of BOTimpact on success of BOT Assessment of impact of obstacles and Assessment of impact of obstacles and

success factorssuccess factors Development of model(s) and Development of model(s) and

guidelines/recommendation for guidelines/recommendation for implementing BOT project delivery implementing BOT project delivery system in Saudi Arabiasystem in Saudi Arabia

Literature reviewLiterature review

Extensive literature review was carried Extensive literature review was carried out to acquire in-depth understanding of out to acquire in-depth understanding of issues related to Built Operate Transfer (BOT) issues related to Built Operate Transfer (BOT) concept. The required information was concept. The required information was collected from different sources such as: collected from different sources such as: local business magazines, journals and local business magazines, journals and newspaper articles, international journals newspaper articles, international journals related to Construction Engineering & related to Construction Engineering & Management, publications and research Management, publications and research reports prepared by various commercial reports prepared by various commercial banks, internet, and published BOT banks, internet, and published BOT contracts/conditions.contracts/conditions.

Positive FactorsPositive Factors

Privatization Policy Factors Privatization Policy Factors Economic Factors Economic Factors Financial Factors Financial Factors Legal Factors Legal Factors Technical FactorsTechnical Factors

Negative FactorsNegative Factors

Knowledge Problems:Knowledge Problems:– Lack of owner's awareness of BOT concept.Lack of owner's awareness of BOT concept.– Lack of contractors experienced in BOT.Lack of contractors experienced in BOT.– Lack of financing experience in BOT projects.Lack of financing experience in BOT projects.– Management and Control Management and Control

Regulatory Problems:Regulatory Problems:– Absence of legislation dealing with BOT.Absence of legislation dealing with BOT.– Lack of independent regulatory body.Lack of independent regulatory body.– Legal and regulatory framework.Legal and regulatory framework.

Financial ConsiderationsFinancial Considerations– Service Fees:Service Fees:– Limited Capital Markets:Limited Capital Markets:– Market Risk:Market Risk:

RecommendationsRecommendations

BOT delivery method is an attractive and desirable BOT delivery method is an attractive and desirable option for undertaking infrastructure related projects option for undertaking infrastructure related projects such as power, transportation, water etc.such as power, transportation, water etc.

Across all the types of infrastructure projects, power Across all the types of infrastructure projects, power generation and water desalination appear at present generation and water desalination appear at present to leading the push for the application of BOT delivery to leading the push for the application of BOT delivery method.method.

In assessing the obstacles for the application of BOT in In assessing the obstacles for the application of BOT in Saudi Arabia, lack of adequate awareness among Saudi Arabia, lack of adequate awareness among owners and contractors regarding the BOT concept owners and contractors regarding the BOT concept and low service fee represent significant impediment and low service fee represent significant impediment in the way of adopting BOT.in the way of adopting BOT.

Establishment of BOT center can be the key to Establishment of BOT center can be the key to disseminate the knowledge and help in the disseminate the knowledge and help in the understanding the issues involved, best practices in understanding the issues involved, best practices in the design and structuring of BOT projects.the design and structuring of BOT projects.

Recommendations Recommendations Cont.Cont. BOT center should be established with the BOT center should be established with the

following objectives:following objectives:– To disseminate information and knowledge To disseminate information and knowledge

regarding the public-private partnership practicesregarding the public-private partnership practices– To serve as the main channel between the private To serve as the main channel between the private

sector investors and government with aim of sector investors and government with aim of coordinating the implementation of BOT projects.coordinating the implementation of BOT projects.

– To pool specialized resources and specialists to To pool specialized resources and specialists to provide better understanding of fundamentals of provide better understanding of fundamentals of BOT arrangements.BOT arrangements.

– To promote BOT investment opportunities to the To promote BOT investment opportunities to the project promoters locally and internationally.project promoters locally and internationally.

– To gain better understanding on drafting To gain better understanding on drafting concession agreements and other contractual concession agreements and other contractual aspects of BOT.aspects of BOT.

Recommendations Recommendations Cont.Cont. For successful implementation of BOT in Saudi For successful implementation of BOT in Saudi

Arabia, significant changes to existing laws will Arabia, significant changes to existing laws will be required. This includes the need to create be required. This includes the need to create independent regulatory bodies in each of the independent regulatory bodies in each of the infrastructures sectors, namely Power sector, infrastructures sectors, namely Power sector, water sector, and transport sectors.water sector, and transport sectors.

There is a need for dealing for legislation There is a need for dealing for legislation dealing with the implementation of BOT dealing with the implementation of BOT projects. The legislation should include projects. The legislation should include evaluation criteria, procurement rules of evaluation criteria, procurement rules of tenders/proposal, the role of government tenders/proposal, the role of government support, sectors where BOT project are allowed, support, sectors where BOT project are allowed, etc. etc.

Recommendations Recommendations Cont.Cont. A more narrow approach is needed to A more narrow approach is needed to

investigate each type of infrastructure investigate each type of infrastructure sectors and study to determine the sectors and study to determine the applicability of BOT.applicability of BOT.

It would be sound to explore the role It would be sound to explore the role of international institutions such World of international institutions such World Bank, UNIDO in design and structuring Bank, UNIDO in design and structuring of the BOT projects, providing training of the BOT projects, providing training and knowledge build in various legal, and knowledge build in various legal, financial, economic aspects of BOT. financial, economic aspects of BOT.