BUILD OPERATE TRANSFERMODEL

A presentation byKshitij Gupta - 014Sagun Arora - 001Naman Seth - 033

Apurva Chandra - 019

BFIA 4th Semester

Build Operate Transfer Model

A type of arrangement in which the private sector builds an infrastructure project, operates it and eventually transfers ownership of the project to the government. In many instances, the government becomes the firm's only customer and promises to purchase at least a predetermined amount of the project's output. This ensures that the firm recoups its initial investment in a reasonable time span.

Parties Involved in BOT The host government: Normally, the government is the initiator of the

infrastructure project and decides if the BOT model is appropriate to meet its needs. In addition, the political and economic circumstances are main factors for this decision. The government provides normally support for the project in some form.

The concessionaire: The project sponsors who act as concessionaire create a special purpose entity which is capitalized through their financial contributions.

Lending banks: Most BOT project are funded to a big extent by commercial debt. The bank will be expected to 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.

Other lenders: The special purpose entity might have other lenders such as national or regional development banks

Parties to the project contracts: Because the special purpose entity has only limited workforce, it will subcontract a third party to perform its obligations under the concession agreement. Additionally, it has to assure that it has adequate supply contracts in place for the supply of raw materials and other resources necessary for the project

HOW IT WORKS? The public-sector partner contracts with a private

developer - typically a large corporation or consortium of businesses with specific expertise - to design and implement a large project. The public-sector partner may provide limited funding or some other benefit (such as tax exempt status) but the private-sector partner assumes the risks associated with planning, constructing, operating and maintaining the project for a specified time period. During that time, the developer charges customers who use the infrastructure that's been built to realize a profit. At the end of the specified period, the private-sector partner transfers ownership to the funding organization, either freely or for an amount stipulated in the original contract. Such contracts are typically long-term and may extend to 40 or more years.

RISK INVOLVED

Some types of the most common risks involved:Political risk: especially in the developing

countries because of the possibility of dramatic overnight political change.

Technical risk: construction difficulties, for example unforeseen soil conditions, breakdown of equipment

Financing risk: foreign exchange rate risk and interest rate fluctuation, market risk (change in the price of raw materials), income risk (over-optimistic cash-flow forecasts), cost overrun risk

CONTRACTUAL STRUCTURE The chart below shows the contractual structure of a typical BOT Project or

Concession, including the lending agreements, the shareholder's agreement between the Project company shareholders and the subcontracts of the operating contract and the construction contract, which will typically be between the Project company and a member of the project company consortium.  

RECENT EXAMPLES

Railways to build 3 projects through build-operate-transfer model

• The three targeted projects are developing third line between Nagpur and Wardha (both in Maharashtra), Kazipet (Telangana) and Balharshah (Maharashtra) and, Bhadrak and Nergundi (both in Odisha), a senior Railways Ministry official said. The total estimated cost of development of 357 km third line is around Rs 2450 crores.

• Under the BOT annuity model for rail projects, the private developer gets a revenue guarantee of 80 per cent of projected revenue at the time of bidding.

• The developer gets a full right to revenue between 80 and 120 per cent and the Indian Railways do not take any share from it.

• It is only when the actual revenue is above 120 per cent, the additional receipts are shared with the Indian Railways in a staggered manner, the official added.

• To attract private investments in railways, the government had framed five models – non-government private line model, joint venture model, BOT model, capacity augmentation with funding provided by customers model and capacity augmentation through annuity model.

DELHI NOIDA DIRECT This 8-lane, 9.2 km long tolled expressway connects

South Delhi to Noida, a part of the National Capital Region and the fastest growing industrial-commercial hub in UP. Built by the Noida Toll Bridge Company under a PPP variant known as Build-Own-Operate-Transfer (BOOT) model, the project mainly included a 552m bridge over the river Yamuna, 3 minor bridges and a flyover at Ashram Chowk. The e-way cost Rs 372 crores and became operational in just 4 months. It was opened in February 2001 and was extended in 2008 to link Delhi’s Mayur Vihar directly to DND Flyway. DND has two toll plazas at Noida and Mayur Vihar ends, and a capacity of 2,22,000 vehicles/day. It is also the first toll plaza in India to be certified ISO: 9001:2008 compliant for excellence in operations & maintenance and customer Services.

REFERENCES www.wikipedia.comwww.investopedia.comwww.businessinsider.comwww.dnaindia.comwww.thehindu.com

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