Recognizing the importance of adequate infrastructure services, such as
power, telecommunications, transport, and given the constraints on the
public finances, the Government of India and State Governments have
shifted part of the burden of new infrastructure investment to the private
sector. Private sector participation in infrastructure is through the
mechanism of concession contracts. A variety of risks are inherent in the
infrastructure projects. The theory states that risks should normally be borne
by the party best able to assess, control and manage them. The aim is to
ensure that the party with the ability to reduce risks has incentives to do
so and that remaining risks are borne by the party for which it is least costly.
In practice, this is achieved through the right structuring of the project.
Therein lies the significance of the right Project Structure.
Readers of my previous paper “Overview of Bidding Process for BOT Infrastructure Projects
in India”, which appeared in December 2004 issue of The IUP Journal of Infrastructure,
would recall that Project Structuring is a critical element of any BOT project and is finalized
prior to Bid Process Management. This paper amplifies on the context of Project Structuring,
the nature and importance of Project Structuring, the main stakeholders in the BOT model,
the various Project Structuring Models and the process of selection of the best Model to
suit the implementation needs.
Under the BOT model, a Government (hereinafter used to indicate Government at central
or at state levels and includes Government entities) enters into an agreement with a private
sector entity under which the latter agrees to design, build, finance, own and operate an
infrastructure facility for a predetermined given period called the “Concession Period”.
The entity is given the right to operate the facility and collect revenue from its operation
before transferring the facility back to the Government at the end of the Concession Period.
The objective is that the entity is to receive sufficient revenues during the operational
phase to service its debt incurred in designing and building the facility; to cover its working
capital and maintenance costs; to repay its equity investor and hopefully, also providea reasonable profit for its investors. Though such schemes are variously referred to as Build
Own Operate (BOO), Build Own Operate Transfer (BOOT) and Build Own Transfer (BOT),
in popular usage they come under the umbrella phrase of BOT. |
