BOT project financing model
BOT is the abbreviation of English Build-Operate-Transfer, which is the construction-operate-transfer method. The government grants the concession of an infrastructure project to the contractor. business. The contractor is responsible for project design, financing, construction and operation during the concession period, and recovers costs, repays debts, and earns profits. After the concession period, the contractor will transfer the project ownership to the government.
The BOT financing method is called "concession financing method" in our country, which means that the state or local government departments grant foreign-invested enterprises (foreign-invested enterprises) to the contracting parties through a concession agreement ( Including Sino-foreign joint ventures, Sino-foreign cooperation, and wholly foreign-owned enterprises) undertake the financing, construction, operation and maintenance of public infrastructure (basic industries) projects; within the concession period stipulated in the agreement, the project company has the ownership of the investment and construction facilities, allowing Appropriate fees are charged to facility users, thereby recovering project investment, operation and maintenance costs and obtaining reasonable returns; after the expiration of the concession period, the project company will hand over the facilities to the government department of the contracting party free of charge.
1. Infrastructure concession
BOT is the abbreviation of Build-Operate-Transfer in English, which is usually literally translated as "Build-Operate-Transfer". This translation is straightforward, but it does not reflect the essence of BOT. BOT is essentially a method of infrastructure investment, construction and operation. Based on the premise of an agreement between the government and private institutions, the government issues a concession to the private institution, allowing it to raise funds to build a certain infrastructure within a certain period of time and Manage and operate the facility and its corresponding products and services. The government can impose restrictions on the quantity and price of public products or services provided by the agency, but it ensures that private capital has the opportunity to make profits. Risks throughout the process are shared between government and private entities. When the concession period ends, the private institution will hand over the facility to the government department as agreed, and it will be operated and managed by the government designated department. Therefore, the word BOT is more appropriately translated as "infrastructure concession".
The above is the narrow concept of BOT. BOT has experienced hundreds of years of development. In order to adapt to different conditions, it has derived many variants, such as BOOT (Build-Own-Operate-Transfer), BOO (Build-Own-Operate), BLT (Build-Lease-Operate) and TOT (Transfer-Operate-Transfer) and so on. The broad BOT concept includes these derivatives. What people usually call BOT should be the broad concept of BOT. The term "build-operate-transfer" cannot summarize the development of the BOT model.
2. The history of BOT
In recent years, the investment and construction method of BOT has been used by some developing countries to carry out their infrastructure construction and has achieved certain success, causing Widely favored around the world, it is promoted as a new investment method. However, BOT is far from a new thing. It has a history of at least 300 years since its emergence.
In the 17th century, the British Pilot Guild was responsible for managing maritime affairs, including the construction and operation of lighthouses, and had the privilege of building lighthouses and charging ships. However, according to the investigation of Ronald Coase, in the 65 years from 1610 to 1675, the Pilot Guild did not build even a single lighthouse. There were at least ten privately built lighthouses during the same period. This private investment method for building lighthouses is exactly the same as what is now called BOT. That is: a private person first applies to the government for permission to build and operate a lighthouse. The application must include the signatures of many ship owners to prove that the lighthouse to be built is beneficial to them and express their willingness to pay tolls; after the application is approved by the government, the private person applies to the government Lease the land required to build a lighthouse, manage the lighthouse during the concession period and collect tolls from passing ships; after the privilege expires, the government will take back the lighthouse and hand it over to the Pilot Association for management and continued collection of fees. By 1820, of the total 46 lighthouses, 34 were built with private investment. It can be seen that the investment efficiency of the BOT model is much higher than that of the administrative department.
Like many other innovations, BOT experienced a period of obscurity after its birth. This period of obscurity was so long for BOT that people almost forgot its early performance. Until the 1980s, when BOT was brought to the economic stage due to the needs of economic development, many people regarded it as a new thing.
3. Characteristics of BOT
Contemporary capitalist countries have introduced strong state intervention on the basis of market economy. At the same time, economics has also affirmed the role of "visible hands" in theory, and the market economy has gradually evolved into a mixed economy that combines market and planning. BOT has exactly the characteristics of a mixed economy that combines market mechanisms and government intervention.
On the one hand, BOT can keep the market mechanism functioning.
Most of the economic activities of BOT projects are conducted in the market, and the government's method of identifying project companies through bidding itself also contains a competition mechanism. As a reliable market entity, private institutions are the actors in the BOT model and have complete property rights to the constructed projects during the concession period. In this way, the behavior of the private institution undertaking the BOT project during the implementation of the BOT project is completely consistent with the economic man assumption.
On the other hand, BOT provides an effective way for government intervention, which is the BOT agreement reached with private institutions. Although the execution of the BOT agreement is entirely the responsibility of the project company, the government has control over the project from beginning to end. In the three stages of project establishment, bidding and negotiation, the government's will plays a decisive role. During the contract performance stage, the government also has the power of supervision and inspection, and the setting of prices in project operations is also subject to government constraints. The government can also restrict the behavior of BOT project companies through the general BOT law.
Participants in the BOT model Project manager blog
1. Project sponsor. As a project sponsor, you should first share a certain amount of project development costs as a shareholder. When the BOT project plan is determined, the ratio of debt to equity should be clarified, and the project sponsor should make certain equity commitments. At the same time, special reserve fund clauses should be listed in the concession agreement. When construction funds are insufficient, the shareholders themselves will advance the insufficient funds to avoid project construction being stopped midway or construction delays. The project sponsor has the voting rights of the shareholders' meeting, as well as the power indicated by the asset transfer clause listed in the concession agreement, that is, when the government intends to transfer assets, the shareholders have the second priority besides creditors, thus ensuring that the project company will not Being controlled by hostile people to protect the interests of project sponsors. Project Managers Alliance Articles
2. Product purchaser or service recipient. During the project planning stage, the project sponsor or project company should sign a long-term product purchase contract with the product buyer. The product buyer must have a long-term profit history and good credit guarantee, and the term of the product purchase must be at least the same as the loan term of the BOT project. The price of the product should also be guaranteed to enable the project company to recover equity capital, pay loan principal, interest and dividends, and There is profit to be made.
3. Creditors. The creditor shall provide all loans required by the project company and pay them in accordance with the time and method specified in the agreement. When the government plans to transfer assets or mortgage assets, creditors have the first priority to acquire assets and mortgage rights; if the project company wants to raise new debt, it must obtain the consent of the creditors; the creditors should receive reasonable interest.
4. Construction sponsor. The construction sponsor of the BOT project must have a strong construction team and advanced technology to complete the construction tasks within the time limit specified in the agreement. In order to fully ensure the construction progress, the general sponsor must have good work performance and should have a strong guarantor to provide guarantee. After the project construction is completed, acceptance and performance testing must be carried out to check whether the construction meets the design indicators. Once the general sponsor fails to complete the task within the time limit specified in the contract due to its own reasons, or the completed task fails to pass the completion acceptance, the project company will impose a fine.
5. Insurance company. The insurance company's responsibility is to insure risks that various actors in the project are unwilling to bear, including builder's risk, business interruption risk, overall liability risk, political risk (war, property confiscation, etc.), etc. Because these risks are highly unpredictable and cause huge losses, they require very high financial resources and credit for the insurance company. Generally, small and medium-sized insurance companies are not capable of undertaking such insurance.
6. Suppliers. Suppliers are responsible for supplying equipment, fuel, raw materials, etc. required by the project company. Since the demand for fuel (raw materials) is long-term and stable during the concession period, the supplier must have a good reputation and strong and stable profitability, and be able to provide at least a period of time not shorter than the loan repayment period. Fuel (raw materials), while the supply price should be clearly stated in the supply agreement, and the supplier should be guaranteed by the government and financial institutions.
7. Operator. The operator is responsible for the operation and management of the project after its completion. In order to maintain the continuity of project operation and management, the project company and the operator should sign a long-term contract with a term that is at least equal to the repayment period. The operator must be an expert in BOT projects, with strong management skills and management skills, as well as rich management experience in such projects. During the operation period, the project company should budget the project's operating costs every year, list the cost plan, and limit the operator's total cost expenditure. There should be corresponding fines and reward systems for cost overruns or efficiency improvements.
8. Government. The government is one of the most critical players in the success of the BOT project. The government's attitude toward the BOT and the support it provides during the implementation of the BOT project will directly affect the success or failure of the project. The relevant chapters of this book will explain in detail the role of government in BOT.
The steps for implementing BOT are transferred from the Project Manager Alliance
1. The project initiator establishes a project-specific company (project company), and the dedicated company reaches a project agreement with the host country government or relevant government departments Concession Agreement.
Project management training
2. The project company signs a construction contract with the construction contractor and obtains guarantees from the insurance companies of the builder and equipment supplier. The dedicated company signs a project operation agreement with the project operation contractor.
3. The project company signs a loan agreement with a commercial bank or a buyer’s credit agreement with an export credit bank.
4. After entering the operation stage, the project company transfers the project income to a guarantee trust. The guarantee trust then uses this income to repay bank loans.
The specific method of BOT Project Manager Alliance
1. BOT (build-operate-transfer): that is, build-operate-transfer. This approach is often used when governments grant concessions to project companies to build new projects.
2.boot (build-own-operate-transfer): that is, build-own-operate-transfer. This method clarifies the ownership of the BOT method. The project company has both operating rights and ownership during the concession period. Generally speaking, BOT refers to boot.
3.boo (build-own-operate): that is, build, own and operate. This method is that developers build and operate certain infrastructure in accordance with the concession granted by the government, but do not hand over this infrastructure to the government or public authorities.
4.boost (build-own-operate-subsidy-transfer): Build, own, operate, subsidy and transfer. training.mypm.n5.blt (build-lease-transfer): Build-lease-transfer. That is, the government transfers the project construction rights. During the project operation period, the government is obliged to become the lessor of the project. After the lease period is over, all assets will be transferred to the government public sector department.
6.bt (build-transfer): Build-transfer. That is, the project will be handed over immediately after completion and can be paid in installments according to the purchase price of the project.
7. bto (build-transfer-operate): Build, transfer and operate.
8.iot (investment-operate-transfer): investment-operation-transfer. That is, existing infrastructure is acquired, then operated under a concession agreement, and finally handed over to the public sector.
9.roo (rehabilitate-operate-own): transfer, operate and own. In addition, there are brt, dBOT, dbom, romt, slt, mot, etc. Although the formulations are different and there are some differences in specific operations, their structures are not substantially different from BOT, so it is customary to refer to all the above methods collectively. for BOT.
5.blt (build-lease-transfer): Build-lease-transfer. That is, the government transfers the project construction rights. During the project operation period, the government is obliged to become the lessor of the project. After the lease period is over, all assets will be transferred to the government public sector department.
6.bt (build-transfer): Build-transfer. That is, the project will be handed over immediately after completion and can be paid in installments according to the purchase price of the project.
7. bto (build-transfer-operate): Build, transfer and operate.
8.iot (investment-operate-transfer): investment-operation-transfer. That is, existing infrastructure is acquired, then operated under a concession agreement, and finally handed over to the public sector.
9.roo (rehabilitate-operate-own): transfer, operate and own. In addition, there are brt, dBOT, dbom, romt, slt, mot, etc. Although the formulations are different and there are some differences in specific operations, their structures are not substantially different from BOT, so it is customary to refer to all the above methods collectively. for BOT.
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