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BOOT / BOT / Management
contracts / Turnkey
INTERNATIONAL BUSINESS AND GLOBAL STRATEGY
• KHALED OMER
• ALAA ABDELMONEIM
• ...
Contents:
• Public – Private Partnership
• Introduction
• Reasons
• Types of agreements
• BOT & BOOT Agreements
• BUILT – ...
Public – Private Partnership (PPP)
“Public Private Partnership means an arrangement between a government or government
own...
Public – Private Partnership
Reasons:
• MITIGATES AND PROPERLY ALLOCATES RISKS
• PROVIDE INCENTIVES FOR LOWERING COSTS
• E...
Public – Private Partnership
Types:
 BOT – BUILD OPERATE TRANSFER
 BOO – BUILD OWN OPERATE
 BOOT – BUILD OWN OPERATE TR...
BOT & BOOT Agreements
BOT & BOOT Agreements
BUILT – OPERATE – TRANSFER (BOT) :
The BOT is a type of agreements where the government (project spo...
BOT & BOOT Agreements
BUILT – OPERATE – OWN – TRANSFER (BOOT) :
A project based on the granting of a concession by a Princ...
Special Purpose Vehicle (SPV)
A legal entity created solely to serve a particular function, such as the facilitation of a ...
Project
SPV
Sponsors
Banks
Power
Off taker
EPC and
O&M
Services Prepayment
Debt
PaymentsProducts
Fees
DividendEquity
Contr...
Degree of Private Sector Involvement
DegreeofPrivateSectorRiskandResponsibility
7- Design-Built-Finance-operate
6- Design-...
Types of Contracts Asset
Ownership
O&M Capital
Investment
Commercial
Risk
Duration
(Yrs)
Service Contract Public Private &...
BOT & BOOT Agreements
Advantages of (BOT) & (BOOT) :
1. Use of private sector financing to provide new sources of capital
...
BOT & BOOT Agreements
Disadvantages of (BOT) & (BOOT) :
1. Transaction costs are high, they amount to 5-10% of total proje...
BOT & BOOT Examples
(BOT) : AL KURAYMAT INTEGRATED SOLAR COMBIEND CYCLE
POWER PLANT
Project type: integrated solar combine...
BOT & BOOT Examples
(BOOT): Sidi Krir COMBIEND POWER CYCLE POWER PLANT
Project Type: Combined cycle
Agreement Date: 2005
O...
Management Contracts
Management contract
 Practice by which one company supplies another with managerial expertise
for a specific period of ti...
Involved parties
Owner of a business and a third-party management
company
Two types of knowledge can be transferred throug...
Advantages of management services contracts.
 Exploit an international business
opportunity without having to
place a gre...
DISADVANTAGES OF
MANAGEMENT CONTRACTS.
 International management in
countries that are undergoing political
or social tur...
Turnkey contracts
Turnkey operations are typically contracts for the construction of
operating facilities in exchange for ...
TURNKEY PROJECTS – PROFESSIONAL SERVICES
 Turn-key refers to something that is ready for immediate use
 to describe a ho...
An example
 would be the creation of a "turnkey hospital"
 which would be building a complete medical centre with instal...
Turnkey projects
 A turnkey project refers to a project in which clients pay contractors to design
and construct new faci...
‘Turnkey plus'
Turnkey projects can also be extended, known as 'turnkey plus',
 where there is perhaps a small equity int...
Major advantages of Turnkey projects
 is the possibility for a company to establish a plant and
earn profits in a foreign...
Disadvantages of a Turnkey project
for a company it include
 risk of revealing companies secrets to rivals,
 takeover of...
A turnkey project could involve the following
elements depending on its complexity:
 Project administration
 licensing-i...
Cont…
 shipment, transportation
 control of schedule and quality
 pre-commissioning and completion
 performance-guaran...
References:
 http://ppp.worldbank.org/public-private-partnership/financing
 http://www.businessdictionary.com/definition...
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BOOT, BOT, Management Contracts & Turnkey PROJECTS

THE PRESENTATION DESCRIBES THE IMPORTANCE AND BENEFITS FOR DIFFERENT TYPES OF GOVERNMENTAL BUSINESS MODELS WITH CASE STUDIES

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BOOT, BOT, Management Contracts & Turnkey PROJECTS

  1. 1. BOOT / BOT / Management contracts / Turnkey INTERNATIONAL BUSINESS AND GLOBAL STRATEGY • KHALED OMER • ALAA ABDELMONEIM • ALY ABDELMONEIM
  2. 2. Contents: • Public – Private Partnership • Introduction • Reasons • Types of agreements • BOT & BOOT Agreements • BUILT – OPERATE – TRANSFER (BOT) • BUILT – OPERATE – OWN – TRANSFER (BOOT) • Special Purpose Vehicle • Contractual Relationship • Degree of Private Sector Involvement • Advantages and dis-advantages. • Case studies • Management Contracts • Definition • Advantages and dis-advantages. • Turn-Key Contracts • Definition • Advantages and dis-advantages. • References
  3. 3. Public – Private Partnership (PPP) “Public Private Partnership means an arrangement between a government or government owned entity and a private sector entity, for the provision of public assets and/or public services, through investments being made and/or management being undertaken by the private sector entity, for a specified period of time, where there is well defined allocation of risk between the private sector and the public entity and the private entity receives performance linked payments that conform (or are benchmarked) to specified and pre- determined performance standards, measurable by the public entity or its representative.” Introduction:
  4. 4. Public – Private Partnership Reasons: • MITIGATES AND PROPERLY ALLOCATES RISKS • PROVIDE INCENTIVES FOR LOWERING COSTS • ENSURES VALUE FOR MONEY • ATTRACT THE RIGHT SKILLS AND MANAGEMENT EXPERTISE • PROMOTES INNOVATION • REDUCES CORRUPTION AND WASTE • REDUCE BURDEN ON TAXPAYERS
  5. 5. Public – Private Partnership Types:  BOT – BUILD OPERATE TRANSFER  BOO – BUILD OWN OPERATE  BOOT – BUILD OWN OPERATE TRANSFER  DBF – DESIGN BUILD FINANCE  DBFO – DESIGN BUILD FINANCE OPERATE  DBO – DESIGN BUILD OPERATE  BTO - BUILD TRANSFER OPERATE  DBFOM – Design Build Finance Operate Manage  Leasing  Joint Ventures  OPERATIONS OR MANAGEMENT CONTRACTS  LROT – Lease Renovate Operate Transfer  DCMF – Design Construct Manage Finance  BOOR - Build Own Operate Remove
  6. 6. BOT & BOOT Agreements
  7. 7. BOT & BOOT Agreements BUILT – OPERATE – TRANSFER (BOT) : The BOT is a type of agreements where the government (project sponsor) allows a private entrepreneur (project promoter) to design, finance, and build an infrastructure facility. In return, the project promoter is permitted to collect tolls (user fee) and operate the facility for a specified period (called the concession period), during which he is expected to recover all of his costs and earn a reasonable profit.
  8. 8. BOT & BOOT Agreements BUILT – OPERATE – OWN – TRANSFER (BOOT) : A project based on the granting of a concession by a Principal to a Promoter who is responsible for the construction, financing, operation and maintenance of a facility over the period of the concession before finally transferring at certain or no cost a fully operational facility to the Principal
  9. 9. Special Purpose Vehicle (SPV) A legal entity created solely to serve a particular function, such as the facilitation of a financial arrangement or creation of a financial instrument The concession period is determined primarily by the length of time needed for the facility’s revenue stream to pay off the company’s debt and provide a reasonable rate of return for its effort and risk.
  10. 10. Project SPV Sponsors Banks Power Off taker EPC and O&M Services Prepayment Debt PaymentsProducts Fees DividendEquity Contractual Relationship
  11. 11. Degree of Private Sector Involvement DegreeofPrivateSectorRiskandResponsibility 7- Design-Built-Finance-operate 6- Design-Built-operate-maintain 5- Operation concession 4- Design-Built 3- Management contract 2- Service Contract 1- Government 8- Built-Own-operate-Transfer 9- Built-Own-operate 10- Privatization Degree of Private Sector Involvement
  12. 12. Types of Contracts Asset Ownership O&M Capital Investment Commercial Risk Duration (Yrs) Service Contract Public Private & Public Public Public 1-2 Management Contract Public Private Public Public 3-5 Lease Public Private Public Private 8-15 Concession Public Private Private Private 25-30 BOT / BOOT Private & Public Private Private Private 25-30 Degree of Private Sector Involvement
  13. 13. BOT & BOOT Agreements Advantages of (BOT) & (BOOT) : 1. Use of private sector financing to provide new sources of capital 2. Ability to accelerate the development of projects that would otherwise have to wait for, and compete, for sovereign resources. 3. Use of private sector capital, initiative and know-how to reduce project construction costs, shorten schedules and improve operating efficiency. 4. Allocation to the private sector of project risk 5. The involvement of private sponsors and experienced commercial lenders 6. Technology transfer, the training of local personnel and the development of national capital markets. 7. In contrast to privatization, government retention of strategic control over the project, which is transferred to the public at the end of the contract period.
  14. 14. BOT & BOOT Agreements Disadvantages of (BOT) & (BOOT) : 1. Transaction costs are high, they amount to 5-10% of total project cost. 2. Not suitable for smaller projects. Some Governments has suggested that projects with a value of less than $15m are unlikely to gain benefits from BOT delivery method. 3. The success of BOT project depends upon successful raising of necessary finance. Various costs such as cost of construction, equipment, maintenance should be committed during the life of the project. 4. BOT projects are successful only when substantial revenues are generated during the operation phase.
  15. 15. BOT & BOOT Examples (BOT) : AL KURAYMAT INTEGRATED SOLAR COMBIEND CYCLE POWER PLANT Project type: integrated solar combined cycle Construction startup : 2009 Operation date: 2014 Capacity: • 150 MW TURBINE • 70 MW STEAM TURBINE • 62 MW SOLAR Cost: 482 M$ Owner: EEHC Egyptian Electricity holding company Concession period: 20 years
  16. 16. BOT & BOOT Examples (BOOT): Sidi Krir COMBIEND POWER CYCLE POWER PLANT Project Type: Combined cycle Agreement Date: 2005 Operation date: 2008 Plant capacity: 350 MW Cost: 540 M$ Owner: Gaz De France Concession period: 20 years
  17. 17. Management Contracts
  18. 18. Management contract  Practice by which one company supplies another with managerial expertise for a specific period of time.”  Arrangement under which operational control of an enterprise is vested by contract in a separate enterprise that performs the necessary managerial functions in return for a fee.  Management contracts involve not just selling a method of doing things (as with franchising or licensing) but involve actually doing them.  A management contract can involve a wide range of functions, such as technical operation and of a production facility, management of personnel, accounting, marketing services and training. Definition:
  19. 19. Involved parties Owner of a business and a third-party management company Two types of knowledge can be transferred through management contracts.  The specialized knowledge of technical managers.  The business-management skill of general managers.
  20. 20. Advantages of management services contracts.  Exploit an international business opportunity without having to place a great deal of its own physical assets at risk.  Government can award companies management contracts to operate and upgrade public utilities.  Government use management contract to develop the skills of local workers and managers.
  21. 21. DISADVANTAGES OF MANAGEMENT CONTRACTS.  International management in countries that are undergoing political or social turmoil can place manager´s lives in significant danger.  Suppliers of expertise may end up nurturing a formidable new competitor in the local market. http://www.youtube.com/watch?v=QIVkI7SwvzE.
  22. 22. Turnkey contracts Turnkey operations are typically contracts for the construction of operating facilities in exchange for a fee. The facilities are transferred to the host country or firm when they are complete. The customer is usually a government agency of, for example, a Middle Eastern country that has decreed that a particular product must be produced locally and under its control. For example, Fiat built an auto plant in Tagliatti,
  23. 23. TURNKEY PROJECTS – PROFESSIONAL SERVICES  Turn-key refers to something that is ready for immediate use  to describe a home built on the developer's land with the developer's financing ready for the customer to move in.  "Turnkey" is commonly used in the construction industry,  for instance, in which it refers to the bundling of materials and labor by sub- contractors.  Further used in motorsports to describe a car being sold with drive train (engine, transmission, etc.) to contrast with a vehicle sold without one so that other components may be re-used
  24. 24. An example  would be the creation of a "turnkey hospital"  which would be building a complete medical centre with installed high-tech medical equipment.
  25. 25. Turnkey projects  A turnkey project refers to a project in which clients pay contractors to design and construct new facilities and train personnel.  A turnkey project is way for a foreign company to export its process and technology to other countries by building a plant in that country.  Industrial companies that specialize in complex production technologies normally use turnkey projects as an entry strategy. 
  26. 26. ‘Turnkey plus' Turnkey projects can also be extended, known as 'turnkey plus',  where there is perhaps a small equity interest by the engineering firm or the main suppliers to ensure allegiance during the initial operational phases.  Once the turnkey phase is over and the engineering firm receives the 'completion certificate', (from the owner), the latter will work independently or with the licensor (if any).
  27. 27. Major advantages of Turnkey projects  is the possibility for a company to establish a plant and earn profits in a foreign country especially in which foreign direct investment opportunities are limited and lack of expertise in a specific area exists.
  28. 28. Disadvantages of a Turnkey project for a company it include  risk of revealing companies secrets to rivals,  takeover of their plant by the host country.  By entering a market with a turnkey project proves that a company has no long-term interest in the country which can become a disadvantage if the country proves to be the main market for the output of the exported process.
  29. 29. A turnkey project could involve the following elements depending on its complexity:  Project administration  licensing-in of process  design and engineering services  subcontracting  management control  procurement and expediting of equipment;  materials control  inspection of equipment prior to delivery
  30. 30. Cont…  shipment, transportation  control of schedule and quality  pre-commissioning and completion  performance-guarantee testing  inventorying spare-parts  training of owner's/plantsub-system operating and maintenance personnel  Advanced Loop Schemes (primary used in the Electric Utility Industry)
  31. 31. References:  http://ppp.worldbank.org/public-private-partnership/financing  http://www.businessdictionary.com/definition/special-purpose-vehicleSPV.html#ixzz4A8HnzT2A  http://www.slideshare.net/OECD-GOV/sbo pppfebruary2014session8peterliveseyunitedkindgom  http://www.businessdictionary.com/definition/special-purpose-vehicle-SPV.html  John Chu, (1999),"The BOOT approach to energy infrastructure management: a means to optimise the return from facilities", Facilities, Vol. 17 Iss 12/13 pp. 492 – 498  en.wikipedia.org/wiki/Build–operate–transfer  www.investopedia.com/terms/b/botcontract.asp  http://globalenergyobservatory.org/geoid/5396  http://www.moee.gov.eg/english_new/EEHC_Rep/2011-2012.pdf

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