BUILD OPERATE TRANSFER
A presentation by
Kshitij Gupta - 014
Sagun Arora - 001
Naman Seth - 033
Apurva Chandra - 019
Build Operate Transfer
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
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.
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
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
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.
Railways to build 3 projects through
• 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
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.