BOT – Projects in Asia

Impact study of an efficient risk management during build-operate-transfer projects in the infrastructure sector

Diploma Thesis , 2006 , 90 Pages , Grade: 1,5

Business economics - Law

The rapidly developing economies in Asia are undergoing unprecedented growth. This explosive development has placed incomparable demands on the existing infrastructure in many countries. Governments struggle with the challenge of providing modern, efficient, and affordable infrastructure services for their people; finding it difficult to finance what are often multimillion dollar projects on their own. Involving the private sector in the financing and operation of infrastructure promises several benefits for both parties.

To date the most common sub-type of private participation in infrastructure is the BOT (Build-Operate-Transfer) model, where a project company finances and constructs new infrastructure and operates that infrastructure over a long-term period, before it is transferred back to the government. But despite the long history of projects of this type, only a few are very successful and usually mean more costs than income to the companies.

For companies, there is often the difficulty that risks are misjudged, meaning that projects are either canceled completely or, in case of overestimated risks, the bidding price is much higher than the competitors, which ultimately both lead to a loss of image and references.

On the other hand, there are more than enough examples of risks being severely underestimated, with the project turning out to be absolutely unprofitable and companies often have to face long and cost-intensive legal disputes. This turns especially fatal when construction companies are also under the sponsors/investors of the project.

This dissertation looks first at private participation in infrastructure. Chapter 2 introduces the idea of private participation and the development in Asia as well as the different forms of participation and the sectors of infrastructure. The researched form of private participation in this dissertation is the Build-Operate-Transfer model. This and the relationship between the parties to a BOT project and the relevant documents are discussed in Chapter 3. Tendering procedures are reviewed in Chapter 4 and Chapter 5 discusses issues specific to financing a project and its instruments. The emphasis of this dissertation on risk management is discussed in Chapter 6, with a focus on identification, quantification, reduction and allocation of risks.

Table of Contents

• Acknowledgment
• Table of Contents
• Table of Acronyms and Abbreviations
• Table of Figures
• 1. Introduction
  • 1.1 Motivation of the Thesis
  • 1.2 Methodology and Containment of the Study
• 2. Private Participation in Infrastructure
  • 2.1 Private Participation in Asia
  • 2.2 Public Infrastructure
    • 2.2.1 Transport Sector in Asia
    • 2.2.2 Railways Segment in Asia
  • 2.3 Forms of Private Participation
• 3. BOT Projects
  • 3.1 General Definitions of BOT
  • 3.2 Parties Involved in a BOT Project
    • 3.2.1 Government Agency
    • 3.2.2 Sponsors
    • 3.2.3 Lenders
    • 3.2.4 Multilateral, Bilateral and Export Credit Agencies
    • 3.2.5 Project Company
    • 3.2.6 Construction Contractor
    • 3.2.7 Operation and Maintenance Contractor
    • 3.2.8 Offtake Purchaser
    • 3.2.9 Input Supplier
  • 3.3 The Contractual Framework
    • 3.3.1 Concession Agreement
    • 3.3.2 Shareholders' Agreement
    • 3.3.3 Lending agreements
    • 3.3.4 Construction Contract
    • 3.3.5 Operation and Maintenance Agreement
    • 3.3.6 Offtake Purchase Agreement
    • 3.3.7 Input Supply Agreement
  • 3.4 Phases of a BOT Project
• 4. Tendering Procedures
  • 4.1 One-Stage Bidding Processes
  • 4.2 Two-Stage Bidding Processes
  • 4.3 Bid approaches
  • 4.4 Issues Specific to Tender Procedures
    • 4.4.1 Bid Bonds
    • 4.4.2 Confidentiality of Intellectual Property
    • 4.4.3 Competition during the Bid
    • 4.4.4 Lack of Information
• 5. Project Finance
  • 5.1 Typical Characteristics and Features
    • 5.1.1 Cash Flow Related Lending
    • 5.1.2 Risk Sharing
    • 5.1.3 Limitation of Liability
    • 5.1.4 Off Balance Sheet Financing
  • 5.2 Financing Instruments
    • 5.2.1 Project Finance-Based Debt
      • 5.2.1.1 Commercial Bank Loan
      • 5.2.1.2 Bond Finance
      • 5.2.1.3 Mezzanine Finance
    • 5.2.2 Equity
    • 5.2.3 Other Sources
      • 5.2.3.1 Value Capture
      • 5.2.3.2 Project Leasing
  • 5.3 Finance Structure
• 6. Risk Management
  • 6.1 Risk Identification
    • 6.1.1 Technology Risk
    • 6.1.2 Completion Risk
    • 6.1.3 Sales Risk
    • 6.1.4 Financing Risks
    • 6.1.5 Input Supply Risk
    • 6.1.6 Operational and Management Risks
    • 6.1.7 Political Risk
    • 6.1.8 Legal Risks
    • 6.1.9 Environmental Risk
    • 6.1.10 Force-Majeure Risks
  • 6.2 Risk Quantification
    • 6.2.1 Static Risk Quantification Techniques
    • 6.2.2 Dynamic Risk Quantification Techniques
  • 6.3 Risk Reduction
  • 6.4 Risk Spreading
  • 6.5 Further Risk Allocation
    • 6.5.1 Guarantees
    • 6.5.2 Liquidated Damages and Indemnity Obligations
    • 6.5.3 Insurances
    • 6.5.4 Derivative Instruments
  • 6.6 Risk Management Process
  • 6.7 Risk Efficiency
  • 6.8 Summary
• 7. Conclusion
• Table of Enclosures
• Enclosures
• List of References
• Table of Acronyms and Abbreviations

Objectives and Key Themes

This diploma thesis examines the impact of efficient risk management during Build-Operate-Transfer (BOT) projects in the infrastructure sector in Asia. It aims to analyze the specific challenges and opportunities presented by BOT projects, with a particular focus on the railway segment. The thesis seeks to understand how effective risk management strategies can contribute to project success and ensure long-term sustainability.

• Private participation in infrastructure development
• The BOT model and its application in Asia
• Risk identification and quantification in BOT projects
• Risk mitigation and allocation strategies
• The importance of a robust risk management process for project success

Chapter Summaries

• Chapter 1: Introduction

  This chapter sets the stage for the thesis, introducing the motivation behind the study and outlining the methodology used. It highlights the significance of BOT projects in Asia's infrastructure development and the need for effective risk management.

• Chapter 2: Private Participation in Infrastructure

  This chapter explores the role of private participation in infrastructure development, particularly in Asia. It examines the rationale behind private involvement, analyzes the public infrastructure landscape, and delves into various forms of private participation in the sector.

• Chapter 3: BOT Projects

  This chapter provides a detailed overview of BOT projects, defining the model and outlining the various parties involved. It explores the contractual framework governing BOT projects and examines the different phases of project development.

• Chapter 4: Tendering Procedures

  This chapter focuses on the tendering process for BOT projects, analyzing different bidding approaches and highlighting key issues specific to these procedures. It examines the role of bid bonds and the importance of ensuring confidentiality and fairness in the bidding process.

• Chapter 5: Project Finance

  This chapter delves into the financial aspects of BOT projects, analyzing the typical characteristics and features of project finance. It explores various financing instruments, including debt, equity, and other sources of funding, and examines different financing structures used in BOT projects.

• Chapter 6: Risk Management

  This chapter constitutes the core of the thesis, exploring the critical role of risk management in BOT projects. It delves into risk identification, quantification, reduction, spreading, and allocation strategies. The chapter also examines different tools and techniques used for managing risks, including guarantees, insurance, and derivative instruments.

Keywords

The main keywords and focus topics of this thesis include: BOT projects, infrastructure development, risk management, Asia, railway sector, project finance, tendering procedures, contract management, legal framework, risk identification, risk quantification, risk mitigation, risk allocation, project success, sustainability.

• College: Nürtingen University (Wirtschaftsrecht)
• Grade: 1,5
• Author: Ursula Katharina Wolter (Author)
• Publication Year: 2006
• Pages: 90
• Catalog Number: V58899
• ISBN (eBook): 9783638040112
• ISBN (Book): 9783640473854
• Language: English
• Tags: Projects, Asia