When the downturn in international construction took place in the late 1970s,
many globally operating construction companies saw an opportunity to obtain
construction contracts through the innovative BOT method. By forming a team
with an engineering firm that was also seeking work, a construction company
could approach investors and developers with an eye to (1) form a consortium and
(2) present a plan for a proposed infrastructure project to a receptive government. In
many other cases, requests for submission of BOT proposals emanated from the host
government to relieve pressure on tight budgets. Because the risks associated with
these projects were high, so were the potential rewards. And, even as BOT consortiums were creating their own construction projects from which normal profits could
be earned, they were opening the door to other ancillary projects - and corresponding
profits - for investors who were quick to recognize the potential. Some agreements
with government agencies allowed developer return on investments to exceed 25%.
The World Bank, international financial institutions, commercial banks, and some
government agencies such as Japan’s Overseas Economic Cooperation Fund
(OECF) and Official Development Assistance (ODA) agency were willing to provide loans to many Asian neighbours for the purpose of conducting feasibility
studies for potential infrastructure projects. In the case of Japan, government and
industry work closely together. One or more Japanese engineering or construction
firms with backing from a Japanese government agency would conduct feasibility
studies for another government’s projects. As a matter of course, these same
designers or contractors might well end up with a BOT contract should the host
government agree to implement the project.
The objective and role of each of the three partners will be later on defined and
identified; their inter relationships and interactions should be clearly understood if a
BOO - BOT project is to be given the maximum chance to succeed.
18.4.2 General Mechanism of BOO – BOT
The general mechanism of a BOO-BOT set-up (Fig. 18.1) is essentially as follows:
(a) One or several private sector sponsors are authorised by the Government to
create a private “project company” to build a project. In the case of a public
service such as a road, the authorisation may be in the form of a concession from
the Government, in which case the company is often called a concession
company.
(b) The sponsors will usually comprise a major international construction and/or
engineering firm and one or several equipment suppliers. In actual practice the
setting-up of the sponsoring body is complex.
(c) Generally, the sponsors anticipate constructing the project as well as supplying
the necessary equipment.
(d) The “project company” may comprise both active and passive equity investors
and, sometimes, the host government also has a minority equity participation.
18.4 Characteristics of BOO – BOT Projects
505
many globally operating construction companies saw an opportunity to obtain
construction contracts through the innovative BOT method. By forming a team
with an engineering firm that was also seeking work, a construction company
could approach investors and developers with an eye to (1) form a consortium and
(2) present a plan for a proposed infrastructure project to a receptive government. In
many other cases, requests for submission of BOT proposals emanated from the host
government to relieve pressure on tight budgets. Because the risks associated with
these projects were high, so were the potential rewards. And, even as BOT consortiums were creating their own construction projects from which normal profits could
be earned, they were opening the door to other ancillary projects - and corresponding
profits - for investors who were quick to recognize the potential. Some agreements
with government agencies allowed developer return on investments to exceed 25%.
The World Bank, international financial institutions, commercial banks, and some
government agencies such as Japan’s Overseas Economic Cooperation Fund
(OECF) and Official Development Assistance (ODA) agency were willing to provide loans to many Asian neighbours for the purpose of conducting feasibility
studies for potential infrastructure projects. In the case of Japan, government and
industry work closely together. One or more Japanese engineering or construction
firms with backing from a Japanese government agency would conduct feasibility
studies for another government’s projects. As a matter of course, these same
designers or contractors might well end up with a BOT contract should the host
government agree to implement the project.
The objective and role of each of the three partners will be later on defined and
identified; their inter relationships and interactions should be clearly understood if a
BOO - BOT project is to be given the maximum chance to succeed.
18.4.2 General Mechanism of BOO – BOT
The general mechanism of a BOO-BOT set-up (Fig. 18.1) is essentially as follows:
(a) One or several private sector sponsors are authorised by the Government to
create a private “project company” to build a project. In the case of a public
service such as a road, the authorisation may be in the form of a concession from
the Government, in which case the company is often called a concession
company.
(b) The sponsors will usually comprise a major international construction and/or
engineering firm and one or several equipment suppliers. In actual practice the
setting-up of the sponsoring body is complex.
(c) Generally, the sponsors anticipate constructing the project as well as supplying
the necessary equipment.
(d) The “project company” may comprise both active and passive equity investors
and, sometimes, the host government also has a minority equity participation.
18.4 Characteristics of BOO – BOT Projects
505