analysed at the outset of the project, and clearly stipulated in the Concession
Agreement.
The provision of a “movable” transfer date can be made in the Agreement. The
transfer date can be negotiated to be at an earlier stage if the project company’s
output exceeds the original and projected targets so that it realises its full equity
return in a shorter number of years than originally expected. Or alternatively, the
transfer date can be extended if equity projections have not been favourable due to
conditions beyond the control of the company.
In effect, this is where precisely lies the basic difference between a BOO and a
BOT approach. If the “T” of the “BOT” is indefinite, then a BOO concept is
achieved. There are cases where the government would prefer a BOO deal, particularly as the project development involves the use of new, unproven technology, or
where the government is deriving other more important national economic returns so
that it decides to lease the operation of the facility to the private sector indefinitely.
Moreover, the Agreement at the outset can clearly specify a movable and
negotiable transfer date, with possibility of extension so that, at the discretion of
one of the two signatories, or both, the BOT can gradually be converted in a BOO.
18.8.9 Earning Assets
Another feature of many BOT projects has been the contribution of the government
in the following way:
(a) The government makes available to the project company existing facilities of
similar nature, which are operated by the company to generate revenue.
(b) The revenues are then used by the project company to develop and finance new
projects.
The principle involved is that the host government puts existing assets at the
disposal of the project company. Given that these assets can produce earnings, these
are then used to meet capital costs, debt servicing, and operation and maintenance
costs of a new BOT project.
18.8.10 Regulatory and Fiscal Issues
Depending on existing legislation in the host country, these issues are very important
and should be addressed during the structuring of the BOT project:
(a) The government may need to introduce new legislation or amend the existing
one to authorise private ownership of utilities such as power plants, telecommunications services, airports, water works, toll roads etc.
18.8 Structuring a BOT Financing Package
517
Agreement.
The provision of a “movable” transfer date can be made in the Agreement. The
transfer date can be negotiated to be at an earlier stage if the project company’s
output exceeds the original and projected targets so that it realises its full equity
return in a shorter number of years than originally expected. Or alternatively, the
transfer date can be extended if equity projections have not been favourable due to
conditions beyond the control of the company.
In effect, this is where precisely lies the basic difference between a BOO and a
BOT approach. If the “T” of the “BOT” is indefinite, then a BOO concept is
achieved. There are cases where the government would prefer a BOO deal, particularly as the project development involves the use of new, unproven technology, or
where the government is deriving other more important national economic returns so
that it decides to lease the operation of the facility to the private sector indefinitely.
Moreover, the Agreement at the outset can clearly specify a movable and
negotiable transfer date, with possibility of extension so that, at the discretion of
one of the two signatories, or both, the BOT can gradually be converted in a BOO.
18.8.9 Earning Assets
Another feature of many BOT projects has been the contribution of the government
in the following way:
(a) The government makes available to the project company existing facilities of
similar nature, which are operated by the company to generate revenue.
(b) The revenues are then used by the project company to develop and finance new
projects.
The principle involved is that the host government puts existing assets at the
disposal of the project company. Given that these assets can produce earnings, these
are then used to meet capital costs, debt servicing, and operation and maintenance
costs of a new BOT project.
18.8.10 Regulatory and Fiscal Issues
Depending on existing legislation in the host country, these issues are very important
and should be addressed during the structuring of the BOT project:
(a) The government may need to introduce new legislation or amend the existing
one to authorise private ownership of utilities such as power plants, telecommunications services, airports, water works, toll roads etc.
18.8 Structuring a BOT Financing Package
517