(b) In many cases government utilities operate in a monopoly situation. Therefore,
prior to developing a BOT project, it is necessary that the government provides
the adequate legislative and regulatory authority allowing the construction and
operation of the project by the private sector.
(c) Provision of adequate regulatory power for land acquisition should be addressed.
The private company can negotiate with private owners for acquisition, and the
government can assist, under its existing regulation, in difficult cases through
compulsory acquisition procedures.
(d) There are essentially two ways to provide the necessary powers and
authorisations for a BOT project
(i) By a general legislation
(ii) By a “single purpose” law.
In the negotiation of a BOT project, the legal technicalities should be left to
the lawyers.
(e) It is however very important that regulatory authority and clearance be obtained
by government as early as possible in the project development, and appropriate
delegation to the right government official is vital.
(f) The government must understand that it must create the right legal and regulatory environment to attract investors into BOT projects, which are based on
equity and non-recourse risks. For example, private sector employers should be
able to hire and fire, within stipulated provisions.
On the fiscal aspect, the following issues should be addressed by the government:
(a) Exemption to the project company of local income tax during the concession
period.
(b) Exemption, or otherwise of tax on interests and dividends payable to local and
foreign investors.
(c) Elimination, wholly or partly, of local income tax on salaries of expatriate staff
of the operating company.
(d) Provision of such tax reliefs will enable the foreign investors to improve on their
returns.
(e) Any tax payable has the effect of increasing project costs, which in turn, reflects
on the tariff of the output e.g. electricity, water.
18.9 Analysis of BOT Project Risks
This is perhaps the most important issue to be taken into consideration in the
structuring of a financial package for a BOT project, and it determines the “rules
of the game” in the analysis and negotiation of BOT strategies.
Accordingly, a separate section has been devoted to the analysis of project risks.
518
18 Infrastructure Markets and the Private Sector
prior to developing a BOT project, it is necessary that the government provides
the adequate legislative and regulatory authority allowing the construction and
operation of the project by the private sector.
(c) Provision of adequate regulatory power for land acquisition should be addressed.
The private company can negotiate with private owners for acquisition, and the
government can assist, under its existing regulation, in difficult cases through
compulsory acquisition procedures.
(d) There are essentially two ways to provide the necessary powers and
authorisations for a BOT project
(i) By a general legislation
(ii) By a “single purpose” law.
In the negotiation of a BOT project, the legal technicalities should be left to
the lawyers.
(e) It is however very important that regulatory authority and clearance be obtained
by government as early as possible in the project development, and appropriate
delegation to the right government official is vital.
(f) The government must understand that it must create the right legal and regulatory environment to attract investors into BOT projects, which are based on
equity and non-recourse risks. For example, private sector employers should be
able to hire and fire, within stipulated provisions.
On the fiscal aspect, the following issues should be addressed by the government:
(a) Exemption to the project company of local income tax during the concession
period.
(b) Exemption, or otherwise of tax on interests and dividends payable to local and
foreign investors.
(c) Elimination, wholly or partly, of local income tax on salaries of expatriate staff
of the operating company.
(d) Provision of such tax reliefs will enable the foreign investors to improve on their
returns.
(e) Any tax payable has the effect of increasing project costs, which in turn, reflects
on the tariff of the output e.g. electricity, water.
18.9 Analysis of BOT Project Risks
This is perhaps the most important issue to be taken into consideration in the
structuring of a financial package for a BOT project, and it determines the “rules
of the game” in the analysis and negotiation of BOT strategies.
Accordingly, a separate section has been devoted to the analysis of project risks.
518
18 Infrastructure Markets and the Private Sector