BOT
(Build/Own/Transfer)
projects
are
public
infrastructure
projects
which
employ
a
particular
form
of
structured
financing.
BOT
projects
are
generally
structured
on a
project
basis
requiring
all
parties
to
share
the
risks
of
the
project.
Project
risk
sharing
is
necessary
because
the
sponsor,
a
joint
venture
of
one
sort
or
another,
will
have
a
limited
worth
being
substantially
less
than
the
aggregate
net
worth
of
the
equity
parties.
Structure
of
BOT
Projects
In a BOT arrangement, the private sector designs and builds the infrastructure, finances its construction and owns, operates and maintains it over a period, often as long as 20 or 30 years. This period is sometimes referred to as the "concession" period.
Traditionally, such projects provide for the infrastructure to be transferred to the government at the end of the concession period.
BOT is a type of project financing. The hallmarks of project financing are:
(i) The lenders to the project look primarily at the earnings of the project as the source from which loan repayments will be made. Their credit assessment is based on the project, not on the credit worthiness of the borrowing entity.
(ii) The security taken by the lenders is largely confined to the project assets. As such, project financing is often referred to as "limited recourse" financing because lenders are given only a limited recourse against the borrower.
Most
project
finance
structures
are
complex.
The
risks
in
the
project
are
spread
between
the
various
parties;
each
risk
is
usually
assumed
by
the
party
which
can
most
efficiently
and
cost-effectively
control
or
handle
it.
Once
the
project's
risks
are
identified,
the
likelihood
of
their
occurrence
assessed
and
their
impact
on
the
project
determined,
the
sponsor
must
allocate
those
risks.
Briefly,
its
options
are
to
absorb
the
risk,
lay
off
the
risk
with
third
parties,
such
as
insurers,
or
allocate
the
risk
among
contractors
and
lenders.
The
sponsor
will
be
acting,
more
often
than
not,
on
behalf
of
an
sponsor
at a
time
when
the
equity
participants
are
unknown.
Nevertheless,
each
of
the
participants
in
the
project
must
be
satisfied
with
the
risk
allocation,
the
creditworthiness
of
the
risk
taker
and
the
reward
that
flows
to
the
party
taking
the
risk.
In
this
respect,
each
party
takes
a
quasi
equity
risk
in
the
project.
SIMS
Economics Consulting & Training