Analytical comparision of BOT,BOOT and PPP models

BITS Pilani, Pilani Campus

Analytical Comparison between (BOT) (BOOT) and other PPP Projects

Presented By: Presented To:

Bhavin Sharma Dr. Vishakha V Sakhare2015H130059P (Assistant Professor)


Content

1. Why PPP??

2. Definition of PPPs in India

3. Objectives of a PPP?

4. Advantages of PPP

5. When should PPP be used?

6. Risk Involved

7. PPP Types 1. BOT

2. BOOT

3. FP

8. Analytical Comparison & Conclusion

9. References2


Why PPP in infrastructure?

• Physical infrastructure– roads

– transportation systems

– water and sanitation networks

• They involve large investments that can put a strain on the public purse. This strainis especially great for countries, such as India, whose economies are undergoingrapid development and urbanisation and have a great need for expandedinfrastructure.

• Public-private partnerships (PPPs) are increasingly being used by governments andpublic sector authorities throughout the world as a way of increasing access toinfrastructure services for their citizenry and economies at a reduced cost.

3


Definition of PPPs in India

4


According to “The Department of Economic Affairs (DEA), Ministry of Finance (GOI)

An arrangement between a government or statutory entity or governmentowned entity on one side and a private sector entity on the other, for theprovision of public assets and/ or related services for public benefit, throughinvestments being made by and/or management undertaken by the privatesector entity for a specified time period, where there is a substantial risksharing with the private sector and the private sector receives performancelinked payments that conform (or are benchmarked) to specified, pre-determined and measurable performance standards.

5


Objectives of a PPP in infrastructure

Increase the availability of infrastructure services

To do so with greater efficiency (lower cost for the level of services provided) than could be achieved using the traditional public sector approach

6


Advantages of PPP

• Access to private sector finance

• Efficiency advantages from using private sector skills and from transferring risk to the private sector

• Potentially increased transparency

• Enlargement of focus from only creating an asset to delivery of a service, including maintenance of the infrastructure asset during its operating lifetime

• This broadened focus creates incentives to reduce the full life-cycle costs (i.e., construction costs and operating costs)

All of these provide strong reasons in favour of using PPPs in India and elsewhere.

7


Investments through PPP Models

The following chart shows the increasing trend of investments in infrastructure through PPPs,

during the period 1990 to 2008. 8


When should PPP be used?

• The public sector environment is suited to supporting PPPs

• The project is suitable to being carried out as a PPP

• The potential barriers to successful project implementation havebeen identified and can be overcome

• Given that these conditions are satisfied, the project must becommercially viable for the private sector and offer value formoney (VFM) for the public sector

9


Risk - a critical focus of PPP design

• "Risk is the chance of an event occurring which would cause actual project circumstances to differ from those assumed when forecasting project benefits and costs”

(Risk Management & Contractual Issues, Partnerships Victoria)

• The parties involved in a project can affect the amount of risk by:

– The level of influence they have over events

– The level of information they have about the present and the future

10


For e.g. (influence they have over events)

• The Public Sector

It has certain powers and advantages in the process of land acquisition thatmean it is sometimes better suited to this task and taking the associated risks.

• By Private Sector

The private sector is exposed to competitive pressures that force it toestablish improved management practices. It is also often the technologyleader. This means it may be better suited to managing the design andconstruction risks.

11


PPP Options/ Types

12

Full privatization, the private sector assumesownership of the infrastructure (design, build,operation and maintenance and finance)


Responsibility of Sectors

13


Build Operate Transfer (BOT)

• In this approach a private party or concessionaire retains a concession for afixed period from a public party, called principal (client), for thedevelopment and operation of a public facility

• The development consists of the financing, design and construction of thefacility, managing and maintaining the facility adequately, and making itsufficiently profitable

• The concessionaire secures return of investment by operating the facilityand, during the concession period, the concessionaire acts as owner. At theend of the concession period, the concessionaire transfers the ownership ofthe facility to the principal at no cost

14

The most common examples are roads, bridges, water and sewer systems,

airports, ports and public buildings


Stages of BOT Project

Construction

(Built) [B]

Operation

[O]

Transfer

[T]

15

Preliminary Study

Selection Process

Project Implementation


Advantages and Disadvantages

Advantages Dis-advantages

Utilization of private sector's investment instead of public sector's

Very complicated from the viewpoint of technical and financial issues and need high level experts and consultants

Transferring all the risk to private sector

Increasing expenditures of users in operation time

Transferring technical knowledge is one of the most important benefits of this method for developing countries

Contrast between benefits of private sector with public sector

16


Build-Own-Operate-Transfer (BOOT)

• It is a founding model and a form of concession in which a public authoritymakes an agreement with a private company (concessionaire) to Design Build,Own and Operate a specific piece of an infrastructure

• such as power, transport, water, and telecom industries, within receiving theright to achieve income from the facility under a period of time

• (concession period approximately 15-25 years), and later transferring it backinto public ownership through a single organization or consortium (BOOTprovider)

• The earned income can be based on a variety of arrangements, ranging from afixed annual fee (flat rate) to the measured quantity supplied (unit rate) and"Take-or-pay" arrangements are effectively two part tariffs expressed in adifferent manner.

17



18


Strong financial incentives for the BOOT operator

Higher cost for the end user due to the BOOT provider accountability of 100 percent financing and on-going maintenance

Risk mitigation through the involvement of multiple participants

Time consuming and resource hungry management and monitoring of the operating contract with the BOOT operators

Increase the project certainty and early interest recovering through involving a BOOT operator

Requirement of a rigorous selection process in selecting a BOOT partner

Efficient designs, High accountability


Full Privatization

• It is a service contract between a public authority and a private sectorconcessionaire, where the public authority pays the concessionaire to deliverinfrastructure and related services

• Typically, the concessionaire, who builds the infrastructure asset, is financiallyresponsible for its condition and performance throughout the asset lifetime,or the duration of the agreement

19

Full privatization, the private sector assumes ownershipof the infrastructure (design, build, operation andmaintenance and finance)




Engages in a competitive process to achieve the best project for the best cost

Government risk

Establishes performance standards and payment mechanisms

Non-complete contracts and uncertainty over a long horizon are other FP challenges

Faster procurement

20


Analytical Comparison

• BOOT versus BOT

– The definition of BOOT and BOT is very close together and the onlydifference is the ownership of facilities in BOOT and because of this, qualityof the work is vital to private

– BOOT is more efficient

– The BOOT contracts have the tendency to work well when the purpose ofthe project is to offer a service, but if the aim is to improve a service ormake more efficient a system, this modality is not recommended. Thesemethodologies increment the complexity of the financial study

21


• FP versus BOT & BOOT

⁻ In FP, private sector has a role as engineer or constructor, Ownership, operation and financing

⁻ On the other hand a pure private is responsible for all matter.

⁻ In BOOT final owner is public, but concession for a long period of time (25-30 year) is regarded to private

⁻ The ownership shifts from public to private as we move from FP to BOOT

⁻ Also private sector accepts more risk and preparing capital investment in BOOT/BOT

22


• Clear law and regulation and Stable political and economical environment is an important factor that effect BOOT/BOT project more than FP

• The degree of involvement in BOOT/BOT is restricted

• Advantage of this, is releasing from project jobs

• Disadvantage is low control of government on project

• Britain vs. turkey is a good example

– Crises in political relation of two countries caused the

– British party leave project dam building in turkey because Turkish government was not involved with project document, they were unable to continue the project

23


Conclusions

Comparison AspectMethod Risk Public

supportDuration period

Involvement Investment Cost for end user

Efficiency

BOT 90% by private sector

Vital Long term (20-30)

Less public 70-100% by privatesector

Higher Medium-high

BOOT 90% by private sector

Vital Long term (30+)

Less public 70-100% by private sector

Higher High

FP 90% by public sector

Not important

Short term Nil Lower by public sector

Lower -Higher

High- Low

24


References

• World Bank Group[US] https://ppiaf.org/

• http://finmin.nic.in/the_ministry/dept_eco_affairs/dea.asp

• Thomas, S. M, measuring the impacts of delivery system on project performance, Construction Industry Institute, 2003

• Prof. Drs. Ir. Sebastiaan C.M. Menheere, P. S, Case Studies On Build Operate Transfer. Delft, The Netherlands, Delft University of Technology, 1996

• Verhoeven, L., BOT in Netherlands, university of technology, Delft, Netherlands, 1997

• Menheere, C. P., Case studies on Build, Operation, and Transfer, 1996

• Canada, P. (2010, may-June). P3 Canada Fund. Retrieved May 30, 2010, from public-private partnerships Canada: http://www.p3canada.ca/_files/file/P3C_Project_Submission_Guide_Round_Two_EN.pdf

• http://toolkit.pppinindia.com/highways/sitemap-gts%20.php?links=intro1

25

https://ppiaf.org/

http://finmin.nic.in/the_ministry/dept_eco_affairs/dea.asp

http://www.p3canada.ca/_files/file/P3C_Project_Submission_Guide_Round_Two_EN.pdf

Analytical comparision of BOT,BOOT and PPP models

Economy & Finance

Transcript of Analytical comparision of BOT,BOOT and PPP models