BOT projects: Risks and securities

There has been a growing trend in recent years for governments in many developing countries to place major public investments, particularly for infrastructure projects, into the private sector. This has meant that governments look to the private sector to finance projects using the projects’ anticipated revenues as security rather than relying upon a direct sovereign guarantee of the project debt. Many have adopted the ‘Build-Operate-Transfer’, or BOT approach, so that the private sector have to operate the plant and transfer the ownership to the government after a specified concession period. However,for BOT to succeed in any major privatized project, the host government cannot withdraw or adpot a passive role: it has to ensure the right political and commercial environments in which to advance the projects. This paper deals with the various guarantees and incentives that could be provided by the government. It covers the responsibilities and undertakings that the project sponsors could commit to in order to negotiate favourable concessions from the government and to raise financing that is so vital for the BOT model to be successful. The financing, political and technical risks are discussed and the techniques that could be used to have these risks covered are suggested to ensure a smooth project implementation.