Bot Contracts Mcm611 Idp

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BOT Contracts

MCM611- Infrastructure DevelopmentProjects

Prof. Rajiv Gupta



Abstract of Shri Ajit Gulabchand’s (Chairman, Hindustan

Construction Company Limited) letter to the shareholders in the company’s Annual Report 2006 -07

The company (HCC) needs to expand its businessspace.

Infrastructure is about three pillars. Develop, Buildand Operate.

In most parts, HCC is located in the „Build‟ space as

a major contractor for projects. HCC hasconsiderable expertise in this domain across the

entire gamut of construction activities, and it hasserved it well in terms of revenues, profits andshareholder value.

However, HCC needs to be in the other two spaces

as well i.e. Developers and Operators.2 MCM611-IDP Prof. Rajiv Gupta



An obvious extension is to be in theBuild-Operate-Transfer (BOT)space.

Especially for stretches of dualcarriage, restricted access, toll

roads on national highways.

Infrastructure projects are „lumpy‟ in

nature. Be it roads, ports, watersupply or urban infrastructure.Often a multitude of projects areoffered in quick succession after

long pauses.3 MCM611-IDP Prof. Rajiv Gupta



With the current and future growth ininfrastructure, there has been arapid increase in the number ofplayers in this business.

This has led to declining margins.

To maintain high growth rates, HCCbelieves that it must graduate from

being just a builder / contractor tobeing in all three spaces ofinfrastructure business: Develop,

Build and Operate.4 MCM611-IDP Prof. Rajiv Gupta





The company has a strong presencein the transportation sector, with

projects in concrete roads, bituminousroads, rail and road bridges and railand road tunnels.

HCC is executing 10 national highwayprojects spread across six states inthe country. The total length of roadsunder construction by HCC aggregate418 km.

6 MCM611-IDP Prof. Rajiv Gupta



In 2007- 08 recognising the need todefine itself as an integrated

infrastructure developer HCClaunched “HCC InfrastructureLimited”.

This company will play a key role inenvisaging projects with appropriatefinancial models, developing partners,executing construction works andmanaging infrastructure assetsthrough their entire operational andfinancial life-cycle.




The BOT family

All variants of DBFO – design, build,finance, operate aspects of a project.

What is the use of naming the projectsunder different categories like BOT,BOOT, BOO etc.?




Most common variants:

BT: Build-Transfer

BLT: Build-Lease-Transfer

BOT: Build-Operate-Transfer

BOO: Build-Own-Operate

BOOT: Build-Own-Operate-Transfer

BTO: Build-Transfer-Operate

CAO: Contract-Add-Operate

DOT: Develop-Operate-Transfer

ROT: Rehabilitate-Operate-Transfer

ROO: Rehabilitate-Own-Operate9 MCM611-IDP Prof. Rajiv Gupta



BT: Build -Transfer

A Contractual Agreement

Contractor undertakes financing andconstruction of a facility.

After completion hands it over to theGovernment.

Government reimburses the total projectinvestment on the basis of an agreedschedule.

May be employed for all types ofprojects including critical facilities whichfor security or strategic reasons must beoperated directly by the government.




BLT: Build-Lease-Transfer A Contractual Agreement

Contractor undertakes to finance andconstruct.

On completion hands it over to the

Govt. on a Lease arrangement for afixed period.

After completion of the fixed period,

ownership of the facility isautomatically transferred to thegovernment.




BOT: Build-Operate-Transfer

A contractual agreement

Developer undertakes construction(including financing) and operation andmaintenance thereof.

Developer operates the facility over afixed term.

Allowed to charge the facility users

appropriate tolls, fees, rental to enablerecovery of his investment.

User charges should not exceed amountproposed in the bid or as negotiated.




BOT: Build-Operate-Transfer …contd.

Developer transfers the facility to the

government at the end of the fixed term.

These types of projects shall include asupply-and-operate situation:

- The supplier of equipment and machineryfor a given infrastructure facility –if theinterest of the government so requires-

operates the facility and in the processprovides technology transfer and trainingto the government nominated individuals.




BOO: Build-Own-Operate A contractual agreement

Developer undertakes construction (includingfinancing) and operation and maintenancethereof.

Allowed to recover his total investment bycollecting user levies from facility users.

Developer who owns the assets of the facilitycan choose to assign its operation and

maintenance to a facility operator. No transfer to the government is envisaged

but the government may terminate itsobligations after specified time period.

14MCM611-IDP Prof. Rajiv Gupta



BOOT: Build-Own-Operate-Transfer

Similar to BOO but liable to transferthe project to the government afterexpiry of the specified period ofoperation.

Difference between BOT and BOOT isabout ownership.




BTO: Build-Transfer-Operate

A contractual agreement.

The government contracts out aninfrastructure facility to a developer

To construct the facility on a turn-key basis

assuming all cost overruns, delays andspecified performance risks.

Once the facility is commissionedsatisfactorily the developer is given the right

to collect the user fee under a concessionagreement.

The title of the facilities always vests with thegovernment.




CAO: Contract-Add-Operate


Developer adds to an existing facility which itrents from the government and operates theexpanded project.

Collects user levies to recover the investmentover an agreed period.

There may or may not be a transferarrangement with regard to the added facilityprovided by the developer.




DOT: Develop-Operate-Transfer


Favorable conditions external to a newproject which is to be built by adeveloper are integrated in the BOTarrangement by giving that entity theright to develop adjoining property andthus enjoy some of the benefits theinvestment creates such as higher

property or rent values.




ROT: Rehabilitate-Operate-Transfer


Existing facility is handed over to theprivate sector to refurbish, operate(collect user levies to recover the

investment). At the end of the term the facility is

transferred back to the government.

Also for purchase of an existing facilityfrom abroad, importing, refurbishing,erecting and consuming it within thehost country.




ROO: Rehabilitate-Own-Operate


An existing facility is handed over tothe operator to refurbish and operatewith no time limitation imposed on

ownership. As long as the operator is not in

violation of its franchise, it can

continue to operate the facility andcollect user levies in perpetuity.




A few other models:

Reverse BOOT – the public entity builds

the infrastructure and progrssivelytransfers it to the private sector.

BOST: Build-Operate-Share-Transfer

BOOM: Buy-Own-Operate-Maintain.




BOT Contracts – Selection Criteria

Lowest bid in terms of the present value of user fees.

Highest revenue share to the government.

Highest up-front fee.

Shortest concession period.

Lowest present value of the subsidy. Lowest capital cost and O& M cost for projects

having a definite scope.

Highest equity premium

Quantum of State support solicited in present value.

Further reading: The A.P. Infrastructure Development Enabling Act,2001 (Act no. 36 of 2001) also known as AP IDEA




THANK YOU

… for your attention


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