Date post: | 22-Jun-2015 |
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Uniting agriculture and nature for poverty reduction
Build Operate Transfer and private sector led hydropower development: assessing benefits and risks
Dr. Nathanial Matthews
Research CoordinatorWater, Land and Ecosystems
Uniting agriculture and nature for poverty reduction
Models of PPP
• BOT – Build Operate Transfer• DBFO – Design Build Finance
Operate • Concession Lease• Corporatization• BTO – Build Transfer Operate• Lease• BOO – Build Own Operate
Uniting agriculture and nature for poverty reduction
Characteristics of BOTs• Typically involves private sector handling all the financing,
design, construction and operation of an infrastructure project for a concessionary period of usually 20-50 years.
• The private operator runs the infrastructure at a rate of return high enough to service debts and afterwards to generate a profit of approximately 15% or more.
• BOT structures tend to be complex. Within the BOT contract there are dozens of fees, guarantees, loans and contracts needed between each actor
• BOT projects restrict investors from removing their equity when they please, so large consortium are generally formed to spread exposure.
General Contractor
Design Electro-mechanical EquipmentCivil Works
General Contractor
Share Holder Loaner
Operator
Governmental
O & M Contract
Turn-key contract
Project Co.
Uniting agriculture and nature for poverty reduction
A Brief History of BOT and privatized infrastructure
• The Suez Canal was the world’s first BOT project, built at a final cost of US$18 million in 1868.
• Privatized infrastructure expanded in the 1970s and was widely adopted from the 1990s onwards.
• Notable examples include the US$19 billion Channel Tunnel, the US$17 billion Taipei Transit System and the US$15 billion Kansai Airport.
• Expected to reach USD $4 Trillion by 2017 driven mainly by weakened public finances, increased private capital seeking long-term, low-risk, inflation-protected returns that are better insulated against economic cycles.
Uniting agriculture and nature for poverty reduction
Benefits
• Harness new investment• Not total privatization• Transfer risk• Innovate• Find efficiencies• Public control maintained• Provide a vehicle to open markets to international
and regional investment and development• Can allows funding outside of political economies
Uniting agriculture and nature for poverty reduction
Challenges
• Opportunities for investors to profit through construction or service supply may incentivize investments with weak returns.
• Governments with weak capacity may absorb risks and provide private sector guarantees such as supplying security, water flows, fuel, or electricity.
• Complexity can result in a range of environmental, socio-economic, financial, and political risks being undervalued, overlooked, or misidentified.
• Business norms tend to impede project transparency and participatory processes.
Uniting agriculture and nature for poverty reduction
Examples from the Mekong
• Over 25 MoUs signed with Lao PDR in the late 1990s• A tendency to favour large-scale, capital intensive
projects over smaller-scale initiatives• Lack of ownership over environmental and social
mitigation• Multi-purpose dams are rarely considered • Construction quality has varied – such as in Vietnam• Lack of transparency and participation, some
developers work towards this, others do not
Uniting agriculture and nature for poverty reduction
Future• A recognition that privatized infrastructure can have significant
public impact, so the notion of risk and uncertainty need to be adequately explored
• BOT/PPPs are an important way forward, but governments need capacity to handle the investment.
• BOTs that consider long-term costs as well as short-term benefits (decommissioning, sediment build up etc).
• Stronger monitoring and evaluation of projects post construction.• Longer term commitments and ownership of environmental and
social impacts• All energy development has trade-offs – privatized infrastructure
is the present and future of hydropower – need to keep working towards better hydropower.