Analytical Comparison between BOT,BOOT and PPP Projects

share presentation

1. BITS Pilani, Pilani Campus
Analytical Comparison between (BOT)
(BOOT) and other PPP Projects
Presented By: Presented To:
Bhavin Sharma Dr. Vishakha V Sakhare
2015H130059P (Assistant Professor)

2. BITS Pilani, Pilani Campus
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.References
2

3. BITS Pilani, Pilani Campus
Why PPP in infrastructure?
•Physicalinfrastructure
–roads
–transportationsystems
–waterandsanitationnetworks
•Theyinvolvelargeinvestmentsthatcanputastrainonthepublicpurse.Thisstrain
isespeciallygreatforcountries,suchasIndia,whoseeconomiesareundergoing
rapiddevelopmentandurbanisationandhaveagreatneedforexpanded
infrastructure.
•Public-privatepartnerships(PPPs)areincreasinglybeingusedbygovernmentsand
publicsectorauthoritiesthroughouttheworldasawayofincreasingaccessto
infrastructureservicesfortheircitizenryandeconomiesatareducedcost.
3

4. BITS Pilani, Pilani Campus
Definition of PPPs in India
4

5. BITS Pilani, Pilani Campus
According to “The Department of Economic
Affairs (DEA), Ministry of Finance (GOI)
Anarrangementbetweenagovernmentorstatutoryentityorgovernment
ownedentityononesideandaprivatesectorentityontheother,forthe
provisionofpublicassetsand/orrelatedservicesforpublicbenefit,through
investmentsbeingmadebyand/ormanagementundertakenbytheprivate
sectorentityforaspecifiedtimeperiod,wherethereisasubstantialrisk
sharingwiththeprivatesectorandtheprivatesectorreceivesperformance
linkedpaymentsthatconform(orarebenchmarked)tospecified,pre-
determinedandmeasurableperformancestandards.
5

6. BITS Pilani, Pilani Campus
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

7. BITS Pilani, Pilani Campus
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

8. BITS Pilani, Pilani Campus
Investments through PPP Models
The following chart shows the increasing trend of investments in infrastructure through PPPs,
during the period 1990 to 2008.
8

9. BITS Pilani, Pilani Campus
When should PPP be used?
•ThepublicsectorenvironmentissuitedtosupportingPPPs
•TheprojectissuitabletobeingcarriedoutasaPPP
•Thepotentialbarrierstosuccessfulprojectimplementationhave
beenidentifiedandcanbeovercome
•Giventhattheseconditionsaresatisfied,theprojectmustbe
commerciallyviablefortheprivatesectorandoffervaluefor
money(VFM)forthepublicsector
9

10. BITS Pilani, Pilani Campus
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 ofinfluencethey have over events
–The level ofinformationthey have about the present and the future
10

11. BITS Pilani, Pilani Campus
For e.g. (influencethey have over events)
•The Public Sector
Ithascertainpowersandadvantagesintheprocessoflandacquisitionthat
meanitissometimesbettersuitedtothistaskandtakingtheassociatedrisks.
•ByPrivateSector
Theprivatesectorisexposedtocompetitivepressuresthatforceitto
establishimprovedmanagementpractices.Itisalsooftenthetechnology
leader.Thismeansitmaybebettersuitedtomanagingthedesignand
constructionrisks.
11

12. BITS Pilani, Pilani Campus
PPP Options/ Types
12
Fullprivatization,theprivatesectorassumes
ownershipoftheinfrastructure(design,build,
operationandmaintenanceandfinance)

13. BITS Pilani, Pilani Campus
Responsibility of Sectors
13

14. BITS Pilani, Pilani Campus
Build Operate Transfer (BOT)
•Inthisapproachaprivatepartyorconcessionaireretainsaconcessionfora
fixedperiodfromapublicparty,calledprincipal(client),forthe
developmentandoperationofapublicfacility
•Thedevelopmentconsistsofthefinancing,designandconstructionofthe
facility,managingandmaintainingthefacilityadequately,andmakingit
sufficientlyprofitable
•Theconcessionairesecuresreturnofinvestmentbyoperatingthefacility
and,duringtheconcessionperiod,theconcessionaireactsasowner.Atthe
endoftheconcessionperiod,theconcessionairetransferstheownershipof
thefacilitytotheprincipalatnocost
14
The most common examples are roads, bridges, water and sewer systems,
airports, ports and public buildings

15. BITS Pilani, Pilani Campus
Stages of BOT Project
Construction
(Built) [B]
Operation
[O]
Transfer
[T]
15
Preliminary
Study
Selection
Process
Project
Implementation

16. BITS Pilani, Pilani Campus
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

17. BITS Pilani, Pilani Campus
Build-Own-Operate-Transfer (BOOT)
•Itisafoundingmodelandaformofconcessioninwhichapublicauthority
makesanagreementwithaprivatecompany(concessionaire)toDesignBuild,
OwnandOperateaspecificpieceofaninfrastructure
•suchaspower,transport,water,andtelecomindustries,withinreceivingthe
righttoachieveincomefromthefacilityunderaperiodoftime
•(concessionperiodapproximately15-25years),andlatertransferringitback
intopublicownershipthroughasingleorganizationorconsortium(BOOT
provider)
•Theearnedincomecanbebasedonavarietyofarrangements,rangingfroma
fixedannualfee(flatrate)tothemeasuredquantitysupplied(unitrate)and
"Take-or-pay"arrangementsareeffectivelytwoparttariffsexpressedina
differentmanner.
17

18. BITS Pilani, Pilani Campus
Advantages and Disadvantages
18
Advantages Dis-advantages
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

19. BITS Pilani, Pilani Campus
Full Privatization
•Itisaservicecontractbetweenapublicauthorityandaprivatesector
concessionaire,wherethepublicauthoritypaystheconcessionairetodeliver
infrastructureandrelatedservices
•Typically,theconcessionaire,whobuildstheinfrastructureasset,isfinancially
responsibleforitsconditionandperformancethroughouttheassetlifetime,
orthedurationoftheagreement
19
Fullprivatization,theprivatesectorassumesownership
oftheinfrastructure(design,build,operationand
maintenanceandfinance)

20. BITS Pilani, Pilani Campus
Advantages and Disadvantages
Advantages Dis-advantages
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

21. BITS Pilani, Pilani Campus
Analytical Comparison
•BOOT versus BOT
–ThedefinitionofBOOTandBOTisveryclosetogetherandtheonly
differenceistheownershipoffacilitiesinBOOTandbecauseofthis,quality
oftheworkisvitaltoprivate
–BOOTismoreefficient
–TheBOOTcontractshavethetendencytoworkwellwhenthepurposeof
theprojectistoofferaservice,butiftheaimistoimproveaserviceor
makemoreefficientasystem,thismodalityisnotrecommended.These
methodologiesincrementthecomplexityofthefinancialstudy
21

22. BITS Pilani, Pilani Campus
•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

23. BITS Pilani, Pilani Campus
•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

24. BITS Pilani, Pilani Campus
Conclusions
Comparison Aspect
MethodRisk Public
support
Duration
period
InvolvementInvestmentCost for
enduser
Efficiency
BOT 90% by
private
sector
Vital Long term
(20-30)
Less public70-100%
by private
sector
Higher Medium-
high
BOOT 90% by
private
sector
Vital Long term
(30+)
Less public70-100%
by private
sector
Higher High
FP 90% by
public
sector
Not
important
Short termNil Lower by
public
sector
Lower -
Higher
High-Low
24

25. BITS Pilani, Pilani Campus
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

26. BITS Pilani, Pilani Campus