Techniques of Financing & Risk Management In A Port Project

Chapter 4

4.1 Build-Own-Operate (Boo)

This method is used for a project which is new and not in existence.

The sponsor which conceives the project takes care of the construction and operation. He owns the project as long as he desires and there is no compulsion to transfer it to the Government. This is one of the best methods for true privatization strategy and used by Governments who are truly committed to the private sector development.

4.2 Build-Operate-Transfer (Bot)

This is also termed as Build-Own Operate Transfer (BOOT). This is similar BOO except that sponsor transfers the ownership to the Government at a future date, normally at no cost. The major reason for such a transfer has been due to concern of many governments about private ownership and control of sensitive or strategic economic activities such as telecommunications, ports, power plants and consequent hesitancy to allow total privatization.

4.3 Build-Transfer-Operate (Bto)

This is prevalent in countries which are not committed to privatization of infrastructures sector. Under this, there is no private ownership and the operation resembles a franchise arrangement.

4.4 Buy-Build-Operate (Bbo)

This involves existing facilitates which the sponsor can purchase from the Government, expand capacity and then operate. A similar derivation of BBO is Lease Develop Operate (LDO) technique. The difference being, full privatization is avoided as Government retains the ownership rights. In another derivate called Add Own Operate (AOO), the facility is owned by the Government but the private sector financed expansion is owned by the sponsor.

4.5 Conclusion

In Indian context, the BOT technique is most prevalent. A highway or port project would involve the transfer of government land to the private sponsor for the specific concession period and then back to the government at the end of this period. This improves the political acceptability of such arrangement.