BOT Full Form
What is the full form of BOT?
A build-operate-transfer (BOT) contract is used for financing large projects, normally infrastructure projects like roads, bridges, developed through public-private partnerships. Under a build-operate-transfer (BOT) agreement, an entity or a body (usually some government) grants some concession to privately-owned companies to sponsor, build, and operate a project for the time period of 20-30 years, hoping to earn a profit in return. After that period is over, the project is returned to the public body that initially granted the concession to build the project.
Framework of a BOT Contract
A BOT contract can be broken down into three simple distinct parts:
Build: A privately owned company makes an agreement to build a public infrastructure project on behalf of the government.
Operate: After the construction is complete, the company starts to operate and handle the project for a given period. During this period, companies recoup their outlay and begin earning profits.
Transfer: After the previously agreed upon period, the company transfers its ownership rights back to the public body.
Working of Build-Operate-Transfer (BOT) Contracts
Under a build-operate-transfer (BOT) agreement, an entity or a body (usually some government) grants some concession to privately-owned companies to sponsor, build, and operate a project for the time period of 20-30 years to recoup its money invested and then shifts control back to the government. Examples include a state highway in India, a wastewater treatment facility in the Philippines and a power plant in Pakistan. Generally, BOT contractors are special-purpose companies specially formed for a specific project.
Frequently Asked Question (FAQs)
The BOT approach was developed during the late 1970s because of the backdrop of constrained budgets in developing countries.
One of the most significant risks is that the contract loses money. For the BOT contract to be successful for all parties, the planned project should be able to provide sufficient returns on investment made for the private company while also benefiting the public body financially and beating other available alternative options. Unfortunately, this happens only in a few cases. Most of the big projects have significant risks involved, and the finances of the project can be under or overestimated.
A public-private partnership (PPP) is considered when a private company takes over all the finances and operates large-scale projects of the government, such as public transportation projects, public parks, and healthcare projects. The BOT contract is just one instance of a potential PPP agreement.
The advantage of the BOT contract process is that the government is able to involve Private entities, which have more resources and are more organised. The private sector also helps to improve quality and effectiveness. BOT contracts have performance-based agreements and output-oriented objectives, due to which BOT provides businesses with the opportunity to increase productivity. The projects are implemented at the possible cheapest cost because they involve fully competitive bidding.
Capitalisation costs are higher for the equity portion of financing than for the debt portion. This is the price paid by the government for passing the risk to the private sector.
As a BOT financing deal involves multiple entities and a complex legal and institutional framework, it may take considerable time and expense to prepare and close. Therefore the BOT contracts may not be suited for small projects.
Developing and enforcing fair and transparent bidding and evaluation procedures and resolving potential disputes may take time to ensure that the full benefits of BOT are realised.
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