Page 61 - Industrial plants

The Development of BOOT
Concessions
The search for a new way to promote and finance
infrastructure projects led to the introduction of a
th
th
technique, originally used in the 19 and 20 centuries,
known as concessions. Concessions were widely used
in many parts of the world to develop infrastructure.
The Suez Canal is one of many examples of a privately
financed concession and this method was also used to
build canals, railroads, tramways, water works, electric
utilities and similar projects in both industrialised and
less-developed countries.

The BOOT formula adds to the old system of
concessions, providing new possibilities for reducing or
eliminating the direct financial burden which
governments would otherwise bear. The objective is to
transfer as much borrowing risk as possible to the
private-sector promoter and the project itself. Therefore
the BOOT promoter must finance the project. (The
promoter typically does this by obtaining financing from
groups of commercial banks, other financial institutions,
export credit agencies and multilateral finance
agencies.) Financing is made available on the strength The BOOT formula adds to the old
of the project’s projected revenue stream and its other system of concessions, providing
assets, including the promoter’s equity. Normally the new possibilities for
lenders would have limited or no resources to the reducing or eliminating the direct

promoter or shareholder of the promoting company. financial burden which governments
would otherwise bear
Project Finance
This financing technique, generally known as project
finance, was perfected in the 1970s for major private- Activities included in Project Finance
sector projects, mainly in the area of oil and gas • Project Financing (BOT, BOO, etc.)
exploration and extraction, but has been extended • Local Governmental Funding
widely since then. Project finance techniques are now • Multi-Source Export Credits
applied across the world to numerous privately • International Commercial Loans Documentary
promoted infrastructure projects including power Credits
stations, gas pipelines, waste-disposal plants, waste-
to-energy plants, telecommunication facilities, bridges, What is BOOT?
tunnels, toll roads, railway networks, city-centre tram One method used to involve the private sector in large-
links and now the building of hospitals, education scale infrastructure investments is where the private
facilities, government accommodation and tourist sector is granted a concession from the state to build,
facilities Financial markets have become increasingly finance, own and operate a facility and after the time
sophisticated in ‘engineering’ financing packages to specified in the concession period is obliged to hand it
finance almost any type of reasonably predictable back to the state. This concept is variously described
revenue stream. as BOT, BOOT, BOO, BRT, BLT, BT and BTO,
Over the last two decades major international depending on the terms of the agreement.
contracting firms, individual entrepreneurs and a The acronym BOT stands for ‘build, own and
number of developing countries have begun to promote transfer’ or ‘build, operate and transfer’ (these terms
infrastructure projects on a BOOT basis. Projects are are often used interchangeably). The ‘owning’ is an
financed on a limited-resource basis and built operated essential element since the main attraction to host
under a concession from the state or similar public governments is that the promoter’s equity stake
body as a private venture. At the end of the concession underwrites its commitment to a project’s success.
the project is transferred back to the state or public Other variants include BOOT (build, own, operate and
body. transfer) and BOO (build, own, operate). In BOO

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