Page 65 - Industrial plants

The BOOT / PPP structure
In view of the flexibility of the BOOT/PPP structure and
its variants, the legal and company structure differ from
project to project, dependant on sector and country of
origin. However, the normal structure would involve the
creation by the promoters of a special-purpose, joint-
venture company in which the contractor, operator and
banks may have a share. This concession company
borrows in order to fund the construction on the
security of the revenue that lending banks believe will
be generated by the facility. All financial obligations
must be serviced within the life of the concession.
Concession financing is therefore similar to limited-or
non-resource project finance, except that the revenues
are received under the terms of a concession
agreement. The project will be approached in a similar Figure 1 - Example of a simple BOOT/PPP Structure
way to limited-resource project financing in which the
risks are isolated and allocated to those most qualified
to bear them.
Each structure created is unique to the project, but
generally BOOT/PPP is essentially a concession or
global-service contract offered by a government and
financed and undertaken by the private sector. A
BOOT project often requires a promoter to enter into a
number of contracts with a variety of parties. It is
possible, however, for any particular project to have all,
some or none of these contracts. A typical simple
structure created between the various parties is outlined
in Figure 1. A more complex structure is necessary
where the mending is sourced offshore in the
international markets and is set out in Figure 2.

The allocation of risks between the typical parties to a
BOOT structure, as shown in the diagram, is regulated
by the various agreements which the parties enter into.

• The concession company promotes the project
and has the ultimate liability to the government Figure 2 - Example of an international BOOT/PPP Structure
under the concession agreement.
interest in the revenue forecasts produced by the
• The concession agreement (sometimes concession company. Likewise the two areas that
referred to as the implementation or project place the concession company and equity
agreement) is the primary contract between the investors and lenders at risk are the construction
government and the concession company and contract and the operating contract.
forms the contractual basis from which the other
contracts are developed. It entitles the concession • The construction contract: The parties would
company to build, finance and operate the facility prefer a contractor to give a fixed price for
and imposes conditions as to design, construction, completion by a fixed date without exclusions.
operation, of the project and establishes the This is rarely possible in projects of this nature.
concession or operation period. Finance providers are therefore only prepared to
commit themselves to a fixed amount because if
• The equity investors’ and lenders’ security for the project costs more their funds will be in
their loans and investment is limited to the jeopardy due to the interest burden. Lenders will
revenues to be received by the concession not accept the risk of delay to completion,
company. They will therefore have considerable although they will normally provide a standby

IndustrIal Plants - May 2023
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