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Build Operate Transfer

August 7, 2009
Build operate transfer (BOT) is a project financing, operate, for a certain year and transfer to its ownership. In today¬タルs BOT play a important role in outsourcing.
It was first used in build houses, bridges and later it comes to IT field.
How it work?
BOT worker got the project form the client, the client will give a idea to customer and customer will make the design, and try to build with their own money after the project is over it will transfer the project to client and also he got the pay.
A number of variations on the Build-Operate-Transfer theme have emerged from the experience of international infrastructure development.
1. Build Operates Transfer:
The contracts will specific the upgrade and operation of the enterprise by the concessionaire for a fixed period of time followed by the transfer of all facilities and equipment back to the owner.
2. Build Own Operate:
The concessionaire is essentially buying the basic facility in installments from the owner, with the facility and its upgrades provided as security over the repayment period.
3. Build-transfer-operate:
The concessionaire builds and transfers a facility to the owner but exclusively operates the facility on behalf of the owner by means of a management contract.
4. Build-Leases-Transfer:
The concessionaire builds a facility, leases out the operating portion of the contract, and on completion of the contract, returns the facility to the owner.
How long would it last?
Infrastructure- development projects funded by means of BOT contracts in developing countries will typically require capital investments of $50 million or more and an operating period of greater than 10 years.
In proposing a BOT concession to an existing owner, the following factors must be considered and allowed for:
Factor
Consideration
Capital Requirement
Capital The greater the capital amount required upgrading the facility or Requirement purchase equipment, the longer the operating contract period should be.
Profit Sharing Formula
A 50:50 profit sharing formula is a useful starting point and is quite Formula a common arrangement in international projects. The impact of other factors will increase or decrease the proportional breakdown.
Business Operating Risk
The nature of the enterprise will dictate a longer or shorter period of return based on a risk factor used within that industry. Similarly, for the concessionaire, risk may be mitigated or augmented by lengthening the period of the operating contract.
Cost of Capital
Lower cost of capital will allow the concessionaire to achieve a break-even point in a shorter period of time, all things being equal.
Nature of Revenue Stream
Certain types of revenue offer greater security in terms of a continuing revenue stream. Enterprises in which the customer usage levels are discretionary (customers have a choice of competitors or may choose to forego the service being offered) entail a higher level of risk and will impact the other factors.
While infrastructure development projects really developed as national level opportunities, the clear trend has been toward implementing the same project financing and operating models on a smaller and smaller scale, making the BOT approach a possible option for many undertakings previously thought of as unsuitable. More opportunities will be found at the local government and private industry level as a result of the growing awareness of the advantages that the BOT approach has to offer.
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