The acronym BOT stands for "build, operate, and transfer," or sometimes "build, own, and transfer." Whichever formulation is preferred, however, the underlying concept is the same. A private company, or a consortium of companies, wins the right to build a facility and operate it at a profit for a number of years, after which it must transfer the project to the government that commissioned it. Such programs normally involve very large construction projects that only a state could underwrite.
The private company or consortium is responsible for financing and designing the project. At the heart of the BOT approach is the concept of "project finance"--in other words, lenders are invited to look to the project's underlying assets and projected revenues for repayment, rather than to government guarantees or charges over the assets of the contractor.
A number of criteria for successful BOT projects have emerged over the years, and these are now enshrined in a booklet published by the United Nations Industrial Development Organization. The guidelines are summarized below.
· The project must be financially sound, feasible, and affordable.
· The host country's risk factors must be manageable.
· There must be strong government support.
· The project must rank high on the host government's list of infrastructure projects.
· The legal framework must be stable.
· The administrative framework must be efficient.
· Bidding procedures must be fair and transparent.
· BOT transactions should be structured in such a way that they can be finished within a reasonable time and at reasonable cost.
· Bidders must be experienced and reliable.
· Contractors must have sufficient experience and resources.
· Project risks must be allocated among the parties on a reasonable basis.
· The project's financial structure must provide lenders with adequate security.
· Currency, foreign exchange, and inflation issues must be addressed and resolved.
· The contractual framework must be coordinated and must reflect the basic economics of the project.
· The public and the private sectors need to cooperate on "a win-win basis."