First of all, it is necessary to clarify the meaning of BOT project and related operation.
What is BOT
1, infrastructure concessions
BOT is the abbreviation of English Build-Operate-Transfer, usually directly translated as "Build-Operate-Transfer". BOT is an acronym for Build-Operate-Transfer, usually translated as "Build-Operate-Transfer". This translation is straightforward, but does not reflect the essence of BOT, which is essentially a way of infrastructure investment, construction and operation, premised on an agreement between the government and a private organization, the government issued a concession to a private organization, allowing it to raise funds to build a certain infrastructure within a certain period of time, and to manage and operate the facility and its corresponding products and services. The Government may impose restrictions on the quantity and price of the public **** product or service provided by the institution, but guarantees the private capital the opportunity to make a profit. Risks in the whole process are shared between the government and the private organization. When the concession period expires, the private organization transfers the facility to a government department as agreed, and transfers it to a government-appointed department for operation and management. Therefore, the term BOT is more appropriately translated as "infrastructure concession".
The above is a narrow concept of BOT, which has undergone hundreds of years of development, and in order to adapt to different conditions, many variants have been derived, such as BOOT (Build-Own-Operate-Transfer), BOO (Build-Own-Operate-Transfer), BOO (Build-Own-Operate-Transfer), and BOT (Build-Own-Operate-Transfer). Build-Own-Operate), BLT (Build-Lease-Operate) and TOT (Transfer-Operate -Transfer) and so on. The broad concept of BOT includes these derivatives. What people usually call BOT should be the broad concept of BOT. The term "Build-Operate-Transfer" cannot summarize the development of BOT mode.
2, the history of BOT
In recent years, BOT this investment and construction method is used by some developing countries to carry out the construction of their infrastructure and has achieved a certain degree of success, caused by a wide range of the world's favor, as a new form of investment to be publicized, however, BOT is far from being a novelty, which has been since the emergence of the history of at least 300 years.
In the 17th century, the British Pilotage Guild was responsible for managing maritime affairs, including the construction and operation of lighthouses, and had the prerogative to build lighthouses and charge fees to ships. But in the 65 years from 1610 to 1675, the Pilotage Guilds didn't build a single lighthouse, according to a survey by R. Coase. In contrast, there were at least ten privately built lighthouses during the same period. This type of private investment in lighthouse construction is similar to what is now known as a BOT. That is: the private first to the government to permit the construction and operation of the lighthouse application, the application must include the signatures of many shipowners to prove that the lighthouse will be built in their favor and expressed a willingness to pay tolls; in the application for the government's approval, the private to the government to rent the construction of the lighthouse must take up the land in the concessionary period of the management of the lighthouse and to the passing ships to collect tolls; the government will be the lighthouse after the expiration of the period of privilege Upon expiration of the privilege, the government took back the lighthouse and turned it over to the Pilotage Association for management and continued collection of tolls. By 1820, of the 46 lighthouses, 34 were privately funded. This shows that the BOT model is far more efficient in terms of investment than the administration.
In the same fate as many other innovations, BOT has experienced a period of obscurity since its inception. And this period of obscurity was so long for BOT that its early performance was almost forgotten. Until the 1980s, when BOT was brought to the economic stage due to the needs of economic development, many people regarded it as a new thing.
3. Characteristics of BOT
Contemporary capitalist countries have introduced strong state intervention on top of the market economy. At the same time, economics in theory also affirmed the role of the "visible hand", the market economy has gradually evolved into a mixed economy combining the market and the plan, BOT has precisely this market mechanism and government intervention combined with the characteristics of a mixed economy.
On the one hand, BOT can keep the market mechanism in play. most of the economic behaviors of BOT projects are carried out in the market, and the government's practice of determining the project company by bidding itself also contains a competitive mechanism. As a reliable market players in the private sector is the BOT model actors, in the concession period for the construction of the project has complete property rights. In this way, the behavior of the private institution undertaking the BOT project in the implementation of the BOT project is fully consistent with the economic man assumption.
On the other hand, BOT provides an effective way for the government to intervene, which is the agreement reached with the private organization about BOT. Although the execution of the BOT agreement is entirely in the hands of the project company, the government has control over the project from the beginning to the end. In the three stages of project creation, bidding and negotiation, the government's will plays a decisive role. In the performance stage, the government also has the power to supervise and inspect, the price setting in the project operation is also subject to the government's constraints, the government can also through the general BOT law to constrain the behavior of the BOT project company.
BOT operation and risk sharing
1, the main participants of BOT
A typical BOT project participants are the government, the BOT project company, investors, banks or consortiums, as well as undertake the design, construction and operation of the relevant companies.
The government is the controlling body of the BOT project. The government decides whether or not to set up this project and whether or not to use the BOT method. The government is also in a favorable position when negotiating the contract for the BOT project agreement. It also has the right to supervise the necessary aspects of the project as it proceeds. It also has the right to take back the project without compensation when the concession expires.
The owner is the main body of BOT project implementation, it is in the center. All the relations to the BOT project financing, subcontracting, construction, acceptance, operation and management system, as well as debt repayment and interest repayment are the owner is responsible for. Large infrastructure projects usually have a dedicated project company as the owner, dealing with design companies, construction companies, manufacturers and operating companies.
Banks or conglomerates are usually the main financiers of BOT projects. For small and medium-sized BOT projects, a single bank is usually sufficient to provide all the funds needed, while large BOT projects often overwhelm the capacity of a single bank, which forms a syndicate*** to provide the loan. Since the debt ratio of BOT projects is generally as high as 70-90%, loans are often the largest source of funding for BOT projects.
Investors are the main risk-bearing body of BOT projects. They bear limited liability with the capital invested. Although in principle the government and private organizations to share the risk, but in practice the operation of the countries vary greatly. Developed market economy countries in the BOT project in the share of risk is very small, while developing countries in the transnational BOT project often bear a large proportion of the risk.
2, BOT project implementation process
BOT mode is mostly used for large investment and long term projects. A BOT project since the establishment of the concession period is often more than ten years or decades of time, this paper will be divided into the entire period of the project, bidding, bidding, negotiation, performance of the five stages to be described.
Project stage. In this stage, the government according to the medium and long-term social and economic development plan to make a list of new construction and renovation projects and public. Private organizations can make reasonable plans based on the projects on the list in relation to their business development direction, and then propose to the government to build a project by BOT, and apply for bidding or indicate their intention to undertake the project. The government then relies on the consulting organization to conduct feasibility studies of the various options and decide which method to use based on the technical and economic indicators of each option.
The bidding stage. If the project is determined to be constructed using the BOT method, the government or its commissioned agency first advertises for bids, then pre-qualifies the applicants, selects several private organizations as bidders, and issues bidding documents to them.
For projects that are determined to be constructed in the BOT mode can also be negotiated directly with the private sector interested in undertaking the project without the use of bidding. However, the success rate of the negotiation method is not high, and even if the negotiation is successful, often due to the lack of competition, the government agreed to too many conditions resulting in higher project costs.
The bidding stage: BOT project tender preparation time is long, often in more than six months, during which the government commissioned agency to answer the bidder at any time on the project requirements of the questions raised, and consider the reasonable proposals put forward by the bidders. Bidders must submit their bids to the bidders by a specified date. After opening, evaluating and ranking the bids, the bidder selects the top 2-3 for negotiation.
Negotiation phase. Concession contract is the core of BOT project, it has legal effect and is valid throughout the concession period, it stipulates the power and obligations of the government and the BOT project company, and determines the risks and rewards for both parties. Therefore, the negotiation of the concession contract is a key part of a BOT project. The bidder commissioned by the government negotiates with several selected bidders in turn. If successful, the contract is signed; if not, it moves on to the next bidder. Sometimes negotiations need to go in cycles.
Performance phase. This phase covers the entire concession period and can be further divided into the construction phase, the operation phase and the handover phase. The owner is the main protagonist in this phase and undertakes a great deal of work to fulfill the contract. It is important to note that a good concession contract can incentivize the owner to conscientiously and responsibly supervise the participants in the construction and operation, and strive to reduce costs and improve efficiency.
3, BOT projects in the risk
English risk (risk) the word refers to a certain degree of uncertainty about the future situation. And what actually happens in the future may be worse than expected, but also may be better than expected. The word "risk" does not refer only to unfavorable aspects, but prudent investors pay more attention to avoiding unfavorable situations.
BOT projects are risky because of the large investment, long duration, and widely varying conditions, often without precedent. Risk avoidance and sharing also becomes an important element of the BOT project.
There are five types of risks that may appear in the whole process of BOT project: political risk, market risk, technical risk, financing risk and irresistible external risk.
Political risk. Political instability and social unrest will bring political risk to BOT projects, and this kind of risk is especially considered by BOT project companies with multinational investment. The political risk borne by the investor increases accordingly with the duration of the project, while for the national investors, this risk factor is less considered.
Market risk. During the long concession period of a BOT project, changes in supply and demand, and price changes occur from time to time. Before a BOT project recovers its full investment, there is a risk that cheaper competing products or more popular substitute products may appear in the market, resulting in a much lower demand for the output of the BOT project, which is called market risk. Usually BOT project investment is mostly long term, and need government assistance and concession, so it has monopoly, but can not be excluded due to technological progress and other reasons for market risk. In addition, in the raw material market may be due to raw material price increases, resulting in project overruns, which is another market risk.
Technology risk. The risk brought about by improper arrangement of institutional details during the BOT project is called technical risk. One manifestation of this risk is postponement, which will directly shorten the project operation period and reduce the return of the project, and may lead to the abandonment of the project in serious cases. Another situation is engineering defects, which refers to the legacy of the construction and building process. This type of risk can be reduced by technical treatment in the institutional arrangement to reduce the possibility of its occurrence.
Financing risk. Risks arising from unanticipated changes in exchange rates, interest rates and inflation rates are financing risks. If higher than expected inflation occurs, the scheduled price of a BOT project (if the expected price is agreed upon) will be low; if interest rates rise, the cost of financing a BOT project increases significantly due to high indebtedness; and since BOTs are often used for cross-border investments, changes in exchange rates or difficulties in cashing in can also pose a risk to the project.
Risk of irresistible external forces: BOT projects, like many other projects, are subject to the risk of irresistible and unpredictable external forces such as earthquakes, fires, river floods and heavy rains.
4, BOT risk avoidance and sharing
There are two mechanisms to cope with risk. One mechanism is to avoid, that is, with certain measures to reduce the probability of unfavorable circumstances; the other mechanism is to share, that is, to agree in advance on the allocation of losses in the event of unfavorable circumstances. This is an important element in the BOT project contract. The international practice of risk sharing among the participants is that the risk is borne by whoever has the most control over it.
Political risk avoidance. The first thing that a BOT project company investing across borders has to consider is the issue of political risk. And this risk is difficult to assess only by the experience of economists and economic workers. The project company can obtain certain concessions from the government in the negotiation to partially offset the political risk. For example, opening a project fund account outside the project country. In addition, the U.S.'s Overseas Private Investment Corporation (OPIC) and the U.K.'s Export Credits Guarantee Department (ECGD) provide guarantees against the political risks of cross-border investment by domestic firms.
Market risk sharing. In a market economy, the market risk due to the emergence of new technology should be borne by the initiator and determiner of the project. If the project is initiated by the private sector, this part of the market risk is borne by the project company; if the project is determined by the government development plan, the government is mainly responsible. The risk of cost overruns should be anticipated by the project company and prepared for when the BOT contract is signed.
Technical risk avoidance. The technical risk is caused by the project company's laxity in subcontracting with contractors or inadequate supervision, so the project company should be fully responsible for it. For the project delay and engineering defects should be made in the subcontract, linked to the economic interests of the contractor. The project company should also leave a portion of the maintenance bond or post-construction quality bond in addition to the project cost in order to successfully resolve the project defects. The project company should also carry out more frequent period supervision for control works that affect the progress of the whole project and relate to the overall quality.
Financing risk avoidance. Project financing is an important element of the BOT project throughout. This process is all operated by the project company as the main body, the risk is also completely borne by the project company. Financing skills have a great impact on the size of the project cost. Firstly, funds invested step by step in the course of the project should be incorporated step by step, otherwise the financing cost is greatly increased. Secondly, the impact of fluctuations in interest rates and inflation on costs should be expected when agreeing on product prices. In case of BOT projects where foreign capital is brought in from abroad, currency conversion issues and exchange rate expectations should be considered. Sharing of the risk of irresistible external forces. This risk is characterized by unpredictability and uncertainty in the amount of loss, which may be devastating. Neither the government nor the private sector can do anything about it. Insurance companies can be relied upon to bear part of the risk. This will inevitably increase the cost of the project, and for large BOT projects it is often necessary to have multiple insurance companies to sub-insure. In the project contract, the government and the project company should also agree on the method of sharing the risk.
In summary, in a market economy, the government can share the BOT project in the risk of irresistible external forces, to ensure that the currency exchange, or bear the exchange rate risk, and other risks are borne by the project company.
The BOT projects in western countries have two special trends that are worth learning from China's development of BOT projects. One is the strong use of domestic financing, one of the advantages of which is that it completely avoids government risk and exchange rate risk, which is particularly prominent under the contemporary floating exchange rate. Another trend is that the government is taking less and less risk. This, of course, depends on the role of the market mechanism and the soundness of economic regulations. In this sense, the way to promote BOT is not to rely on the government's commitment, but to deepen the reform of the economic system and strengthen the legal system.
The above is the introduction of the BOT project.
BOT is essentially a form of infrastructure investment, construction and operation, premised on an agreement between the government and a private organization, the government issued a concession to a private organization, allowing it to raise funds to build a certain infrastructure within a certain period of time and to manage and operate the facility and its corresponding products and services. The Government may impose restrictions on the quantity and price of the public **** products or services provided by the institution, but guarantees the private capital the opportunity to make a profit. Risks in the whole process are shared between the government and the private organization. At the end of the concession period, the private organization transfers the facility to a government department as agreed, and transfers it to a government-appointed department for operation and management.
It is an infrastructure concession .
Law on Bidding and Tendering:
"Article 3 Bidding must be conducted for the following engineering and construction projects within the territory of the People's Republic of China*** and the State of China, including the project's survey, design, construction, supervision, and the procurement of important equipment and materials related to the construction of the project:
(1) Large-scale infrastructure, public utilities, and other projects that have a bearing on the social and public *** interests, public safety projects;
The sewage treatment plant BOT project is a kind of infrastructure concession .
Therefore, it is necessary to tender.
Henan Cao lawyer