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Financial and Banking Practice in the BOT/BOO Projects |
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Yung-san Lee (李庸三) |
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I.Introduction |
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In Taiwan,
our governmant continues its encouragement for more private
sector to participate in public infrastructure and utilities
projects which have been going on since 1993. A number
of specific policies and measures have been adopted for
implementation of the projects including privatization
of state enterprises and new infrastructure projects.
The latter includes independent power plants, the Taipei
Financial Center, the mass transit system from international
airport to downtown Taipei, and the Taiwan high-speed
railway. The "Build-Operate-Transfer" (BOT) or "Build-Operate-Own"
(BOO) methods have been tested for use by new private
infrastructure pojects which had traditionally been under
development by the public sector. |
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Since nothing
can be ignored or spared in establishing efficient and
reliable infrastructure and utilities for economic development,
substantial amount of funds for investment is indispensable.
It is impossible for the government to appropriate huge
amount of funds from a normal budget for financing the
construction and operation of these projects. A number
of infrastructure projects therefore must be financed
by the private sector by means of BOT or BOO method. It
is expected that the cooperation between the government
and the private sector is going to reduce government financial
burden, promote private investment and increase the operational
efficiency. |
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Unfortunately,
due to lack of experience in the BOT/BOO projects, the
ROC government, private enterprise and financial institutions
are still finding themselves in the learning process.
In my opinion, the major issues worthy of our consideration
relating to BOT/BOO projects are as follows: |
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II.Preliminary Planning and Bids Invited by the Government |
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As the first
step, the government authorities will do some preliminary
planning, undertake feasibility study, calculate financial
internal rate of return and self-liquidation ratio, and
clarify obligations and risk-sharing among those concerned.
Moreover, in order to provide reliable and timely information,
the outcome of the preliminary planning needs to be evaluated
and revised following the political and economic developments.
Particularly, thorough market research is to be undertaken
to estimate project benefits. During the planning period,
the BOT method needs to be reconsidered if the estimated
self-liquidation ratio falls below 100％. In the case of
an insufficient self-liquidation ratio, the government
may either put in partial capital or provide guarantee
or other forms of assistance in order to raise the self-liquidation
ratio and provide incentives to arouse interest for active
participation from the private enterprise. |
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As a matter
of fact, participation of private enterprise in the construction
of public infrastructure projects is not only in keeping
with the principle of profit-seeking incentive of the
enterprise, but may also improve social welfare as well.
Therefore, most of the international BOT projects nowadays
feature strong support by the local government, such as
the Malaysian North-South Interurban Toll Expressway,
the Sydney Harbor Tunnel and the Hong Kong Western Harbor
Crossing projects. The government provides the needed
financing, allows project company to operate existing
facilities, and guarantees a minimum internal rate of
return, as well as interest and exchange rates in oder
to strength the project self-liquidation ratio. |
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Secondly, the
concerned government agency must be thoroughly acquainted
with all specific items that need be completed by the
government, such as schedule of completion and provision
of guarantee and other undertakings that require government
assistance. It should also include the above-mentioned
into the bidding notice in order to eliminate any ambiguity
about the projects and set up clear-cut terms for contest
environment. Take the South-North High-Speed Rail (SNHSR)
along the island for example: the self-liquidation ratio
of the project is said to be less than 100％ according
to some reports. But the government not only specified
no-guarantee provision in the bidding notice but also
specified the lowest funding provided by the government
as one of the bid-awarding considerations. The above two
conditions did not seem to be in line with the lacking
self-liquidation ratio of the project. |
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Moreover, since
the terms of the tender do not clearly specify the obligations
between the government and the tender, the following development
became somewhat intriguing. At first, the Taiwan High
Speed Rail Company (THSRC) refused to sign the construction
and operation agreement due to differences of opinion
in financing of the project, and became involved in buck-passing
with the government authorities, the Ministry of Transportation
and Communications (MOTC), creating a crisis almost to
the point of having to rescind the agreement. After a
prolonged discussion and negotiations, this crisis has
been resolved for now, but the authority of the government
had been challenged, criticized, and even dented by the
constant revision and adjustment of this first BOT project
in Taiwan. |
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