Focusing on different type of PPP model and their corresponding suitability

1. A REPORT ON BOOT MODEL
SUBMITTED BY:
TSERING NGUTUK GURUNG (PAS076MSIEM018)
SUBMITTED TO:
NIRMAL PRASAD BARAL
PASHCHIMANCHAL CAMPUS
INSTITUTE OF ENGINEERING ( IOE)
LAMACHOUR, POKHARA
18th
Jan

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ABSTRACT
The emergence in infrastructure development of the country for the shake of economic
development, the funding from the foreign direct investment and private local investor the Build-
Own-Operate-Transfer (BOOT) mode of financing has been a model in many countries like Nepal.
Nepal must seriously consider having more BOOT projects. Especially in its urgently needed
infrastructure such as Hydropower generation, roads, bridges, telecommunications, water supply,
waste disposal, etc.

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TABLE OF CONTENT
Chapter page no
1. Cover page ...........................................................................................................1
2. Abstract ............................................................................................................... 2
3. Table of content ................................................................................................... 3
4. Introduction ......................................................................................................... 4
5. Build-Own-Operate-Transfer ...........................................................................4-5
6. Structure of BOOT project ...............................................................................5-6
7. Development of BOOT project ........................................................................6-8
8. Conclusion ...........................................................................................................8
9. Reference ............................................................................................................. 9

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1. Introduction
Nowadays, major changes are being occurred in the methods of project execution around the
world. Research and experience indicate that selection of best project delivery system can reduce
project's cost and time up to 12 and 30 percent respectively. Therefore, selection of project delivery
system is one of the most important project strategic decisions which will be conducted at the end
of feasibility studies and coincident with making decision about method of project's financial
provisions. Hence, considering this important point and in order to select the appropriate system
that best complies with the owner's and project's requirements, studying and distinguishing
different project delivery systems is necessary.
The developing countries like Nepal has top priorities for infrastructure development and is
mandatory for the economic development of the country. Planned and well connected
infrastructure services attract foreign direct investments and boost local investments. To meet the
present and future demand for infrastructure development, developing countries like Nepal always
face scarcity of their own resources. To mitigate the shortage of the Government's funds for
infrastructure developments, the Build-Own-Operate-Transfer (BOOT) mode of financing has
been a model in many countries. There are many factors that make BOOT attractive and suitable
for governments as a project delivery method includes stable political system, predictable and
proven legal system, government support for a project that is also clearly in the public interest,
Long term demand, limited competition, reasonable profits, good cash flows, predictable risk
scenarios.
2. Build-Own-Operate-Transfer (BOOT)
Build-Own-Operate-Transfer is a founding model and a form of concession in which a public
authority makes an agreement with a private company (concessionaire) to Design Build, Own and
Operate a specific piece of an infrastructure such as power, transport, water, and telecom industries,
within receiving the right to achieve income from the facility under a period of time (concession
period approximately 15-25 years), and later transferring it back into public ownership through a
single organization or consortium (BOOT provider).The earned income can be based on a variety of
arrangements, ranging from a fixed annual fee (flat rate) to the measured quantity supplied (unit rate)
and "Take-or-pay" arrangements are effectively two part tariffs expressed in a different manner[3].
Such schemes are also referred to as BOO (Build-Own-Operate), BOOT (Build-Own-Operate-
Transfer), F-BOOT (Finance-Build-Own-Operate-Transfer) or occasionally other acronyms. This
mode of financing is also known as public-private-partnership (PPP) because of the joint enterprise

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between the government and the private sector. When there is no eventual transfer back to
government, it is referred to as full privatization.
The objectives of BOOT’s participants including Government, Special Purpose Company (SPC), the
Contractor, the Lenders, the Operator, and the Sponsors are reducing the capital expenses and
government’s role in build, operation and maintenance of infrastructures, making new jobs for
unemployed citizens and accountable atmosphere for a reliable and appropriate quality, providing
opportunities for a comparative or competitive climate and a sympathetic cost benefit for both parties,
introducing innovative and alternative technology.
3. Structure of BOOT project
In a traditional construction project, owner, contractor and consulting engineer are usually the three
parties involved. The BOOT mode of financing is a complex arrangement which involves multiple
parties and a long list of agreements among them. The major parties involved in a BOOT project are:
• Government agency, which grants concession
• Sponsors, generally a joint venture company, who prepare the proposal to finance, construct and
operate the project
• Construction contractor, who is responsible to construct the project
• Operation and Maintenance Contractor, who undertakes operation and maintenance of the project
for a stipulated time
• Financiers, normally a syndicate of banks or financial institutions who provide loans to the sponsor
of the project
• Equity investors, who provide funds through equity participation
• Insurers
• Equipment suppliers
• Engineering and design consultants
• Potentially other parties
Most of the above-mentioned parties will also engage their lawyers, financial advisors and tax
advisers. Among various agreements for a BOOT project, the followings are most prominent:
• Concession agreement, which grants sponsors the right to invest in the project
• Off-take agreement, by which the Government agency agrees to purchase the output of the
infrastructure at agreed price and volume

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• Construction Contract, which is typically a turnkey design-and-construct fixed price contract
• Operation and Maintenance agreement, which is usually a long term contract
• Financing agreements
• Shareholders agreement
• Design agreement
• Equipment supply agreements
• Fuel and Water supply agreements
• Other Service agreements
Figure 1: Typical BOOT consortium
4. Development of BOOT projects
History records that the Industrial Revolution began when Abraham Darby first smelted coke in 1709.
Urbanization and the need for associated infrastructure were to follow. Governments of the time had
only rudimentary tax arrangements primarily to service heads of state. Infrastructure was therefore
left to individuals to finance and build the canals and railroads of Europe and later those in the
America’s, China and Japan were procured this way Smith (1999).A key historical development in

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the funding of infrastructure then occurred from the late 1700s, as Smith (1999) indicates that tax
generated from the Industrial Revolution meant that Governments were now able to fund their own
infrastructure.
Industrial countries generally funded new infrastructure between the late 1800s and the 1970s from
their respective fiscal resources. However, a series of influences emerged in the late 1970s which
placed pressures on this established system for both developed and developing countries. The
infrastructures of ‘developed ’countries such as those of western Europe, North America, Japan and
Australia are under strain from two principal influences. First, the existing and limited infrastructure
is unable to keep pace with the growth of the country and secondly, the demand for health and welfare
because of an aging population. The problems and challenges for ‘newly industrialized countries ’
such as Malaysia, Hong Kong, Taiwan, Mexico and South Africa are caused by a population
explosion placing heavy demand on an already limited infrastructure.
However, in Nepal the concept of BOOT in the infrastructure development was incorporated in
Nepal's Plan document as early as 1992 though the actual progress was slow due to various reasons.
The Eighth Development Plan (1992-1997) envisaged that necessary arrangements would be made
for the construction by the private sector viable infrastructure projects, like the proposed Hetauda-
Kathmandu tunnel and other roads that could shorten the distance, on the basis of the BOOT.In the
Ninth Development Plan (1997-2002), PPP in hydro-power development was encouraged, especially
with the intent of fostering confidence in the private sector by reducing administrative and procedural
rigidities. The Tenth Development Plan (2002-2007) adopted the policy of promoting private sector
participation in the construction and maintenance of the road network. It included the necessary policy
and legal reforms as well as improved the facilitative and regulatory role of the government. To attract
the private sector in BOOT schemes, necessary documentation related to the concession agreements,
guidelines, technical specifications, and feasibility studies were arranged by establishing a
privatization cell in the Ministry of Physical Planning. Using the BOT model in FY 2005/06,
investments in ropeways and railways, including one connecting the Kathmandu Valley with the
Terai, were encouraged.
The Three-Year Interim Plan (2007/08-2009/10) mentions that, despite the BOOT policy adopted for
promoting private sector in the development of the physical infrastructure including the roads, the
private sector investment could not rise as expected, While the Plan has given the highest priority for
the reconstruction and rehabilitation of the physical infrastructure, it also mentions about fostering
the private sector involvement in the development of the physical infrastructure through the BOOT
by making the related Act simpler and practical.

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5. Conclusion
The emergence of BOOT schemes provides a means for developing the infrastructure of a country
without directly impacting on the governments budgetary constraints. Consideration given to BOOT
characteristics and perceptions has allowed the development of an overall critical success factor
framework. With application to BOOT projects generally, the framework serves the purpose of
raising awareness to factors at an early planning stage, such that further consideration can be
implemented where applicable. The framework considers issues from all perspectives throughout the
construction and development phase through to the operational and eventual transfer phase.
6. Reference
Bashiri, M. et al. (2011) Analytical comparison between BOT, BOOT, and PPP project delivery
systems.
Shrestha, S. (2011) ‘Prospects of BOT (Build-Operate-Transfer) Projects for Infrastructure
Development in Nepal’, Journal of the Institute of Engineering, 8. doi: 10.3126/jie.v8i1-2.5104.
Arndt, R. H.(2000), Is build-own-operate-transfer a solution to local government’s infrastructure
funding problems? Victoria, Australia, The University of Melbourne.

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Jefferies, M., Gameson, R. and Rowlinson, S. (2002) ‘Critical Success Factors of the BOOT
Procurement System: Reflections from the Stadium Australia Case Study’, Engineering,
Construction and Architectural Management Vol. 9, Issue 4, p. 352-361, 9. doi:
10.1108/eb021230.
https://www.unescap.org/sites/default/files/mm_nepal_statement.pdf