Comparison of boot and bolt modes of Construction
- 1. COMPARISON OF BOOT AND BOLT
- 2. INTRODUCTION Infrastructure is the word used to collectively refer to the facilities like roads, railways, bridges, manufacturing plants etc. The Government envisaged the nation wide infrastructure development through the participation of the private sector. The investment required for these projects were huge and the gestation period of these projects were also quite high. The Government with a view to encourage the private participation in these developmental projects offered various business, models like BOOT, BOLT & BOT. Under this scheme the private participant will get an opportunity to own and operate the facility for some time and during this period the developer can commercially exploit the facility so developed. After the specified period the facility would be transferred to the Government.
- 3. BUILD-OWN-OPERATE-TRANSFER (BOOT) It 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.
- 4. HISTORY AND DEFINITION This concept according to according to McDermott (1999) was established more than a century ago to construct canals and railways, was sought and encouraged by governments as a means of obtaining private sector finance for projects, such as infrastructure projects, which in modern times have been a drain on the finances of the public sector. Barnett (1997) provides a comprehensive definition of BOOT as, ‘Government granting to a private sector organization a concession of franchise to build a specific facility, to own it for a specified period, to operate it and to take the revenue from it, and ultimately to transfer it back to the Government’.
- 5. A TYPICAL STRUCTURE OF A BOOT PROJECT
- 6. CONDITIONS FOR SUCCESSFUL IMPLEMENTATION OF BOOT PROJECTS Country Economic Stability Stock and Capital Projects Legislative or Judicial Process Project client
- 8. BOLT BOLT means Build Own Lease & Transfer. The Private participant will lease the facility to the Government and the Government will pay the lease charges for a specific period and on the completion of the lease period the facility is transferred to the Government.
- 9. CONT. It is a non-traditional procurement method of project financing whereby a private or public sector client gives a concession to a private entity to build a facility , own the facility, lease the facility to the client, then at the end of the lease period transfer the ownership of the facility to the client. As a system of project financing this procurement method has a number of advantages the major one being that the private entity, contracted by the client, has the responsibility to raise the project finance during the construction period. This way the BOLT developer assumes all the risk, the risk of raising the project financing and the risk during the construction period. The lease period will see the client who in essence becomes the tenant of the facility, paying the developer a lease (monthly or annually) for the use of the facility at a predetermined rate for a fixed period of time. The lease payment becomes the method of repaying the investment, and ultimately rewarding the developer’s shareholders. At the end of the lease period, ownership of and the responsibility for the facility are transferred to the client from the developer at a previously agreed price
- 11. ADVANTAGES AND DIS- ADVANTAGES Advantages: Full authority to government Public service delivery in an effective way Dis-advantages: Limited motivation for the private sector due to the transfer of ownership
- 12. COMPARISON BETWEEN VARIOUS PPP MODELS DURING CONCESSION PERIOD
- 13. COMPARISON BETWEEN VARIOUS PPP MODELS AFTER CONCESSION PERIOD
- 14. CONCLUSION: BOOT models cannot be used efficiently for social infrastructure as all the commercial risks pertain to private sector. BOLT is best suitable for such projects as risks are shared by both the parties (private and public) and also government does not have to finance the project. In BOOT operation and maintenance is of private sector whereas in BOLT it is of government. Hence, for social infrastructure such as public hospitals, schools, etc.; government is required to operate and maintain in order to serve the people economically. BOOT cannot be effectively used as there is no or less revenue generation, which will not give sufficient rate of return to the private bodies. PPP models are generally concentrated in transportation sector but BOLT excels in both transportation and social infrastructure.
- 15. Thank you