What is the BOT model?

Well, let's give you a comprehensive one~!

I. Connotation of BOT International Investment and Financing Methods

(I) BOT (Build--Operate--Transfer)

Build--Operate--Transfer

It refers to a type of infrastructure construction, and a way of private sector participation in the development and operation of infrastructure.

BOT structures are particularly suited to projects that provide social goods or services, such as transportation or energy projects.

(ii) Characteristics of BOT

1. Specificity of the subject

The main body of its legal subject is the host government authority on one side, and the foreign private investor on the other.

2. Risky

From consulting and negotiating with the host government, conducting feasibility studies, to the final end of the business cycle, the time span is often years, decades or even longer, so there are inevitably a variety of risks, such as changes in policy, trade and financial market changes and so on.

Commercial risk

Political risk

3. Transfer to the government at the end of the authorization period

After the expiration of the concession period of a BOT project, the facilities need to be transferred to the government without compensation.

The transfer and assignment are generally not allowed.

4. The government is one of the key players in the success of the project

The execution of a BOT project is a very complex task and process, which involves a lot of key people who need to coordinate and cooperate with each other. For example: investors, government, shareholders, contractors, lenders, users of the project products, insurance companies, etc.

5. Large-scale investment and long operation cycle

BOT projects are generally syndicated by a dozen or so banks or financial institutions from multiple countries, and then one or several contractors organize the implementation. The time span from consulting and negotiating with the host government, conducting feasibility studies, to the final end of the operating cycle is often years, decades or even longer.

6. Difficulty of the project

Each BOT project has its own characteristics, generally no precedent to follow, each project is a new subject, have to start from scratch research.

7. Requirement of full cooperation

BOT project scale determines the number of participants, it requires participants to participate in risk sharing and management.

Participating in BOT projects can only ensure the smooth implementation of the project, the completion of the project on schedule.

8. BOT projects are generally not possible to earn foreign exchange directly in the vast majority of developing countries are practicing varying degrees of foreign exchange control, once the host country's balance of payments deterioration, strengthen the control of foreign exchange, will seriously affect the flow of funds and the ability to repay investors.

Two, BOT project operation

BOT projects generally have four steps:

Step one:

Project initiator to set up the project dedicated company (project company), dedicated to the host country government or relevant government departments to reach a project concession agreement.

Step 2:

The project company signs a construction contract with the construction contractor, which is guaranteed by the insurers of the builders and equipment suppliers. The exclusive company signs a project operating agreement with the project's operating contractor.

Step 3:

The project company signs a loan agreement with a commercial bank or a buyer's credit agreement with an export credit bank. The export credit bank provides a political risk guarantee to the commercial bank while the lender receives security over the project's own assets. The assets of the project itself that can be used as security include, for example, sales proceeds, insurance, concession agreements and other project agreements.

Step 4:

On entering the operational phase, the project company transfers the revenues from the project (e.g., sales proceeds under the sales contract and tolls from roads, tunnels and bridges) to a guarantee trust. The guarantee trust then uses this income to repay bank loans.

The effects of BOT project financing

(1) Positive effects of BOT project financing

l. From the government's point of view, the BOT method can ease the financial burden, and the money saved from infrastructure can be used for other government projects, so that things can be done better when the government's resources are insufficient.

2. From the contractor's point of view, the BOT approach can stimulate the interest of government banks and consortiums in the construction market downturn and create project investment opportunities, thus alleviating the problem of insufficient sources of contracting tasks.

3. BOT projects provide good investment opportunities for banks and financial institutions and private consortia

Infrastructure projects have large investments and long payback periods, and the intensity of their investments is not something that individual banks, financial institutions, or private consortia can or would be willing to bear.

The use of BOT allows these financial institutions and private consortiums to pool their funds in the form of equity or loans to invest in infrastructure projects, and the benefits of investment are often considerable.

(B) the negative effects of BOT project financing

l, BOT investment mode so that the government there is a dilemma:

The state to hold, then need to invest a large sum of money, the state shares too much, non-state investment subject to loss of interest; in order to mobilize the private sector, the state does not hold, the loss of the holding of the BOT project will lead to the loss of private monopoly and other behavior.

2, the private sector is the pursuit of the profit target, to achieve economic efficiency as the principle; and infrastructure projects often have the requirement to achieve the goal of equity, these two aspects are contradictory.

3, BOT involves more and more complex economic subjects, the interests of a number of economic subjects is quite difficult to coordinate, and the government's participation as an economic subject rather than an arbitrator, but also increase the difficulty of coordination.

4, from the government's point of view, due to the BOT project authorization agreement and related regulations, the strain is less flexible.

5, any BOT project, the amount of investment is quite large, the relative authorization period is longer, for investors, the payback period is also longer, the investment risk is high, constituting an unfavorable side of the investor.

6. Foreigners from their own interests, often put forward the profit as large as possible, the investment risk is as small as possible program, trying to be borne by the Government of China should be borne by the investor of the many risks, thus resulting in the proposal of negotiation of the project a lot of projects, but the negotiations were successful and put into practice the situation of very few projects.

Four, the history of BOT

BOT method has actually been applied for centuries. Infrastructure and public **** engineering projects are highly capital-intensive projects, usually operated by the government monopoly. As early as the 17th and 18th centuries in Europe, private investment appeared in the construction of some canals and bridges.

In the 17th century, the British government allowed private construction of lighthouses, approved by the government, the private sector to the government to build a lighthouse must occupy the land, in the concession period to manage the lighthouse and to the passing ships to collect tolls; after the expiration of the concession period, the government will be the lighthouse back and to the government's Pilotage Harbor Association management and continue to charge. By 1820, of the 46 lighthouses, 34 were privately funded. This was a much more efficient way of investing in lighthouses at that time than the administrative sector.

European countries in the late 18th and 19th centuries, the government has made extensive use of the private sector, roads, railroads and canals and other public **** infrastructure investment and development and operation and management, especially in the construction and operation of water supply facilities in European cities, the private sector plays an important role in the construction and operation of water supply, London and Paris water supply on the private sector to undertake.

After the two world wars, the construction of infrastructure was mainly undertaken by governmental institutions, a model that placed a heavy burden on governments, especially those developing countries that lacked the financial resources to meet the financial resources needed for infrastructure construction.

The world economic situation gradually changed from the late 1970s to the early 1980s. Due to the needs of economic development, BOT as an investment method formally appeared on the economic stage.

The term BOT was first introduced in 1984 by then Turkish Prime Minister ?zal, who wanted to build a power plant using the BOT method.

British and French undersea tunnels, Malaysia's North-South Expressway, and Australia's Sydney Cove Tunnel.

4. Ease the problem of shortage of capital;

5. Improve the degree of marketization;

6. Improve the level of management and operational efficiency;

7. Promote the development of capital market.

Second, BOT has become China's utilization of foreign capital

BOT is different from the traditional "foreign" enterprise investment.

The first project

May 1995, Guangdong Laibin Power Plant B power plant, approved by the State Planning Commission, China's first use of BOT financing project a Guangdong Laibin Power Plant B power plant was officially signed, the project in May 1997, the funds in place in the last century, completed and put into operation.

The second project

From November 1995, the Shanghai Water Treatment Plant.

From November 1995, the company has begun raising a $54 million syndicated loan for project construction.

The third project

is the Dingqu Thermal Power Plant near Baoding, Hebei, which has a total investment of US$1.14 billion.

The fourth project is the Shenzhen Power Station project, which has been undertaken by Asia Power.

The fifth project is the second phase of the Guangzhou Light Rail Transit Railway.

The sixth project was the Wuhan Metropolitan Railway Project.

In 1996 and 1997, the State Planning Commission approved several more large-scale BOT projects for foreign investment.

"Tenth Five-Year Plan" period - "Eleventh Five-Year Plan" period

Nationally, only the urban infrastructure construction needs to invest about 1 trillion yuan, the government investment accounted for about The government investment accounts for about 200 to 300 billion yuan, and another 700 to 800 billion yuan needs to be solved through loans, the use of foreign capital and social investment.

In this case, financing through BOT has attracted the attention of the relevant government departments and industry.

Three, Chinese enterprises to carry out BOT projects abroad

(I) "Going out" strategy and BOT abroad

2000 - "Going out" strategy

The "Going out" strategy

What's more, the "Going out" strategy has been adopted by the Chinese government and the industry. "

BOT, as a major form of contracting with capital in the international contracting market, is something Chinese companies must explore and practice.

BOT projects can drive more domestic units to participate in the international market competition and promote the better implementation of the national "going out" strategy.

(2) overseas BOT on China's enterprises to promote the role of

1, the project can promote Chinese companies to improve the ability to improve the quality of personnel, and promote the Chinese companies on the scale, upgrading, and the formation of rapid development of the situation.

2. It is conducive to improving the comprehensive operation and management level of enterprises, especially capital operation ability, and fostering multinational enterprises with real international competitiveness.

(3) Chinese companies to carry out BOT projects in the future with the prerequisites

1. At present, domestic banks can not accept the project contract as a financing guarantee, loans need to be guaranteed by the company, and the international practice of universal acceptance of the BOT contract as a guarantee for the financing of the project there is a big gap.

2. Chinese companies are relatively weak in capital market operation

The capital market has strict requirements and procedures for the identification, evaluation and sharing of investment risks. Chinese companies are not capable of identifying, evaluating and sharing investment risks.

3. The management system of Chinese companies is also an obstacle to Chinese companies

When encountering BOT projects, the main consideration is the objective difficulties, with an obvious fear of difficulties and the idea of waiting, relying and asking for help.

This problem can only be solved with the gradual deepening of the reform of the management system of state-owned enterprises.

4. There are mature financing channels and sales channels for the operation of the company

International companies to engage in BOT projects are not every project can be successful. When international companies track BOT projects, it takes three or four projects to succeed in one.BOT projects cover a wide range of areas and require the cooperation of all parties to get it right. In the BOT project organizers, funders, builders, equipment suppliers, need the cooperation of all parties in order to get it right.

5. Targeted selection of BOT project countries, industries and projects

Selection of project countries need to take into account the country and China's economic, diplomatic and other aspects of the relationship, preferably with China's geographic advantages of the country. Another situation to pay attention to is the choice of the type of project to be compatible with their own advantages.

6. Purposeful training reserves to implement the BOT project needs of talent.

BOT project is the highest form of contracting, the requirements of project management personnel is very high, need to be proficient in all aspects of knowledge, with a comprehensive quality of personnel **** with the efforts to ensure the success of project implementation.

BOT project needs Business talents, management talents, technical talents, these talents:

To be familiar with the rules of the game of the international capital market;

To be familiar with the marketing of the country where the project is located;

To be familiar with the operation of the project subcontracting market;

To be familiar with the management of the construction of the project;

To have a very strong project operation capability.