DESIGN-BUILD-FINANCE & OPERATE

Design-build-Finance & Operate

Abstract

Different types of public-private partnerships PPP's have been practiced in worldwide infrastructure development in order to achieve the best outputs by mobilizing private-sector funds, technologies, managerial skills, and operational efficiency and by facilitating innovations by transferring more risks and responsibilities from the public sector to the private sector. The build-operate transfer BOT type project procurement methodology underlies various scenarios of PPPs. In addition to the construction task undertaken by a contractor in a traditional design-bid-build contract, in a BOT-type project is also responsible for the design, finance, and operation of the project for a long-term concession period e.g., the Channel Link project. There is a wide range of risks and uncertainties related to a BOT-type project in the long concession period.

Table of Contents

Introduction3

Research Aims3

Build-Operate-Transfer-Type Infrastructure Projects4

Nonrecourse or Limited-Recourse Financing5

Build-Operate-Transfer-Type Projects6

Broad Scope of Risk Exposure6

Financial Consequences of Risks7

Financial Capability8

Criteria Measuring Financial Capability9

Hypotheses and Verification Process9

Verification Process10

Questionnaire Survey on Significances of Financial Criteria11

Factor Analysis of Financial Criteria: Concept and Steps of Factor Analysis12

Adequacy for Factor Analysis13

Components Extracted14

Validity16

Reliability17

Agreement Analysis: Mann Whitney U Test18

Comparison of Mean Significance Index and Ranking Order across Sectors19

Conclusions22

References29

Appendix30

Design, Build, Finance & Operate

Introduction

The occurrence of risks can lead to serious financial consequences, which may fail the project. Furthermore, the project company of a Build-Operate-Transfer (BOT)-type project is usually a special-purpose vehicle distinct legal entity using non-recourse or limited-recourse financing, and this requires appropriate financial engineering techniques. Therefore, a strong financial capability is essential prior to the successful development of a BOT-type project.

Research Aims

This research aims to:

1 explore the key dimensions financial capability as required by a general BOT-type infrastructure project, and to

2 identify important criteria that measure each of these dimensions. A systematic approach has been taken. First, 35 criteria hereafter referred to as financial criteria that measure the financial capability for a general BOT-type infrastructure project have been identified through literature review, case studies of PPP practices in both developing and developed countries, and interviews/ correspondence with experts and practitioners in international PPPs for infrastructure development (Schaufelberger, and Wipadapisut, 2003, 205-213).

Second, a structured questionnaire survey is carried out to solicit worldwide expert opinions of the significances of these financial criteria. Third, statistical analyses such as factor analysis, agreement analysis, and validity and reliability analysis have been conducted to verify two hypotheses (Zhang, 2004, 235-244): 1 The 35 identified financial criteria are important criteria to measure a financial capability, and 2 the 35 financial criteria can be grouped to measure different dimensions financial capability.

Outputs of this research facilitate the private sector in assessing their financial capability, making relevant improvements to increase their financial competitiveness in the development of BOT-type projects; and the outputs facilitate the public sector in evaluating a potential financial capability by tailoring these financial criteria and making appropriate adjustments to reflect the characteristics of a particular BOT-type project (Zhang, 2004, 235-244).

Build-Operate-Transfer-Type Infrastructure Projects

Build-Operate-Transfer A BOT-type infrastructure project can be described as a project based on a concession granted to a consortium that is usually ...