PUBLIC PRIVATE PARTNERSHIPS AND BUILD, OPERATE AND TRANSFER (BOT ...

Advantages and Challenges of the BOT Approach
22. The BOT approach has many potential advantages, some of which have been
alluded to above, and is a visible alternative in most countries to the more traditional
approach using sovereign borrowings or budgetary resources. These are captured in the
box provided below.
Box 1: Potential advantages to the host government of using the BOT approach
� Use of private sector financing to provide new sources of capital, which reduces public
borrowing and direct spending and which may improve the host government’s credit rating.
� Ability to accelerate the development of projects that would otherwise have to wait for, and
compete, for sovereign resources.
� Use of private sector capital, initiative and know-how to reduce project construction costs,
shorten schedules and improve operating efficiency.
� Allocation to the private sector of project risk and burden that would otherwise have to be
borne by the public sector.
� The involvement of private sponsors and experienced commercial lenders, which ensures an
in-depth review and is an additional sign of project feasibility.
� Technology transfer, the training of local personnel and the development of national capital
markets.
� In contrast to privitisation, government retention of strategic control over the project, which is
transferred to the public at the end of the contract period.
� The opportunity to establish a private benchmark against which the efficiency of similar
public sector projects can be measured and the associated opportunity to enhance public
management of infrastructure facilities.
Source: UNIDO (1998)
23. Some challenges that should be taken into consideration include the length of time
required to develop and negotiate BOT schemes, the need for a suitable political and
economic climate, and a defined regulatory environment. In short, the BOT approach
requires an environment that is conducive to private sector investment.
24. The economic costs associated with BOT projects include the following:
• Costs due to imbalance in experience. Governments with little experience in BOT
contracts are advised to initiate BOT projects on a manageable scale and seek
professional advice to compensate the often greater experience of the private
sector.
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