Contact African Trade Group if you need assistance in planning and executing infrastructure projects.
African Trade group can help the public sector, private sector, and a combination of public and private sector principals develop, finance, and build infrastructure projects in every arena, including:
- Rail system for passenger and cargo
- Electrical power plant and distribution network
- Gas distribution to local businesses and homes
- Water purification and distribution
- Conference centers
- Hospitality and tourist attractions
Various Contractual Means for Executing Infrastructure Projects
A BOOT structure differs from build-operate-transfer (BOT) in that a private entity owns the works. During the concession period, the private company owns and operates the facility with the prime goal of recovering the costs of investment and maintenance while trying to achieve a higher margin on the project. The specific characteristics of BOOT make it suitable for infrastructure projects like highways, roads, mass transit, railway transport, and power generation. As such, they have political importance for social welfare but are not attractive for other types of private investments. BOOT and BOT are methods that find very extensive application in countries that desire ownership transfer and operations. Some advantages of BOOT projects are:
- Encourage private investment
- Inject new foreign capital into the country
- Transfer of technology and know-how
- Complete project within time frame and planned budget
- Provide additional financial sources for other priority projects
- Release the burden on the public budget for infrastructure development
Under BLT, a private entity builds a complete project and leases it to the government. With this method, the control over the project is transferred from the project owner to a lessee. In other words, the ownership remains by the shareholders, but operation purposes are leased. After the expiry of the lease, the ownership of the asset and the operational responsibility are transferred to the government at a previously-agreed upon price. For foreign investors, taking into account the country’s risk, BLT provides good conditions because the project company maintains the property rights while avoiding operational risk.
Design–build–finance–operate transactions are a project delivery method very similar to BOOT, except that there is no actual ownership transfer. Moreover, the contractor assumes the risk of financing till the end of the contract period. The owner then assumes the responsibility for maintenance and operation. Some disadvantages of the DBFO model are the difficulty with long-term relationships and the threat of possible future political changes, which may not agree with prior commitments. This model is used extensively in specific infrastructure projects such as toll roads. The private construction company is responsible for the design and construction of a piece of infrastructure for the government, which is the true owner.
Moreover, the private entity has the responsibility to raise financing during the construction and the exploitation period. The cash flows serve to repay the investment and reward its shareholders. The government has the advantage that it remains the owner of the facility and, at the same time, avoids direct payment from the users. Additionally, the government succeeds in avoiding debt and spreads out the cost of the road over the years of exploitation.
The DBOT model is a type of contract arrangement in which an entity builds an infrastructure project, operates it, and eventually transfers ownership of the project to the government. In many instances, the government becomes the firm’s only customer and promises to purchase
at least a predetermined amount of the project’s output. This agreement ensures that the firm recoups its initial investment in a reasonable time. Typically, this arrangement is used in complicated long-term projects such as power plants and water treatment facilities. In some
arrangements, the government does not assume ownership of the project. In those cases, the company continues running the facility, and the government acts as both the consumer and regulator.
DCMF is a contract in which a private entity is contracted to design, construct, manage, and finance a facility based on the government’s specifications. Project cash flows result from the government’s payment for the rent of the facility. In the case of the hospitals, the government owns the facility and exercises price and quality control. The same financial model could be applied to other projects such as prisons. Therefore, this model could be a way to avoid adding new debt to public finance.