4.1 PARTIES TO A BOT -TYPE PROJECT BOT IS THEREFORE A TYPE OF FINANC...

BOT is therefore a type of financing for heavy construction projects, parti-

cularly infrastructure projects. The parties to such a project will normally

include the following entities.

●

A

government or government agency . This party will grant the concession,

or rights to construct, own and operate the plant or facility; it will grant

the necessary lease or other right to occupy and use the land on which the

plant is to be constructed; and often it will purchase all or some of the

services or output provided by the plant, by entering into a separate

agreement called an ‘offtake’ agreement. The government agency will

be the party which usually invites tenders from interested parties for the

project, and will then assess the tenders received against performance

and other requirements. Since the government or official agency is to be a

( primary) party to the project it is essential that every other party to the

project is certain that the agency or official body has the legal capacity to

enter into the relevant contracts and other transactions involved in estab-

lishing the project. This will require specialist legal advice and guidance.

●

The project company set up by the promoters (or ‘sponsors’) of the project

as the vehicle for implementing the project, including entering into the

offtake agreement and construction contract. The promoters will prepare

the tender for the project detailing proposals for the design, construction,

operation and financing of the project. They will typically be a consortium

or grouping, consisting of a financing institution or syndicate of such insti-

tutions (typically a bank or syndicate of banks); an operator (to run the

facility when it is built); a construction contractor (often a construction

group); and sometimes various other interests.

●

The construction contractor

is the party responsible for designing,

constructing and, often, commissioning the plant. It has to complete the

project to budget, on time and to specification. The design provided by

the construction contractor may be based upon a fairly general perfor-

mance requirement and other requirements of the promoters; for exam-

ple, the promoters may say that they require a coke calcination plant with

a capacity of 500,000 MTPA to satisfy such-and-such specified require-

ments and national regulations and controls. There will therefore have to

be effective communication between the promoters’ technical team and

that of the construction contractor. Moreover, the contractor will need to

price for the work to take into account the fact that it will be expected to

keep within the lump sum fixed price that is nearly always expected. The

promoters will be working to strict budgetary constraints and will expect

near-absolute certainty as to cost and time, or programme.

●

The operator will be a company or group which begins its work after the

plant has been commissioned and is up and running. The operator bears

relatively little risk, and will normally sign an operation contract to run

and maintain the plant for a substantial period of time. Operators may

themselves be investors in the project.

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4

In 2008 FIDIC published a new addition to the suite, the

Conditions of Contract for

Design, Build and Operate Projects , called the Gold Book (or ‘DBO contract’). The form

combines in a single contract both a design and build obligation and a long-term operation

commitment. In response to demand, FIDIC ’ s aim has been to increase co-ordination and

performance by enabling a single contract to be awarded to a single contracting entity,

rather than having separate contracts for design-build and operation. The general conditions

are based on a design-build-operate project sequence and assume a 20 year operation

period. The Gold Book assumes a new build (as opposed to refurbishment of existing plant)

and a maintenance period of 20 years. In its allocation of risk to the contractor it is, broadly

speaking, closer to the Yellow Book than the Silver.

●

Financial institutions are a key party or parties to a typical BOT project.

They will usually be groups of banks or lending institutions rather than

individual banks or institutions, in order to spread the financial risk. The

banks will have very considerable weight in the negotiations leading up to

the project agreements and may be in a position to dictate many of the

terms of the other contracts involved, including the construction contract.

All aspects of the project will need to be acceptable to them before they

will put up the necessary funds. The banks will typically secure their

lending against the plant itself.

●

Other parties could be investors in the project, putting up finance towards

it in return for a share of the profits of the plant once it is operating; there

will also be lawyers, insurers, suppliers, consultants and others involved in

the project at various stages and in various ways, most usually advising or

assisting one or other of the parties in the many complex issues that will

inevitably arise.