2159 - Jordan Journal of Civil Engineering, Volume 5, No....

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, Volume 5 , No. 3 , 2011 - 330 - Risk Analysis for a BOT Project Swapan Kumar Bagui 1) and Ambarish Ghosh 2) 1) PhD Scholar 2) Professor, Department of Civil Engineering, Bengal Engineering and Science University, Shibpur, Howrah 711 103 ABSTRACT There are several risks in a BOT project. Major critical risks are total project cost and revenue/tollable traffic. This paper presents a sensitivity analysis for a BOT project with a real case study varying equity from 10% to 90%.Traffic and cost are varied ± 20% and financial analysis is carried out with spread sheet, and test results are prepared in graphical forms and presented. Total Project Cost (TPC), Net Present Value (NPV) and Financial Internal Rate of Return (FIRR) are plotted with various percentages of equity. Linear and non-linear graphs are found. FIRR decreases with increasing TPC/Equity, and probability of project risk increases with increasing percentage of equity up to 30 % and decreases beyond this value. KEYWORDS: Risk analysis, BOT projects. INTRODUCTION The global trend toward greater utilization of private capital for infrastructure development shows no sign of abating. In the United States, twenty states have enabled legislation that permits some form of public-private initiatives for transportation projects (Reinhardt, 2004). Internationally, the Private Finance Initiative (PFI) in the United Kingdom is well known, and the use of private capital for infrastructure projects has become ordinary within emerging economies where financially challenged public administrations look toward the private sector to develop basic infrastructure (Esty, 2003). Private investment in public infrastructure occurs within the Build-Operate-Transfer (BOT) model, where a public entity, the government, and a private entity, the sponsor, enter into an agreement according to which the sponsor is bound to design, build, finance and operate an infrastructure project on behalf of the government for a predetermined period of time, the concession period. At the end of the concession period, the sponsor transfers its ownership rights back to the government. Typically, the sponsor finances the BOT investment through project finance rather than corporate loans (Yescombe, 2003); this introduces another active party, the lender. Thus, the BOT model becomes a trilateral negotiation game with complex interrelationships. The critical success factor for a BOT project is the efficient and effective allocation of project risks and returns among the government, the sponsor and the lender. The next section presents a review of the available literature. LITERATURE REVIEW During its life cycle, a BOT project is exposed to various risks that, if not mitigated, may financially distress sponsors and lenders (Yescombe, 2003; Dailami et al., 1999). Therefore, before entering into contractual arrangements, sponsors and lenders appraise the risks Accepted for Publication on 15/7/2011. © 2011 JUST. All Rights Reserved.
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This note was uploaded on 09/16/2011 for the course F 112 taught by Professor Ans during the Spring '11 term at IIM Bangalore.

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2159 - Jordan Journal of Civil Engineering, Volume 5, No....

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