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Risk Analysis for a BOT Project
Swapan Kumar Bagui
and Ambarish Ghosh
Professor, Department of Civil Engineering, Bengal Engineering and Science University,
Shibpur, Howrah 711 103
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.
Risk analysis, BOT projects.
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,
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
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.