Build Operate Transfer (BOT)
Project Delivery System in
Saudi Arabia
Presented at:
AACE International
Arabian Gulf Section of AACE
Wednesday, May 14, 2003
InterContinental Hotel,Al-Jubail
Mohammed Jalaluddin
King Fahd Univ of Pet & Min (KFUPM)
Background
In Saudi Arabia, provision and financing of large-scale
infrastructure projects has been predominantly undertaken by the
Government.
However, unlike the past ,the new thinking in Saudi Arabia is that
the private sector has an important role to play in financing major
projects.
Saudi Arabia needs about $10 billion/year to build,operate and
finance new power plants,toll roads,desalination plants,airports etc.
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Background
The Kingdom has ambitious infrastructure plans to meet future needs
for electricity,water,roads, and other areas. (In Electricity sector alone
$ 117 billion will be needed in next 2 decades)
Budgetary Sources
Private Finance
(Some Form of)
Public/Private Partnership
Construction
Build Operate Transfer (BOT) Project Delivery System in Saudi Arabia
Operation/
Maintenance
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Construction/
Rehabilitation/
Maintenance
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BOT Concept
Build-operate-transfer (BOT) requires the private sector to
finance, design, build, operate and manage the facility and then
transfer the asset free of charge to the government after a specified
concession period.
First coined in 1984 by the Turkish PM Turgut Ozal within
the framework of the privatization of Turkish's public sector
projects.
Captured the world's attention especially of developing
countries, e.g. Malaysia (NS Highway), Thailand (LTR),
China (Laibin), HK (Tunnel), Australia (Tunnel), UK &
France (Eurotunnel).
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BOT Projects
Location
Project
Contract
Cost (US$ millions)
France/United Kingdom
Channel Tunnel
BOT, 55 years
19,000
Taiwan (China)
Taipei Mass Rapid Transit system
BOT
17000
Japan
Kansai International Airport
BOT
15,000
Buenos Aires water and Sewer Services
ROT, 30 years
4,000
Telecom Asia communication Network
BTO, 25 years
4,000
Daya Bay Nuclaer Power Plant, Phase 1
BOO
3,700
Malaysia
North-South Toll Expressway
BOT, 30 years
3,400
Mexico
Petacalco Coal –fired Power Plant
BOT
3,000
Bangkok Elevated Road and Train
System
BOT, 30 years
2,981
Argentina
Thailand
China
Thailand
BOO= Build-Own-Operate: BOT=Build-Operate-Transfer: BTO=Build-Transfer-Operate:ROT= RehabilitateOperate-Transfer
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Literature Review

Critical Success Factors (CSF)

Major Sources of Finance.
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Critical Success Factors (CSF)

Right project identification

Strength of consortium

Financial package differentiation

Initial level of tolls/tariff

Future tolls/tariff increases

Financial commitments by promoter’s bankers

Length of concession period

High equity by promoters

Profits and revenues sharing with government
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Major Sources of Finance

Equity

Islamic Finance

The applicability of Islamic finance to large
infrastructure project was first demonstrated in
1993 with the Hub river power project in
Pakistan.

Debt
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Identification and Assessment of Factors
affecting Use of BOT in Saudi Arabia
United Nations Industrial Development Organization(UNIDO) in the
recently published guidelines for the successful implementation of BOT
described,
“ a critical challenge is to identify the factors that
effect the application of BOT ”
Identification ,assessment and evaluation of factors conducted in Saudi
Arabia showed two sets of factors, influence the use of BOT in Saudi
Arabia:
A positive set of factors,
A negative set of factors
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Strong Govt.
Commitment
Privatization
Policy Factor
Govt. Incentive &
Support
Sound Macroeconomic
Stability
Economic
Factors
Stable & Free
Convertable Saudi
Riyal
No Restrictions on
Repatriation of Profits
Efficient Capital
Markets
POSITIVE
FACTORS
Financial Factors
Availability of Soft
Loans
Availibility of Equity
Tax Reduction
Demand for
Infrastructure Projects
Establishment of SAGIA
Legal Factors
Right to Own Land by
Foreign Investors
New Foreign
Investment Law
Avl of large & Expd
Construction
Organizations
Technical
Factors
Availibility of
Equipment & Material
Availability of Modern
Infrastructure
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Negative Factors Hindering The Use of BOT
Lack of Owner's
awareness of BOT
concept
Knowledge
Problems
Lack of
Contractor's
Experience in BOT
Lack of Financing
Experience in BOT
Projects
Management &
Control
NEGATIVE
FACTORS
Absence of
Legislation dealing
with BOT
Regulatory
Problems
Lack of
Independent
Regulatory Body
Legal &
Regulatory
Framework
Service Fee
Financial
Considerations
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Limited Capital
Market
Market Risk
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Development of Model(s)
BOT projects are characterized as complex web of contractual agreements.
For Saudi Arabia, BOT concept is relatively new and there is no prior
experience with BOT schemes in the country.
Models are defined as representation of complex situations
Model describing the procedural framework and tools that various role
players in BOT delivery system can use for effective implementation of
BOT projects in Saudi Arabia.
The model intends to help the government and policy makers in adopting
the BOT strategy for Saudi Arabia.
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BOT Development Process
The model suggests a methodology to be adopted throughout the stages of BOT
projects. The model is organized in 6 distant phases. The Figure shows the BOT
development process.
PHASE I
Project Indentification
PHASE II
Feasibility Study
PHASE III
Prequalification
BOT
DEVELOPMENT
PROCESS
PHASE IV
Evaluation & Selection of Concessionaire
PHASE V
Negotiations
PHASE VI
Execution & Implementation
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Project Identification
Framework
PROJECT IDENTIFICATION
TRANSPORTATION
-
POWER
Highways
Bridges
Tunnels
Railways
Ports
- Generation
- Transmission
- Distribution
WATER SECTOR
OTHERS
- Desalination
- Water Supply
- W a ste W a ter
Treatment
- Telecommunication
- Schools
- U n i ve r s i t i e s &
Technical Colleges
- Heal t h Rel at ed
Industry
- Computer Systems
- IT
- Others
Identify Sector Demand & Assess The Revenue Generating
Capacity of Project
List Suitable Projects & Prioritize Those Projects/Sectors
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Formulate DevKFUPM
elopment Team/Committee
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PROJECT IDENTIFICATION
BOT MODEL
Framework for
Development
and
Implementation
of BOT projects
in Saudi Arabia
IS
PROJECT
FEASIBLE
PHASE I
No
CONSIDER OTHER
METHOD
PHASE II
Yes
APPLY BOT METHOD
PHASE
III
ISSUE REQUEST FOR
PREQUALIFICATION (RFQ)
ISSUE REQUEST FOR
PROPOSAL (RFP)
EVALUATION OF
PROPOSALS
EVALUATION
PROCESS
FINANCIAL
TECHNICAL
PHASE
IV
SELECTION OF
CONCESSIONAIRE/
PREFERERED BIDDER
NEGOTIATE WITH
SELECTED/PREFERRED
CONCESSIONAIRE
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SIGN THE CONCESSIONS
AGREEMENT & EXECUTE
THE
PROJECT
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PHASE V
PHASE VI
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Conclusion
It is becoming clear that the investment requirements are huge and immense and
Government alone cannot bear the burden
In the current environment, BOT is found to be most attractive and desirable option
for the development and expansion of power generation, water desalination, roads,
ports, airports and railways.
The assessment and evaluation of the factors, conducted in Saudi Arabia proved
positive for application of BOT .The major positive factors for application of BOT
in Saudi Arabia are
Strong government commitment
Availability of soft loans from SIDF to the private sector up to
50% of total project cost.
Demand for projects such electricity generation, water desalination, etc.
New foreign investment law.
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Conclusion
The major obstacles in Saudi Arabia for the application of BOT are identified as
Lack of adequate awareness among owners and contractors regarding
BOT concept
Lack of independent regulatory body
Low Service Fees (insufficient cost recovery)
The study indicated that across all the types of infrastructure projects, power
generation and water desalination appear at present to leading the push for
application of BOT delivery method.
The power generation in particular represents one of the attractive market with in a
estimated investment of SR 438,000 million ($117 billion) required over the next
decades.
There are considerable opportunities for the private sector to be involved in BOT
type infrastructure projects across railways, roads, and airports.
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Recommendations
Establishment of BOT center can be the key to design and structuring of BOT
projects. A BOT center should be established with the following objectives:
To disseminate information and knowledge regarding the public-private
partnership practices
To serve as main conduct between the private sector investors and
government with aim of coordinating the implementation of BOT
projects.
To pool specialized resources and specialists to provide better
understanding of fundamentals of BOT arrangements.
To promote BOT investment opportunities to the project promoters
locally & internationally.
To gain better understanding on drafting concession agreements/ and
PPA and other contractual aspect related to BOT.
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Recommendations
Need to create independent regulatory bodies in each of the infrastructures
sectors, namely Power sector, water sector, and transport sectors.
There is a need for legislation dealing with the implementation of BOT
projects. Existence of such legislation would provide guidelines for
potential private sector participation. The legislation should include,
evaluation criteria, procurement rules of tenders/proposal, the role of
government support, sectors where BOT project are allowed, etc.
Investigate the suitability of Islamic finance for BOT projects. A study be
carried out to identify and design Islamic financing instruments
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Thank You
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