Robert L. K. Tiong

Evaluation and management of foreign exchange and revenue risks in China's BOT projects

China is actively investigating ways to introduce project financing, specifically through the build-operate-transfer (BOT) scheme to meet the needs for the countrys infrastructure and to be attractive to foreign investors and lenders. The advent of concession agreements, backed by new BOT laws, will be a positive move forward to achieving project-financed infrastructure projects. There are thus opportunities especially in the power sector for foreign investors. However, it is important to identify and manage the unique or critical risks associated with Chinas BOT projects. This is especially so after policies were introduced in late 1996 when the first state-approved BOT project, the US

BOT projects: Risks and securities

650 million 2 × 350 megawatt (MW) coal-fired Laibin B Power Plant (Laibin B), was awarded. They include a competitive tendering process and 100% foreign ownership of the operating company. This paper is based on the findings from an international survey on risk management of BOT projects in developing countries, with emphasis on power projects in China. It discusses specifically the criticality of foreign exchange and revenue risks which include exchange rate and convertibility risk, financial closing risk, dispatch constraint risk and tariff adjustment risk. The measures for mitigating each of these risks are discussed also.

Model on cash flow forecasting and risk analysis for contracting firms

There has been a growing trend in recent years for governments in many developing countries to place major public investments, particularly for infrastructure projects, into the private sector. This has meant that governments look to the private sector to finance projects using the projects’ anticipated revenues as security rather than relying upon a direct sovereign guarantee of the project debt. Many have adopted the ‘Build-Operate-Transfer’, or BOT approach, so that the private sector have to operate the plant and transfer the ownership to the government after a specified concession period. However,for BOT to succeed in any major privatized project, the host government cannot withdraw or adpot a passive role: it has to ensure the right political and commercial environments in which to advance the projects. This paper deals with the various guarantees and incentives that could be provided by the government. It covers the responsibilities and undertakings that the project sponsors could commit to in orde...

Analysis of political risks and opportunities in public private partnerships (PPP) in China and selected Asian countries

Abstract When a construction project is in progress, it would be beneficial to the contractor if prior knowledge on trend of cash flows in the project is available. The purpose of this paper is to present a computer based model that has a cash flow forecasting ability and to study the impact of five risk factors on a projects cash flows. The five factors are duration, over/under measurement risk (during work progress), variation risk and material cost variances. The model was developed into a program that can be used to predict future trend of cash flows in a project, as well as to analyse impact of risk factors on cash flows. The five risk factors were tested on the model and analysed with sensitivity analysis. In the research, the internal rate of return and capital requirement are used to indicate the performance of cash flow. With data from actual projects, the forecasting capability of the model and impact on cash flow caused by the five uncertainties were studied. The results show that the model gives a good prediction of internal rate of return and capital requirement of projects.

Evaluation of proposals for BOT projects

Purpose – The paper aims to provide insight into the opportunities and impact of political risks in China and selected Asian countries on opportunities in infrastructure projects under public‐private partnership (PPP) schemes.Design/methodology/approach – The impact of political risks on PPPs was investigated through an international survey among senior staff of international lenders, investors, insurers, and legal and financial advisors from the public and private sector. The surveyed political risk categories base on the Multilateral Investment Guarantee Agency Convention and literature review. They comprise six categories: currency inconvertibility and transfer restriction, expropriation, breach of contract, political violence, legal, regulatory and bureaucratic risks, and non‐governmental action risks. The survey evaluation uses fuzzy sets and non‐parametric statistics.Findings – The findings comprise rankings of political risk factors within China and Asian countries as well as rankings of these coun...

Positive management of differences for risk reduction in BOT projects

Abstract This paper is primarily concerned with the evaluation of tender proposals for build, operate and transfer (BOT) projects particularly in the Asia-Pacific region. It presents an overview of the current practices and techniques in the selection process, namely the NPV method, the score system and the Kepnoe-Tregoe decision-making technique. A review of the findings from the survey of BOT practitioners is also presented. It covers the major criteria that are commonly used by governments in evaluating BOT proposals. The survey also covers the practicality of the Kepnoe-Tregoe decision-making technique for evaluation of BOT proposals.

The effect of concession period design on completion risk management of BOT projects

Abstract This paper proposes a risk reduction strategy in winning and managing build–operate–transfer (BOT) concession through positive management of differences between enterprise stakeholders, proactive control of variation of critical risk factors and internal competency through strong and entrepreneurial leadership of consortium teams. The concepts and proposed procedures are derived from applying a relevant systemic approach to the real world of BOT concession and supported by cases. The systemic approach is a proactive process of problem defining and solving which can lead to a significant reduction in both business and project risks and enhanced performance.

Analysing the structure of public–private partnership projects using network theory

The design of concession period for build–operate–transfer (BOT) projects is crucial to financial viability and completion risk management. A systematic analysis shows that concession period design involves the design of concession period structure, the determination of the concession period length and incentive schemes. The concession period may have a single‐period structure or a two‐period structure, its length may be fixed or variable, and it may be combined with incentive schemes. Different designs reflect different risk control strategies for completion time overruns. The single‐period concession structure requires the project company to assume completion risk, while the two‐period concession structure could, to some extent, reduce the completion risk exposure to the project company, depending on the incentive schemes. Through Monte Carlo simulation, this paper evaluates the mean net present value (NPV), variance and NPV‐at‐risk of different concession period structures so that both the government and the concessionaires can understand their risk exposure and rewards. The paper then analyses the influence of project characteristics on concession period design to evaluate the feasibility of the design. It is concluded that a well‐designed concession period structure can create a ‘win–win’ solution for both project promoter and the host government.

Financial commitments for BOT projects

In public–private partnership projects (PPP), the relationships between the participants are established through a variety of contractual agreements between financiers, government, contractors, operators and customers. Raising funds, linking various participants legally and financially, ensuring supply, and producing and marketing products depend on well‐established financial and legal structures of PPP. Though numerous research studies have been conducted to establish and justify the structure of PPP projects based on contractual agreements between participating stakeholders and on existing legal frameworks of a host country, there are still questions left unanswered. Examples are: What are the factors that influence the structuring of PPP? Who are the key stakeholders? And what are the roles of participating partners in a PPP project? However, not much work has been done. Application of network theory can help fill these gaps and identify and distinguish potential stakeholders in PPP affiliation and can effectively contribute to an in‐depth analysis of the relationships between participating partners. The analysis can identify important features like core–peripheral stakeholder(s), influential intermediary participants and their interdependence, and influences of a PPP structure on its substantive outcome. With the introduction of the network theory, a more thorough analysis of PPP structures can be achieved which may provide valuable information to project sponsors as well as legal and financial advisers.

First Public-Private-Partnership Application in Taiwan's Wastewater Treatment Sector: Case Study of the Nanzih BOT Wastewater Treatment Project

Abstract This paper investigates the extent of importance of a high level of financial commitments in a BOT tender. In cases where the competition is keen and where financing is uncertain, proposals with a high level of financial commitment are more attractive to governments. This paper also presents the strategies for developing a competitive financial proposal for BOT projects.