Definition:
A contractual arrangement where a private entity builds, operates, and maintains a facility for a specified period before transferring ownership to the government or client.
Key Components:
- Construction Phase: The private company finances and builds the project.
- Operational Phase: The company operates the facility to recover its investment.
- Transfer Phase: Ownership is handed over to the client at the end of the contract period.
Use Cases/Industries:
- Power Generation: BOT agreements for independent power plants.
- Water Treatment Plants: Private firms develop and operate public utilities before handing them over.
- Transportation Infrastructure: Toll roads and bridges built under BOT contracts.
Advantages:
- Reduces Public Sector Burden: Governments benefit from private-sector investment and expertise.
- Encourages Efficiency: The private sector has an incentive to optimize operations.
- Cost Recovery Mechanism: Investors recoup their costs through service charges or operational revenues.
Challenges:
- Long-Term Uncertainty: Economic and policy changes may affect financial viability.
- High Initial Investment: Private firms must secure financing for construction.
- Regulatory Risks: Government intervention may alter contract terms.
Related Terms:
Public-Private Partnership (PPP), Concession Agreement, Build-Own-Operate-Transfer (BOOT)
Example:
A solar power company signs a BOT contract to develop and operate a solar farm for 25 years, selling electricity to the grid before transferring ownership to the national government.
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Synonyms:
Concession Model, Public-Private Partnership (PPP), Infrastructure Financing
