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BUILT OPERATE TRANSFER CASE STUDIES IN THE
LOCAL CONTRUCTION SECTOR
BATCH 2012-2013
BY
MEESUM HUSSAIN ZAIDI
DEPARTMENT OF URBAN AND INFRASTRUCTURE
ENGINEERING
NED UNIVERSITY OF ENGINEERING & TECHNOLOGY
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
CONSTRUCTION SECTOR
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ABSTRACT
This report is concerned with the built operate transfer case studies in local construction
industries. The project was assigned to collect the information about the BOT Projects in
Pakistan by literature review and visiting National highway authority involved in the BOT
projects. In this regard projects of NHA, built on the BOT basis is selected as the concern
study. The Built operate transfer term was not much popular in construction industries
during past years but as the time passes people get to know about the BOT projects and its
gearing up popularity. In the under developing countries people don’t have enough finances
to execute infrastructure development projects, so the built operate transfer is a way to
fulfill the goal of both the sponsor and the owner/client. In order to understand the topic
better a number of slides were reviewed, books were read and interviews were carried out.
This report highlights the trends BOT projects in Pakistan, practices by government to
adopt BOT projects, and other technical terms. The objective behind this study is to review
the trends of BOT projects and bring into the knowledge of BOT projects in Pakistan.
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
CONSTRUCTION SECTOR
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TABLE OF CONTENTS
CONTENT PAGE NO
TITLE PAGE 01
ACKNOWLEDGEMENT 02
ABSTRACT 03
TABLE OF CONTENTS 04
LIST OF FIGURES 05
LIST OF TABLES 05
1 INTRODUCTION 06
2 BUILT OPERATE TRANSFERAPPROCH 07
2.1 DEFINITIONS 07
2.1.1 BUILD 07
2.1.2 OPERATE 07
2.1.3 TRANSFER 07
2.2 STRUCTURE OF BOT 07
2.2.1 GOVERMENTAL AGENCY 07
2.2.2 SPONSOR 07
2.2.3 CONSTRUCTION CONTRACTOR 08
2.2.4 OPERATION ANDMAINTENANCECONTRACTOR 08
2.2.5 FINANCEINSTITUTION 08
2.2.6 EQUITY INVESTOR 08
2.2.7 OTHER PARTIES 09
2.2.8 SCOPEOF BOT APPROACH 10
2.2.9 OBJECTIVEOF BOT APPROACH 11
2.2.10 METHODOLOGY OFBOT 11
2.3 BACKGROUNDOF BOT 12
2.3.1 BACKGROUND AND HISTORY 12
3 METHODOLOGY 13
4 STUDY DESIGN 13
4.1 SURVEY QUESTIONNAIRE 14
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
CONSTRUCTION SECTOR
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4.2 DATA COLLECTION 14
4.3 DATA SOURCE 14
5 BOT PROJECTSIN PAKISTAN 15
5.1 EXPRESSION OF INTEREST 15
5.2 RECENT BOT PROJECTS OFFERED IN PAKISTAN 15
5.3 CHALLENGES FACED DURINGTHE BOT PROJECT 17
5.4 BOT PROJECTS BY NHA 18
5.5 PROJECT STUDY 22
5.5.1 KARACHI-HYDERABAD MOTORWAY 22
5.5.2 LAHORE KARACHI MOTORWAY 22
6 CONCLUSIONS AND RECOMMENDATIONS 23
APPENDIX A
QUESTIONNAIRE
25
APPENDIX B
QUESTIONNAIRE
26
APPENDIX C
BAR DIAGRAM SHOWING BOT PROJECTS COMPLETION
29
APPENDIX D
END RESULTS OF PROJECT COMMENCEMENT IN PAKISTAN
30
APPENDIX E
SPSS AND EXCEL SHEETS
31
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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LIST OF FIGURES
FIGURE NO. TITLE PAGE NO.
01 Typical organizational structure of BOT 09
02 Major political constraints for BOT projects 18
03 Major economical constraints for BOT projects 18
TABLE NO. TITLE PAGE NO.
01 BOT projects in PAKISTAN 15
02 list of BOT projects in implementation stage 20
03 list of BOT projects in procurement stage 20
04 list of BOT projects in development stage 21
05 Description of Karachi- Hyderabad motorway 22
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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1. INTRODUCTION
BUILT-OPERATE-TRANSFER is the type of an agreement in which a private sector builds
an infrastructure project operates it and transfers it to the owner governmental organization.
The private sector operates project long enough to payback project debt and equity
investment. The major stakeholders involve in the BOT project are owner, sponsor, contractor
cum consultant. The contract period for BOT projects normally ranges from 20 to 30 years
depending upon the scale or nature of the infrastructure development.
In Pakistan and other developing countries BUILT OPERATE TRANSFER or BUILT OWN
OPERATE TRASFER or PRIVATE SECTOR PARTICIPATION approach is innovative for
the development of large scale infrastructure projects, as this approach enables investors to
invest their money on large scale and get good concession for a long time during the operation
of the facility. Built operate transfer is best choice for the development of infrastructure for
both the government as well as privatized sponsors worldwide. The major stakeholders
involve in the BOT project are owner, sponsor, contractor cum consultant. In Pakistan, more
preference is normally given to the public private partnership, but BOT provide more
feasibility for the infrastructure development. (3) Based on BOT approach different variations
are involved in various countries;
 BOO(build-own-operate)
 BLT(build-lease-transfer)
 BOOM(build-own-operate-maintain)
 BOOT(build-own-operate-transfer)
 BOOTT(build-own-operate-train-transfer)
 BTO(build-transfer-operate)
 DBFO(design-build-finance-operate)
 DBO(design-build-operate)
 DBOM(design-build-operate-maintain)
 DOT(design-operate-transfer)
 PPP(public private partnership)(4)
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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2. BUILT OPERATE TRANSFER APPROACH:
The BOT approach appears to be a useful possible alternative to the conventional
financing and operation of infrastructure projects in developing countries.
2.1 DEFINITIONS:
2.1.1 BUILD:
A private company (or consortium) agrees with a government/private owner to invest in
an infrastructure project.
2.1.2 OPERATE:
The private developer then owns, maintains and manages the facility for an agreed
concession period and recoups their investment through charges or tolls.
2.1.3 TRANSFER:
After the concessionary period the company transfers ownership and operation of the
facility to the government/private owner or relevant state authority.(3)
2.2 STRUCTURAL MEMBERS OF BOT PROJECTS:
2.2.1 GOVERNMENT AGENCY:
The most important initiator or participants of BOT projects are Government agency. They
are usually termed as Primary Party. It is responsible to initiate, approve, monitor and control
the projects.
2.2.2 SPONSOR:
It can be party of interested groups, mostly includes a construction groups, an operator, a
financing institution or other various groups. It is the duty of sponsor to prepare proposal to
construct, finance and operate the particular project.
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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2.2.3 CONSTRUCTION CONTRACTOR:
It may also be one of the sponsors. The risk of completing the project on time, within the
budget and to specification is the responsibility of Construction contractor. Generally the
infrastructure design is dictated by the experienced utility.
2.2.4 OPERATIONAND MAINTENANCE CONTRACTOR:
There is a proper contract between operator and sponsor for safe operation and timely
maintenance of the facility. It may also inject equity into the project along with little risk in
the form of expenditure.(1)
2.2.5 FINANCIAL INSTITUTION:
In a large project there is likely to be a group of banks providing the loans to the sponsor. As
the financing of BOT structure project is a form of project finance, debt financiers will
undertake a review of all core project documents to assess the allocation of risks and how that
allocation impacts upon their credit approval.
2.2.6 EQUITY INVESTOR:
Investors or sponsor are often referred to as "equity investors" or the "equity providers". It is
not unusual for equity investment to be approximately 20% of the cost of the project. Equity
funds are, expensive as compared to the cost of debt. An equity investor may require a return
of 18% to 20% in today's market to compensate it for assuming the major risks inherent in an
infrastructure project.
2.2.7 OTHER PARTIES:
Other parties such as insurers, equipment suppliers, fuel suppliers and engineering and design
consultants will also be involved. Most of the parties will also involve their lawyers and
financial/tax advisers. (3)
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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FIGURE 1: typical BOT organizational structure.
2.2.8 SCOPE OF BOT APPROACH
Built operate transfer is today’s fast developing approach for the construction which fulfill the
interest of public and private sector and also give benefits to the government. BOT Approach
has its vast scope in the Following sectors of construction.
 Local Governmental services- It includes water supply and sanitation, solid waste
management, low cost housing schemes, education/health care and skill development
facilities.
 Irrigation Projects- Includes power generation projects.
 Transportation systems- Includes rail, seaport, airport, highways, roads.
 Urban mass transit system- Includes BRT system, Intra and intercity rail system.
 Social infrastructure- Includes educational, cultural and health infrastructure.
 Industrial projects- Includes industrial parks, special economical zones.
CONCESSIONAIRRE
HOST
GOVERNMENT
PRIVATE OWNER
CONTRACTOR
OPERATION AND
MANAGEMENT
CONTRACTOR
SPONSORS/ INVESTOR
AND
LENDERS
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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2.2.9 OBJECTIVES OF THE BOT APPROACH
The main objective of this research is to analyze the trend and scope of BOT projects in
Pakistan and highlighting the importance of BOT projects for infrastructure development. The
build operate and transfer (BOT) approach to develop infrastructure projects and facilities of
public interest such as bridges, airports, power plants, detention facilities, parking facilities etc
it is an alternative for a country that lacks the appropriate funds to undertake on its own
projects of this scale it is also the goal of our study to perform case study of projects that are
on the basis of BOT.
2.2.10 METHODOLOGY OF BOT PROJECTS:
Built operate transfer methodology includes several steps with the involvement of many
peoples in the projects. For built operate transfer projects first the owner or the client publish
Expression of interest (EOI) in the newspaper or on website. Private sector who invest money
on the project, in response to that show their interest in the project, concession period is then
decided between the parties and the project is executed and operate by the private sector for
the decided concession period and then the project is transfer to the owner or client (i-e
Government normally).
The above methodology can be explained by the following example:
Example # 1: (NHA PROJECT)
Built:
Suppose NHA is interested in the maintenance of National Highway. For this purpose
CDGK is selected, on the terms that it will collect Tolls for a period of 10 years
(Concession Period) from the time of operation of the road.
Operate:
The 1-2% of the collected toll will be given to NHA under the name of Royalty during
the concession period by CDGK.
Transfer:
After the concession period the facility will be handed over to NHA in operating
Condition.
 The projects on the basis of Public-Private Partnership (BOT) generate two types of
profit, i.e. direct profit & Indirect profit.
Direct Profit:
In the example above, royalty is considered as direct profit.
Indirect Profit:
The high mobility service and saving of fuel is considered as indirect profit. (8)
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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2.3 BACKGROUND OF BOT PROJECTS:
2.3.1 BACKGROUND AND HISTORY:
The first private development officially done under the name of “Built operate transfer” was
by the prime minister of Thailand OZAL to give a new approach for infrastructure
development (Beuker,1988).however the built operate transfer approach was early used for
the project of Suez canal in 1834. This was the revenue producing canal realized by
Europeans so they initiated it with the support of Egyptian financial support, and had a
concession to design, execute and operate assigned to the Egyptian ruler Pasha Muhammad
Ali (levy, 1996)
In the mid 1980s, many under developing countries turned to privatization of infrastructure to
overcome problems which threatened to limit economic growth and development. Getting
private sector management and capital into transport, power, water and sewage, and
telecommunications services, was seen as a solution for obtaining and maintaining
infrastructure more quickly and more cheaply than traditional, nationalized methods.
According to Otta, and Hartley, this reflected concepts of ‘public choice’ thinking on public
administration, by which considerations are given to the private sector to be possibly the most
efficient supplier of facilities or services. The major objectives in a BOT projects is to obtain
infrastructure facilities with a greater effectiveness and stability, without the government
undertaking financial responsibility of the project. On the basis of that, governments in the
region hold on to the BOT concept as an important option in privatization that would help to
enhance economic growth and development.
The experience in Thailand, Malaysia, Indonesia, China and South Asia, in the period 1985-
1996, suggested that attaining the goals of privatization via the BOT method is extremely
difficult, with many projects failing to achieve the ends intended. With specific reference to
the Asia BOT experience, the World Bank reports suggested about private investment in
infrastructure that there is little action in most countries. Neither the governments nor the
private sector are satisfied with progress to date. This experience must raise questions as to
the nature of BOT projects in their implementation, and suggests much more caution is in
order over the adoption of this approach.
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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In the treatment of BOT both analytical and theoretical, the BOT projects are considered same
as the other modes of privatization, but given more detailed inspection for BOT. This is the
cause of the popularity of BOT projects in developing countries governments, as it is suggest
that BOT might be easy to undertake as find a buyer for likely profits. Infrastructure BOT
concessions have several distinct differences that make them particularly typical in design,
management and finance.
In addition, due to ‘natural monopolies’ characterized by limited competition in 1980s, as
suggested by Hartley and Parker, without competition such arrangements offer no clear
advantages to the traditional state-run monopoly in attempting to achieve the goals of
privatization. Infrastructure monopolies require significant regulation to balance public and
private interests. Regulation of monopolies like utilities is well-studied. But the process of
turning them into private-sector operations, and at the same time developing regulatory
mechanisms, to the satisfaction of all parties involved, is hardly addressed by privatization
advocates beyond simple recommendations to do so. Without these mechanisms, however,
political risks in a project are much higher. (5)
Experience in Asian countries, results in understanding that the Governments in the
developing countries might not be able to understood the complexities of BOT project. As a
result of which, with a high frequency in Asia during the early 90’s period, BOT failed in
obtaining the targeted goals of privatization.
There are the numbers of the projects that over-involved in political controversy, Legal
battles, strict rules and regulations, strict policies, and unending political debates, a large
number of BOT project never proceed to the completion stage although many of the project
reached to the commencement stage but afterwards left incomplete due certain political
reasons. Projects that were the demand of the time became tremendously long in development,
defeating the goals of more efficient expedition of the project. Many of the project which did
proceed had complex contractual and policy issues left to resolve behind after the project was
built. There was high number of disputes between the Government and the project sponsors in
Asia led on economist to change the label of the concept as ‘Built-Operate-Litigate’. (6)
3.METHODOLOGY OF RESEARCH:
The methodology includes literature review, conduction of interviews and surveys with
organizations and professionals involved in BOT projects, review of research papers, reports
and articles related to BOT approach, trend of BOT projects in Pakistan, economy and risk
related issues in commencement of BOT projects.(3)
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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In order to find out the applicability of Built operate transfer approach in local construction
industry a questionnaire consisting of several question was prepared. Questionnaire include
some basic questions about BOT. secondly there were the questions about the role of the
different stakeholders in the BOT project, what are the risk related to the BOT project and all
other necessary things that we must need to know for our study. Strategy was to visit several
companies involve in BOT project, for this literature review was performed to understand
structure of projects, audience was targeted and officials from NHA were interviewed related
to recent BOT projects in National Highway Authority.
4 STUDY DESIGN
4.1 SURVEY QUESTIONNAIRE
For the survey, a questionnaire was prepared having a set of questions, all the questions were
related to trend of built operate transfer project cases in Pakistan, and what is the role of
government in the implementation of the project.
Questionnaire was prepared including the role, power, duties and rights of the government and
private sector in the BOT project. Who are the major stake holders of the project, During the
implementation of BOT project, what are the risks faced by the major stakeholders of the
project, Current BOT Projects, For the BOT project there was a question about how the
contract is awarded, As in many of built operate transfer cases government does not have any
share so it was asked about the government share in the project, how the project is published ,
how many of the projects are commenced and completed and how many of the projects are
left incomplete. In many BOT projects, Firstly the project is selected by investor and moved
to the planning stage but later on converted into the normal item rate contract from built
operate transfer contract. As in the BOT projects concession period is long so questions
related to concession period were also included in questionnaire. Invitation to bidders was
discussed and how it is published, it was also asked in the questionnaire to discuss the role of
governmental agencies for the monitoring of BOT projects at different stages of development
from initial stage to the implementation of the project, view of government for BOT project,
Difficulties faced by government during the launching of the BOT project, interest shown by
government towards the BOT projects, risks faced by sponsors, Reason behind the interest of
sponsor, and finally cost of the BOT projects.
4.2 DATA COLLECTION
After the preparation of questionnaire, it was next target to decide meeting with the targeted
audience. First was visit was conducted on March 3, 2015. Permission letter for visit was
prepared by university to concern authority. Unfortunately the first meeting wasn’t take place
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
CONSTRUCTION SECTOR
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due to some certain reason. Second meeting on March 5, 2015, was held at our university
which was unfortunately not happened. Then we were asked to send our questionnaire to the
NHA via email on March 6, 2015. After two days we got the reply from the respondent of the
NHA. Secondly after the data collection from NHA, We decided to visit Frontier works
Organization, for that we contacted to them, but as result we got no response from their side.
Data collection also took place electronically using different research paper.
4.3 DATA SOURCES
Questionnaire was targeted to the government official authorities, who are the stakeholders of
the BOT projects. National highway authority and the Frontier works organization were
the targeted audience. The respondents were asked to the questions referencing to the specific
BOT projects in that they were personally involved in.NHA responded to our questions but
Frontier works organization did not give any response, our targeted data source was also the
research paper and also we look over the current projects going on in Pakistan whose basis are
BOT. In NHA our major concern was with Mr. Imran Ahmed of south zone Karachi, who is
currently working on Lahore-Karachi motorway.
5 BOT PROJECTS IN PAKISTAN
5.1 EXPRESSION OF INTEREST
Expression of interest (EOI) is an invitation, which is published by Owner or client in order
for the execution of the project.
5.2 RECENT BOT PROJECTS OFFERED IN PAKISTAN
Projects that are built on BOT basis have complexity in their nature, in their contact. It
becomes unbearable sometimes for all the stakeholders of the project because of its long
period of implementation and then concession period. There are many BOT project that
offered by different governmental authorities during the past years but only few of them are
commenced and completed and there are also few of the projects that commenced initially but
during prequalification stage they converted into normal item rate contract. Following are the
Projects that are offered and their results.
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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Table-1 Recent BOT projects Offered in Pakistan
Sr Name of the
projects
Employer Agency Sponsor Remarks
1 Faisalabad–
Lahore
Motorway
Project(M-3)
National Highway
Authority,
Government
of Pakistan
HusnainCotex
Pvt.
Limited
Commenced,ButLateron
BOT Contract convertedinto
normal itemrate contract
2 LiquidCargo
Terminal atPort
Qasim
Communicationand
Works Department,
Governmentof Sindh
- Notcommenced
3 Electromagnetic
Train Projectin
Karachi
CityDistrict
Government
- Notcommenced
4 LightRail
TransitSystem
inLahore and
Rawalpindi
Governmentof Punjab - Notcommenced
5 Public
Swimiming
Polls/Sports
Entertainment
Areas
Parksand Horticulture
Authority,
Government
of Punjab
- Notcommenced
6 Lahore
Sheikhupura
FaisalabadDual
Carriageway
Communicationand
Works Department,
Governmentof Punjab
FrontierWorks
Organization
(FWO)
Commencedand Completed
7 Naran Saiful
MalookCable
Car Project
Communicationand
Works Department,
Governmentof NWFP.
- Notcommenced
8 Grain Terminal
at Port Qasim
Communicationand
Works Department,
Governmentof Sindh.
- Notcommenced
9 Constructionof
Five StarHotel
at Lahore
PakistanRailway,
Governmentof
Pakistan
- Notcommenced
10 Constructionof
Islamabad
International
Airport,
Islamabad
Civil Aviation
Authority,
Government
of Pakistan
- Notcommenced
11 Neelum Jhelum Water andPower FrontierWorks Stage of Pre-qualification
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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Hydal Power
Project
Development
Authority,
Government
of Pakistan
Organization
(FWO)
12 LakpassTunnel
ProjectNear
Quetta
National Highway
Authority,
Government
of Pakistan
FrontierWorks
Organization
(FWO)
CommencedandNear
Completion.
13 Lahore Bus
Terminal at
Thokar Niaz
Baig
CityDistrict
governmentof Punjab
- Notcommenced
14 Lahore Kasur
Dual
Carriageway
Communicationand
Works Department,
Governmentof Punjab
- Notcommenced
5.3 CHALLENGES FACED DURING THE BOT PROJECTS:
The key factor for the successful implementation of the BOT projects is the depth study of all
the aspects related to the environmental, social, economical, political, legal and financial
feasibility of the project. For such reasons, the depth analysis of the project feasibility
decisions needs a unique method to include the qualitative decision factors that have the
strong impact on the project. In Pakistan, the nature of the BOT contracts may be complicated
due to its long-term contractual limitations and the involvement of many parties, furthermore
legal, economical and technical framework need to be developed on big scale for the
successful execution and implementation of the project.(5)
There are the number of uncomfortable natures of constraints and risk faced by the
stakeholders of the project during the project execution in Pakistan. In many of the projects
that stated above the constraints and risks become much severe that project did not complete
after the commencement. The planning of the BOT project is very complex because it has
very complex financial and organizational structure, which is also influenced by the socio-
economic environment in the country. During the past years, there is a huge trend of private
sector involvement in development of public projects through BOT, which brings a
redistribution of risks among the participants of the projects. Corruption, Delay in approval,
Change in law, expropriation, reliability and credit worthiness of entities are the major
political risk faced by the construction industry. Different construction designs have different
risk control strategies for completion of the project, engineering and project capital firms.
Banks or insurance companies are the source for the cost of the project.
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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The BOT project is normally taken by as a group or joint venture construction. Three major
challenges faced by the sponsors are the estimation of cost of project, Generation of revenues
during the concession period, and the selection of fruitful financing strategy.
The major problems faced by the stakeholders in Pakistan include political, economical,
ecological, social, environmental and social influences. During the last 20 years, the
economical and political scenario of Pakistan has been under remarkable transition. The
economical and political problems of Pakistan remained as the most hurdles in formulation of
BOT. Figures given below represents the political and economical constraints faced by the
stakeholders of the BOT project with respect to relative impact factor based on the attributed
weights obtained from the internet and research paper and interviews.
Figure-2 Major Political constraints in BOT projects in Pakistan
Figure-3 Major economical constraints in BOT projects in Pakistan
0 1 2 3 4 5 6
Kidnapping
Legal Aspects
Law and order Enforcement
Suicide attacks
Terrorism
Foreign Policies
Tension at Borders
Political Instablity
Effectiveness
Critical
0 1 2 3 4 5 6
Economic equivalance
Alternate energy source
High duties and taxes
Local company share's in JV's
Debit capital
High interest rates
In Balance supply and demand
Inflation
High Oil prices
Devalution of pakistani rupees
Effectiveness
Critical
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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5.4 BOT PROJECTS BY NHA:
National highway authority is governmental agency, which involve in several BOT projects.
Many mega infrastructure projects that are on the basis of BOT, including motorways which
improve communication across the country, are successfully implemented and are under the
concession period. The awarding of the project is on the basis of financial capability, as well
as technical supports through joint venture. The project is not awarded on cost basis; it is
awarded on the basis of numbers of years operated. NHA uses the following formula for the
concession period given below:
Numbers of years of operation under their control=Total Cost/Total revenue
for the years initially expected.
There are a number of projects on which NHA is working. NHA divides the projects in three
Categories.
 Implementation stage
 Procurement stage
 Development stage
List of the BOT projects of NHA are given below on the basis of the above three categories.
A.IMPLEMENTATION STAGE
S.
no
Project Length
(km)
Project
cost (Rs
in Mil)
Project Details Status
1 Service Areas - 10 Nos.
(M-2)
- 1,125 Establishment of Ten
(10) Service Areas
under a 15 Years
Concession Period -
ON
BOT BASIS
Concessionaire:
M/s Daewoo
Corporation,
Korea,
Operational since
1999
2 Lakpass Tunnel (N-25) 0.18 679 180 m Tunnel is
operational under a 25
years' Concession - ON
BOT BASIS.
Concessionaire:
M/s IBEX
Construction Co.,
Pakistan,
Operational since
2008.
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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3 Two Main-Service Areas
at
River Indus (M-1)
- 689 Establishment of Two
Main-Service Areas at
M-1, Concession signed
for 15 Years - ON
BOT BASIS
Concessionaire:
M/s Petrosin,
Singapore - Under
Construction
4 Two Mini-Service Areas
at
River Haro (M-1)
- 260 Establishment of Two
Main Service Areas
atM-1 - ON BOT
BASIS
Concessionaire:
M/s Petrosin,
Singapore -
Financial Close
Stage
5 Overlay and
Modernization of
Lahore-Islamabad
Motorway
(M2)
357 46,007 Overlay and
application of Total
Solution /
Intelligent
Transportation System
(ITS) on
357 km long existing 6-
lane Motorway - ON
BOT BASIS
Concessionaire:
M/s MORE,
Pakistan - Under
Construction
6 Habibabad Bridge (N-5) 2 831 Construction of new 4-
lane Railway
Overhead Bridge on N-
5 with 2 Km approach
roads - ON BOT
BASIS
Concessionaire:
M/s HOME,
Pakistan - Under
Construction
7 Karachi-Hyderabad
Motorway
(M-9)
136 44,251 Conversion of existing
4-lane Highway into 6-
lane Motorway - ON
BOT BAS
Concessionaire :
M/s SCORE
Pakistan -
Financial Close
Stage
Table-2 List Of BOT projects Implementation Stage)
B.PROCUREMENT STAGE
S.
no
Project Length
(km)
Project
cost (Rs
in Mil)
Project Details Status
1 Multan - Muzaffargarh - 80 6,979 Conversion of existing Evaluation Stage
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
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D.G.
Khan (N-70)
2-lane highway into 4-
Lane divided facility
including Bridge at
Ghazi Ghat
2 Tarnol - Taxila (N-5) 20 6,162 Improvement/widening
of existing N-5
segment of 20 Kms
length to provide a fast
track facility of
international standard.
Scope
of work also includes a
flyover at Tarnol
railway crossing - 6-
Lane Facility.
Concession
Negotiation
stage
3 Pindi Bhattian-
Faisalabad
Motorway (M-3) &
Faisalabad Gojra Section
M-4
111 10,000 Conversion of existing
4-Lane into a 6-Lane
Motorway plus overlay
on existing 4-lanes
(Land and 6-lane
structures are already
available)
Las Date for PQ
Submission -
16-04-2015
4 Nowshera –Peshawar (N-
5)
43 10,000 Conversion of existing
4-lane divided
Highway into 6-lane
divided Expressway on
BOT basis
PQ Stage
Table-3 List of BOT projects (Procurement)
C.DEVELOPMENT STAGE
S.
no
Project Length
(km)
Project
cost (Rs
in Mil)
Project Details Status
1 Tarnol-Fateh Jang (N80) 32 8,000 Conversionofexisting
2- lane carriageway
into a 4-lane,divided
Highway
Project
Preparation
Stage
2 Sialkot – Lahore
Motorway
110 55,000 Constructionof 6-lane
motorway,
connectingindustrial
city Sialkot with
Lahore.
Project
Preparation
Stage
3 Hyderabad – Sukkur
Motorway
(KLM)
296 186,490 Constructionof new 6-
Lane, access control
Motorway
Project
Preparation
Stage
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
CONSTRUCTION SECTOR
21
4 Two Service Areas at
River
Kabul on M-1
- 700 Constructionof Two
Service Areas at River
Kabul on Islamabad -
Peshawar Motorway
(M-
1)
Project
Preparation
Stage
5 Two Service Areas on M-
4
- 700 Constructionof Two
Service Areas on
Faisalabad - Gojra
Sectionof M-4
Project
Preparation
Stage
Table-4 List of BOT projects (Development stage)
5.5 PROJECT STUDY
5.5.1 KARACHI HYDERABAD MOTORWAY (M-9)
The construction of the Karachi-Hyderabad Motorway (M-9) was decided and awarded to the
Malaysian company M/s BINAPURI, on the basis of BOT with the concessionaire Period of
28 years. Existing 4-lane Karachi-Hyderabad Super highway will be upgraded into 6-lane
Motorway. NHA had Advertised EOI for everyone for the construction of the motorway.
Several companies Including NLC,BINAPURI (Malaysia), EOBI,SAMBO,CRBC (China)
and one Turkish Construction company submitted their proposals for construction. After
detailed financial and technical evaluation, the proposal of M/s BINAPURI was accepted. (7)
Karachi-Hyderabad Motorway will be constructed on BOT basis, on a total cost of Rs.24.93
Billion. 136 Km long Motorway will be Completed in almost three years. (7)
The estimated time for the completion of the project is Oct 2017 (7).
An overview of the Karachi Hyderabad Motorway is given below.
M-9 Project Brief
Title Conversion of the existing 4-lane Karachi
Hyderabad superhighway into a 6-lane
Motorway (M-9) On BOT Basis (136 Km
length)
Client National highway authority, Pakistan
Concessionaire Bina Puri Pakistan (Pvt.) Ltd.
Date of signing concession agreement 16th January 2012
Capital expenditure USD.203 Million (Rs.18.62 Billion)
Concession period 28 Years
Expected financial close July, 2012
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
CONSTRUCTION SECTOR
22
Expected date of commencement One Month after financial close
Construction Period 30 months (Sectional Completion will be
achieved in 12 months)
Table-5 Short Description of Karachi-Hyderabad Motorway
5.5.2 KARACHI LAHORE MOTORWAY
The construction of the Sukkur-Multan section of Karachi-Lahore Motorway, the sindh
Province will be brought into the national mainstream. A/c to an official of NHA, the cost of
the Sukkar-Multan section is estimated at Rs.200 billion where the total estimated cost of the
Karachi-Lahore motorway is about Rs.700 billion. The total length of the sukkur-Multan
section is about 375 km, of which 260 km will fall in Punjab and 115 km in the province
sindh. The project has been designed keeping in view the guidelines set by the environmental
protection Act 2014 and will be completed in 36 months. According to the officials, safety
issues have been dealt with thoroughly while designing the project and people will face least
trouble during the construction work. (7)
6.CONCLUSION AND RECOMMENDATIONS:
This paper attempted to review most relevant literature related to BOT projects and the trend
of recent BOT projects in Pakistan. The main objective was to bring into knowledge the trend
of BOT projects in Pakistan and risk involved in BOT projects. The research revealed that
there is a great potential in Pakistan to introduce more BOT projects in the sector of power,
infrastructure, irrigation, communication and housing. Launching of more BOT projects will
help government in attaining his goals in infrastructure sector which were not been able to
completed due to financial issues in the country. The following recommendations can be
extracted from the research;
 There should be more emphasize upon spreading information related to BOT projects
through presentations and literature in Pakistan as this term is still new in Pakistan.
 The stakeholders of successful BOT projects should share their success experience
with others as an inspiration.
 Measurable steps should be taken to reduce risks involved in commencement of BOT
projects.
 Government should take substantial steps to provide such an environment in the
country so that foreign companies show greater interest towards BOT projects in
Pakistan.
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
CONSTRUCTION SECTOR
23
 Certain necessary steps and watch over committees should be formed to watch BOT
projects during their commencement, procurement and concession period so that most
of the BOT projects end up with good result.
 The ways to mitigate risk and challenges during BOT projects should be established.
 The success of BOT projects mainly depends upon political and economical
constraints.
 The benefits earned from local BOT projects should be highlighted in public to gain
the attention of private sector.
 The risks involved in BOT projects have decreased the interest of private sector
towards BOT projects in Pakistan.
BUILT OPERATE TRANSFER CASE STUDY IN LOCAL
CONSTRUCTION SECTOR
24
REFERENCES:
1. http://www.investopedia.com/terms/b/botcontract.asp
2. https://ideas.repec.org/p/wbk/wbrwps/498.html
3. The trend of built operate and transfer projects in Pakistan by Misbah jamil, Ammad hasan
and mudassir sattar (http://civil.neduet.edu.pk/ICCIDC-
I/Conference%20Proceedings/Papers/010.pdf)
4. http://www.paas.com.pk/images/volume/pdf/368183792-03.pdf
5. BOT contracts: applicability in Pakistan by S.mubin and ghazanfar
(http://www.uet.edu.pk/research/researchinfo/journal/volume3/5.pdf)
6.Rohwer, J.; Asia Rising, Butterworth-Heinemann
Singapore, (1995) 212-215
7. Contract of construction of Karachi-hyderabad Motorway M-9 to Malaysian company-
National highway authority- Syed Muhammad Ali Gardezi
(http://www.nha.gov.pk/)
8. Detailed study of BOT(built-operate-transfer) contracts-Nespak

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Built operate transfer case studies in local construction Sector in Pakistan

  • 1. BUILT OPERATE TRANSFER CASE STUDIES IN THE LOCAL CONTRUCTION SECTOR BATCH 2012-2013 BY MEESUM HUSSAIN ZAIDI DEPARTMENT OF URBAN AND INFRASTRUCTURE ENGINEERING NED UNIVERSITY OF ENGINEERING & TECHNOLOGY
  • 2. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 2 ABSTRACT This report is concerned with the built operate transfer case studies in local construction industries. The project was assigned to collect the information about the BOT Projects in Pakistan by literature review and visiting National highway authority involved in the BOT projects. In this regard projects of NHA, built on the BOT basis is selected as the concern study. The Built operate transfer term was not much popular in construction industries during past years but as the time passes people get to know about the BOT projects and its gearing up popularity. In the under developing countries people don’t have enough finances to execute infrastructure development projects, so the built operate transfer is a way to fulfill the goal of both the sponsor and the owner/client. In order to understand the topic better a number of slides were reviewed, books were read and interviews were carried out. This report highlights the trends BOT projects in Pakistan, practices by government to adopt BOT projects, and other technical terms. The objective behind this study is to review the trends of BOT projects and bring into the knowledge of BOT projects in Pakistan.
  • 3. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 3 TABLE OF CONTENTS CONTENT PAGE NO TITLE PAGE 01 ACKNOWLEDGEMENT 02 ABSTRACT 03 TABLE OF CONTENTS 04 LIST OF FIGURES 05 LIST OF TABLES 05 1 INTRODUCTION 06 2 BUILT OPERATE TRANSFERAPPROCH 07 2.1 DEFINITIONS 07 2.1.1 BUILD 07 2.1.2 OPERATE 07 2.1.3 TRANSFER 07 2.2 STRUCTURE OF BOT 07 2.2.1 GOVERMENTAL AGENCY 07 2.2.2 SPONSOR 07 2.2.3 CONSTRUCTION CONTRACTOR 08 2.2.4 OPERATION ANDMAINTENANCECONTRACTOR 08 2.2.5 FINANCEINSTITUTION 08 2.2.6 EQUITY INVESTOR 08 2.2.7 OTHER PARTIES 09 2.2.8 SCOPEOF BOT APPROACH 10 2.2.9 OBJECTIVEOF BOT APPROACH 11 2.2.10 METHODOLOGY OFBOT 11 2.3 BACKGROUNDOF BOT 12 2.3.1 BACKGROUND AND HISTORY 12 3 METHODOLOGY 13 4 STUDY DESIGN 13 4.1 SURVEY QUESTIONNAIRE 14
  • 4. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 4 4.2 DATA COLLECTION 14 4.3 DATA SOURCE 14 5 BOT PROJECTSIN PAKISTAN 15 5.1 EXPRESSION OF INTEREST 15 5.2 RECENT BOT PROJECTS OFFERED IN PAKISTAN 15 5.3 CHALLENGES FACED DURINGTHE BOT PROJECT 17 5.4 BOT PROJECTS BY NHA 18 5.5 PROJECT STUDY 22 5.5.1 KARACHI-HYDERABAD MOTORWAY 22 5.5.2 LAHORE KARACHI MOTORWAY 22 6 CONCLUSIONS AND RECOMMENDATIONS 23 APPENDIX A QUESTIONNAIRE 25 APPENDIX B QUESTIONNAIRE 26 APPENDIX C BAR DIAGRAM SHOWING BOT PROJECTS COMPLETION 29 APPENDIX D END RESULTS OF PROJECT COMMENCEMENT IN PAKISTAN 30 APPENDIX E SPSS AND EXCEL SHEETS 31
  • 5. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 5 LIST OF FIGURES FIGURE NO. TITLE PAGE NO. 01 Typical organizational structure of BOT 09 02 Major political constraints for BOT projects 18 03 Major economical constraints for BOT projects 18 TABLE NO. TITLE PAGE NO. 01 BOT projects in PAKISTAN 15 02 list of BOT projects in implementation stage 20 03 list of BOT projects in procurement stage 20 04 list of BOT projects in development stage 21 05 Description of Karachi- Hyderabad motorway 22
  • 6. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 6 1. INTRODUCTION BUILT-OPERATE-TRANSFER is the type of an agreement in which a private sector builds an infrastructure project operates it and transfers it to the owner governmental organization. The private sector operates project long enough to payback project debt and equity investment. The major stakeholders involve in the BOT project are owner, sponsor, contractor cum consultant. The contract period for BOT projects normally ranges from 20 to 30 years depending upon the scale or nature of the infrastructure development. In Pakistan and other developing countries BUILT OPERATE TRANSFER or BUILT OWN OPERATE TRASFER or PRIVATE SECTOR PARTICIPATION approach is innovative for the development of large scale infrastructure projects, as this approach enables investors to invest their money on large scale and get good concession for a long time during the operation of the facility. Built operate transfer is best choice for the development of infrastructure for both the government as well as privatized sponsors worldwide. The major stakeholders involve in the BOT project are owner, sponsor, contractor cum consultant. In Pakistan, more preference is normally given to the public private partnership, but BOT provide more feasibility for the infrastructure development. (3) Based on BOT approach different variations are involved in various countries;  BOO(build-own-operate)  BLT(build-lease-transfer)  BOOM(build-own-operate-maintain)  BOOT(build-own-operate-transfer)  BOOTT(build-own-operate-train-transfer)  BTO(build-transfer-operate)  DBFO(design-build-finance-operate)  DBO(design-build-operate)  DBOM(design-build-operate-maintain)  DOT(design-operate-transfer)  PPP(public private partnership)(4)
  • 7. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 7 2. BUILT OPERATE TRANSFER APPROACH: The BOT approach appears to be a useful possible alternative to the conventional financing and operation of infrastructure projects in developing countries. 2.1 DEFINITIONS: 2.1.1 BUILD: A private company (or consortium) agrees with a government/private owner to invest in an infrastructure project. 2.1.2 OPERATE: The private developer then owns, maintains and manages the facility for an agreed concession period and recoups their investment through charges or tolls. 2.1.3 TRANSFER: After the concessionary period the company transfers ownership and operation of the facility to the government/private owner or relevant state authority.(3) 2.2 STRUCTURAL MEMBERS OF BOT PROJECTS: 2.2.1 GOVERNMENT AGENCY: The most important initiator or participants of BOT projects are Government agency. They are usually termed as Primary Party. It is responsible to initiate, approve, monitor and control the projects. 2.2.2 SPONSOR: It can be party of interested groups, mostly includes a construction groups, an operator, a financing institution or other various groups. It is the duty of sponsor to prepare proposal to construct, finance and operate the particular project.
  • 8. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 8 2.2.3 CONSTRUCTION CONTRACTOR: It may also be one of the sponsors. The risk of completing the project on time, within the budget and to specification is the responsibility of Construction contractor. Generally the infrastructure design is dictated by the experienced utility. 2.2.4 OPERATIONAND MAINTENANCE CONTRACTOR: There is a proper contract between operator and sponsor for safe operation and timely maintenance of the facility. It may also inject equity into the project along with little risk in the form of expenditure.(1) 2.2.5 FINANCIAL INSTITUTION: In a large project there is likely to be a group of banks providing the loans to the sponsor. As the financing of BOT structure project is a form of project finance, debt financiers will undertake a review of all core project documents to assess the allocation of risks and how that allocation impacts upon their credit approval. 2.2.6 EQUITY INVESTOR: Investors or sponsor are often referred to as "equity investors" or the "equity providers". It is not unusual for equity investment to be approximately 20% of the cost of the project. Equity funds are, expensive as compared to the cost of debt. An equity investor may require a return of 18% to 20% in today's market to compensate it for assuming the major risks inherent in an infrastructure project. 2.2.7 OTHER PARTIES: Other parties such as insurers, equipment suppliers, fuel suppliers and engineering and design consultants will also be involved. Most of the parties will also involve their lawyers and financial/tax advisers. (3)
  • 9. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 9 FIGURE 1: typical BOT organizational structure. 2.2.8 SCOPE OF BOT APPROACH Built operate transfer is today’s fast developing approach for the construction which fulfill the interest of public and private sector and also give benefits to the government. BOT Approach has its vast scope in the Following sectors of construction.  Local Governmental services- It includes water supply and sanitation, solid waste management, low cost housing schemes, education/health care and skill development facilities.  Irrigation Projects- Includes power generation projects.  Transportation systems- Includes rail, seaport, airport, highways, roads.  Urban mass transit system- Includes BRT system, Intra and intercity rail system.  Social infrastructure- Includes educational, cultural and health infrastructure.  Industrial projects- Includes industrial parks, special economical zones. CONCESSIONAIRRE HOST GOVERNMENT PRIVATE OWNER CONTRACTOR OPERATION AND MANAGEMENT CONTRACTOR SPONSORS/ INVESTOR AND LENDERS
  • 10. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 10 2.2.9 OBJECTIVES OF THE BOT APPROACH The main objective of this research is to analyze the trend and scope of BOT projects in Pakistan and highlighting the importance of BOT projects for infrastructure development. The build operate and transfer (BOT) approach to develop infrastructure projects and facilities of public interest such as bridges, airports, power plants, detention facilities, parking facilities etc it is an alternative for a country that lacks the appropriate funds to undertake on its own projects of this scale it is also the goal of our study to perform case study of projects that are on the basis of BOT. 2.2.10 METHODOLOGY OF BOT PROJECTS: Built operate transfer methodology includes several steps with the involvement of many peoples in the projects. For built operate transfer projects first the owner or the client publish Expression of interest (EOI) in the newspaper or on website. Private sector who invest money on the project, in response to that show their interest in the project, concession period is then decided between the parties and the project is executed and operate by the private sector for the decided concession period and then the project is transfer to the owner or client (i-e Government normally). The above methodology can be explained by the following example: Example # 1: (NHA PROJECT) Built: Suppose NHA is interested in the maintenance of National Highway. For this purpose CDGK is selected, on the terms that it will collect Tolls for a period of 10 years (Concession Period) from the time of operation of the road. Operate: The 1-2% of the collected toll will be given to NHA under the name of Royalty during the concession period by CDGK. Transfer: After the concession period the facility will be handed over to NHA in operating Condition.  The projects on the basis of Public-Private Partnership (BOT) generate two types of profit, i.e. direct profit & Indirect profit. Direct Profit: In the example above, royalty is considered as direct profit. Indirect Profit: The high mobility service and saving of fuel is considered as indirect profit. (8)
  • 11. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 11 2.3 BACKGROUND OF BOT PROJECTS: 2.3.1 BACKGROUND AND HISTORY: The first private development officially done under the name of “Built operate transfer” was by the prime minister of Thailand OZAL to give a new approach for infrastructure development (Beuker,1988).however the built operate transfer approach was early used for the project of Suez canal in 1834. This was the revenue producing canal realized by Europeans so they initiated it with the support of Egyptian financial support, and had a concession to design, execute and operate assigned to the Egyptian ruler Pasha Muhammad Ali (levy, 1996) In the mid 1980s, many under developing countries turned to privatization of infrastructure to overcome problems which threatened to limit economic growth and development. Getting private sector management and capital into transport, power, water and sewage, and telecommunications services, was seen as a solution for obtaining and maintaining infrastructure more quickly and more cheaply than traditional, nationalized methods. According to Otta, and Hartley, this reflected concepts of ‘public choice’ thinking on public administration, by which considerations are given to the private sector to be possibly the most efficient supplier of facilities or services. The major objectives in a BOT projects is to obtain infrastructure facilities with a greater effectiveness and stability, without the government undertaking financial responsibility of the project. On the basis of that, governments in the region hold on to the BOT concept as an important option in privatization that would help to enhance economic growth and development. The experience in Thailand, Malaysia, Indonesia, China and South Asia, in the period 1985- 1996, suggested that attaining the goals of privatization via the BOT method is extremely difficult, with many projects failing to achieve the ends intended. With specific reference to the Asia BOT experience, the World Bank reports suggested about private investment in infrastructure that there is little action in most countries. Neither the governments nor the private sector are satisfied with progress to date. This experience must raise questions as to the nature of BOT projects in their implementation, and suggests much more caution is in order over the adoption of this approach.
  • 12. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 12 In the treatment of BOT both analytical and theoretical, the BOT projects are considered same as the other modes of privatization, but given more detailed inspection for BOT. This is the cause of the popularity of BOT projects in developing countries governments, as it is suggest that BOT might be easy to undertake as find a buyer for likely profits. Infrastructure BOT concessions have several distinct differences that make them particularly typical in design, management and finance. In addition, due to ‘natural monopolies’ characterized by limited competition in 1980s, as suggested by Hartley and Parker, without competition such arrangements offer no clear advantages to the traditional state-run monopoly in attempting to achieve the goals of privatization. Infrastructure monopolies require significant regulation to balance public and private interests. Regulation of monopolies like utilities is well-studied. But the process of turning them into private-sector operations, and at the same time developing regulatory mechanisms, to the satisfaction of all parties involved, is hardly addressed by privatization advocates beyond simple recommendations to do so. Without these mechanisms, however, political risks in a project are much higher. (5) Experience in Asian countries, results in understanding that the Governments in the developing countries might not be able to understood the complexities of BOT project. As a result of which, with a high frequency in Asia during the early 90’s period, BOT failed in obtaining the targeted goals of privatization. There are the numbers of the projects that over-involved in political controversy, Legal battles, strict rules and regulations, strict policies, and unending political debates, a large number of BOT project never proceed to the completion stage although many of the project reached to the commencement stage but afterwards left incomplete due certain political reasons. Projects that were the demand of the time became tremendously long in development, defeating the goals of more efficient expedition of the project. Many of the project which did proceed had complex contractual and policy issues left to resolve behind after the project was built. There was high number of disputes between the Government and the project sponsors in Asia led on economist to change the label of the concept as ‘Built-Operate-Litigate’. (6) 3.METHODOLOGY OF RESEARCH: The methodology includes literature review, conduction of interviews and surveys with organizations and professionals involved in BOT projects, review of research papers, reports and articles related to BOT approach, trend of BOT projects in Pakistan, economy and risk related issues in commencement of BOT projects.(3)
  • 13. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 13 In order to find out the applicability of Built operate transfer approach in local construction industry a questionnaire consisting of several question was prepared. Questionnaire include some basic questions about BOT. secondly there were the questions about the role of the different stakeholders in the BOT project, what are the risk related to the BOT project and all other necessary things that we must need to know for our study. Strategy was to visit several companies involve in BOT project, for this literature review was performed to understand structure of projects, audience was targeted and officials from NHA were interviewed related to recent BOT projects in National Highway Authority. 4 STUDY DESIGN 4.1 SURVEY QUESTIONNAIRE For the survey, a questionnaire was prepared having a set of questions, all the questions were related to trend of built operate transfer project cases in Pakistan, and what is the role of government in the implementation of the project. Questionnaire was prepared including the role, power, duties and rights of the government and private sector in the BOT project. Who are the major stake holders of the project, During the implementation of BOT project, what are the risks faced by the major stakeholders of the project, Current BOT Projects, For the BOT project there was a question about how the contract is awarded, As in many of built operate transfer cases government does not have any share so it was asked about the government share in the project, how the project is published , how many of the projects are commenced and completed and how many of the projects are left incomplete. In many BOT projects, Firstly the project is selected by investor and moved to the planning stage but later on converted into the normal item rate contract from built operate transfer contract. As in the BOT projects concession period is long so questions related to concession period were also included in questionnaire. Invitation to bidders was discussed and how it is published, it was also asked in the questionnaire to discuss the role of governmental agencies for the monitoring of BOT projects at different stages of development from initial stage to the implementation of the project, view of government for BOT project, Difficulties faced by government during the launching of the BOT project, interest shown by government towards the BOT projects, risks faced by sponsors, Reason behind the interest of sponsor, and finally cost of the BOT projects. 4.2 DATA COLLECTION After the preparation of questionnaire, it was next target to decide meeting with the targeted audience. First was visit was conducted on March 3, 2015. Permission letter for visit was prepared by university to concern authority. Unfortunately the first meeting wasn’t take place
  • 14. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 14 due to some certain reason. Second meeting on March 5, 2015, was held at our university which was unfortunately not happened. Then we were asked to send our questionnaire to the NHA via email on March 6, 2015. After two days we got the reply from the respondent of the NHA. Secondly after the data collection from NHA, We decided to visit Frontier works Organization, for that we contacted to them, but as result we got no response from their side. Data collection also took place electronically using different research paper. 4.3 DATA SOURCES Questionnaire was targeted to the government official authorities, who are the stakeholders of the BOT projects. National highway authority and the Frontier works organization were the targeted audience. The respondents were asked to the questions referencing to the specific BOT projects in that they were personally involved in.NHA responded to our questions but Frontier works organization did not give any response, our targeted data source was also the research paper and also we look over the current projects going on in Pakistan whose basis are BOT. In NHA our major concern was with Mr. Imran Ahmed of south zone Karachi, who is currently working on Lahore-Karachi motorway. 5 BOT PROJECTS IN PAKISTAN 5.1 EXPRESSION OF INTEREST Expression of interest (EOI) is an invitation, which is published by Owner or client in order for the execution of the project. 5.2 RECENT BOT PROJECTS OFFERED IN PAKISTAN Projects that are built on BOT basis have complexity in their nature, in their contact. It becomes unbearable sometimes for all the stakeholders of the project because of its long period of implementation and then concession period. There are many BOT project that offered by different governmental authorities during the past years but only few of them are commenced and completed and there are also few of the projects that commenced initially but during prequalification stage they converted into normal item rate contract. Following are the Projects that are offered and their results.
  • 15. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 15 Table-1 Recent BOT projects Offered in Pakistan Sr Name of the projects Employer Agency Sponsor Remarks 1 Faisalabad– Lahore Motorway Project(M-3) National Highway Authority, Government of Pakistan HusnainCotex Pvt. Limited Commenced,ButLateron BOT Contract convertedinto normal itemrate contract 2 LiquidCargo Terminal atPort Qasim Communicationand Works Department, Governmentof Sindh - Notcommenced 3 Electromagnetic Train Projectin Karachi CityDistrict Government - Notcommenced 4 LightRail TransitSystem inLahore and Rawalpindi Governmentof Punjab - Notcommenced 5 Public Swimiming Polls/Sports Entertainment Areas Parksand Horticulture Authority, Government of Punjab - Notcommenced 6 Lahore Sheikhupura FaisalabadDual Carriageway Communicationand Works Department, Governmentof Punjab FrontierWorks Organization (FWO) Commencedand Completed 7 Naran Saiful MalookCable Car Project Communicationand Works Department, Governmentof NWFP. - Notcommenced 8 Grain Terminal at Port Qasim Communicationand Works Department, Governmentof Sindh. - Notcommenced 9 Constructionof Five StarHotel at Lahore PakistanRailway, Governmentof Pakistan - Notcommenced 10 Constructionof Islamabad International Airport, Islamabad Civil Aviation Authority, Government of Pakistan - Notcommenced 11 Neelum Jhelum Water andPower FrontierWorks Stage of Pre-qualification
  • 16. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 16 Hydal Power Project Development Authority, Government of Pakistan Organization (FWO) 12 LakpassTunnel ProjectNear Quetta National Highway Authority, Government of Pakistan FrontierWorks Organization (FWO) CommencedandNear Completion. 13 Lahore Bus Terminal at Thokar Niaz Baig CityDistrict governmentof Punjab - Notcommenced 14 Lahore Kasur Dual Carriageway Communicationand Works Department, Governmentof Punjab - Notcommenced 5.3 CHALLENGES FACED DURING THE BOT PROJECTS: The key factor for the successful implementation of the BOT projects is the depth study of all the aspects related to the environmental, social, economical, political, legal and financial feasibility of the project. For such reasons, the depth analysis of the project feasibility decisions needs a unique method to include the qualitative decision factors that have the strong impact on the project. In Pakistan, the nature of the BOT contracts may be complicated due to its long-term contractual limitations and the involvement of many parties, furthermore legal, economical and technical framework need to be developed on big scale for the successful execution and implementation of the project.(5) There are the number of uncomfortable natures of constraints and risk faced by the stakeholders of the project during the project execution in Pakistan. In many of the projects that stated above the constraints and risks become much severe that project did not complete after the commencement. The planning of the BOT project is very complex because it has very complex financial and organizational structure, which is also influenced by the socio- economic environment in the country. During the past years, there is a huge trend of private sector involvement in development of public projects through BOT, which brings a redistribution of risks among the participants of the projects. Corruption, Delay in approval, Change in law, expropriation, reliability and credit worthiness of entities are the major political risk faced by the construction industry. Different construction designs have different risk control strategies for completion of the project, engineering and project capital firms. Banks or insurance companies are the source for the cost of the project.
  • 17. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 17 The BOT project is normally taken by as a group or joint venture construction. Three major challenges faced by the sponsors are the estimation of cost of project, Generation of revenues during the concession period, and the selection of fruitful financing strategy. The major problems faced by the stakeholders in Pakistan include political, economical, ecological, social, environmental and social influences. During the last 20 years, the economical and political scenario of Pakistan has been under remarkable transition. The economical and political problems of Pakistan remained as the most hurdles in formulation of BOT. Figures given below represents the political and economical constraints faced by the stakeholders of the BOT project with respect to relative impact factor based on the attributed weights obtained from the internet and research paper and interviews. Figure-2 Major Political constraints in BOT projects in Pakistan Figure-3 Major economical constraints in BOT projects in Pakistan 0 1 2 3 4 5 6 Kidnapping Legal Aspects Law and order Enforcement Suicide attacks Terrorism Foreign Policies Tension at Borders Political Instablity Effectiveness Critical 0 1 2 3 4 5 6 Economic equivalance Alternate energy source High duties and taxes Local company share's in JV's Debit capital High interest rates In Balance supply and demand Inflation High Oil prices Devalution of pakistani rupees Effectiveness Critical
  • 18. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 18 5.4 BOT PROJECTS BY NHA: National highway authority is governmental agency, which involve in several BOT projects. Many mega infrastructure projects that are on the basis of BOT, including motorways which improve communication across the country, are successfully implemented and are under the concession period. The awarding of the project is on the basis of financial capability, as well as technical supports through joint venture. The project is not awarded on cost basis; it is awarded on the basis of numbers of years operated. NHA uses the following formula for the concession period given below: Numbers of years of operation under their control=Total Cost/Total revenue for the years initially expected. There are a number of projects on which NHA is working. NHA divides the projects in three Categories.  Implementation stage  Procurement stage  Development stage List of the BOT projects of NHA are given below on the basis of the above three categories. A.IMPLEMENTATION STAGE S. no Project Length (km) Project cost (Rs in Mil) Project Details Status 1 Service Areas - 10 Nos. (M-2) - 1,125 Establishment of Ten (10) Service Areas under a 15 Years Concession Period - ON BOT BASIS Concessionaire: M/s Daewoo Corporation, Korea, Operational since 1999 2 Lakpass Tunnel (N-25) 0.18 679 180 m Tunnel is operational under a 25 years' Concession - ON BOT BASIS. Concessionaire: M/s IBEX Construction Co., Pakistan, Operational since 2008.
  • 19. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 19 3 Two Main-Service Areas at River Indus (M-1) - 689 Establishment of Two Main-Service Areas at M-1, Concession signed for 15 Years - ON BOT BASIS Concessionaire: M/s Petrosin, Singapore - Under Construction 4 Two Mini-Service Areas at River Haro (M-1) - 260 Establishment of Two Main Service Areas atM-1 - ON BOT BASIS Concessionaire: M/s Petrosin, Singapore - Financial Close Stage 5 Overlay and Modernization of Lahore-Islamabad Motorway (M2) 357 46,007 Overlay and application of Total Solution / Intelligent Transportation System (ITS) on 357 km long existing 6- lane Motorway - ON BOT BASIS Concessionaire: M/s MORE, Pakistan - Under Construction 6 Habibabad Bridge (N-5) 2 831 Construction of new 4- lane Railway Overhead Bridge on N- 5 with 2 Km approach roads - ON BOT BASIS Concessionaire: M/s HOME, Pakistan - Under Construction 7 Karachi-Hyderabad Motorway (M-9) 136 44,251 Conversion of existing 4-lane Highway into 6- lane Motorway - ON BOT BAS Concessionaire : M/s SCORE Pakistan - Financial Close Stage Table-2 List Of BOT projects Implementation Stage) B.PROCUREMENT STAGE S. no Project Length (km) Project cost (Rs in Mil) Project Details Status 1 Multan - Muzaffargarh - 80 6,979 Conversion of existing Evaluation Stage
  • 20. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 20 D.G. Khan (N-70) 2-lane highway into 4- Lane divided facility including Bridge at Ghazi Ghat 2 Tarnol - Taxila (N-5) 20 6,162 Improvement/widening of existing N-5 segment of 20 Kms length to provide a fast track facility of international standard. Scope of work also includes a flyover at Tarnol railway crossing - 6- Lane Facility. Concession Negotiation stage 3 Pindi Bhattian- Faisalabad Motorway (M-3) & Faisalabad Gojra Section M-4 111 10,000 Conversion of existing 4-Lane into a 6-Lane Motorway plus overlay on existing 4-lanes (Land and 6-lane structures are already available) Las Date for PQ Submission - 16-04-2015 4 Nowshera –Peshawar (N- 5) 43 10,000 Conversion of existing 4-lane divided Highway into 6-lane divided Expressway on BOT basis PQ Stage Table-3 List of BOT projects (Procurement) C.DEVELOPMENT STAGE S. no Project Length (km) Project cost (Rs in Mil) Project Details Status 1 Tarnol-Fateh Jang (N80) 32 8,000 Conversionofexisting 2- lane carriageway into a 4-lane,divided Highway Project Preparation Stage 2 Sialkot – Lahore Motorway 110 55,000 Constructionof 6-lane motorway, connectingindustrial city Sialkot with Lahore. Project Preparation Stage 3 Hyderabad – Sukkur Motorway (KLM) 296 186,490 Constructionof new 6- Lane, access control Motorway Project Preparation Stage
  • 21. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 21 4 Two Service Areas at River Kabul on M-1 - 700 Constructionof Two Service Areas at River Kabul on Islamabad - Peshawar Motorway (M- 1) Project Preparation Stage 5 Two Service Areas on M- 4 - 700 Constructionof Two Service Areas on Faisalabad - Gojra Sectionof M-4 Project Preparation Stage Table-4 List of BOT projects (Development stage) 5.5 PROJECT STUDY 5.5.1 KARACHI HYDERABAD MOTORWAY (M-9) The construction of the Karachi-Hyderabad Motorway (M-9) was decided and awarded to the Malaysian company M/s BINAPURI, on the basis of BOT with the concessionaire Period of 28 years. Existing 4-lane Karachi-Hyderabad Super highway will be upgraded into 6-lane Motorway. NHA had Advertised EOI for everyone for the construction of the motorway. Several companies Including NLC,BINAPURI (Malaysia), EOBI,SAMBO,CRBC (China) and one Turkish Construction company submitted their proposals for construction. After detailed financial and technical evaluation, the proposal of M/s BINAPURI was accepted. (7) Karachi-Hyderabad Motorway will be constructed on BOT basis, on a total cost of Rs.24.93 Billion. 136 Km long Motorway will be Completed in almost three years. (7) The estimated time for the completion of the project is Oct 2017 (7). An overview of the Karachi Hyderabad Motorway is given below. M-9 Project Brief Title Conversion of the existing 4-lane Karachi Hyderabad superhighway into a 6-lane Motorway (M-9) On BOT Basis (136 Km length) Client National highway authority, Pakistan Concessionaire Bina Puri Pakistan (Pvt.) Ltd. Date of signing concession agreement 16th January 2012 Capital expenditure USD.203 Million (Rs.18.62 Billion) Concession period 28 Years Expected financial close July, 2012
  • 22. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 22 Expected date of commencement One Month after financial close Construction Period 30 months (Sectional Completion will be achieved in 12 months) Table-5 Short Description of Karachi-Hyderabad Motorway 5.5.2 KARACHI LAHORE MOTORWAY The construction of the Sukkur-Multan section of Karachi-Lahore Motorway, the sindh Province will be brought into the national mainstream. A/c to an official of NHA, the cost of the Sukkar-Multan section is estimated at Rs.200 billion where the total estimated cost of the Karachi-Lahore motorway is about Rs.700 billion. The total length of the sukkur-Multan section is about 375 km, of which 260 km will fall in Punjab and 115 km in the province sindh. The project has been designed keeping in view the guidelines set by the environmental protection Act 2014 and will be completed in 36 months. According to the officials, safety issues have been dealt with thoroughly while designing the project and people will face least trouble during the construction work. (7) 6.CONCLUSION AND RECOMMENDATIONS: This paper attempted to review most relevant literature related to BOT projects and the trend of recent BOT projects in Pakistan. The main objective was to bring into knowledge the trend of BOT projects in Pakistan and risk involved in BOT projects. The research revealed that there is a great potential in Pakistan to introduce more BOT projects in the sector of power, infrastructure, irrigation, communication and housing. Launching of more BOT projects will help government in attaining his goals in infrastructure sector which were not been able to completed due to financial issues in the country. The following recommendations can be extracted from the research;  There should be more emphasize upon spreading information related to BOT projects through presentations and literature in Pakistan as this term is still new in Pakistan.  The stakeholders of successful BOT projects should share their success experience with others as an inspiration.  Measurable steps should be taken to reduce risks involved in commencement of BOT projects.  Government should take substantial steps to provide such an environment in the country so that foreign companies show greater interest towards BOT projects in Pakistan.
  • 23. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 23  Certain necessary steps and watch over committees should be formed to watch BOT projects during their commencement, procurement and concession period so that most of the BOT projects end up with good result.  The ways to mitigate risk and challenges during BOT projects should be established.  The success of BOT projects mainly depends upon political and economical constraints.  The benefits earned from local BOT projects should be highlighted in public to gain the attention of private sector.  The risks involved in BOT projects have decreased the interest of private sector towards BOT projects in Pakistan.
  • 24. BUILT OPERATE TRANSFER CASE STUDY IN LOCAL CONSTRUCTION SECTOR 24 REFERENCES: 1. http://www.investopedia.com/terms/b/botcontract.asp 2. https://ideas.repec.org/p/wbk/wbrwps/498.html 3. The trend of built operate and transfer projects in Pakistan by Misbah jamil, Ammad hasan and mudassir sattar (http://civil.neduet.edu.pk/ICCIDC- I/Conference%20Proceedings/Papers/010.pdf) 4. http://www.paas.com.pk/images/volume/pdf/368183792-03.pdf 5. BOT contracts: applicability in Pakistan by S.mubin and ghazanfar (http://www.uet.edu.pk/research/researchinfo/journal/volume3/5.pdf) 6.Rohwer, J.; Asia Rising, Butterworth-Heinemann Singapore, (1995) 212-215 7. Contract of construction of Karachi-hyderabad Motorway M-9 to Malaysian company- National highway authority- Syed Muhammad Ali Gardezi (http://www.nha.gov.pk/) 8. Detailed study of BOT(built-operate-transfer) contracts-Nespak