BOT PROJECTS RISKS AND FINANCING STRATEGIES Presented by

BOT PROJECTS RISKS AND FINANCING STRATEGIES Presented by Ahmed Ali Al-Hasawi

OUTLINE § INTRODUCTION § ADVANTAGES OF BOT PROJECTS § BOT PROJECTS RISKS § BOT PROJECTS FINANCING STRATEGIES § CRITICAL SUCCESS FACTORS FOR BOT PROJECTS § CONCLUSION §Q&A

INTRODUCTION § What does BOT mean? § Main participants in BOT projects § Why do we need BOT projects?

BOT PROJECTS TYPES § Build-Own-Operate (BOO) § Build-Transfer-Operate (BTO) § Build-Operate and Renewal of the concession (BOR) § Build-Lease-Own (BLO) § Build-Lease-Transfer (BLT)

ADVANTAGES OF BOT PROJECTS § Public projects will be built faster § Private sector is more efficient than public agencies § BOT projects assist in transferring new technology § The high experience of the private sponsor and his team lead to an excellent project feasibility.

BOT PROJECTS RISKS § Political Risks It is related to the stability situation in the host country and any action of the government that might endanger the project. Example: tax code revisions, export restrictions § Financial Risks This risk is related to the inflation, interest rates and exchange rates. § Construction Risks Time and cost. Technical difficulties & poor management.

BOT PROJECTS RISKS § Operation Risks The cost of operation & maintenance for the completed facility § Market Risks It is needed to evaluate the demand price risk. § Force Majeure Risks This risk is related to the phenomena beyond the host government or private sponsor control. § Concession Period Risk Long concession period indicates more benefit for private sponsor. Short concession period consequences.

BOT PROJECTS FINANCING STRATEGIES § AVAILABILITY OF FINANCING SOURCES & FINANCING STRATEGIES The possibility of using local market or international sources. § PROJECT CONDITIONS & FINANCING STRATEGIES There are several conditions for BOT projects such as government involvement, concession periods, technical requirements and others. The long concession period has advantages and disadvantages § PROJECT RISKS & FINANCING STRATEGIES The overall project risks were calculated for each project in the case studies PR, FR and MR = 8 or less, the project was evaluated as low risk project.

BOT PROJECTS FINANCING STRATEGIES Table 2. Risk Level of BOT Transportation Projects in North America Project Political Risk Financial Risk Highway 407 Express Toll Route 1 1 Dulles Greenway 2 2 State Route 125 South Tollway 2 1 Market Risk 2 3 3 Table 3. Risk Level of BOT Transportation Projects in Asia Project Political Risk Cross Harbour Tunnel 3 Western Harbour Crossing 3 North-South Highway 5 Second Stage Expressway System 5 Bangkok Mass Transit System 4 Guangzhou-Shenzhen-Zhuhai Superhighway 5 Financial Risk 3 2 4 4 Market Risk 2 4 3 4 4 5 Table 4. Risk Level of BOT Power Generation Projects in Asia Project Political Risk Subic Power Plant 3 Paiton I Power Plant 5 Shajiao B Power Station 4 Rizhao Power Plant 4 Financial Risk 4 4 3 3 Market Risk 1 2 2 1

BOT PROJECTS FINANCING STRATEGIES § HIGH POLITICAL RISK There were several political risks such as changed policies, delays and instability of the government. To avoid breaking the agreement, involving international investors or lenders. § HIGH FINANCIAL RISK In three projects in South East Asia, projects sponsors obtained the required loan from international lending institutions as these sources offer low interest rates. Currency exchange fluctuations is another risk which impacting BOT projects. To mitigate this risk, private sponsors approached local lenders for financing their projects. §HIGH MARKET RISK Transportation projects & traffic volume. The consequences will be less revenue compared to what is expected. In power plants, the host government pay a fixed capacity fee during the concession period.

CRITICAL SUCCESS FACTORS FOR BOT PROJECTS § Highlight the practices or actions taken which normally assist in the success of BOT projects. § The quality of the service during & after the concession period. § To provide adequate training to the owner's personnel to maintain the same level of quality. § Short period of construction allow private investor in getting early revenues. § Sharing the largest revenue of profit with government. § Safest method for construction and most innovative solution.

CONCLUSION § Advantages of BOT projects were highlighted. § There are different types of risks associated with BOT projects. The most critical ones are PR, FR & MR. § Risks mitigations have been proposed based on an analysis of different case studies § There are some risks which might happen in the project with no control on them (force majeure risks). § Finally, the selection of the right concession period is essential.

Q&A