INTER-STATE TRANSPORTATION IN NIGERIA; PROBLEMS (2)
“In its most basic form, a BOT project is one in which a Government or governmental agency grants a concession for a period of time to a private company for the development of a project. At the end of the concession period, the rights of the project company in the project are transferred to the Government or its designee, normally free of any charge”.
Last week I discussed the poor state of inter-state transportation in Nigeria and how years of neglect had led to a near total collapse of the road and rail network in the country. The reason for this seeming nonchalant attitude of Governments at the Federal and State Levels may not be unconnected with the huge recurrent expenditure of these governments. In some states, salaries of Civil Servants and emoluments of elected political office holders and appointees take up a huge chunk of the monthly allocation of the said states thereby leaving very little for the funding of other vital sectors of the economy such as education, health and infrastructural development. In realization of this most governments simply pay lip service to the issue of good roads and other facilities. But this need not be so only if Governments will make the effort to identify, study and implement other viable means of infrastructural development one of which involves participation of the private sector. It is called the “Build, Operate and transfer system” generally known by the acronym: BOT.
MEANING OF “BUILD, OPERATE AND TRANSFER”
In its most basic form, a BOT project is one in which a Government or governmental agency grants a concession for a period of time to a private company for the development of a project. The private company then builds the project to the specifications agreed, operates and manages the project for a number of years after its completion. This gives the private company the chance to recoup its construction costs and make a profit out of the proceeds coming from the operation and commercial exploitation of the project. At the end of the concession period, the rights of the project company in the project are transferred to the Government or its designee, normally free of any charge. Then the government is free to operate it itself, or contract its operation to another contractor (or even to the same contractor).
In this arrangement, the repayment of any loans or returns on the investments made on the project is not guaranteed by the Government, but depends on the revenue generated by the project. Since direct funds from the public budget are not required, the host Government will thus experience reduced pressure of public borrowing, while allowing the transfer of the industrial risks and also of new technologies to the private sector. Furthermore, since the project is built and, during the concession period, operated by the consortium, the Government gains the benefit of private sector expertise in these areas.
Although BOT projects have largely been used in the development of large infrastructure projects such as telecommunications networks, highways and other public transportation projects, port facilities and in energy supply, increasingly it is also being utilised for medium and small scale projects. Thus, the potential exists for BOT to provide added opportunities for increased international trade too.
HISTORY OF BOT
The first official private facility development under the name “Build Operate Transfer” was used in Turkey in 1984, as part of an enormous privatization program to develop new infrastructure (Beuker, 1988). However, the BOT approach was used as early as 1834 with the development of the Suez Canal. This revenue-producing canal, financed by European capital with Egyptian financial support, had a concession to design, construct, and operate assigned to the Egyptian ruler Pasha Muhammad Ali (Levy, 1996).
In the second half of the nineteenth century, railways and roads were developed with the help of private financing in the western world (Mobsby, 1992) and although the privately operated public facilities became financial successes, they were not devoid of shortcomings. The infrastructure projects had to be accessible to everybody but optimizing the economic rate of return conflicted with public interest. By the mid-twentieth century, the privatization of public facilities had experienced a downturn as the development of infrastructure projects by private funds gained popularity throughout the world, particularly in the United States.
In Europe, however, infrastructure projects remained under governmental jurisdiction as they were considered public requirements the state had to provide. Since the 1990s, the attitude of European countries has changed to include more privatization in their infrastructure development, especially in France and Britain where privatization was extensive, in order to fulfill public needs. At the same time, Asia was experiencing an economic boom that opened the doors for new forms of project delivery, based on the principle of privatization. Ernst and Pham (1994) refer to privatization as a process in which the delivery of goods and services, usually administered by the government, is shifted to the private sector. Privatization can be divided into primarily three areas: the selling of governmental holdings (i.e., British Airways and British Telecom), the subcontracting of government services to private undertakers (i.e., US Postal Service, park maintenance), and the subcontracting of financing and developing public facilities (i.e., Channel Tunnel). BOT belongs to the last case.
VARIANTS OF BOT SCHEME
The BOT scheme also includes a number of variations:
• Build-Transfer Scheme: The contractor undertakes the construction, including financing, of a given infrastructure facility, and its turnover after completion to the public-sector body concerned which pays the contractor its total investment expended on the project, plus a reasonable rate of return. This arrangement may be employed in the construction of any project, including critical facilities which, for security or strategic reasons, must be operated directly by the Government.
• Build-Transfer-Lease-Operate Scheme: The public-sector body concerned is the direct borrower which leases back the infrastructure to the contractor at a rate matching the amortisation schedule.
• Supply-Operate Scheme: This is an arrangement where, if the interests of the Government so requires, the supplier of equipment and machinery for a given facility operates the facility, providing in the process technology transfer and training.
Examples of countries using BOT are Thailand, Turkey, Taiwan, Saudi Arabia, Israel, India, Iran, Croatia, Japan, China, Vietnam, Malaysia, Philippines, Egypt, and a few U.S. states (California, Florida, Indiana, Texas, and Virginia). However, in some countries, such as Canada, Australia and New Zealand, the term used is build-own-operate-transfer (BOOT).
Next week I will state my own personal experience of the benefits of BOT system and how its successful implementation by one of the states of the Federation has shown why the Federal and State governments should adopt it as a means of improving the rail and road network in Nigeria.
…to be continued
AFE BABALOLA SAN, CON