Types of Privatization

BOT –It is a relatively new approach to infrastructure development, which enables direct private sector investment in large-scale infrastructure projects.

The theory of BOT is as follows:

Build – A private company (or consortium) agrees with a government to invest in a public infrastructure project. The company then secures their own financing to construct the project.

Operate – the private developer then owns, maintains, and

manages the facility for an agreed concession period and recoups

their  investment through charges or tolls.

Transfer – after the concessionary period the company transfers ownership and operation of the facility to the government or relevant state authority.

ADVANTAGES OF BOT PROJECTS

BOT projects have several advantages such as :-

1. The government gets the benefit of the private sector to mobilize finances and to use the best management skills in the construction, operation and maintenance of the project.
2. The private participation also ensures efficiency and quality by using the best equipment. 
3.  The projects are conducted in a fully competitive bidding situation and are thus completed at the lowest possible cost. 

Following models for privatization of road infrastructure is available.

Sl No	NAME	Description
1	Build operate transfer (BOT)	Concession is given to private party to finance, build, operate and maintain the facility. Investors collect the user fee during the concession to recover the cost of construction, debt servicing and operation cost. At the end of the concession, the facility reverts back to Govt. who has given the concession.
2	Build own operate (BOO)	Similar to the BOT but without the transfer of ownership
3	Build own operate transfer (BOOT)	Same as BOT but the project is transferred to the Govt. after a negotiated period.
4	Build transfer lease operate (BTLO)	Govt. provides the right of way on which the highway is built. Private party has to pay a nominal rent of payment for the use of the land
5	Develop build operate (DBO)	This is a new concept. Initially the company does not assume commercial risk but is financially accountable for building and operating the system as per specification. Later on the company assumes commercial risk as per the appropriate regulations laid by Govt.

We can classify BOT projects into three types
1. BOT Toll
2. BOT Annuity
3.Hybrid

In case of  BOT (annuity) model, no viability gap funding (VGF) is made available to the developer and he has to bear the entire project cost. The project investment cost is recouped by the developer through annuity payments made byNHAI after the construction is over, while the toll collected goes to the NHAI.

In case of  BOT (toll) model, the developer has to recover his investments through toll collection. Depending upon the viability of the project, he may ask for a viability gap funding (currently capped at 40% of the project cost) from the NHAI or may agree to share revenues with the NHAI.

However  hybrid model had proposed that in case the amount of VGF quoted by the developer is more than 40% of the project cost, the funding requirement in excess of 40% of the cost would be paid to the developer in the form of annuity payments. Significantly, even while the incremental payment would have been made by the government, the developer would have been allowed to collect the toll through the concession period.

Under the current mechanism followed by NHAI, a project is first invited under the BOT-toll mode. In case of inadequate response, the BOT–annuity mode is used. In case even this fails, the project is given on cash contract basis.