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facilities for universities, colleges and schools); and
provision of government offi ces.

The Development of BOOT

Concessions
The search for a new way to promote and fi nance
infrastructure projects led to the introduction of a
technique, originally used in the 19 and 20 cen-
th
th
turies, known as concessions. Concessions were
widely used in many parts of the world to deve-
lop infrastructure. The Suez Canal is one of many
examples of a privately fi nanced concession and
this method was also used to build canals, railro-
ads, tramways, water works, electric utilities and
similar projects in both industrialised and less-de-
veloped countries.

The BOOT formula adds to the old system of con-
cessions, providing new possibilities for reducing
or eliminating the direct fi nancial burden which go-
vernments would otherwise bear. The objective is
to transfer as much borrowing risk as possible to
the private-sector promoter and the project itself.
Therefore the BOOT promoter must fi nance the
project. (The promoter typically does this by obtai-
ning fi nancing from groups of commercial banks,
other fi nancial institutions, export credit agencies
and multilateral fi nance agencies.) Financing is The BOOT formula adds to the
made available on the strength of the project’s old system of concessions,
projected revenue stream and its other assets, “providing new possibilities for
including the promoter’s equity. Normally the len-
ders would have limited or no resources to the pro- reducing or eliminating the
moter or shareholder of the promoting company. direct financial burden which

Project Finance governments would otherwise
This fi nancing technique, generally known as bear
project fi nance, was perfected in the 1970s for
major private-sector projects, mainly in the area
of oil and gas exploration and extraction, but has Activities included in Project Finance
been extended widely since then. Project fi nan- • Project Financing (BOT, BOO, etc.)
ce techniques are now applied across the world • Local Governmental Funding
to numerous privately promoted infrastructure • Multi-Source Export Credits
projects including power stations, gas pipelines, • International Commercial Loans Documentary
waste-disposal plants, waste-to-energy plants, Credits
telecommunication facilities, bridges, tunnels, toll
roads, railway networks, city-centre tram links and What is BOOT?
now the building of hospitals, education facilities, One method used to involve the private sector in
government accommodation and tourist facilities large-scale infrastructure investments is where the
Financial markets have become increasingly so- private sector is granted a concession from the sta-
phisticated in ‘engineering’ fi nancing packages to te to build, fi nance, own and operate a facility and
fi nance almost any type of reasonably predictable after the time specifi ed in the concession period is
revenue stream. obliged to hand it back to the state. This concept
is variously described as BOT, BOOT, BOO, BRT,
Over the last two decades major international con- BLT, BT and BTO, depending on the terms of the
tracting fi rms, individual entrepreneurs and a num- agreement.
ber of developing countries have begun to promote The acronym BOT stands for ‘build, own and
infrastructure projects on a BOOT basis. Projects transfer’ or ‘build, operate and transfer’ (the-
are fi nanced on a limited-resource basis and built se terms are often used interchangeably). The
operated under a concession from the state or si- ‘owning’ is an essential element since the main
milar public body as a private venture. At the end attraction to host governments is that the pro-
of the concession the project is transferred back to moter’s equity stake underwrites its commitment
the state or public body. to a project’s success.

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