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See detailBuild Operate and Transfer (BOT) Projects - Contribution à l’étude juridique d’une modalité de partenariat public-privé à la lumière de l'approche Law and Economics
Tatofie, Roger UL

Doctoral thesis (2012)

Infrastructures and utility services are fundamental to economic and human development. Therefore, investment in these areas is critical to economic growth, quality of life, poverty reduction, access to ... [more ▼]

Infrastructures and utility services are fundamental to economic and human development. Therefore, investment in these areas is critical to economic growth, quality of life, poverty reduction, access to education and health care and achieving many of the objectives of a robust economy. Yet, whereas the public sector provides the vast majority of financing for infrastructure services, investments have not matched demand, public funds or borrowings are insufficient and governments are seeking methods to improve the efficient procurement of infrastructure services. Private sector participation in public projects is increasingly becoming a reliable source of investment and, as far as public policies are concerned, an unavoidable feature of our contemporary society even in “core public policies” (for example, greater responsibility for financial planning and welfare provision is being increasingly shifted by the states to the private sector and individuals). In the area of infrastructures and utility services, Public-Private Partnerships (PPP), despite some of their challenging features, are one of the tools in a policy maker’s arsenal which help to increase investment in infrastructure services and improve its efficiency. One of the main advantages of PPP is that, unlike privatization, the government retains strategic control over the project and the ownership of its assets. PPP offers multiple options or structures. As shown in this study, Build, Operate and Transfer (BOT) Projects are one of the numerous options offered by PPP. In a BOT project, a private entity is given the right to design, finance, build and operate for a defined period (“concession period”) a facility that would normally be built by the government. The operation of the project generates revenues and the private entity uses these revenues to service debt and provide the investors with a return. At the end of the defined period, the private entity turns over the facility to the government. In practice, a number of parties - each with sometimes different interests, levels of sophistication and available resources - will be involved in a BOT project: the grantor/host government, the sponsors (generally throughout the project company), the lenders and the contractors (construction contractor, operator, offtake purchaser, input supplier) and the BOT approach can be used for different and various projects (power generation, water treatment, airports, roads, tunnels, bridges…) and, hence, has many variants such as BOO (Build, Own and Operate), BOOT (Build, Own, Operate and Transfer), BTO (Build, Transfer and Operate) etc. The BOT approach is not, however, a panacea for the host government and may involve some disadvantages. In effect, BOT projects are highly complex (from both financial and legal points of view), commercially driven projects, requiring extensive documentation and negotiation and a suitable political, legal, regulatory and economic environment. Nevertheless, it has many potential advantages and still is a viable alternative in most countries to the more traditional approach to public projects. For policy makers, practitioners, investors and, above all, the targeted populations to fully benefit from these advantages, the BOT concept must however be clarified and lifted from the fuzziness in which it has been plunged by commentators. There has actually been a dual view of the BOT concept: On one hand, some commentators consider the BOT concept as a simple public procurement modality, comparable to the concession model, and hence to be subjected to classical public law concepts, practices and requirements such as the public services, public ownership and standards and rules of public budget and accountancy. On the other hand, some other commentators view the BOT concept as a modality of project financing which should therefore be subjected to the requirements of profitability and risks sharing. However, if this dual view presents the BOT concept under two specialized lenses and tends to protect certain interests - i.e. public interests and private interests - it is in fact non satisfactory conceptually as well as practically. In fact, this dual view describes a unique reality which an economic cooperation characterized by harmony and conflict, change and equilibrium. The ambition and objective of this study is therefore to give a full understanding of the BOT concept and to shed light on its originality and its unity. The BOT concept is therefore considered as an economic cooperation device, demonstration made in this study principally under the light of law and economics approach. In effect, structuring a BOT project requires the use of (free) market tools (especially economic and financial tools), which render the law and economic approach perfectly suitable to analyze the BOT concept and reveal its rationality and coherence. Hence, the use of the (strategic) game theory to underline the mutual gains resulting from the cooperation between partners involved in a BOT project; the use of the incomplete contract theory to explain the special care needed to design the BOT contract and its possible adjustments; the use of the theory of the firm and financial contracting to explain the functions of coordination and integration of the project company; or also the use of the public choice theory to analyze the notion of general interest which has led to the conclusion that BOT projects are a combination of public and private interests in order to achieve optimality and mutual gains. More generally however, this study has adopted a pragmatic view, using various and different methods, because analyzing the relationships between State and market requires taking into account a great range of fields, considerations and expertise. This pragmatic approach suggested the study be carried out as a genealogic enterprise, such a process allowing a criticizing stance and a formulation of a new and global theoretical frame presenting the relics and the transformations of the current (dual) views of the BOT concept from which its originality and its unity derive. This study has therefore shown that the contractual, structural, economic and financial interdependence of the BOT project makes it an undeniable economic cooperation device. The BOT concept therefore acquires a conceptual unity which reinforces its functional and practical nature and adds a guarantee of legal security to its use. Besides, it has also been demonstrated that BOT is a signaling and an accountability tool for the partners involved in those operations. Ultimately, as regard to public projects, the BOT concept introduces a bit of rationality in equity and humanity to efficiency. [less ▲]

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