Risk Analysis Of BOT Projects Concession Contract

Facing inadequate public financial status and increasing demand on infrastructure facilities, many governments worldwide are exploring new infrastructure procurement routes through private investment in public infrastructure among which the BOT (Build-Operate-Transfer) is a very popular option.BOT is a relatively new approach to infrastructure development, which enables direct private sector investment in large-scale projects such as roads, bridges and power plants. The BOT procurement system has been developed with several similar parallel approaches including Private-Finance-Initiative (PFI) and Public-Private-Partnership (PPP). Over the last 20 years, the BOT contract has proven to be an effective method in financing public infrastructure projects in both developing and developed countries. Before BOT concession contract agreement, the negotiation groups from both the Concession Company and the government conduct risk assessment internally regarding those uncertain factors existing in the contract, evaluate and the risk events. It appears that previous research particularly focused risk allocation strategies in BOT financing method and limited research has been undertaken in providing a quantitative analysis and modeling approach to evaluate the risks.This paper analyzes the BOT system and its main features, and critically reviews the concession agreement negotiation. Based on the Multi-Attribute Utility Theory (MAUT) formulated by Keeney and Raffia, a risk measurement and assessment model is developed. A given numerical example proves that decision makers to analyze risks during BOT concession contract negotiations can effectively apply this model.