Study Of Risk Management And Relevant Legal Issues On BOT

The global capital market witnessed dramatic improvement in the last fifty years, under this situation, more and more countries lightened up their restrictions on infrastructure constructions and privatization. Project finance has become a new investment option for private equity groups. Usually, the way BOT projects work out can be described simply:creditors seek to realize a return on their investment through demanding the usufruct for a certain period of time after the financed project has been built, while requesting the profits generated from such project as collateral. Since the way project finances usually work offers great flexibility, the development of this business model not only provided private sector investors a bigger platform, but also helped solve budget difficulties in many developing nations when they sought to enhance their infrastructure construction projects. However, since BOT involves many contracts and cooperation between government and private sector investors, and other contracts between private sector investors and contractors, the mitigation and management of risk is critical in the successful operations of such projects. Considering the current development status of China, and based on a thorough analysis of legal issues such as risk mitigation, risk management, and government guarantees in BOT projects, the author will give recommendations for the legislation of BOT laws in China, hoping this would complement relevant legislations, therefore further develop our BOT finance model.The first chapter of this thesis mainly focuses on a brief explanation of the structure of BOT projects. It provides overview and background knowledge for readers to further understand BOT projects through introducing the basic concepts, current status, and the four main hallmarks of such projects.The second chapter discusses the legal issues faced in BOT projects. It begins with an explanation of the legal nature of BOT projects, followed by a thorough analysis of various kinds of legal agreements possibly involved in the projects, and a one-by-one analysis on the legal nature of each individual agreement. Amongst all these agreements, concession agreements are the most important, they are not only the foundation of the operations of BOT projects, but also the legal basis of government guarantees. The author of this thesis emphasizes an analysis of the legal nature of concession agreement in order to clear the way to understand the more in-depth analysis in later chapters.The third chapter discusses risk management analysis. Since BOT are usually large-scale projects, risk mitigation and management are critical for a smooth operation. The author first explains and categorizes different types of risks involved in BOT projects, then moves on to construction and operational risk, foreign exchange risk, and political risk. Furthermore, the author introduces experiences of successful operations of BOT in other countries. The purpose of the thesis is to, through identifying and analyzing risks, with effective legal measures, based on common risk-sharing principles, all parties of the project finance could scientifically avoid or manage foreseeable risks at the lowest costs, thus minimizing unnecessary concerns of each party, and assuring the smooth operation of BOT projects.The fourth chapter analyzes government guarantees and relevant legal issues of BOT projects. Since most such projects are infrastructure investment from private equity groups in developed countries to developing countries, the political stability in developing countries is also an important factor when investors are considering the safety of their investments. Considering the political risks explained in the third chapter, a government guarantee is not only a legal promise from the host country to the creditors in order for the later party to avoid and manage risks, but also a legal basis for the investors to avoid and manage such political risks. Since the signing parties of government guarantee agreements are host country governments and private sector investors, the content and character of such agreement is extremely important to the smooth and successful operation of BOT projects. In addition, an analysis of the legal nature of government guarantee agreements would be helpful when there are any issues regarding the application of the law. The author addresses the definition and legal nature of government guarantee agreements, and introduces applicable and successful experiences from foreign countries.The fifth chapter is based on the current status of BOT project operations in China, lists various kinds of risks that foreign investors may be exposed to in China, and offers examples. Through a discussion of current relevant legal controversies, the author makes legislative recommendations to remove legal obstacles for the practice of BOT projects, hoping the solutions proffered would mark a clear path for the future implementation and operations of BOT projects in China.