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Build Operate Transfer – a possible option for development

We are the creative force of our life, and through our own decisions rather than our conditions, if we carefully learn to do certain things, we can accomplish those goals.
Stephen Covey

We, as a nation are in the habit of grumbling, getting anxious and angry, verbally condemning everyone but ourselves, for everything which goes wrong or which is not to our liking. However, our laid-back attitude forces us to do nothing concrete to alleviate these sufferings. Both our federal and provincial governments continuously complain of lack of resources for public sector development, yet there is no end to their imprudent expenditure on wasteful pursuits. With rampant corruption in almost all the departments responsible for developing infrastructure, the morbid condition of roads, railway tracks, electricity, gas, urban/rural planning, etc. reflects the level of ‘sincerity’ with the country. With uncontrollable inflation, the ever-growing population is absolutely at a loss in managing its daily affairs. Members of the public seem to be running around like headless chickens, totally exasperated with the sorry state of affairs. All hopes related to a democratic representative government appear shattered at the altar of disunity and political rivalries.

In these circumstances, one wonders what prevents our government from seeking alternate solutions for the purpose of developing the country’s infrastructure, especially if these methods do not even have a price tag attached. When countries like ThailandTurkeyTaiwanSaudi ArabiaIsraelIndiaIranCroatiaJapan,ChinaVietnamMalaysiaPhilippinesEgypt, and a few US States (California,FloridaIndianaTexas, and Virginia) have made use of this option, then why cannot Pakistan? If the rationale behind not availing Build-Operate-Transfer (BOT) is fear of foreigners taking hold of vital networks, then this stands defied as the country is already a hostage in the hands of foreign donors, whose dictations are followed verbatim. However, the main reason for not availing BOT is that it would not allow private coiffures to be filled with heavy kickbacks.

According to an article in Wikipedia there is a consensus that, “BOT finds extensive application in infrastructure projects and in public private partnership. In the BOT framework a third party, for example the public administration, delegates to a private sector entity to design and build infrastructure and to operate and maintain these facilities for a certain period. During this period, the private party has the responsibility to raise the finance for the project and is entitled to retain allrevenues generated by the project but is not the owner of the regarded facility. The facility will be then transferred to the public administration at the end of theconcession agreement, without any remuneration of the private entity involved.” Some or even all of the following different parties could be involved in any BOT project:

  • The host government: Normally, the government is the initiator of the infrastructure project and decides if the BOT model is appropriate to meet its needs. In addition, the political and economic circumstances are the main factors for this decision. The government normally provides support for the project in some form. (provision of the land/ changed laws)
  • The concessionaire: The project sponsors who act as concessionaire create a special purpose entity which is capitalized through their financial contributions.
  • Lending banks: Most BOT projects are funded to a big extent by commercial debt. The bank will be expected to finance the project on “non-recourse” basis, meaning that it has recourse to the special purpose entity and all its assets for the repayment of the debt.
  • Other lenders: The special purpose entity might have other lenders such as national or regional development banks
  • Parties to the project contracts: Because the special purpose entity has only limited workforce, it will subcontract a third party to perform its obligations under the concession agreement. Additionally, it has to assure that it has adequate supply contracts in place for the supply of raw materials and other resources necessary for the project.

Thus, the party that undertakes to work on a project puts in all the money, works on it and recovers its expenses by managing it for certain duration of time after the lapse of which the establishment is transferred to the government. So, for example, if Swiss expertise is sought for developing our obsolete railway system, perhaps in another twenty years’ time we would be proud to travel on our trains. Even those areas that are now accessible only by roads could be connected by a vast network of railway lines, facilitating movement of both goods and passengers without glutting the highways with heavy vehicular traffic.

Similarly, the dire need of urban mass transit can be catered for if experts in this field could be invited on BOT basis to create an exemplary transport system within the major cities of the country to ease out congestion on the roads. Many leading international companies can be called to provide us power solutions on emergent basis under BOT agreements. A number of countries in Latin America and the Caribbean have used this option recently. These projects included from temporary power solutions to permanent energy houses for factories, agricultural farms, and local and regional power grids for governments. In Columbia alone from 1998 to 2009, 17 power projects were completed using all kinds of resources: solar turbines, hydel dams, gas plants, diesel engines and wind mills. In Shagun-Bolivar, the Columbian government on BOT basis installed 1800-KWe plant in 1998 that has gas and solar turbines. We have failed to study such projects and are buying highly expensive electricity from IPPs rather than going for BOT projects.

There is no dearth of natural resources in Pakistan, but for some queer reason, our statesmen have failed to exploit them. As a result, instead of harnessing these God-gifted resources for the best use of the nation, they have been ruthlessly plundered and made redundant because of sheer short-sightedness and in-fighting. When friendly countries like China, offer to find cheap and long-term solutions to our power needs, why are such proposals not accepted? No development project can sustain without a strong power base. Almost everything today finds its life-line in the supply of electricity. This crucial problem is understood by everyone except the insensitive government. Tragically however, power lies with those who have no will to develop Pakistan and turn it into a proud, self-reliant and strong nation.

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