methods drew interest from other developing countries. They have since been employed as a financial tool in many industrialized nations as well.
For the most part, BOT provides a mechanism by which major construction projects can be financed using private capital. In most cases, these projects require some type of construction loan. With BOT, however, governments do not have to directly guarantee such loans (Tiong, 1992, p. 107).
Build operate transfer is therefore an effective means of attracting private money to what would otherwise by public sector projects. The consortia that get involved in these deals are usually made up of a several different sponsors. While these individuals and companies typically include a contractor, an operator, an offtaker or buyer of the project's end product, and banks. The consortia may also sometimes as in the case of the Channel Tunnel involve passive investors, or financiers (Barrett, 1987, p. 120).
The groups submit proposals on upcoming build operate transfer jobs. They then may become eligible to win a BOT contract. These contracts generally stipulate that consortia must contribute their own equity to the construction costs. Besides helping to finance a project these funds serve a variety of other functions. For one, the equity may act as an incentive for the contractor to complete the project on time and on budget. While the money often does provide a project with some financial cushion, that buffer comes directly out of the consortium's own pocket. Secondly, the investment will motivate operators to run their projects efficiently. Lastly, the contributions demonstrate the sponsoring consortium's "faith in the economic viability of the project" (Barrett, 1987, p. 120). This commitment may subsequently encourage the involvement of other lenders.
Once a project is completed, consortia use the concession period to get their money back before transferring the facilit...