What works and what doesn't with BOT contracts? The case of thermal and hydraulic plants

Private financing and operations of public infrastructures – often also called Public-Private Partnerships or PPPs – are becoming increasingly important, especially in the case of developing countries. Different types of PPP instruments – among which in particular BOT (Build-Operate-Transfer) and BOOT (Build-Own-Operate-Transfer) instruments – have been tried and will be used in major infrastructure projects, ranging from dams, power plants, roads, and railways to telecommunications infrastructures and others more. Little however is known about critical success factors. In this paper, the authors will focus on BOTs for both thermal and hydraulic plants. Empirically the paper will be grounded on selected cases in Africa, as well as on World Bank data. More precisely, the authors will compare such BOTs and seek to identify the relevant success factors. It is generally admitted that BOTs work better in the case of thermal plants than in the case of hydraulic plants. It is assumed that this is mainly because, in the case of thermal plants, more limited initial investment is needed and therefore less financial and other risks (e.g., climate, geology) are being incurred. However, there is generally more uncertainty about fuel price evolution in the case of thermal plants. The paper will seek to determine which are the relevant criteria that influence the choice for BOTs in either thermal and hydraulic plants. We anticipate that such criteria pertain to the amount of kWh needed, the type of energy needed (e.g., continuous vs peak-load), oil price, regulatory factors (e.g., CO2 tax), and others more. Overall, it will appear that risk management is the key to successful BOTs. Therefore, in conclusion, the paper will make related recommendations.