The Build-Operate-Transfer (BOT) model is a financing method used to implement large-scale infrastructure projects through collaboration between the public and private sectors. In this model, the private sector constructs and operates the project for a specific period, recovers its investment through the revenues generated, and ultimately transfers the ownership and management of the facility to the public free of charge at the end of the operating term. It enables infrastructure investments to be carried out through private capital, especially in developing countries where public budgets are insufficient.
In the BOT model, the private sector undertakes the financing, construction, and operation of the project and recovers its capital from the revenues generated. The government grants only the right to operate the facility, while the private sector earns income based on tariffs determined by public authorities. At the end of the operating term, the facility is transferred to the public sector. The model is typically designed for projects requiring advanced technology and high costs, facilitating the swift and effective completion of major infrastructure initiatives.
Characteristics
The core features of the Build-Operate-Transfer model relate to the responsibilities assumed by the private sector during the investment and operational phases. In this model, the private sector undertakes the development, construction, and operation of a specific public service or infrastructure investment and transfers the project to the public after a predetermined period. Contracts are usually long-term, and during this period, the private sector seeks to recoup its investment through revenue generation. One of the most distinctive characteristics of the BOT model is that it is executed through contracts between public authorities and the private sector. These contracts clearly define the operating period, tariffs, and service fees. Throughout the contract period, the private sector operates the facility or infrastructure and works to recoup its investment. The host country or institution may also include financial mechanisms that guarantee funding for the project, often with some public contribution. The BOT model can be applied not only to new projects but also to the renovation of existing infrastructure or the completion of unfinished projects.
Advantages
It enables governments to implement such projects without making significant investments. This means that infrastructure needs can be met without straining public budgets. The private sector has greater flexibility and incentive to develop efficient and innovative solutions during project implementation. By leveraging the private sector’s professional management skills and capital accumulation, the BOT model facilitates the realization of fast and effective projects that the public sector may not be capable of delivering alone. Additionally, the private sector's technological capabilities and access to financing contribute to making infrastructure projects more modern and sustainable. The public benefits from the investment’s outcome at no cost upon project completion, providing an opportunity for long-term development without direct fiscal burden.
Disadvantages
The disadvantages of the BOT model typically stem from the long duration of contracts and the limited oversight capacity of the government. The extended investment and operational periods may result in conflicts with changes in the political and economic structure of the country, potentially affecting both private sector interests and public welfare. Furthermore, weak public oversight may allow the private sector to compromise on service quality in pursuit of profit. Another drawback is the financial burden that may fall on the public due to the guarantees provided and the demands for perpetual operating rights in large, long-term projects. Additionally, problems such as high operating costs or low efficiency may arise in facilities handed over to the public. Legal disputes and confusion of authority between the public and private sectors can jeopardize project success.
Operation Phase
In the Build-Operate-Transfer (BOT) model, the operation phase begins after the completion of the construction stage. The operating period refers to the timeframe during which the private company that constructed the project has the right to operate the infrastructure. During this time, the private sector begins operating the facility, earns income from its operations, and aims to recoup its investment. The operating period is usually long-term, and at the end of this period, both the ownership and operation rights are transferred to the state. During this process, the government must oversee the efficiency and quality of public services provided through the project. Through consistent monitoring, the government ensures that the project operates according to its intended purpose.
The operation phase imposes financial and operational responsibilities on the private sector. During this period, the private sector may resort to technological innovations to increase efficiency and reduce operating costs. It generates revenue according to tariffs set by the government and seeks to achieve amortization and profit. The private sector is responsible for carrying out all necessary maintenance, repairs, management, and operational activities throughout the project lifecycle.
Parties and Contracts
In the Build-Operate-Transfer model, contracts are typically formed through agreements between the public and private sectors. At the outset of the project, the public authority grants the private sector permission to build and operate the relevant infrastructure, while the private sector undertakes the investment and construction. These contracts specify a defined duration and the operational rights to be granted to the private sector. At the end of the operating period, ownership and operational rights are transferred to the state free of charge.
Contracts between the parties clearly define issues such as payment guarantees, operating periods, use, and transfer of the facility. While the public sector monitors whether the private sector fulfills its commitments, the private sector meets its financial obligations during the project. Contracts often grant specific rights to the private sector throughout the project period, particularly the right to earn profit and operate a particular service.
The private company continues operating the project for the agreed period, while the public sector monitors the quality of service. At the end of the operation period, the facility and its operational rights are handed over to the state. This transferred facility is then used for public service, and the private sector completes its investment recovery and profit. The government conducts regular audits during this process to ensure that projects serve the public interest.
