Risk Factors: 1. Political risk. 2. Financial risk. 3. Operation risk. 4. Construction risk. 5. Market risk.
1. Political Risk: The source is the potential of political events to occur such as war or revolution. This risk is more significant in developing countries.
2. Financial Risk: The source is the oscillations in exchange rates between currencies, interest rate, and inflation. This risk is more significant in developing countries.
3. Operation Risk: The source of this risk is the probability of actual operation and maintenance costs to exceed planned costs.
4. Construction Risk: The risk is related to the delays of project completion and cost overruns. Delays causes are technical problems, poor management, or both combined together. Operation and Construction risks are more manageable.
5. Market Risk: Demand risk from doubts of demand regarding the project products. Price risk related to the probability of price change for the project products.
Critical Success Factors: 1. Entrepreneurship and leadership. 2. Right project identification. 3. Strength of the consortium. 4. Technical solution advantage. 5. Financial package differentiation. 6. Differentiation in guarantees.
1. Entrepreneurship and Leadership: Defined as the pursuit of opportunities beyond the financial and technical resources that the entrepreneur currently possesses. There are three sub factors: Risk taker. Cultivating goodwill with host government. Leadership of a key entrepreneur.
2. Right Project Identification: Choosing the right project to pursue is very essential factor for successful BOT project. This factor include accurate prediction of need and lack of funds by host government.
3. Strength of the Consortium: The consortium must be strong to win the BOT project contract by having financial strength and multinational team.
4. Technical Solution Advantage: Having technical solutions that provide cost reduction will generate a competitive advantage and attractive proposal. Other ways of having solution advantage could be by shorter construction period, good environmental impact, and public safety.
5. Financial Package Differentiation: Financial package will provide cost advantage and make the proposal unique. Cost advantage requires low construction cost, acceptable tariff levels, reasonable equity to dept ratio, and short concession period.
6. Differentiation in Guarantees: Special features or guarantees differentiate a proposal from others. Special features should demonstrate the humanity of the project and ensure fears the host government might have. Less guarantees requirements are preferable by governments.
Conclusion: A viable mechanism for infrastructure was needed resulted in BOT. There are many factors affect the decision making of taking a BOT project or not. Risks involved in BOT projects must be considered and assessed. Six critical success factors are common in success BOT projects.