Build, Own, Operate, and Transfer

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Blog Author :

WallStreetMojo Team

Edited by :

Ashish Kumar Srivastav

Reviewed by :

Dheeraj Vaidya, CFA, FRM

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What Is Build, Own, Operate, And Transfer (BOOT)? 

Build, Own, Operate, and Transfer (BOOT) is a Public-Private Partnership (PPP) model used particularly in infrastructure projects. In a BOOT arrangement, a private entity is responsible for designing, constructing, financing, and operating a project for a specified period in line with the contract terms.

BOOT

BOOT arrangements enable the construction and development of critical infrastructure projects that might otherwise be delayed or not implemented due to budget constraints or bureaucratic issues. During the operational phase, the private entity may transfer technical know-how and expertise to the public sector department or agency, enhancing their capacity to manage similar projects in the future.

Table of contents
  • Build, Own, Operate, and Transfer (BOOT) is a type of public-private partnership (PPP) model generally used to facilitate infrastructure projects. In a BOOT arrangement, a private entity takes on the responsibility of designing, financing, constructing, and operating the infrastructure for a specified period.
  • The BOOT model allows the private sector to invest in and manage large-scale infrastructure projects while the public sector benefits from the completed project without bearing the financial burden upfront.
  • It is commonly used for projects like toll roads, airports, power plants, and water treatment facilities.

How Does Build, Own, Operate, And Transfer Model Work?

The Build, Own, Operate, and Transfer (BOOT) model operates as a Public-Private Partnership (PPP) framework for infrastructure projects. In this arrangement, a private entity, often a consortium or company, takes responsibility for the entire lifecycle of the infrastructure project. It starts by designing and constructing the facility using its own funds or through loans and financing. Once the project is completed, the private entity owns and operates it for a predetermined period, typically ranging from several years to several decades.

During the operational phase, the private operator manages the day-to-day activities, maintenance, and service provision. They may collect user fees or charges, such as tolls or tariffs, to recover their investment and operational costs. This allows the private entity to earn returns on investments over the agreed-upon duration.

At the end of the contract period, ownership and operation of the infrastructure are transferred to the public sector or government. This transfer is usually done at no cost or a nominal cost, depending on the terms of the build own operate transfer contract.

The BOOT model offers advantages to both parties. The public sector benefits from the private sector's expertise, technology, and efficiency in delivering and managing the project. It also alleviates the financial burden on the government, as the private entity bears the risks associated with construction and operation.

For the private entity, the BOOT model presents an opportunity for long-term revenue generation, often through user fees, while eventually transferring the infrastructure back to the public sector enterprise or department.

Examples

Let us look at some BOOT examples to understand the concept better.

Example #1

Consider a hypothetical example of the Build, Own, Operate, and Transfer (BOOT) model for a toll road project. A private company, Roadway Builders Inc., enters into a BOOT agreement with the local government to construct a much-needed toll road to ease traffic congestion.

Roadway Builders Inc. invests its capital to design and build the road with modern features, including electronic toll collection systems. Once completed, the private entity operates the toll road for a fixed period, maintaining it to high standards and collecting tolls from users for revenue. The contract states that after 25 years, the private entity will transfer the ownership and operations back to the government. During this period, the toll road significantly improves transportation in the region, and Roadway Builders Inc. recovers its investment and earns profits from toll collections.

Example #2

A real-world example of the Build, Own, Operate, and Transfer (BOOT) model is the Hamad International Airport (HIA) in Doha, Qatar. In 2008, the Qatar government awarded a contract to a consortium led by Hamad International Airport Company (HIAH), a joint venture between Qatar Airways and other investors, to design, construct, operate, and maintain the new airport. The project aimed to replace the existing Doha International Airport, which was fast reaching its capacity.

Qatar Civil Aviation Authority (QCAA) and the New Doha International Airport Steering Committee handled the airport development. The Qatar Company for Airports Operation and Management (MATAR) oversees airport operations. 

During the “Build” phase, the consortium designed and constructed the state-of-the-art Hamad International Airport, investing significant capital and technical expertise. In the “Own and Operate” phase, the consortium took over the operations and management of the airport, ensuring the smooth and efficient functioning of the facility.

Throughout the operational period, which began with the airport's opening in 2014, the consortium managed the airport, generating revenue through various sources, including airline fees, retail concessions, and passenger services.

The "Transfer" phase is expected to take place in the future per the terms of the BOOT contract. At the end of the concession period, ownership and operation of the airport will be transferred to the government of Qatar.

The Hamad International Airport project is an exemplary BOOT arrangement that demonstrated successful collaboration between private and public sectors, resulting in the creation of a world-class airport to serve the growing passenger footfall in the region.

Advantages And Disadvantages

The advantages and disadvantages of Build, Own, Operate, and Transfer have been discussed in this section.

Advantages

  • Accelerated Infrastructure Development: BOOT projects facilitate the timely development of critical infrastructure by leveraging private sector expertise, funding, and efficiency, leading to faster project completion.
  • Private Sector Expertise: Private entities bring specialized knowledge, technology, and innovation, enhancing the quality and performance of the infrastructure.
  • Risk Transfer: The private sector agency assumes responsibility for all the construction and operational risks during the concession period, reducing the burden on the public sector.

Disadvantages

  • User Fees and Cost Concerns: BOOT projects may lead to higher user fees for essential services, raising concerns about affordability and access for some segments of the population.
  • Long-Term Commitment: Governments must carefully assess the duration of BOOT contracts to ensure alignment with long-term infrastructure needs and potential changes in technology and demand.
  • Regulatory and Contractual Complexity: BOOT agreements require robust contracts and careful regulatory oversight to safeguard public interests, which can be challenging to implement and monitor effectively.

Build, Own, Operate, And Transfer vs Build Lease Transfer

The differences between Build, Own, Operate, and Transfer and Build Lease Transfer are listed in the table below.

BasisBuild, Own, Operate, and Transfer (BOOT)Build Lease Transfer (BLT)
Meaning and OwnershipThe build own operate transfer definition states that the private entity (often a consortium or company) not only designs and constructs the infrastructure but also owns and operates it during the defined concession period. Per a Build Lease Transfer contract, private players take charge of the project and oversee the construction. Once the project is ready, they lease it to public agencies or departments for a specific recurring payout until the lease expires. At the end of the lease term, the property is usually transferred to the public sector agency.
FinancingThe private entity is responsible for financing the construction of the infrastructure. They may use their own capital, secure loans, or find other sources of funding for the project.Various forms of project funding are used, including private financiers, lease income, tax reliefs & incentives, and public fundraising, among others. This may be customized based on funding needs. 
Revenue GenerationDuring the operational phase, the private entity generates revenue through user fees, tariffs, or other income streams associated with the operation of the infrastructure.During the operational phase, the private entity generates revenue largely through lease payments from the public agency. 
TransferAt the end of the contract period, ownership and operation of the infrastructure are retransferred to the public sector or government.The private entity transfers the property to the public agency or government when the lease concludes. 

Frequently Asked Questions (FAQs)

1. Is the build own operate transfer agreement similar to outsourcing?

Build Own Operate Transfer (BOT) is a contractual arrangement between a private entity and a government or public authority for the development and operation of infrastructure projects. The private entity is responsible for the entire lifecycle of the project, including designing, financing, constructing, operating, and maintaining the infrastructure. Outsourcing contracts typically involve activities limited to the production of goods or services. Due to this, the scope of BOOT is wider than outsourcing.

2. Does Deloitte use the build own operate transfer model?

Deloitte uses the BOTT model, which refers to Build Operate Transform Transfer. While BOOT usually applies to infrastructure projects, BOTT handles service delivery, especially for digital transformation projects. Such projects bring about massive change through efficient service delivery, business solutions development, and resource optimization.

3. Why are build own operate transfer projects important?

A BOOT contract shifts the responsibility of large-scale projects to private entities with quick access to potentially superior resources (monetary, equipment, materials, technology, manpower, etc.). Private players are also in charge of tackling project risks. This arrangement frees the government or public sector agencies to deal with administrative issues and focus on economic activities that accelerate the country’s growth.