meaning: 1. infrastructure concession BOT is the abbreviation of English build-operate-transfer, which is usually literally translated as "build-operate-transfer". This translation is straightforward, but it can't reflect the essence of BOT. BOT is essentially a way of infrastructure investment, construction and operation. On the premise of reaching an agreement between the government and private institutions, the government issues a concession to private institutions, allowing them to raise funds to build an infrastructure and manage and operate the facility and its corresponding products and services within a certain period of time. The government may limit the quantity and price of public products or services provided by this institution, but ensure that private capital has the opportunity to make profits. The risks in the whole process are shared by the government and private institutions. At the end of the concession period, the private institution will hand over the facility to the government department as agreed, and the government will designate the department to operate and manage it. Therefore, it is more appropriate to translate the word BOT into "infrastructure concession". The above is a narrow concept of BOT. BOT has experienced hundreds of years of development, and in order to adapt to different conditions, many variants have been derived, such as boot (build-own-operate-transfer), boo (build-own-operate), BLT (build-lease-operate) and tot (transfer-operate-transfer). The broad concept of BOT includes these derivative varieties. What people usually say about BOT should be a broad concept of BOT. The word "build-operate-transfer" can't sum up the development of BOT mode. 2. The history of BOT. This investment and construction method has been used by some developing countries to build their infrastructure and achieved certain success, which has attracted worldwide attention and been promoted as a new investment method. However, BOT is far from a new thing, and it has a history of at least 3 years since its appearance. On the one hand, BOT can keep the market mechanism working. Most of the economic activities of BOT projects are carried out in the market, and the government's practice of determining the project company by bidding itself also includes the competition mechanism. As a reliable market subject, private institutions are the actors of BOT mode, and they have complete property rights for the construction projects during the concession period. In this way, the behavior of private institutions undertaking BOT projects in the process of implementing BOT projects completely conforms to the hypothesis of economic man. On the other hand, BOT provides an effective way for government intervention, which is the agreement on BOT reached with private institutions. Although the implementation of BOT agreement is entirely the responsibility of the project company, the government has control over the project from beginning to end. The will of the government plays a decisive role in the three stages of project establishment, bidding and negotiation. In the performance stage, the government has the power of supervision and inspection, and the price setting in project operation is also constrained by the government. The government can also restrain the behavior of BOT project companies through the general BOT law. Operation mode and risk sharing of BOT A typical BOT project involves the government, BOT project companies, investors, banks or consortia, and relevant companies undertaking design, construction and operation. The government is the controlling subject of BOT project. The government decides whether to set up this project and adopt BOT. The government also occupies a favorable position when negotiating and determining the BOT project agreement contract. It also has the right to supervise the necessary links during the project. When the project concession expires, it also has the right to recover the project for free. The owner is the executive subject of BOT project, and it is in the central position. The owner shall be responsible for all financing, subcontracting, construction, acceptance, management system, debt repayment and interest repayment related to the BOT project. Large-scale infrastructure projects usually set up a project company as the owner to deal with design companies, construction companies, manufacturers and operating companies. Banks or groups are usually the main funders of BOT projects. For small and medium-sized BOT projects, a single bank is generally enough to provide all the funds needed, while large-scale BOT projects often make a single bank feel overwhelmed, thus forming a syndicate to provide loans. Because the debt ratio of BOT projects is generally as high as 7-9%, loans are often the biggest source of funds for BOT projects. Investors are the risk-taking subjects of BOT projects. They bear limited liability with the invested capital. Although in principle, the government and private institutions share risks, in fact, there are great differences in operation among countries. Developed market economy countries share little risk in BOT projects, while developing countries often bear a large proportion of risks in transnational BOT projects. 2. BOT project implementation process BOT mode is mostly used for projects with large investment amount and long term. A BOT project usually takes more than ten years or decades from its establishment to the expiration of its franchise. At this stage, according to the medium and long-term social and economic development plan, the government made a list of new construction and reconstruction projects and made it public. Private institutions can make a reasonable plan according to the items on the list, contact their business development direction, and then put forward suggestions to the government to build a project by BOT, and apply for bidding or indicate their intention to undertake the project. On the other hand, the government relies on consulting institutions to conduct feasibility studies of various schemes, and decides which method to adopt according to the technical and economic indicators of each scheme. Bidding stage. If the project is determined to be built in BOT mode, the government or its entrusted agency will first issue a tender advertisement, and then pre-qualify the registered private institutions, and select several private institutions as bidders and sell the tender documents to them. For the project that is determined to be built by BOT, it is also possible to directly negotiate with private institutions that have the intention to undertake the project without bidding. However, the success rate of negotiation is not high. Even if the negotiation is successful, the project cost will often increase due to the lack of competition and the excessive conditions promised by the government. Bidding stage. It takes a long time to prepare the tender for BOT project, often more than six months. During this period, the institutions entrusted by the government should always answer the questions raised by bidders on the project requirements and consider the reasonable suggestions put forward by the tenderee. Bidders must submit their bids to the tenderee before the specified date. After bid opening, bid evaluation and ranking, the tenderee shall select the first 2-3 companies for negotiation. The negotiation stage. Concession contract is the core of BOT project, which has legal effect and is valid throughout the concession period. It stipulates the rights and obligations of the government and BOT project company, and determines the risks and returns of both parties. Therefore, the negotiation of concession contract is a key link of BOT project. The tenderee entrusted by the government negotiates with several selected bidders in turn. If successful, sign the contract; if unsuccessful, turn to the next bidder. Sometimes negotiations need to go round. Performance stage. This stage covers the whole concession period and can be divided into construction stage, operation stage and handover stage. The owner is the protagonist at this stage and undertakes a lot of work to fulfill the contract. What needs to be pointed out in particular is that a good franchise contract can encourage the owners to supervise the participants in construction and operation seriously and responsibly, and strive to reduce costs and improve efficiency. Risk in BOT projects BOT projects have large investment, long term, and great differences in conditions, and there is often no precedent to follow, so BOT projects are risky. Risk avoidance and sharing has become an important part of BOT projects. There are five possible risks in the whole process of BOT project: political risk, market risk, technical risk, financing risk and irresistible external force risk. Political risk. Political instability and social instability will bring political risks to BOT projects, which are especially considered by multinational BOT project companies. The political risk borne by investors increases with the extension of the project period, but for domestic investors, this risk factor is less considered. Market risk. During the long concession period of BOT project, the relationship between supply and demand and price changes occur from time to time. Before the BOT project recovers all its investment, there may be cheaper competitive products or more popular substitute products in the market, so that the demand for the output of the BOT project is greatly reduced, which is called market risk. Usually, BOT projects have a monopoly because of their long investment period and the need for government assistance and concession, but the market risks caused by technological progress cannot be ruled out. In addition, in the raw material market, the price increase of raw materials may lead to project cost overruns, which is another market risk. Technical risk. In the process of BOT project, the risk caused by improper arrangement of institutional details is called technical risk. One manifestation of this risk is delay, which will directly shorten the project operation period and reduce the project return, and may seriously lead to the abandonment of the project. Another situation is engineering defects, which refer to the problems left over from the construction process. This kind of risk can be reduced by technical treatment in institutional arrangements. Financing risk. The risk brought by unexpected changes in exchange rate, interest rate and inflation rate is financing risk. If inflation is higher than expected, the predetermined price of BOT project (if the expected price is agreed) will be low; If the interest rate rises, the financing cost of BOT projects will increase greatly due to the high debt ratio. Because BOT is often used in transnational investment, the change of exchange rate or the difficulty of cashing will also bring risks to the project. 4. There are two mechanisms for avoiding BOT risks and sharing risks. One mechanism is evasion, that is, taking certain measures to reduce the probability of adverse situations; Another mechanism is sharing, that is, agreeing in advance on the allocation scheme of losses in the event of adverse circumstances. This is an important content in the BOT project contract. The international practice of sharing risks among participants is that whoever can control the risks best will bear the risks. Evasion of political risks. The first thing that BOT project companies with transnational investment should consider is political risk. This kind of risk is difficult to assess only by the experience of economists and economic workers. The project company can obtain some government concessions in the negotiations to partially offset the political risks. Such as opening a project fund account outside the project country. In addition, the Overseas Private Investment Corporation (OPIC) in the United States and the Export Credit Guarantee Department (ECGD) in the United Kingdom provide guarantees for the political risks of transnational investment by domestic enterprises. Sharing of market risks. In the market economy system, the market risks brought by the emergence of new technologies should be borne by the sponsors and determinators of the project. If the project is initiated by a private organization, this part of the market risk will be borne by the project company; If the project is determined by the government development plan, the government is mainly responsible. The risk of project cost overruns should be expected by the project company, and it will be prepared when the BOT project contract is signed. Avoidance of technical risks. The technical risk is caused by lax constraints or poor supervision when the project company subcontracts with the contractor, so the project company should bear the full responsibility. The delay and defects of the project should be stipulated in the subcontract, which is linked to the economic interests of the contractor. The project company should also leave a part of maintenance deposit or post-construction quality deposit in addition to the project cost, so as to solve the problem of project defects smoothly. For the control projects that affect the whole project progress and the overall quality of the relationship, the project company should also conduct more frequent period supervision. Avoidance of financing risk. Project financing is an important content throughout BOT projects. This process is all operated by the project company as the main body, and the risks are entirely borne by the project company. Financing skills have a great influence on the project cost. First of all, the funds invested step by step in the project process should be integrated step by step, otherwise the financing cost will be greatly increased. Secondly, the impact of interest rate and inflation fluctuation on the cost should be expected when the product price is agreed. If it is a BOT project that introduces foreign capital from abroad, we should consider the issue of currency exchange and the expectation of exchange rate. Sharing the risk of irresistible external forces. This kind of risk is unpredictable and the amount of loss is uncertain, which may be a devastating loss. Neither the government nor the private sector can do anything about it. We can rely on insurance companies to bear part of the risks. This will inevitably increase the project cost, and many insurance companies are often needed for reinsurance of large BOT projects. In the project contract, the government and the project company should also agree on the method of sharing the risk. Let's talk about TOT again. I won't say that in detail. TOT is the abbreviation of English Transfer-Operate-Transfer, that is, transfer-operation-transfer. TOT is a new development of BOT financing mode. In recent years, TOT is a popular project financing method in the world. It means that government departments or state-owned enterprises transfer the property rights and management rights of a built project for a certain period of time to investors for operation and management; A financing method in which investors recover all their investment and get a reasonable return through operation within an agreed time, and then return it to the government department or the original unit after the contract expires. TOT is also a special form adopted by enterprises for acquisition and merger.