Characteristics and allocation principles of 1BOT model risk
BOT project has a long history, many participants and complicated relationships, and various risks run through the whole process of the project, including design, construction, operation, maintenance, repair and handover. In the construction stage, operation stage and handover stage of the project, its uncertainty decreases with the deduction of each stage, and the demand for capital investment and profit outflow is also very uneven.
As shown in figure 1. Whether project investors can achieve the success of BOT projects and gain benefits depends largely on whether they can identify various risks and allocate them to all participants reasonably. From the point of view of whether the project investors can directly control it, project risks can be divided into two categories: project risks and project environmental risks.
2 Risk types and preventive measures of the project itself
The risk of the project itself refers to the risks directly related to the project construction and production management, including completion risk and operation risk. This kind of risk is a risk that investors should know how to manage and control. Therefore, the risk of the project itself can also be called controllable risk.
2. 1 completion risk
In the process of project construction, there will be completion risks, such as project cost overrun, time delay and unqualified project quality. In order to reduce the risk, we should first choose a reputable and powerful contractor through bidding competition. One extreme of different forms is a "turnkey" contract with fixed price and fixed construction period, and all risks during the construction period are borne by the contractor; At the other extreme, it is an "accountable" contract, and all risks during the construction period fall on the investors of the project. There are many forms of intermediate contracts between them, which can correspondingly affect the risk changes of the project during the construction period. What kind of contract to adopt depends on the specific situation of the project and the negotiation result between the investor and the contractor. Project investors can also transfer risks to contractors through the constraints of contract conditions, such as signing EPC contracts with contractors (engineering, procurement, construction); Set contract terms, such as performance bond and delay damages.
2.2 Operational risks
2.2. 1 supply risk of energy and raw materials If the cost of energy and raw materials accounts for a large proportion in the whole production cost, then the price fluctuation of energy and raw materials and the change of supply reliability may affect the normal operation of the whole project, and signing a long-term supply contract with suppliers is an effective way to reduce this risk. The project company generally hopes that the contract supply price is fixed. If a long-term supply contract cannot be obtained, a complete supply and savings system must be established.
2.2.2 Technical Risk Technical failures may still occur in the operation of BOT projects. In order to prevent and control this risk, mature technology should be adopted. If the technical failure is caused by the contractor, the risk can be limited and transferred through the contractor's performance guarantee, which usually lasts for several months or years after completion. The risk of technical maintenance and updating is generally borne by the company responsible for project operation through operating emergency expenses, standby loans and support loans.
2.2.3 Managing risk projects may also lead to project losses due to poor management during operation. Therefore, operators with good reputation and management experience should be selected, and O&M contracts should be signed with operators at fixed prices or fixed fees. You can also choose to set up asset insurance to transfer risks.
3 types of project environmental risks and preventive measures
The environmental risk of the project refers to the risk of losses caused by changes in the economic environment. This kind of risk is beyond the control of enterprises and unpredictable to a great extent, so the environmental risk of the project is also called uncontrollable risk. Such as financial risk, market risk, political risk and force majeure risk.
3. 1 market risk
The change of product price and market sales volume of BOT project may affect the profitability of the project. Therefore, reducing the project market risk needs to start from these two aspects. Project investors should first have a clear understanding of the market structure and operation mode and establish a reasonable price system.
It is an effective measure to sign regular quantitative payment contract or purchase and sale contract with the buyer. The buyer of the contract can be the government or any reputable third party interested in the project products. The term of the contract is the same as that of the project concession agreement. Most of them adopt the fixed pricing method, that is, a fixed price is determined at the time of negotiation and adjusted according to a predetermined price index (or several price indexes) during the whole agreement period.
It is also an effective measure for the government to provide facilities and land development rights near the BOT project to reduce the market risk of the project. The usual practice is to set aside an area for the project company to develop and operate real estate, commerce, entertainment and other projects. For example, in the Hong Kong-Kowloon Cross-Harbour Tunnel project, the government granted the project company the right to develop several 33-storey apartments in eight apartment communities nearby.
In addition, the government can share the market risk by making clear the return on investment through negotiation or providing product purchase guarantee by the government. For example, in the Sydney Harbour Cross-Harbour Tunnel Project, the government bears the risk of the difference between the actual benefits of the project and the benefits of the design scheme.
Signing an agreement with the government containing provisions to prevent competition risks can also reduce market risks, that is, the government guarantees the project company that it will not build similar projects competing with this project for several years to ensure the monopoly operation of the project. The British-French Cross-Harbour Tunnel has been promised by the government not to build a second tunnel connecting Britain and France within 38 years, so as to ensure the monopoly position and income of the project company. However, project investors should also foresee the risks of other competition modes that the government cannot intervene, such as the English Channel shipping industry taking various measures to compete with the cross-harbour tunnel for passenger flow and freight.
3.2 Financial risks
Financial risks generally refer to risks such as interest rates and exchange rates, and all or part of the risks can be shared by the government through consultation. The best way to avoid exchange rate risk is to avoid currency exchange as much as possible. The income of the agreement project is the combination of local currency and foreign currency in a certain proportion, the daily management expenses and shareholders' dividends are paid in local currency, and the expenses incurred in purchasing foreign energy, raw materials and other foreign currencies are paid in foreign currency. If you can't do this, you should choose strong or weak coins according to different situations.
Interest rate risk is generally shared by the government and the project company. It is stipulated that the interest rate changes within a certain proportion shall be borne by the project company. When it exceeds a certain proportion, the government will compensate the loss of the project company.
3.3 Political risks
The political risk of a project can involve all aspects and stages of the project, from the site selection and construction to the whole process of production and operation, marketing, cash flow and profit recovery. It can be divided into two categories: national risk and political, economic and legal stability risk. The former risk is the potential possibility that the government of the project host country expropriates or confiscates the project for some political reasons, or embargos or boycotts the project products to terminate the debt repayment; The latter risk lies in whether the legislation of the country where the project is located is on sensitive issues related to the project, such as foreign exchange management, legal system, tax system, labor relations, environmental protection, resource sovereignty, etc. Whether it is sound, whether the management is complete, and whether it changes frequently.
In order to attract investors, the government often makes various commitments, including ensuring the lowest rate of return of the project, buying products at a fixed price, bearing the risk of exchange rate changes, and giving preferential tax policies. For example, in order to encourage foreign investors to invest in power development, the Indian government has guaranteed a return on equity investment of 16%, and all electricity prices are paid in foreign exchange, and has introduced incentives such as tax exemption for the first five years and tax reduction for the second five years. However, if project financing depends to a great extent on specific factors such as tax policy, price policy and foreign exchange policy, and these policies are taken as important credit support to arrange project loans, then political risks will become more sensitive and prominent.
On the contrary, the lack of government support for the project is another major source of political risk. For example, the European Cross-Harbour Tunnel connecting Britain and France needs the full political and economic support of the British and French governments because of its huge project cost (5 billion pounds). However, the project was not only difficult to get the strategic support of the government, but also the British and French governments could not reach an agreement on policies, which made the European and American banking circles involved in the project financing admit that the project had certain political risks. In addition, the changes of tax system, tax rate, tax types and tax collection methods of economic entities with different structures will also bring market risks to the project.
One of the ways to reduce the political risk of the project is to find a strong project partner or attract international multilateral institutions (such as the International Finance Corporation of the World Bank) to participate in the project. This kind of property right distribution can reduce the national risk and is a feasible way to avoid the risk. When investing or arranging project financing, it is also an effective method to seek written guarantee from the government as much as possible, such as: promising that the risk of legal change will be borne by the government; Or require government agencies to ensure that compulsory acquisition will not be implemented, and compensate the project company at a reasonable price when acquisition is inevitable.
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