B.O.T.
Capitalisation costs are higher for the equity portion of financing than for the debt portion. This is the price paid by the government for passing the risk to the private sector.
As a BOT financing deal involves multiple entities and a complex legal and institutional framework, it may take considerable time and expense to prepare and close. Therefore the BOT contracts may not be suited for small projects.
Developing and enforcing fair and transparent bidding and evaluation procedures and resolving potential disputes may take time to ensure that the full benefits of BOT are realised.
The advantage of the BOT contract process is that the government is able to involve Private entities, which have more resources and are more organised. The private sector also helps to improve quality and effectiveness. BOT contracts have performance-based agreements and output-oriented objectives, due to which BOT provides businesses with the opportunity to increase productivity. The projects are implemented at the possible cheapest cost because they involve fully competitive bidding.
The BOT approach was developed during the late 1970s because of the backdrop of constrained budgets in developing countries.
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