Infrastructure development is one of the top priorities of a country's economic progress. Planned and well connected infrastructure services attract foreign direct investments and boost local investments. To meet the present and future demand for infrastructure development, developing and least developed countries like Bangladesh always face scarcity of their own resources. To mitigate the shortage of the Government's funds for infrastructure developments and to focus the Governments' budgetary allocation in other high priority areas like education, health care, rural economy, poverty eradication, social welfare, BOT/BOOT/BOO (commonly known as "BOT") mode of financing has been a model in many countries in the infrastructure development projects.

The acronyms BOT/BOOT/BOO stand for "Build Operate and Transfer/ Build Own Operate and Transfer/ Build Own and Operate". The terms 'Build Operate and Transfer' (BOT) were first used by the Turkish Government in the early 1980s. This arrangement allows private sectors to invest in the public services. This mode of financing is also known as public-private-partnerships (PPP) because of the joint enterprise between the government and the private sectors. BOT projects are mainly public infrastructure projects which employ a particular form of structured financing with the participation of the private sectors. In a BOT arrangement, the private sector designs and builds the infrastructure, finances its construction and owns, operates and maintains it over a period, often as long as 20 to 30 years. This period is sometimes referred to as the 'concession' period. Traditionally, this arrangement provides for the infrastructure to be transferred to the government at the end of the concession period.

Private investments in public infrastructure development projects can be traced back to 18th century examples of concession contracts to supply drinking water to Paris and 19th century examples such as the Suez Canal and Trans-Siberian Railway. This trend continued with the construction of canals, turnpikes and railroads in Europe, Americas and Japan. In the modern era, among Asian countries, Malaysia has shown tremendous success in BOT projects in the development of its infrastructure which characteristically contributed to boost its economy. Malaysia has thus-far undertaken over 40 BOT projects, of which 9 have been already completed and in operation. Among the most successful BOT projects in Malaysia are 848 Kilometers long North South Expressway, Shah Alam Expressway and Penang Bridge. Malaysian success story in BOT projects has been followed by Thailand, Indonesia, Hong Kong, the Philippines and other countries. Five (5) out of 15 BOT projects undertaken by Thailand are open for use. Realizing the importance of BOT projects in the economic growth, Indonesia has undertaken over 35 projects, of which 2 have been already completed. Both India and the Philippines have undertaken 15 BOT projects. The Philippines has solved its power crisis by pioneering a BOT arrangement which opened up power generation to the foreign investors. Currently, Japanese, Hong Kong, American, and European investors are developing in excess of 6,000 MW of new generation capacity, which has relieved Manila of the daily eight-hour brownout of two years ago.

Recently Bangladesh Government has okayed Belhasa Accom and Associates Ltd (Belhasa) (a joint venture company formed between Orion Group of Bangladesh and Belhasa International LLC of the UAE) to construct the Jatrabari-Gulistan 8.4 kilometres flyover under the BOT mechanism whereby Belhasa would invest Taka 670 crore to construct the flyover. Upon completion, Belhasa has been granted for 24 years concession period to own and operate the flyover to recover its investments by charging tolls. The tiny economy like Bangladesh can hardly afford to allocate that high amount of money from its tight budget unless the private sectors step in.

Keeping in view the success stories in BOT projects of Malaysia, Thailand, the Philippines and other countries, and following the Jatrabari-Gulistan flyover example, Bangladesh should seriously look forward to having more BOT projects in its urgently needed infrastructure development, such as Power generation, roads, railways, bridges, ports, telecommunications, water supply, waste disposal, gas pipelines etceteras. The River Padma which follows in the heart of the country, has divided Bangladesh into two parts. Unfortunately, because of insufficiency of Government resources no direct link has been established so far between the Southern and Northern parts of the country by constructing a bridge over the River Padma. Consequently, the Southern part of the country remains deprived of natural gas supply despite its abundance reserve in the North. The BOT mode of investments may easily solve these needs.

During summer, the acute problem that every Bangladeshi resident faces is the brownout of electricity due to the shortage of electricity supply. Following the Philippines' example of BOT arrangement in power generation, Bangladesh can solve the insufficiency of electricity. To have a land telephone line connection at a Bangladeshi home is a dream. This dream however may come reality for every Bangladeshi household through BOT model of investment in telecommunications. Similarly, BOT arrangement may contribute to minimize the acute traffic congestion in big cities like Dhaka, Chittagong with the construction of elevated and bypass roads, elevated transit railways and subways.

No doubt, the BOT mode of financing is a complex arrangement, which involves multiparty and long list of agreements among the parties. The major parties involve in a BOT project are: (i) Government agency, which grants concession; (ii) Sponsors, generally a joint venture company, which prepare the proposal to finance, construct and operate the project; (iii) Construction contractor, which is responsible to construct the project; (iv) Operation and Maintenance Contractor, which undertakes to operate and maintain the project for a stipulated time; (v) Financiers, normally a syndicate of banks or financial institutions who provide debt funds to the sponsor of the project; (vi) Equity investors, who provide fund through equity participation; (vii) Insurers; (viii) Equipment suppliers; (ix) Engineering and design consultants and so on. Most of the above-mentioned parties too will engage their lawyers, financial and tax advisers. Among various agreements for a BOT project, the followings are most prominent: (1) Concession agreement, which grants sponsors the right to invest in the project; (2) Off-take agreement, by which the Government agency agrees to purchase the output of the infrastructure at agreed price and volume; (3) Construction Contract, which is typically a turnkey design and construct fixed price contract; (4) Operation and Maintenance agreement, which is usually a long term contract; (5) Financing agreements; (6) Shareholders agreement; (7) Design agreement; (8) Equipment supply agreements; (9) Fuel/Water supply agreements; (10) Service agreements.

Given the current desire of the Government of Bangladesh to attract and encourage foreign investment and the enormous need for infrastructure in the country, it is believed that the BOT model of investment can play a very significant role in meeting both the demands. The success of BOT projects however would depend very much on, (i) the improvement of the country's legal, political and institutional framework for BOT projects; (ii) the capacity building within the Government machinery to deal with BOT projects; (iii) the negotiation skills of the Government with various parties involved; and most importantly (iv) the demonstration of an attractive and conducive investment environment with rule of law, transparency and accountability.

[Mohammad Delwar Hossain is a barrister and works with the Legal Department of the Islamic Development Bank, Saudi Arabia. Contact: M.D.Hossain.01@cantab.net. ]