The theoretical basis of BOT mode is: it is the government's obligation to develop infrastructure projects, but the government has no financial resources to do it; Even if the government has financial resources, the direct investment and management of the project by the government are often inefficient; Although the project can be entrusted to private investors for construction and operation, the project has the nature of public welfare, and the final property ownership should be owned by the government on behalf of the public; The government is responsible for coordinating the relationship between the project and the public interest. No matter how privatized the project is, the price of public services must be decided by the government. It can be seen that BOT project not only encourages private investment, but also retains the ultimate control right of the government, which can better balance the interests of investors, the government and the public, and is very suitable for infrastructure construction projects related to the national economy and people's livelihood.
Because the BOT project stems from the lack of government financial resources, the core of a BOT project is to solve the problem of funding, that is, to invest and finance the project according to the BOT model. First of all, we should understand the fundamental differences among planned investment, government investment and BOT project investment. The former relies on government planned funds and financial allocations, while the latter basically needs to ask for funds from the market, that is, investors' own equity funds plus investors' financing loans from banks. Secondly, we should understand the difference between BOT project financing and ordinary loan financing. The international common practice is to adopt the limited recourse project financing method for BOT projects. The so-called limited recourse project financing is a financing and legal structure to obtain bank loans with the assets and rights of the project as collateral or pledge. This structure is very suitable for infrastructure projects with large investment, long payback period and low income but very stable. The project company can mortgage and pledge the project assets and the company's rights and interests to the bank and obtain loans from the bank after its shareholders have invested their share capital. The foreign-invested infrastructure BOT projects piloted by the former State Planning Commission and the influential foreign-invested BOT projects in recent years have adopted the financing structure of limited recourse projects, which have been recognized by the international financial market and achieved success. At present, domestic banks have also begun to learn and introduce financing methods for limited recourse projects.
Adopting the financing method of limited recourse project conforms to the inherent characteristics of BOT project. For infrastructure projects with large investment, low profit but stable and long payback period, no one will operate completely in the form of equity investment, because it is not cost-effective from the perspective of commercial profit and capital cost, which violates commercial practices and market rules. If all investors are forced to invest equity capital, one possibility is that only a few well-funded big names are qualified, which will shut out a large number of potential investors and reduce competition; Another possibility is that investors secretly borrow from the east and the west, disguised as equity capital, which will bring great potential risks to the project, and then bring risks to the government and the public.
If project financing is not adopted, investors have to resort to shareholder loans, which will also cause potential risks to the project. On the one hand, no matter how powerful investors are, there may be risks of poor management, shortage of funds, broken capital chain, bank's downward credit line and withdrawal of loans. Once the parent company has problems and the capital chain breaks, the project company as a subsidiary will immediately fall into crisis. Second, the financial strength of any investor is not unlimited. After it has done several projects in the form of shareholder loans, it may not be able to borrow money from the bank because its credit line or asset mortgage may have been used up. In this case, or it will no longer participate in this kind of projects, seize the existing projects and stop expanding, which is contrary to the laws of market survival and competition; Or in order to obtain illegal loans for the project, such as double or excessive mortgage pledge to defraud loans, thus endangering the financial situation of the parent company and laying the groundwork for endangering the project company; Or be forced to transfer the equity of the project company in a hurry, and pull away to do more commercial projects, which will affect the stability and continuity of project management. Therefore, it can be said that the core of BOT project is feasible financial and financing structure, and the biggest risk is financing risk.
How do construction enterprises analyze the suitability of BOT projects?
Which BOT projects are suitable for construction enterprises to participate in? Construction enterprises need to know the investment and financing structure of a BOT project first, so as to make proper analysis and judgment on its risks and seize business opportunities.
If BOT projects use loans from the World Bank or foreign governments, there will also be financial matching funds or other financial guarantees from our government, and the funds will be relatively implemented, and the bidding rules will be open, transparent and strict. This kind of project is more suitable for construction enterprises to participate in through conventional project bidding and contracting, and the risk is low. However, due to the conventional bidding, the risk is low and the competition is fierce.
If a BOT project is mainly invested by social investors, and the government basically does not give or only gives a small amount of matching funds, then it has financing risks. Construction enterprises should understand that investors' equity capital is not enough to complete the project construction, and only bank financing loans can support the huge investment funds needed for the project construction. Therefore, construction enterprises need to carefully analyze the possibility, methods and sources of financing for such projects. For example, if investors adopt limited recourse projects in line with international practice and borrow from banks with high credit reliability, the degree of protection of funds for such projects will be higher and the risk of financing will be lower. On the other hand, if investors use shareholder loans or mortgages for financing, or need to issue corporate bonds for financing, the degree of capital guarantee for such projects is low, and the risk of capital chain breakage and insufficient follow-up funds cannot be ruled out. Construction enterprises can actively participate in the former BOT project, but they need to be cautious about the latter. This is because it is difficult to legally lock the funds obtained from shareholders' loans in the project, and investors may misappropriate them, resulting in insufficient construction funds; In the case of shareholders' loans or mortgages, the bank does not strictly examine the financing degree of the project itself, and there may be loss-making projects that cannot make ends meet. At this point, investors will pass on their debts to the construction enterprises by defaulting on the project payment.
What's more, if investors have difficulties in financing themselves, they may force the construction enterprises to bring capital for construction on the condition of undertaking the project, thus transferring the responsibility and risk of financing to the construction enterprises. This kind of project has deviated from the basic theory and core structure of BOT project, which can be said to be a fake BOT with the greatest risk. Because investors only invest a small amount of equity capital, all the risks of financing and construction are transferred to construction enterprises. Even if the project is completed, if the project income is not as good as expected, investors may still be unable to repay the project funds, resulting in the construction enterprises owing bank debts or occupying their own credit resources and unable to further expand their business. Therefore, construction enterprises should actively participate in those BOT projects with guaranteed funding sources to avoid irregular or false BOT projects.
The entry point and way for construction enterprises to participate in BOT projects
The conventional way for construction enterprises to participate in projects is to participate in project bidding and contracting projects. In addition to the above BOT projects that use loans from international financial institutions or foreign governments, this method can still be adopted. For BOT projects with social investment, construction enterprises need to change their business ideas and methods according to market demand and find the right entry point in order to seize business opportunities and win in the fierce market competition.
The key to judging the entry point is to find the correct market positioning. There are two main positioning of BOT projects for construction enterprises. BOT projects are mostly subcontracted to construction enterprises by investors after winning the bid, which belongs to indirect participation. A few super-large projects or foreign projects are projects that the government needs construction enterprises to undertake directly as investors and construction operators, and belong to direct participation. There are also some BOT projects, which are between indirect and direct.
For indirect BOT projects, investors are responsible for investment, financing and even operation, but construction enterprises need to undertake and complete the project construction. However, unlike conventional construction projects, investors need the active participation and cooperation of construction enterprises before they get the project, so as to improve their bidding ability and win the BOT project. This is because investors need to submit a complete investment, financing, construction and operation plan to the government when bidding for BOT projects, and make a good financial model for the construction period and operation period. Because the amount of funds and risks occupied during the construction period are the biggest, investors need to accurately calculate the project cost and duration in order to control the construction cost and time within a reasonable range, which is precisely the specialty of construction enterprises. If the construction enterprises cooperate with investors in formulating the bidding scheme and help them accurately grasp the project cost and construction period, they can not only understand the project at the first time and make full preparations for participating in the project bidding in the future, but also objectively form investors' dependence on the construction enterprises and increase the chances of winning the bid. It can be said that in the early stage of BOT project, investors need the help of construction enterprises more, and the time for construction enterprises to intervene in BOT projects may be much earlier than that of conventional projects. Moreover, at this stage, all potential investors (except the investors themselves are construction enterprises) need this kind of help. In order to expand the chances of winning the bid, construction enterprises may wish to consider cooperating with some potential investors.
Early involvement of construction enterprises in BOT projects will greatly increase their chances of obtaining engineering contracts, but there are also risks. Because at the stage of investor bidding, I don't know if I can win the bid. Although I need the help of construction enterprises, I don't want to pay the price. Based on the traditional concept, our construction enterprises also value the opportunity to undertake projects in the future, regard previous work as help and contact feelings, and pay no attention to protecting their own rights and interests. Once, a construction enterprise provided a lot of help to foreign investors when participating in a well-known BOT project invested by foreign investors in China, which enabled them to master the domestic project cost information, reported the most competitive price in the bidding, and finally won the bid. However, the construction enterprise did not sign any agreement with investors, who dumped the project after winning the bid and handed it over to another company. If construction enterprises understand the value of so-called "help" and regard it as "service" and sign relevant agreements to bind investors, they will not suffer from such dumb losses in the future. Even if investors change their minds, enterprises can claim their rights and interests by virtue of service agreements.
Some BOT projects may adopt the way of one-time bidding, that is, investors designate construction contractors after winning the bid, and there is no need to conduct project bidding. BOT pilot projects in China, Guangxi Laibin B Power Plant and Chengdu No.6 Water Plant, as well as many BOT projects abroad, all adopt this one-time bidding method. For this kind of BOT project, the construction enterprise can consider directly participating in the bidding as a member of the consortium and directly contracting the construction project after winning the bid. Compared with the former way, this way of participation is earlier and deeper, which can be regarded as a type of transition from indirect participation to direct participation. Although participating in such projects enables construction enterprises to undertake projects once they win the bid, there are also some disadvantages. First of all, construction enterprises can't rely on many investors, and whoever wins the bid can only follow a consortium. If the consortium loses the election, it will miss the project. Secondly, construction enterprises need to have certain investment ability, and can participate in some investments as shareholders of the project company in the future. Finally, the withdrawal of construction enterprises may be limited, because the general government has time and conditions to transfer the equity of BOT project companies.
Direct participation in BOT projects is rare in China, but they all belong to super-large infrastructure projects, especially transportation projects, which require huge one-time investment, and construction projects occupy the main investment funds. Foreign BOT projects, big or small, may be directly participated by domestic participants, because foreign BOT bidding requires investors to submit a package of solutions including investment, construction and operation. At present, only large state-owned construction enterprises have the ability and enthusiasm to participate in foreign BOT projects in China.
No matter whether domestic or foreign countries directly participate in BOT projects, there are few domestic entities capable of bidding, which leaves huge business opportunities for large state-owned construction enterprises, and they can obtain huge economic benefits and remarkable achievements by participating in them. However, China's state-owned large-scale construction enterprises need to change the concept and operation mechanism of market development first, and develop from simple construction contractors to investors and even operators in order to meet the needs of such projects. Specifically, it includes the following two improvements:
From simple builders to construction investors. The difficulty of directly participating in BOT projects lies in the huge investment and financing. Construction enterprises need to have strong investment and financing ability before they can participate in such projects. Large state-owned construction enterprises have always been supported by the state and state-owned banks because of their special background, qualifications and construction ability. Especially when participating in the bidding of foreign BOT projects, it is possible to obtain credit support from the National Export-Import Bank and the Development Bank. Generally speaking, with the support of national export credit, the political and financial risks of the project will be significantly reduced, and it will be easier for construction enterprises to obtain follow-up loans from commercial banks.
Of course, it is not enough to really get the huge loan from the bank to the project by relying on your own credit strength. You must also become a real investor, think about project financing and investment and financing structure from the perspective of investors, learn to do investment risk analysis, and communicate with banks in investor jargon. Construction enterprises need to understand that only by adopting a win-win investment and financing structure and risk control between investors and banks can banks contribute generously to the project. Construction enterprises can not only pay attention to the construction link, but also ignore the profit and loss of BOT project itself, and even have the speculative psychology of taking bank loans to solve the project payment first and throwing the repayment risk to the bank after the project is completed. That will not only damage the goodwill of their own enterprises, but also affect the whole construction industry, making it difficult for construction enterprises to obtain financing loans to participate in BOT projects in the future.
From a simple builder to a construction operator. Because BOT project is not a simple construction project, it needs a package solution of investment, construction and operation. When directly participating in BOT projects, construction enterprises should not only solve the investment and financing problems, complete the construction, but also arrange the operation. Moreover, the construction period of BOT projects is generally only two or three years, and the operation period is as long as twenty or thirty years. Therefore, the government attaches great importance to the business experience of selected investors.
Operation is the weakness of construction enterprises. Large-scale state-owned construction enterprises established under the planned economy system only pay attention to cultivating construction engineering skills, and basically do not consider participating in operations. But in the era of market economy, demand determines everything. BOT projects require participants to have strong operational skills. If the construction enterprise can't improve its operation ability, it will be difficult to win the bid for the BOT project directly involved. Similarly, the reason why most BOT projects are indirectly participated by construction enterprises, and they can only share a small amount of indirect profits as construction subcontractors, but can't directly participate in sharing considerable operating profits is also because construction enterprises don't participate in project operation.
Of course, it is unrealistic to require all construction enterprises to be experts, and it is also unrealistic to build and operate one. For BOT projects that do not require complex technology and equipment, such as traffic construction projects, construction enterprises can consider using consortium or subcontracting to solve operational problems. If conditions permit, we can try to set up our own professional operating company through introduction and merger. This kind of project does not need to use complex technology and equipment, and the operation is relatively simple. The follow-up maintenance work is still mainly based on construction. Construction enterprises can greatly enhance their competitiveness in the market by developing their own professional operation companies, and prepare for the future era when construction projects are reduced and operation becomes the main business.
Examples of construction enterprises participating in BOT projects
There are precedents at home and abroad for large state-owned construction enterprises to directly participate in BOT projects.
In 2000, China Electric Power Technology Import and Export Corporation successfully bid for BOT restoration project of Kililong Hydropower Station in Cambodia, and won the franchise for 30 years. The total investment of this project is19.42 million USD, with credit support from The Export-Import Bank of China. This is the first overseas BOT project that China Company participated in. Because domestic banks are not familiar with the financing of limited recourse projects, the project still adopts the shareholder loan financing method guaranteed by the head office.
In 2004, the BOT project of Nanjing Yangtze River Tunnel was tendered and China Railway Construction won the bid. Nanjing Yangtze River Tunnel Co., Ltd. was jointly established with Nanjing Communications Group and Nanjing Pukou State-owned Company to be responsible for the investment, construction and operation of the project. The total investment of the project is about 3 billion yuan, with a franchise period of 30 years and a construction period of 4 years. China Railway Company owns 80% equity of the project company, and the other two companies each own 10% equity. The project is led by the construction enterprise to complete the investment construction, and at the same time, the local companies that are good at operation are absorbed to participate in the consortium, which makes up for the shortage of the construction enterprise.
In May 2006, Qingdao Bay Bridge Project was invited to bid for BOT. The franchise period of the project is 25 years and the construction period is three and a half years. The total investment of the project is estimated to be 9.03 billion yuan, supported by part of the credit of China Development Bank. According to market analysis, it is difficult for domestic companies to undertake such a large investment project except for large state-owned construction enterprises. International investors may have such investment and financing strength, but they need to cooperate with domestic construction enterprises to be competitive in bidding.
In a word, as long as construction enterprises, especially large state-owned construction enterprises, adjust their ideas and development strategies in time, they will certainly make a difference in domestic infrastructure BOT projects and foreign BOT projects that require huge investment and continuously expand their market share.
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