The Application Of Flexibility-term In The Infrastructure Financing Of BOT Project

At present, BOT model is widely used in infrastructure development due to the increasing infrastructure investment with economic growth.However,a lot of problems are exposed at the same time. Longer time of a BOT project in construction and operation, more correlative parts on the project interest and the uncertainty of the economic environment are all reasons of the problem. To weaken these disadvantageous factors is always an important task. And, concession period, which is a key factor of BOT franchising contract, has been a hot topic in both academy and practice.This thesis analyses two common forms,which are fixed-term and flexibility-term. It is concluded that winning bidders may not those competitive companies and frequent contract negotiations become more often, which are disadvantages of fixed-term in the application. As a result, a new flexibility-term mechanism is proposed. It is based on calculating price by net revenues and maintenance costs. On the contrast of fixed concession period, it will play a positive role in choosing a more competitive company and eliminating risk.The thesis introduces the flexibility-term in the sewage treatment plant project case. Use the detailed case to demonstrate the above point of view. Concluded that it is necessary to adopt the flexibility-term in the national infrastructure development area. The thesis demonstrates this conclusion from the following aspects:First, suffering from uncontrollable external factors, fixed-term usually can not help company to achieve the expected ROI. To extend the concession period needs frequent contract negotiations. Not only increase consumption cost but also lead to the high risk of the project operation. And it's difficult to match the best bidders under the information asymmetry condition. Second, the application of flexibility-term, addresses the limitations of the fixed-term. Especially when the deviation occurred between actual traffic flows and the expected. The concession period can adjust its length until it meets the project's ROI.It can avoid the risk of frequent negotiations and potential quality problem which is usually caused by low-price bidder. Third, the flexibility-term can not only be used in the Highway projects but also in BOT projects, e.g. sewage treatment plant, the port construction. It can effectively reduce the cost and the risk in the project operation process.