Research On Risk Management Of Oversea BOT Power Plant Projects

Since Turkish premier Ozal raised concept of “BOT (Build-Operate-Transfer)” inmiddle1980s, it has attracted many governments and investors’ great attention. Formany countries, especial developing countries, the governments haven’t adequate fundto build power plants to meet market demand, they have adopted BOT or PPP(Public-Private-Partnership) model to attract local private and/or foreign investors todevelop new power plants. More and more international power plant investors,operators and contractors are active in venturing power plant projects.Many Chinese power plant general contractors are also active in developing foreignBOT power plants. Some of them have made great achievements but some encounteredmany problems and some even fail. Therefore, it’s necessary to research the relevantrisks and draw experiences&lessons on risk management of oversea BOT powerplants.Based on literature, the relevant risks of investing in oversea BOT power plantprojects are categorized into three levels: state level, market level and project level. Tobe focus, four typical risks are selected, based on Chinese investors’ experiences onoverseas BOT power plant projects, for detailed study in this paper: political risk,foreign exchange risk, power sale risk and fuel risk. First, relevant literatures are furtherreviewed on the risk characteristics, risk factors and risk loss of the four risks as well ascorresponding management of the four risks. Second, typical cases of the four risks arecollected and analyzed. Third, questionnaires are designed and send out to professionalexperts to obtain their opinions&experiences. Based on the abovementioned, this paperanalyzes the source of the four risks and concludes that the source of political risk is theun-continuality of foreign countries’ policy which result from the game of differentinterest group; the source of foreign currency risk is economic exposure which resultfrom fluctuation of exchange rate; the source of power sale risk is definition of powergeneration capacity and power price during negotiation of PPA (Power PurchaseAgreement) and default of power purchaser; the source of fuel risk is un-continuality offuel supply and price fluctuation of fuel market. The paper then proposes correspondingrisk management measures for the four risks, based on risk management theories,successful project experiences, experts’ experiences and enterprises’ practice. Forexample, the measures to deal with political risk is to investigate target country’scontractual capability&default record to select policy stable country with good creditrating, invite strong investor partners and financers with great influence in the country’s government to participate in the project investment&finance; The measure to deal withforeign currency risk is to optimize currency selection and use financial derivative tools;The measure to deal with power sale risk is to negotiate with power purchaser to obtainreasonable power generation capacity and power price, and share market risk withpower purchaser; The measure to deal with fuel risk is to use local fuel resource andtransfer&distribute fuel market risk to fuel suppliers, and control fuel quality.