A new financial engineering model for analyzing the royalty of BOT projects: The Taiwan case

Abstract

This paper uses the financial engineering concept to compare build, operate, and transfer (BOT) projects with non-BOT projects. The comparison reveals that there exists a difference in financial flow framework between BOT and non-BOT projects and that the benefit cost ratio (B/C) or self-liquidation ratio (SLR) cannot be used to analyze the financial plan although some earlier studies have used either of them to evaluate the financial feasibility of BOT projects. Moreover, this study construct a new financial investment evaluation model which includes the private construction cost ratio (PCCR), government construction cost ratio (GCCR), royalty, and government finance recovery ratio (GFRR) for analyzing the financial characters of BOT projects. In addition, this paper conducts a case study on the BOT concession of the Container Terminal in Taipei Port to find the solutions of PCCR, GCCR, royalty, and GFRR. Results of the case study show that the new BOT financial model could be used to interpret the financial characters of BOT projects.