Financial Situation Study of Private Sector in BOT Projects
Date Issued
2011
Date
2011
Author(s)
Hou, Pey-Ru
Abstract
In recent years, BOT has become one of the hot issues. Early back to the 70s, the Government has started in on the Super Rail Project, which was later on transformed into the “Taiwan North-South High Speed Rail Project” (THSR Project). It is well known that THSR is a transit construction at high technical level with high technical risks in itself. Nevertheless, it was 1992 when the Legislative Yuan made resolution that THSR Project is built by private section participation. This caused additional investment risks during the impulsion of THSR. The felicitousness for private sector bearing investment risk as such is worthwhile explored.
From the news on the media, the society has been doubtful despite THSR has confidence in execution. The experiences of ShinKanSen in Japan and High Speed Rail in France tell us that the long-term return on investment for THSR is lucrative basically. However, according to the Financial Report of THSR, the equity was 54.406 billion NT dollars in 2007, and decreased to 24.786 billion NT dollars in 2009. On top of that, THSR started to pay off loans in November, 2009. There seemed to be a finance gap. The investment amount of private sector was far above the limit of 40% could be one of the reasons. This article discusses about the features of capital structure for BOT and the simulation and analysis on the combinations of depreciation time limit, loan interest rates and loans ratio comparing to the current accounting system, all based on finance data executed by THSR.
A simulation on capitalized interest, cost fluctuation of construction and economic impact on high-speed railway capacity is studied. Also, a scenario on capital, interest rates and loans ratio to determine the adequacy of the slope of mortgages and book value of total asset is analyzed. Finally the application of asset revaluation and depreciation is evaluated. The initial finding is the finance gap was just an abnormal phenomenon occurred at the beginning of operation.
The financial study in this thesis concludes that the finance of BOT is analytical, predictable and simulated. The depreciation method and the value of asset after completion of the project have significant impact on finance, which needs to be taken into account for BOT. The study also concludes that the financial gap of THSR’s financial structure was determined as book value effect in the short term. The Government should formulate solutions for the division of investment scope and the options of investment items for private sector when a BOT project initiated. These suggestions can be widely applied to other BOT projects.
Subjects
BOT
High Speed Rail
Financial Structure
Capital
Capacity
Depreciation
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