Financial viability of using the build, operate, transfer (B.O.T.) procurement system in the construction of highways in Ghana
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Date
2005-11-08
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Abstract
It is widely acknowledged that transport infrastructure supply is a basic condition influencing social activities and economic development or improved business performance of any economy.
However, the increasing demand for much-needed new and improved road infrastructure in low-income and developing economies to attain stable or drastic economic growth is overwhelmed by the low rate of production of roads financed by central Governments.
In order to clear the massive ‘backlog’ and/or attain economic stability, Government bodies and their development partners are increasingly turning their focus towards finding innovative ways of involving private sector companies and consortia in financing, developing and operating public road infrastructure.
This research sought to ascertain whether it would be financially viable now or in the near future to use the build, operate, transfer (B.O.T.) procurement/funding strategy of public/private partnership (PPP) in building new roads in Ghana.
This research utilized road users’ and road policy makers’ questionnaire survey, supplemented with interviews and the collection of primary traffic and secondary data from the field and the Ministry of Road and Transport respectively. Some international operating B.O.T systems were studied.
The cost of constructing Mallam-Biriwa Road as a typical B.O.T. road section was used as a case study. The revenue to be generated by tolling the road section was determined. Amortization periods were determined based on the principles of Affordability and Redemption of the road user fees. Some other scenarios were considered using selected concession periods; 30 and 40 years. The attractiveness of all the alternatives to potential and prospective investors or concessionaires was also considered.
Studies had varied Real Rates (by using market rate of interest and inflation rate) and Trial Toll Regimes to test the sensitivity of reasonable concession period of 30 years.
The research revealed that the use of B.O.T procurement system in the construction of highways is not a viable business venture under both the principle of affordability and redemption of toll charges now; in our present environmental considerations. However, further iterations under sensitivity test revealed a positive NPV under a redemption principle with toll regime ranging from ¢69,419.00 to ¢170,572.00 for motor cars and goods vehicle (>4axle) respectively. Also NPV0 was achieved for toll Regime ranging from ¢64,465.00 to ¢16 1,276.00.
It is deduced from the research findings that, the public cannot afford the toll regime mentioned-above. Its implementation can possibly lead to civil strife. The only alternative left for the smooth implementation of this system is to adopt the principle of affordability supported by shadow tolling by the Government.
However, the encouragement of the incorporation of ancillary services into the system and the provision of advantageous socio-cultural, legal, economic, and political
environment could lessen or even negate the financial contribution by the central Government.
Description
A project report presented in partial fulfilment of the requirements for a degree of Master of Science in Construction Management, 2005
Keywords
Infrastructure, Private Sector, B.O.T., PPP, Tolling and Ancillary Services