An-Najah National University 

Faculty of Graduated studies 

 

 

 

Major Obstacles Facing the Implementation 

of Build-Operate-Transfer (BOT) Model in 

Palestinian Infrastructure-Water and 

Electricity Sector 

 

 

By 

Obayda Abdelhadi Mara’beh 

 
Supervisor 

Dr. Abdul Fattah Alshamleh 

 

Co-Supervisor 

Dr. Salah Sabri 

 

This Thesis is Submitted in Partial Fulfillment of the Requirements for 

the Degree of Master of Engineering Management, Faculty of 

Graduated Studies, An-Najah National University, Nablus, Palestine. 

2018 

 



II 

 

 

 

 

 

Major Obstacles Facing the Implementation of Build-

Operate-Transfer (BOT) Model in Palestinian 

Infrastructure-Water and Electricity Sector 

 

 

By 

Obayda Abd-Alhadi Abd-Alqader Mara’beh 

 

This thesis was successfully defended on 25 /6/2018 and approved by: 

Defense Committee Members                                             Signature 

 Dr. Abdul Fattah Alshamleh / Supervisor            …………….............. 

 Dr. Salah Sabri / Co-Supervisor                             ……………............. 

 Dr. Suhail Sultan / External Examiner                  ……………............. 

 Dr. Ahmad Ramahi / Internal Examiner              …………….............. 



III 

 

Dedication 

First, I dedicate this thesis to my husband” 

SaleemAlaqra” 

Who helped me achieve my thesis  

To my mother  

Who granted me love and encouraged me every step of 

the way 

To my supervisor Dr. Abdul Fattah Shamleh 

Whose efforts aided me to complete the thesis  

To Dr. Salah Sabri 

Who inspired me to make my dreams come true 

To my lovely daughter Batool 

 To my sonsAbd-alkareem, Anwar, the warmth of my 

life 

To my sisters (Tahani, Amani) the soul 

To my Brothers (shareef, hani, isam) love you 

To my close family 

“BrigadierIyad alaqra’, Dr. Nour Alaqra', Ziad Alaqra', 

Ashraf Alaqra' & Nisreen Alaqra'” 

To my best friend 

Amenah Gashash, Mays Aldeleq, Tahani 

Alaqra’Amenah Alaqra’, Reem Alaqra’, Noura Alaqra’ 

and all my friends 

Thanks to all, love you 



IV 

 

Acknowledgments 

I am grateful for the Almighty God who gave me the 

power to complete this work 

Many thanks to me  

husband “Saleem Alaqra” 

who supported me all the time, and gave me the power, 

self-confidence, positive feeling to be reach where I am 

today  

 

All thanks to 

I am grateful for the Almighty God who gave me the 

power to complete this work 

Many thanks to me  

husband “Saleem Alaqra” 

who supported me all the time, and gave me the power, 

self-confidence, positive feeling to be reach where I am 

today  

 

All thanks to 

My supervisor Dr. Abdul-Fattah Shamleh and Dr 

Salah Sabri for their guidance an encouragement, to 

all my teachers in master degree Dr. Mohammad 

Othman, Dr. Yahya Saleh, Dr. Ayham Jaaron, etc who 

mademy academic progress easy. 



V 

 

 اإلقرار

 العنوان: تحمل التي الرسالة ةمقدم ادناه ةالموقع انا

Major Obstacles Facing the Implementation of Build-

Operate-Transfer (BOT) Model in Palestinian 

Infrastructure-Water and Electricity Sector 

 

 اليه رةاالشا تمت ما باستثناء الخاص، جهدي نتاج هو إنما الرسالة هذه عليه اشتملت ما بأن أقر

 أو يعلم بحث أو درجة أي لنيل قبل من يقدم لم منها جزء أو ككل الرسالة هذه وأن ورد، حيثما

 أخرى. بحثية او تعليمية مؤسسة أي لدى بحثي

Declaration 

The work provided in this thesis, unless otherwise referenced, is the 

researcher’s own work, and has not been submitted elsewhere for any other 

degree of qualification. 

 

Student’s name:                                          مراعبة الهادي عبد عبيدة :ةالطالب اسم   

Signature:                                                                                 :التوقيع           

Date:                                                                              25/6 /2018 التاريخ:   

 

 



VI 

 

Table of Contents 

 
DEDICATION.............................................................................................. III 

ACKNOWLEDGMENTS ............................................................................ IV 

DECLARATION ........................................................................................... V 

TABLE OF CONTENTS ............................................................................. VI 

LIST OF TABLES ....................................................................................... IX 

LIST OF FIGURES ..................................................................................... XII 

LIST OF ABBREVIATIONS AND DEFINITION OF TERM ............... XIII 

ABSTRACT .............................................................................................. XIV 

CHAPTER ONE ............................................................................................. 2 

INTRODUCTION .......................................................................................... 2 

1.1 Overview ................................................................................................. 2 

1.2 Problem Statement .................................................................................. 3 

1.3 Research Importance ............................................................................... 4 

1.4 Research Objectives ................................................................................ 5 

1.5 Research Questions ................................................................................. 6 

1.6 Research Hypothesis ............................................................................... 7 

1.7  Research Dimensions ............................................................................. 9 

CHAPTER TWO .......................................................................................... 11 

LITERATURE REVIEW ............................................................................. 11 

2.1 Public and private sectors partnership. ................................................. 13 

2.2 BOT projects: concept, objectives, and characteristics, ....................... 19 

CHAPTER THREE ...................................................................................... 61 

BOT Experiences ........................................................................................ 61 

CHAPTER THREE ...................................................................................... 62 

BOT EXPERIENCES .................................................................................. 62 

CHAPTER FOUR ........................................................................................ 79 



VII 

 

METHODOLOGY ....................................................................................... 79 

4.1 Overview ............................................................................................... 79 

4.2 Research Design .................................................................................... 80 

4.2.1 Overview ...................................................................................... 80 

4.2.2 Research Methodology ................................................................ 80 

4.3 Population, Sampling Methods and Sample Size ................................. 81 

4.3.1 Research Population: ................................................................... 81 

4.3.2 Sample Size .................................................................................. 82 

4.4 Study Approach: .................................................................................... 82 

4.4.1 Study Tool:................................................................................... 83 

4.4.2 Tool validation: ............................................................................ 84 

4.4.3 Tool reliability ............................................................................. 85 

4.4.4 The procedures ............................................................................. 86 

4.4.5 Data analysis ................................................................................ 86 

CHAPTER FIVE .......................................................................................... 88 

DATA ANALYSIS ...................................................................................... 89 

5.1 overview ................................................................................................ 89 

5.2 Results related to the minor questions: ................................................. 92 

5.2.1 Legal obstacle: ............................................................................. 93 

5.2.6 Technical obstacles .................................................................... 116 

The highest obstacle:........................................................................... 120 

5.3 Results related to the second main question, which reads: ................. 122 

5.3.1 Gender variable .......................................................................... 123 

CHAPTER SIX .......................................................................................... 154 

CONCLUSION AND RECOMMENDATIONS ....................................... 154 

6.1 Overview ............................................................................................. 154 



VIII 

 

6.2 conclusions .......................................................................................... 154 

6.3 Recommendations ............................................................................... 159 

REFERENCE ............................................................................................. 169 

APPENDIX ................................................................................................ 195 

Appendix num.1 ........................................................................................ 196 

List of Arbitrators ...................................................................................... 196 

Appendix num.2 ........................................................................................ 197 

Appendix num.3 ........................................................................................ 202 

Appendix num.4 ........................................................................................ 203 

 ب ............................................................................................................. الملخص

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



IX 

 

List of Tables 

Table (1) BOT concepts focus .................................................................... 26 

Table(2): stages of completing the successful BOT project ....................... 39 

Table (3):Risksfacing the implementation of Build-Operate-Transfer 

(BOT) in infrastructure projects ................................................. 43 

Table (4): A list of power projects via BOT approaches in Iran ................ 65 

Table (5): Population, sample & questionnaire management. .................... 84 

Table (6) shows the results of the stability equation Cronbach's-Alpha for 

the measure of application obstacles of the BOT model in the 

Palestinian infrastructure from the point of view of employees in 

the Water and Energy Authorities and (A)classified businessmen.

 ..................................................................................................... 85 

Table(7):  the description of the arithmetical means .................................. 90 

Table (8): Means and standard deviations of government officials responses 

on legal obstacles. ....................................................................... 95 

Table (9): Means and standard deviations of businessmen responses on 

legal obstacles. ............................................................................ 96 

Table (10): The administrative obstacles arithmetical means of government 

officials ...................................................................................... 100 

Table (11): arithmetic means and percentages for the first field of classified 

businessmen (A) ........................................................................ 101 

Table (12) : Financial obstacles, responses of government officials ........ 106 

Table(13): Financial obstacles, mean responses of businessmen ............. 107 

Table (14) :  political obstacles, government employees responses ......... 110 

Table (15): means of political obstacles, businessmen responses ............ 111 

Table(16): Social obstacles, government employees responses ............... 114 

Table (17): Social obstacles, businessmen responses ............................... 115 

Table (18): Technical obstacles, government employee’s responses ....... 117 



X 

 

Table (19): Technical obstacles, businessmen responses ......................... 118 

Table 20: highest five Items face the adoption of BOT strategy from the 

study sample point of view. ...................................................... 121 

Table 21: The highest five influencing items from the businessmen point of 

view ........................................................................................... 121 

Table 22: The five highest influencing obstacles from the government 

officials point of view ............................................................... 122 

Table (24): t. Test Results for overall samples ......................................... 126 

Table (25): significance attributed to age variable. .................................. 127 

Table (26): significance attributed to overall samples .............................. 130 

Table (27): statistical differences attributed to the institutional ............... 131 

Table (28): analysis results of the single variance to indicate the differences 

in the obstacles of applying the BOT model in the Palestinian 

infrastructure from the point of view of employees in Water and 

Energy Authorities .................................................................... 133 

Table (29): Results of One Way ANOVA test (overall)........................... 134 

Table (30): results of the single variance differences attributed to the years 

of experience ............................................................................. 136 

Table (31): L.S.D differences test for years of experience. ...................... 138 

Table(32): results of the single variance differences attributed to the years 

of experience(overall) ............................................................... 140 

Table (33): Results of One Way ANOVA test, government official’s 

responses attributed to academic qualifications. ...................... 142 

Table (34): Results of One Way ANOVA test, government officials 

responses attributed to academic qualifications(overall) .......... 144 

Table (35): t. Test results of significance attributed to specialization ...... 147 

Table (36): t. Test results of significance attributed to 

specialization(overall) ............................................................... 148 



XI 

 

Table(37): results of the question: Are you convinced that it is appropriate 

to adopt BOT strategy ............................................................... 149 

Table (38): t. Test results of significance attributed to persuasion ........... 150 

Table (39): t. Test results of significance attributed to persuasion (overall)

 ................................................................................................... 152 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



XII 

 

List of Figures 

Figure(1): relationship among different actors in a BOT project( Dante 

Canlas and Gilberto Llanto,2006) ............................................ 31 

Figure(2):Typical contractual structure for a BOT project (Mohan 

Kumaraswamy, 2001) · ............................................................. 32 

Figure 3: Means of level of influence of all categories of obstacles. (look to 

table num 48 in appendix) ........................................................ 91 

Figure (4): Overall means and standard deviations of legal obstacles. (look 

to table num 49 in appendix) .................................................... 94 

Figure (5): The administrative obstacles arithmetical means of the study 

sample responses. (look to table num 50 in appendix) ............. 99 

Figure (6): Financial obstacles, mean responses of the sample.(look to table 

num 51 in appendix) ............................................................... 105 

Figure (7): means of political obstacles, sample responses. (look to table 

num 52 in appendix) ............................................................... 110 

Figure (8) : means of Social obstacles(overall). .(look to table num 53 in 

appendix) ................................................................................. 114 

Figure (9):  Technical obstacles, means of study sample responses. (look to 

table num 54 in appendix) ...................................................... 117 

Figure (10):modal to overcome the implementation obstacles of the BOT 

project in the Palestinian infrastructure: The sectors of water 

networks and power stations ( built by the researcher) .......... 164 

 

 

 

 



XIII 

 

List of Abbreviations and Definition of Term 

Abbreviations Description 

PPP Public private partnership 

BOT Build, operate, transfer 

BOO Build, own, operate 

BOOT Build, Own, Operate, Transfer 

DBO Design, Build, Operate 

BOLT Built-Own-Lease-Transfer 

PFI Private finance initiative 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



XIV 

 

-Operate-Build of Implementation the Facing Obstacles Major

 and Water-Infrastructure Palestinian in Model (BOT) Transfer

Sector Electricity 

By 

Obayda Abdelhadi mara’beh 

Supervisor by 

Dr. Abdul-Fattah Alshamleh  

Dr. Salah Sabri 

Abstract 

The study aimed to identify the obstacles facing the implementation of 

BOT model in the Palestinian infrastructure visa vie water and energy 

sectors.  

The study attempted to answer its main question: What are the legal, 

administrative, financial, political, social and technical obstacles that 

impede the implementation of the BOT model in the Palestinian 

infrastructure, in the water and energy sector? Each obstacle was addressed 

in a set of sub-questions in order to answer the main question of the study. 

Relevant literature review has been made, the researcher interviewed many 

government officials and businessmen. A questionnaire has been designed 

as a data collection tool. The questionnaire included 55 phrases distributed 

on six main categories of obstacles: the legal category included 11 phrases, 

the administrative category included 15 phrases, the financial category 

included 11 phrases, the social category included 5 phrases, the political 

category included 7 phrases. The fifth Likert scale was used: (very high, 

high, moderate, weak, very weak). 

The study community comprised (668) individuals, (208) government 

officials and (460) businessmen classified (A)where the targeted sample 



XV 

 

included (430), 230 businessmen and 200government officials in the Water 

and Energy Authority, where (376) questionnaire were valid for analysis. 

The study sample was selected to cover all government officials in the 

Water and Energy Authority and 50% of the businessmen. Data analysis 

was implemented using SPSS after coding the questionnaire. The results of 

the descriptive analysis were expressed using weighted percentages and 

arithmetic averages, T test, one way Anova, and Cronbach's - Alph 

(Internal consistency). After statistical figures appearing in the charts, the 

data was analyzed theoretically by making use of the literature review. 

The results indicated that the impact level of all six categories of obstacles 

were high with a mean of 3.815 and an arithmetic average of 3.70 to 3.97. 

The response level was high for all categories. Political obstacles are the 

most influential factors with a mean 3.97. The political obstacles were the 

highest rated obstacles, which limit the application of BOT (control of the 

Israeli side over large areas of area C with a mean of 4.29). In other words, 

the military orders, controls and instructions of the military government 

regarding the use of the Palestinian infrastructure with a mean of 4.195. 

The intervention of political trends in the implementation of BOT projects 

with a mean 4.11). 55 phrases were at a high level in terms of their impact, 

while only one statement rated the level of effect at an average (the 

possibility of subsequent governments denying the obligations of the 

previous government with a mean 3.32). 

The Study recommended the following: 

 



XVI 

 

Recommendation for the Public Sector (The Government) 

The researcher recommended the establishment of a special unit in the pri 

ministries office to deal with BOT strategy adoption. This unit should be 

responsible for coordinating BOT strategy adoption in project with the 

various ministers. Add to this, setting out a legal framework to adopt BOT 

strategy that will lead to build partnership and dine the rules and 

procedures that govern this strategy in order to attract investors to 

participate in this strategy. The government must develop a BOT guide that 

deals with all the details and specifications of BOT strategies and learn 

from the experience of other countries in preparing such a guide. The study 

also recommended promoting the culture of partnership through conducting 

workshops, trainings and conferences advocacy campaigns. This can be 

achieved through dialogue with the various sectors that are qualified to join 

such partnerships as the BOT and showing the benefits that can be 

achieved. Chambers of commerce plays an important role in highlighting 

the importance of BOT Strategy through conducting workshops that aim at 

reflecting to the private sector the concept of BOT strategy and the special 

contracts that govern it. The government has to encourage the financial 

institutions to adopt a vision related to funding BOT projects where the 

government ensures the rights of investors. The researcher stressed the 

importance to engage the private sector representatives in the final status 

negotiations to express their interests and needs that will affect the peace 

process. Finally enhance and improve communication between the two 

sectors (private and public) when implementing BOT projects through 



XVII 

 

activating the role of the coordinating council and introducing new partners 

from the water and electricity sector.  

Recommendation for the Private Sector 

The private sector, represented by the Coordination Council, opens 

channels of communication with the relevant ministries, through which it 

presents the capacities and potential of the private sector in addition to the 

financial and human resources necessary to enter into partnerships of this 

kind and based on the BOT model. In addition, it opens channels of 

communication with the Monetary Authority, local and national banks in 

order to reach joint financial approaches to fund BOT projects and these 

approaches ensures the rights of all relevant stakeholders. The researcher 

also calls upon the private sector to initiate partnerships to implement BOT 

projects and construct the suitable and sound infrastructure for these 

projects to coordinate with special unit in Pri ministries to submit a holistic 

applicable vision for these projects based on the Arabic experience in this 

domain thus urging the public sector to adopt this strategy. This holistic 

vision should clarify all the possibilities and potentials of the private sector 

and consequently qualify it to implement such projects.  

Finally, the study recommended that future studies on BOT projects 

include the finance sector such as banks, financial institutions and the 

community (the end user) and aim to identify the obstacles facing the 

financial institutions in funding infrastructure projects within the BOT 

projects. The researcher built a model based on the results of the study aims 

to overcome the obstacles of implementing the BOT project in the 



XVIII 

 

Palestinian infrastructure which include: the sectors of water networks and 

power stations. Moreover, studying the inputs, outputs and the results of 

implementing this strategy with respect to the Palestinian situation 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



1 

 

 

 

 

 

 

 

Chapter One 

Introduction 

 
 
 
 
 
 
 



2 

 

Chapter One 

Introduction 

1.1 Overview 

Water and electricity services playa critical role in the lives of citizens. 

Their infrastructures are major requirements for normal living, well-being, 

as they attract businessmen to invest in the industrial and commercial 

domains. As such, they are a necessity for economic and social 

development. Therefore, despite the scarcity of resources, the Palestinian 

authority has focused its attention on utilizing its natural resources since its 

coming in 1994. This was considered as one of the crucial tasks to improve 

the level of well-being and livelihood of a population getting rid of the 

occupation. However, it was not easy for the Palestinian Authority to 

completely take advantage of the resources considering the unfair practices 

of the occupation. Add to this, building infrastructure for these vital 

services was not an easy job considering the lack of financial resources to 

implement such projects. It has become clear that building awell-

established infrastructure requires the engagement of the private sector, 

where a lots of preparations and contractual modalities are needed to ensure 

a rational and productive cooperation between the public and the private 

sector. Consequently, many forms of public-private sectors’ partnership 

were initiated to implement such projects. BOT strategy was the most 

prominent one among other strategies with the least level of shortcomings. 

The trend towards BOT contracts in implementing infrastructure projects 



3 

 

have become a convincing strategy for financing such projects. In the Arab 

world, these contracts have been prevalent, especially in Egypt, the United 

Arab Emirates, Sudan, Lebanon, Syria, Morocco, and Kuwait. Adopting 

this strategy requires particular attention to success factors. In the initial 

phases, there is a need to investigate the various areas of this type of 

contracts. BOT strategy attained significant importance as an exceptional 

approach in constructing and managing public facilities. As the private 

sector implements the facility, it replaces the work of the government, 

operates and manages the public services as agreed in the contract 

(concession period) and benefits from the revenues generated from these 

services, this enables the project proponent to recover its investment, 

operating and maintenance expenses in the project. After this period, the 

state takes over the ownership of the facility. This experience was 

successful in many countries which implemented many projects such as 

railway stations, electricity and drinking water (Odeh, 2008: p.12) 

1.2 Problem Statement 

Despite the great achievements during the past decades in the field of 

infrastructure, still many problems aroused in this respect. The existing 

infrastructure in Palestine is in need of enormous financial resources for the 

construction and maintenance process, especially with the technological 

development and high rates of inflation. At the same time, the budgeting at 

the local level is facing deficit and pressure with the possibility of 

increasing taxes. Not to forget the political and economic fluctuations that 



4 

 

affect the Palestinian arena and the adoption of government funding of 

donor states and their responsiveness to the demands of the Palestinian 

economy. In addition, the limited resources and population growth require 

infrastructure services particularly water network project and power 

generation stations. All of these demands have created a real dilemma in 

the ability of the Palestinian National Authority efforts in the establishment 

of water networks and new electricity generating stations to bridge the gap 

between the available and what is required in light of the increasing 

number of population and urban stretch of high way (Alqumsan,2005: 

p.18). Therefore, the search for contractual modalities of global models of 

the partnership between the public and the private sectors is more pressing. 

From these formulas, the most famous is BOT projects. Despite the success 

of these formulas in many states, their application needs the provision of 

several requirements which call attention to it, especially in light of the 

studies conducted in this regards. Consequently, it was necessary to 

provide a scientific base of information to enable the Palestinian National 

Authority so that it can adopt appropriate policies. The expression of the 

problem of the study and research question is: What are the major obstacles 

for the implementation of BOT model in the Palestinian infrastructure visa 

vie water and energy sector? 

1.3 Research Importance 

The importance of this study lies in the following:  

a) The Scientific Usefulness/benefit 



5 

 

 It provides a substantive scientific, objective study and feedback to 

researchers regarding the possibility of applying BOT contracts by 

drafting recommendations derived from the scientific research, in 

order to assess the impact on the development of the public sector in 

Palestine. 

 It gives the officials a clear picture regarding the difficulties facing 

the implementation of BOT strategy, and offers future feedback 

when they are applied. 

 It shows the importance of partnership between the public and 

private sectors. 

b) Practical usefulness to the related parties: 

To the government: to identify the financial and administrative 

constraints in the application of BOT projects in the Palestinian 

infrastructures. 

To the economy: in case of achieving the partnership between the public 

and private sectors, this may lead to sustainable development. 

To the business sector: participation in building the state and generate 

profits. 

1.4 Research Objectives 

The present study aims to achieve the following objectives: 

 To identify the basic obstacles that face the implementation of BOT 

project in the Palestinian public sector and choose the appropriate 

strategies to deal with. 



6 

 

 To define the rationales for applying BOT projects, and what the 

expected results are in the Palestinian situation. 

 To formulate a suitable model for BOT contracts in Palestine. 

1.5 Research Questions 

This study attempts to answer its major question: What are the major 

obstacles for the implementation of BOT strategy in water and energy 

sectors in Palestine? 

This question is discussed in the following minor questions: 

 What is the level of influence of the legal obstacles for the 

implementation of BOT strategy in water and energy sectors in 

Palestine? 

 What is the level of influence of the administrative obstacles for the 

implementation of BOT strategy in water and energy sectors in 

Palestine? 

 What is the level of influence of the financial obstacles for the 

implementation of BOT strategy in water and energy sectors in 

Palestine? 

 What is the level of influence of the political obstacles for the 

implementation of BOT strategy in water and energy sectors in 

Palestine? 

 What is the level of influence of the social obstacles for the 

implementation of BOT strategy in water and energy sectors in 

Palestine? 



7 

 

 What is the level of influence of the technical obstacles for the 

implementation of BOT strategy in water and energy sectors in 

Palestine? 

 Are there any statistically significant differences at the significance 

level (α = 0.05) in the obstacles to the implementation of BOT 

strategy in Water and Energy sectors in Palestine attributed to the 

following variables: gender, age group, institutional reference, 

functional status, years Experience, qualification, specialization, and 

persuasion? 

1.6 Research Hypothesis 

This research aims at testing the following set of hypotheses:  

Hypothesis 1: Major obstacle facing the implementation of ‘’BOT’’ 

model VS Gender variant 

H1: There are no significant statistical differences attributed to the gender 

variable at the level (α >=0.05) in the hindrances of applying the BOT 

model of the Palestinian infrastructure applied in water and energy sector. 

Hypothesis 2: Major obstacle facing the implementation of ‘’BOT’’ 

model VS Age group variant. 

H1: There are no significant statistical differences attributed to the age 

group variable at the level (α >=0.05) in the hindrances of applying the 

BOT model on the Palestinian infrastructure applied in water and energy 

sector. 



8 

 

Hypothesis 3: Major obstacle facing the implementation of ‘’BOT’’ 

model VS Institutional reference variant 

H1: There are no significant statistical differences attributed to the 

institutional reference variable at the level (α >=0.05) in the hindrances of 

applying BOT model on the Palestinian infrastructure applied in water and 

energy sector. 

Hypothesis 4: Major obstacle facing the implementation of ‘’BOT’’ 

model VS The status variant 

H1: There are no significant statistical differences attributed to the status 

variable at the level (α >=0.05) in the hindrances of applying BOT model 

on the Palestinian infrastructure applied in water and energy sector. 

Hypothesis 5: Major obstacle facing the implementation of ‘’BOT’’ 

model VS Number of years of experience variant 

H1: There are no significant statistical differences attributed to the years 

experience variable at the level (α >=0.05) in the hindrances of applying 

BOT model on the Palestinian infrastructure applied in water and energy 

sector. 

Hypothesis 6: Major obstacle facing the implementation of ‘’BOT’’ 

model VS Educational qualification variant 

H1: There are no significant statistical differences attributed to the 

educational qualification variable at the level (α >=0.05) in the hindrances 

of applying BOT model on the Palestinian infrastructure applied on water 

and energy sector. 



9 

 

Hypothesis 7: Major obstacle facing the implementation of ‘’BOT’’ 

model VS Specialization variant 

H1: There are no significant statistical differences attributed to the 

specialization variable at the level (α >=0.05) in the hindrances of applying 

BOT model on the Palestinian infrastructure applied in water and energy 

sector. 

1.7 Research Dimensions 

The research included the following scopes: 

 The objective dimensions: the research is limited toits objective by 

designing a Palestinian model for BOT contracts in the water and 

energy sectors. But even though it can form a basis for adopting this 

model in other areas with some adjustments. 

 Human Resources dimension: the research is scoped with its 

population, workers in the Energy and Water Authority, and 

businessmen classified as A in chambers of commerce. 

 Timeframe: the research is limited to the period between 2017-2018 

 Institutional dimension: the research is scoped within the Energy and 

Water Authority, and businessmen classified as A in chambers of 

commerce 

 

 

 



10 

 

 

 

 

 

 

Chapter Two 

Literature Review 

 

 

 

 

 

 

 

 

 



11 

 

Chapter Two 

Literature Review 

The theoretical framework includes two main chapters. The first addresses 

the public-private partnerships and the projects (BOT)-requirements and 

obstacles. The second part deals with experiences of (BOT) adoption 

projects and infrastructure in Palestine-the water and energy sectors. 

Illustrations are given below. 

Governments recognize the importance of improving and expanding 

infrastructure services for sustaining economic and social development. 

Improved quality and service coverage in power and water supply, health 

and education, sewerage treatment, transport and logistics are vital for 

countries' economy and the livelihood of its people. Nevertheless, countries 

faced many when implementing such projects such as the financial 

limitations. That’s why it was important to search for more creative and 

innovative approaches to implement such projects. (Economic 

Coordination Committee(ECC), 2010). Governments in most developing 

countries face the challenge to meet the growing demand for new and 

better infrastructure services. As available funding constitutes the 

traditional sources and capacity of the public sector to implement many 

projects at one time remain limited, governments have found that the 

partnership with the private sector an attractive alternative to increase and 

improve the supply of infrastructure services (Engel& et.al, 2007). Many 

strategies were adopted by governments such as: privatization, issuing 



12 

 

public ponds, borrowing, appeal for donations, PPP etc. Private sector 

participation in the development process has become necessary in most of 

the developed world and developing countries as well. It became the main 

source of finance for the state-owned local development strategy to and 

because the private sector's saving stock is high among members of society 

and can be invested by the private sector (Abd EL-Razak & Shuaib, 2010). 

The substantial investment in infrastructure required in the modern state 

can be provided through public private partnerships (PPP) and this PPP 

policy framework will provide the basis for this approach in countries. In 

order to encourage the private sector to participate in the country’s 

infrastructure development, governments implement a combination of 

policy reforms, institutional support, incentives and financing modalities in 

financing, developing and managing future infrastructure development 

projects. (PACIFIC ISLANDS FORUM SECRETARIAT, 2006) 

Public-private partnership (PPP) in infrastructure is a relatively new 

experience in most of the developing countries. So far, only few countries 

have established institutional arrangements and developed manuals and 

resource materials in support of PPP development. The absence of such 

institutional arrangements, resource materials, …, public officials face 

difficulties in project initiation, implementation, and evaluation. This 

makes the general public have some misunderstandings about PPPs. 

(Fillippozzi, 2005, p.  

 



13 

 

2.1 Public and private sectors partnership. 

The British Commission defined the partnership between the two sectors as 

"a risk-sharing connection between the public and private sectors based on 

a common ambition to achieve a desired policy objective of the country" 

((Apostolakis, C & Smith, LR, 2002). Faulker defines it as a "middle place 

between public monopoly and full privatization, seeking to integrate the 

best of both sectors" (Pongsiri, 2002). While Khanom, (2010) has defined 

it as a multi-sectored partnership as "practical arrangements based on 

mutual commitment, more than any contract between any organization in 

the public sector and any other organization outside this sector”. Ascher 

defines it as "a process that carries a long-term risk, between public and 

private agencies, in implementing complex operations to meet multiple 

needs: public facilities, services, housing, transport, etc." (Sadran, 2004). 

The Public Private Partnerships (PPP) involves financing the initiation of 

infrastructure by the private sector, which would otherwise have been 

provided by the public sector. Instead of the public sector procuring a 

capital asset and providing a public service, the private sector creates the 

asset within a dedicated stand-alone business (usually designed, financed, 

built, maintained and operated by the private sector) and then delivers a 

service to the public sector entity/consumer in return for payment that is 

linked to performance. Therefore, the public sector is able to reorientits 

efforts to serve other urgent social and economic needs. As such, PPP may 

include an equity joint venture between governments and the private sector. 

(FEMIP, 2011). 



14 

 

The capital and operational expenses incurred by the private investor can 

be recovered under the PPP modality by charging users for the service 

provided or via fixed (or partially fixed) periodic payments (annuities) 

disbursed by the public sector over the concession period, or by a 

combination of both. PPPs allow each partner to concentrate on activities 

that best suit their skills (Economic Coordination Committee /ECC, 2010). 

For the public sector this means planning and identifying infrastructure 

service needs and focusing on developing national, local sector-specific 

policies, but also to oversee these and to enforce the PPP agenda. For the 

private sector, the key is to deliver effectively the infrastructure and 

facilities required by the public sector and consumers at the project level 

(Bouachek,2009). 

The partners in a PPP strategy usually implement joint projects through a 

legally binding contract agreement to share responsibilities related to 

implementation, operations and management of the project. This 

collaboration or partnership is built on the expertise of each partner that 

meets clearly defined public needs through the appropriate allocation of 

Resources, Risks, Responsibilities and Rewards (Rahman, 2004). It is 

important to emphasize here that a PPP is not an option to solve the 

infrastructure problem, but it is a viable project implementation mechanism 

for a preferred solution option. (Quium, 2011) 

The researcher believes that the previous definitions may agree that the 

partnership between the two sectors is a mutual commitment. Public-

private partnership is constructive cooperation between the two entities. 



15 

 

This is made in order to achieve mutual benefits, based on a common legal 

reference framework that promotes long-term development. The adoption 

of this strategy requires dialogue to overcome overlapping and conflicting 

interests between the public and private sectors. 

PPP: benefits, objectives & advantages 

A key advantage of having the private sector provide public services is that 

it allows public administrators to focus on other priority issues. The private 

sector, in turn, is empowered to do what it does best, and in particular 

improve the efficiency and quality of service, () Francoz, 2010). In 

addition to that, there are many benefits such as: 

A. Development of more infrastructure systems on time and within 

budget constraints. 

B. Encouraging the private sector innovative design, technology and 

financing structures, leads to increased international and domestic 

investments. 

C. c)Joint Risk Mitigation between the two parties. 

D. Ensuring good quality of public services and to be accessible to the 

majority of the people. 

E. Real financial benefits through a better utilization and allocation of 

public funds. 

F. This will also help economic growth to increase and create 

employment opportunities. 



16 

 

Governments worldwide have increasingly turned to the private sector to 

provide infrastructure services in energy, power, communication,  

transportation and water sectors that were traditionally delivered by the 

public sector (Askar & Gab-Allah, 2002). 

 There are several reasons for the growing collaboration with the private 

sector in developing and providing infrastructure services. That was 

represented in many objectives and advantages, of this initiative, 

(Chinyere, 2013). Some of them are: 

A. Promote inclusive social and economic development through the 

provision of infrastructure 

B. Leverage public funds with private financing from local and 

international markets 

C. Encourage and facilitate investment by the private sector through 

creating an enabling environment in PPP in infrastructure 

D. Protect the interests of all stakeholders, including end users, 

affected people, government and the private sector. 

This illustration shows that, PPP strategy is targeted to provide a wider 

variety of better quality and timely services through faster project 

implementation, maximum leveraging of public funds, enhanced 

accountability and a shift to life cycle costing and infrastructure 

management of the private sector. 

The researcher considers that there are other benefits that may be found in 

the use of private capital, expertise, and technology in order to reduce the 

cost of establishing infrastructure projects. Implementation of projects will 



17 

 

be quantum with an increased efficiency rates. This is a strong incentive to 

adopt the concept of public-private partnership. 

Forms of PPP. 

Here are some of PPP forms: 

• Build, operate, transfer (BOT): 

The private sector designs and builds the infrastructure, finances its 

construction and owns, operates and maintains it over a period, often 

as long as 20 or 30 years. This period is sometimes referred to as the 

"concession" period. At the end of the concession period such 

projects are transferred to the government. (Ameln, 2011, p.25) 

• Build, Own, Operate (BOO): 

PPP project model, in which a private organization builds, owns and 

operates some facility or structure with some degree of 

encouragement from the government. Although the public body 

doesn't provide direct funding, it may offer other financial 

motivations status. The developer owns and operates the facility 

independently (Andrew, 2006, p8). 

 Build Own Operate Transfer (BOOT): 

The service provider is responsible for the design, construction, 

finance, operations, maintenance and commercial risks associated 

with the project. The service provider has owned the project 

throughout the concession period. The asset is transferred back to the 

government at the end of the term, often at no cost. (Donaghue, 

2002, p3) 



18 

 

 Design Build Operate (DBO): 

A design and construction contract linked to an operation and 

maintenance contract. The service provider is usually responsible for 

financing the project during construction. The government purchases 

the asset from the developer for a pre-agreed price prior to (or 

immediately after) commissioning and takes all ownership risks from 

that time (Mortimer, 2004, p2) 

 Built-Own-Lease-Transfer (BOLT): It is a non-traditional 

procurement method of project financing whereby a public 

sector client gives a concession to a private entity to build a 

facility (and possibly design it as well), own the facility, lease 

the facility to the client, then at the end of the lease period 

transfer the ownership of the facility to the client (Shukla & et. 

Al., 2014, p139). 

• Private finance initiative (PFI): 

A typical PFI project will be owned by a company set up specially to 

run the scheme. These companies are usually consortia including a 

building firm, a bank and a facilities management company (Allen, 

2001, p10). 

The research erillustrates that partnership is an interaction and cooperation 

between the public and private sectors based on the exploitation of their 

human, financial, administrative, organizational, technological and 

knowledge resources in accordance with the legal contracts based on a 

commitment to the goals, freedom of choice, connected responsibility and 



19 

 

accountability for achieving economic and social objectives. They have a 

far-reaching impact on peoples' aspirations so that they can cope or keep 

abreast of contemporary developments and achieve public objectives and 

sustainable development. 

2.2 BOT projects: concept, objectives, and characteristics, 

BOTas described plays an important role in infrastructure development. 

Several countries have successfully used it to address the infrastructure 

needs of the economy. It is viewed as a viable option to outsource public 

projects to the private sector. It has been widely viewed as a pragmatic 

approach in infrastructure provision in countries where severe budgetary 

constraints limit government’s capacity to provide it (Llanto, G. ,2008). 

The major concepts and applications refer to: design, financing, 

construction and operation of the facility under a concession agreement. 

During the concession period, the private sector operates and maintains the 

facility. At the end of a fixed cooperation period, the ownership, free of any 

encumbrances or liens, is transferred to the government at no cost. (ERIA 

Interim Report, July 19, 2007) (Atman, 2006). 

BOT projects: Definition 

Muhammed’s opinion (Mohammed. M., 2005, p. 31), the BOT is 

abbreviated to three build-operate-transfer terms: construction, operation, 

transfer or transfer of ownership, which constitute the three stages of the 

execution of the BOT project. The use of the term transfers or transfer of 

ownership does not mean that ownership has already moved from its owner 



20 

 

(The state), but what is transferred to the sector or the private party is the 

legal possession, ownership belongs to the granter state, since the project is 

built for its own account, as if funding from the private sector, and what is 

transferred to it at the end of the contract, is the ownership of the project. 

In essence, the presence of BOT is in order to improve the welfare of the 

people, realizing the provision of infrastructure in various fields 
(Eventia,2017, p534). 

BOT strategy is a special financing model that was developed to be used in 

the achieving projects requiring advanced technology, high material 

resources, and huge investment amount (including the profit to be gained) 

to the company through the purchase of any goods or services produced by 

the company during the operational period, by those benefiting from the 

management or service) Yerlikaya, G. K,2002, p.25) 

 In the broader sense, the BOT model may be defined as the realization of a 

public structure, investment or service through the financial funding by a 

private company and its operation by the latter for a period determined by 

the public, and its selling to public institutions any goods or services, which 

it has produced during this period, pursuant to a tariff mutually determined 

by the parties, and its transferring the facilities, which it is operating, in a 

well-maintained, complete and functional manner, to the public institution 

at the end of the period(İmre, E,2001,p.34). 

According to another definition based on contracts executed, the BOT 

model is a regime where any public service or activity or public works are 

prepared as project, financed, built, protected by realization of an 



21 

 

investment based on a fixed amount, all expenses being provided for by a 

private enterprise, under the guarantee and commitment that the country 

purchases the goods or services produced, and which ensures the transfer 

and delivery to the relevant public institution or establishment of the 

facility and management at the end of the period upon amortization of the 

capital invested and realization of the profit through its operation for a 

certain period(Sezer,Y,2000,p.5)(Jalal, 2001,63). 

The Dubai government defines the BOT system that is a contract shall be 

under the private sector, to finance and set up service facility instead of the 

government in exchange for its operation and use its revenues for a 

specified period before returning ownership of the facility to State 

(Government of Dubai, 2010, p. 4) 

The concept of BOT is a contractual concept that reflects the compatibility 

of two or more wills to create a legal impact over the agreed period. It is 

also a financial system; because it is a mechanism of modern financing that 

is based on the idea of project finance by guaranteeing repayment of debts 

from the proceeds of operating the project without focusing on the owner, 

as lenders look to cash flow (cash flow) as a source of debt repayment 

submitted, in addition to the project's assets in the event of the sponsors of 

the project's inability to repay the debt and accrued interest on them full on 

time unlike the financing of traditional projects that are based on 

guarantees with material and in-kind assets (Hasayem ,2011, p. 10) (Ali, 

2001, p. 76).. 



22 

 

Now the researcher can define Build-Operate-Transfer (BOT) project as a 

concession contract in which a principal grants a concession to a 

concessionaire who is responsible for the financing construction and 

operation of a facility over the period of the concession before finally 

transferring the facility, at no cost to the government, as all operational 

facility. 

We conclude from the foregoing that the elements of BOT can be 

summarized in: 

• Design and construction of the agreed project, including studies, 

construction and equipment at the expense of the private party financed by 

the project. 

• Operate the project by the investor and exploit it commercially for the 

agreed period so that it can recover its costs, with achieving an appropriate 

profitability rate. 

• Ownership transfer of the fixed assets of the project to the contracting 

government that owns it at no charge or at any agreed price at the end of 

the contractual period. 

Build-Operate-Transfer Characteristics: 

BOT projects have unique characteristics that distinguish them from other 

project delivery methods. The following are some of their unique 

characteristics: 

1. BOT projects are financed on a project finance basis with limited 

recourse. Typically, in limited recourse financing, the lenders provide debt 



23 

 

to the concession company solely based upon expected cash flow/revenue 

generating capacity of the project. Financing is provided on the merit of the 

revenue generating capacity of the project rather than the assets of the 

concessionaire company (Iossa and et. al., 2007), BOT projects are 

complex structures comprising multiple interdependent agreements among 

the various participants and associated with uncertainties and high risk. 

BOT projects transfer the risk to the private sector, and can be applied to 

any sector of the economy. But, it has been used widely in power plant 

sector, transportation and telecommunications (Jalaluddin Shah, 2001). 

2. A key characteristic of BOT projects is raising finance entirely by the 

private sector without the involvement of government. The private sector is 

fully responsible for a design, construction, financing and operation and 

maintenance (Kumaraswamy, 2001). 

3. BOT projects are typically large-scale infrastructure projects transaction 

costs amount on average 5 to 10% of total project cost (ACAR, 2006). 

Purposes of implementing the Build-Operate-Transfer model 

Governments are increasingly turning to the BOT project as an alternative 

additional source of funding to meet the funding gap. While recent 

attention has been focused on fiscal risk, governments look to these for 

other purposes, (American Society of Civil Engineers (ASCE), 2014) 

mention to these Purposes: 



24 

 

 Exploring BOT project as a way of introducing private sector 

technology and innovation in providing better public services 

through improved operational efficiency. 

 Incentivizing the private sector to deliver projects on time and within 

budget. 

 Imposing budgetary certainty by setting the present and the future 

costs of infrastructure projects over time. 

 Utilizing BOT projects as a way of developing local private sector 

capabilities through joint ventures with large international firms, as 

well as sub-contracting opportunities for local firms in areas such as 

civil works, electrical works, facilities management, security 

services, cleaning services, maintenance services (Wang, 2000). 

 Using BOT projects as a way to increase levels of private sector 

participation (especially foreign) and structuring BOT in a way so as 

to ensure transfer of skills leading to national champions that can run 

their own operations professionally and eventually export their 

competencies by bidding for projects/ joint ventures (Larry, 2006). 

 Supplementing limited public sector capacities to meet the growing 

demand for infrastructure development (Sri Eddien, 2001). 

 Extracting long-term value-for-money through appropriate risk 

transfer to the private sector over the life of the project – from 

design/ construction to operations/ maintenance (Maaadidi & 

Taei.,2012) (Abdul Azim, 2001). 

 



25 

 

The benefits of BOT projects: 

In addition to the above mentioned advantages, there are many incurred 

benefits as: 

 It represents a sound strategy for handling the deficit of government 

funding (Hasbo, 2009, Hamada, 2014&Nassif, 2011). The study 

considers that the issue of financing infrastructure projects is the 

main reason for resorting developing countries to BOT strategy 

adoption. Besides that , it reduces the burden on public budgets. 

This strategy creates means to reduce the growing external 

indebtedness, (Saleh, 2006). The study considers that the private 

sector's financing of infrastructure projects under the supervision of 

the state helps limit the resorting of these countries to external loans. 

 Reducing inflation and saving hard currency (Toobar, 2008, p. 40). 

The study considers that the process of financing the BOT projects 

allow the injection of funds in hard currency, which allows curbing 

inflation rates. 

 The reduction of unemployment (Nassif, 2011, p. 146) (Bahaji, 

2008, p. 57). BOT system expands the establishment of new projects. 

BOT strategy has spread in many countries and its application has become 

a welcomed alternative to finance public projects in the developing 

countries as compared to loans and foreign aid. Therefore, in order to 

maximize the advantages of this strategy and reduce its negative aspects. 

To this purpose, it is necessary to enforce laws regulating all aspects related 



26 

 

to it, rather than leaving it to the absolute estimation of the various parties 

concerned. 

BOT strategy as said, is given within some differences of focus in its name, 

the table (1) shows such variations and similarities and differences of such 

naming. 

Table (1) BOT concepts focus 

Differences Similarities 

Distinguish 

between the 

BOT contracts 

and other 

contracts 

- The lessee shall have the option to purchase 

the machinery, equipment, and real estate or 

return it to the lessor at the end of the 

contract. In the BOT contract, the project 

company shall return the facility to the 

contracting authority at the end of the 

contract. 

- The BOT contract is often executed for the 

benefit of the management while the lease 

contract is executed in favor of a private 

party, and the BOT contract usually deals 

with a public facility contrary to the financial 

leasing contract. 

- The lessor (government) in the financial 

leasing contract creates the project and then 

leases it while in the contract the project 

company is the project builder. 

 

- Both contracts 

are considered 

as means of 

financing 

projects. 

- Both the 

contractor and 

the lessee shall 

manage and 

invest the 

project during 

the execution of 

the contract. 

- 

 

 

BOT contract 

and financial 

leasing contract 

 

- The project company is formed in a pot 

contract from one or a consortium of 

companies. It may be involved in setting up 

several projects around the world, while the 

subject of the mixed economy company is the 

management of a particular general facility in 

the company's basic law. 

- The ownership of the project funds shall be 

for the State in the pot contract, while the 

ownership of the company shall be in the 

manner of the mixed economy company, 

- The BOT 

contract and the 

mixed economy 

company are 

two methods of 

managing public 

utilities. 

- The two 

approaches are 

similar to the 

use of private 

BOT contract 

and mixed 

economy 

company 



27 

 

except for the disposal of some funds 

belonging to the State. 

- The duration of operation in the BOT 

contract is specified in the contract under the 

mixed economy company, which is limited to 

the age of the company and applies in the 

contract of pot rules stipulated in the contract, 

while applying the rules contained in the 

Basic Law of the mixed economy. 

sector methods 

in the 

management of 

public utilities. 

 

- The right of usufruct refers to something 

specific, while the subject of the BOT is 

connected to a public facility, and the user 

does not allow the use of the object of use 

contrary to the Bot contract, which allows the 

public to benefit from the services of the 

public utility. 

- The two contracts differ in that the project 

company transfers ownership of the project to 

the state, while the user delivers it to the 

owner. 

- The BOT 

contract and the 

right of usufruct 

shall include a 

temporary right 

for a specified 

period, 

terminated by 

the State 

- The 

beneficiary and 

the project 

company invest 

the money 

subject to the 

contract or the 

right of  

.usufruct in the 

agreed period. 

BOT contract 

and contract of 

usufruct 

- The contract of the BOT is self-financed 

while the public works contract is funded 

from the general budget. The financial 

consideration obtained by the project 

company in the pot contract is from the 

operating revenues of the facility. In the 

contract of the public works project, it is the 

price paid by the administration for 

construction and administration. 

- Both contracts 

aim to achieve 

public benefit 

by operating the 

facility after 

completion. 

- The ownership 

of the project in 

both contracts 

will be for the 

contracting 

administration 

BOT contract 

and public 

works project 

contract 

Source: Sohaib, saboa (2013)., pp. 40-42 

 

 



28 

 

BOT Contractual Structure 

There are many major components to any BOT contractual project, all of 

which have particular reasons to be a part of the contract. The major 

components are: 

1. Government Agency 

This part refers to a governmental organization which manages the 

operations of public utilities that provide services to the public which 

are the main concern of the state. The state has never abandoned 

responsibilities towards the state's infrastructure projects (Alhamoud, 

2010) The governmental organization as a pivotal party, grants the 

sponsor "the concession", the right to build, and operates the facility to 

the sponsor, and often acquires most or all of the service provided by 

the facility (Canlas, et al.,2006) for a specific period. 

2. Sponsor 

The sponsor (investor) is the party, usually a consortium of interested 

groups (typically including a construction group, an operator, a 

financing institution, and other various groups) which, in response to the 

government invitation, prepares the proposal to finance the construction, 

and operates it under certain conditions (Samurai,2006). This party is 

willing to cooperate with the government organization for achieving 

mutual benefits. 

3. Construction Contractor 

The construction company may also be one of the sponsors. It will 

implement the construction and completion of works on time, within 



29 

 

certain budget and specifications. Risks implied here can be sizeable 

and the lenders will wish to see a construction company with a balance 

sheet of sufficient size and strength with access to capital that gives real 

substance to its completion guarantee (Khateeb, 2014) (Vaitheeswari& 

Nidhu.2017). 

4. Operation and Maintenance Contractor 

The operator will be expected to sign a long-term contract with the 

sponsor for the operation and maintenance of the facility. Again, the 

operator may also inject equity into the project. (Roulette,2004).This 

probably has a lot to do with the fact that operators tend to accept little 

risk in the form of up-front capital or expenditure. An operator simply 

anticipates making a profit from operating the infrastructure more 

efficiently than an equivalent government runs project. (Yusuf, 2005) 

5. Financiers 

In large-scale projects, there is likely a source of financing providing 

organization (as banks) since the required amount will be huge. The 

banks will require insurance over the infrastructure that will be 

established The same or different banks will often provide a stand-by 

loan facility for any cost overruns not covered by the construction 

contract (Sri Eddien,2000) (Hassani, 2007). 

6. Equity Investors 

It is always necessary to ensure that investors willing to participate in 

BOT have sufficient powers to participateinto the relevant contracts and 

meet the obligations under the contract (B. Canlas, 2006). 



30 

 

7. Other Parties 

The other parties such as insurers, equipment suppliers, engineers, 

design consultants, lawyers, financial and tax consultants will also be 

involved in an infrastructure project (Delmon, 2005). 

Argyris G. Kagiannas, K. D. (2003) points out that the main 

stakeholders in every BOT project are identified as following: 

1. Principal: The principal is usually a governmental body that 

recognizes the need for a public facility but is unable to financially 

support the project. 

2. Concessionaire: The concessionaire is the owner of the facility 

during the concession period and gains profits on the initial 

investment through the usage of the facility.  

3. Investors: Financing is supplied by the private sector and the 

investors include both shareholders and lenders. 

4. Contractor: The contractor is responsible for the construction of the 

project and for hiring subcontractors, suppliers and consultants. 

5. Operator: The operator is in the concessionaire’s service and 

manages the operational stage of the facility. Figure number(1) and 

(2) show the complex relationship among different actors in a BOT  

 

 

 

 

 



31 

 

 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure (1): relationship among different actors in a BOT project( Dante Canlas and 

Gilberto Llanto,2006) 

 

 

 

 

 

 

Principal 

Host 

Government 

Concessionaire 

consortium 

Contractor Sponsors 

Lenders 
Operator 

Off-Takers 

End User 

 

Concession agreement, Approvals, 

Authorizations 

 

Concession Facility 

Guarantees, Possible Equity, Loans, Stand-By 

Commitments 

 
Construction 

Agreement 

 

Shareholders Agreement, Equity 

Investments 

 

Equity 
Dividends 

Construction 

cost 

Limited 

equity  

Facility 
Operation 

fees 

debt 
Debtrepayment 

Operation/management 

agreement 

Lenders agreement 

fe

es 



32 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure (2): Typical contractual structure for a BOT project (Mohan Kumaraswamy, 2001) ·  

BOT mechanism is a complex structure comprising multiple, inter-

dependent agreements among various participants. Typically, the 

government grants concession to the private sector (concessionaire). The 

concession is awarded through concession agreement. The concessionaire 

is responsible for design, finance construction, and operation of the facility. 

The concessionaire retains the ownership during the concessionary period, 

which can be normally 10-50 years, after which the title of ownership is 

transferred back to the government (Navarro, 2005) (Malih.2015). 

 

contractor

s 

Government 

Concessio

n 

Company 

Banks 

User of 

product 

Rawmateri

alsupplier 

Investors Operator 

Off-take 

agreement 

contract 

 Construction 

contract 

Operation 

contract 

Supply 

contract 

Loan 

agreement 

Shareholder 

agreement 

Concession 

agreement 



33 

 

BOT agreements 

A BOT project has the following agreements: 

Concession Agreement 

The concession agreement is made between the government and the 

concessionaire. It is regarded as the "core" of a BOT project as it 

determines the commercial viability and profitability. A concession 

agreement includes The concession period, the construction duration, 

toll/tariff structure with toll/tariff revision provisions, rights and obligations 

of both parties, and the Government guarantees: The host government 

offers guarantees to the project promoters (concessionaire) like supporting 

loans, guarantees of minimum operating income etc.(Cotula,2007) (Lashin, 

2010). 

Loan Agreement 

The loan agreement is made between the lenders (i.e. Banks) and the 

concessionaire. The Bank provides the necessary debt to the 

concessionaire. This debt is the primary source of financing a BOT 

infrastructure project (Cotula, 2007). 

Shareholder Agreement 

The shareholder agreement is made between the equity investors and the 

concessionaire describing how the company should be operated, along with 

shareholders' rights and obligations. The agreement also includes 

information on the management of the company and privileges and 

protection of shareholders. (Delmon, 2009). 



34 

 

Construction Contract 

The construction contract is made between the contractor and the 

concessionaire. The contract is usually let under fixed price turnkey 

contract (Cotula, 2007). 

Supply Contract (Equipment/Material) 

An agreement is between the supplier and the concessionaire. The supplier 

in a supply contract is often government agency that supplies raw material 

(CIdb, 2005). 

Operation and Maintenance Contract (O & M Contract) 

An agreement is made between the concession company and the operator. 

The operation phase plays a very important role in the success of BOT 

project since success is tied to its revenue generating ability. The operation 

phase of BOT projects presents the great management challenge and 

demands the highest level of attention (World Bank Group,2016). 

Successful standard stages of BOT’s project 

Jilali, (2010) viewed several investigations which dealt with the standard 

stages of a successful BOT project, including the following  

Stage I: is the planning and preparation. At this phase, the items of the 

proposal to be completed are: feasibility study, specification of the project, 

production capacity and location, selecting sources of raw materials, 

identification of markets for disposal of produced goods, preparation of 

project documents and conditions books, inviting competing companies to 

prepare for submission Offers, and awarding the project to an investor (the 



35 

 

company) that presents the best offers and the government signs the 

contract with him. 

Stage II: The preliminary phase of implementation where the investor 

implements the project through the availability of funds, the conclusion of 

contracts with sub contractors. 

Stage III: This is the actual stage of implementation of the project. In this 

stage contractors and suppliers fulfill their obligations and set up the 

project units, install the equipment taking into account the required 

specifications. The investor receives the project effectively from its 

implementers. The State or the Government representatives monitor project 

implementation to ensure an effective performance. 

Phase IIII: Operation and maintenance phase. At this stage, the project is 

fully operational and the necessary maintenance work is carried out. The 

transfer of technology and the training of workers on modern technical 

means are implemented. 

Phase IIIII: Transfer of ownership of the project to the granting state, this 

stage is the last stage of the project. In this stage the government retains the 

ownership of the project. It ensures that the project has all its assets in good 

working condition. The project then becomes part of the public sector 

managed by the state.  

aljmal, (2003) has reviewed these stages with some other details as 

follows: 

1. The State shall identify the infrastructure projects that it desires to 

build or update and invite the different companies who are willing to 



36 

 

carry it out in accordance to B.O.T. strategy. In order to encourage 

fair competition, the state may conduct feasibility studies for such 

projects. 

2. A group (or several groups) submit their offers mentioning the 

concession period. The offer includes engineering designs of the 

project, the financial studies, the operational plan and facilities that 

are required by the government and the guarantees that the 

government must provide measures to protect investors from various 

types of risks. 

3. The Government evaluates the submitted offers involving a team of 

its specialists. The government, then negotiates specific terms and 

conditions of the project. In case of agreement, the official approval 

shall be taken by the competent authorities in the State and the 

agreement is signed. 

4. The investor makes the funds available, through its own 

arrangements. 

5. After the construction of the project, the operating companies 

manage and maintain the project. In this stage revenues are collected 

from its users. 

The stages of successful BOT project completion in the study (Abdel Aziz, 

et.al., 2007) include: 

1: The identification stage- including identification of the project, optimal 

funding structure, and preliminary feasibility studies, in addition to 

appointing the project implementation team and the general manager of 



37 

 

the project, and the decision of the government to implement the project 

by its system. 

2: The phase of government preparation for the general auction, which 

includes: procedures for preparing the bid and announcing it, ensuring 

the seriousness, expertise and capabilities of the developed companies 

financially and technically, and contracting the project (preparing the 

draft project in general, in preparation for signing it by a private party 

later, after the general bid is awarded to a company) or preparing tender 

documents and specifying the criteria and conditions for evaluation of 

the various tenders developed. 

3: The stage of preparing potential bids by the sponsors. These include 

formation of the project consortium or establishment of the project 

implementation company, conducting a detailed feasibility study, 

identifying potential participants or partners in the project, 

4: The selection process by the government. This includes: evaluation of 

bids and offers, requesting amendments or clarifications, and awarding a 

tender to a company or consortium of the best bidder available. 

5: The project development phase, which includes establishing the project 

execution company, providing capital contributions for financing, 

signing the necessary loan agreements, financial closing, signing the 

contracting contract, signing the supply contract (equipment and raw 

materials), signing the insurance contract for the project. 

6: Implementation of the project (construction phase) - includes: 



38 

 

Building and installation of equipment and the operation of preliminary 

operational tests, government approval and approval of the project 

implementation company, technology transfer and operational capacity 

building (human resources training) with the periodic evaluation of the 

project to ensure the efficiency and effectiveness of all its operational 

activities at the start of the actual operation of the project. 

7: The operation phase includes the operation and maintenance during the 

period of the contract with the periodic inspection of the activities and 

operations of the project to ensure the efficiency and effectiveness of its 

performance, the continuous training of human cadres, the transfer of 

modern operational techniques to the host country and help its human 

cadres to build high capacities before embarking on transfer of 

ownership.  

8: - Transfer of ownership - includes: 

Identify the optimal transfer method from among the various 

alternatives available and transfer ownership to the public sector. 

After studying the stages and previous studies, the researcher came out 

with the proposed stages in Table (2) of completing the successful BOT 

project as follows: 

 

 

 

 

 



39 

 

Table (2): stages of completing the successful BOT project 

The stage of preparation and the selection of the 

investor and the parties in it are the contracting 

government authority - the governmental authority 

granting the license - the investors submitting the 

tenders in order to determine the project and its 

specifications and means of financing and 

preparation of preliminary economic and financial 

feasibility studies 

Preparatory stage 1 

It includes several parties as the contracting 

government -the shareholders - the project company - 

the financing institutions - the contractor - the 

supplier - the insurance companies - other parties to 

form the project company and the completion of the 

licensing agreement and contracts and contracts of 

finance, and contracts of entrepreneur and supply. 

Development stage 2 

The project company, the contractor, and the 

contracting government are principal parties for the 

construction and preparation of the facility for the 

ongoing operation, testing and acceptance of the 

facility 

Construction and 

establishment of the 

project 

3 

 

The project company - the contracting government - 

the operator are the parties to the operation and 

maintenance during the period of licenses and 

commitment, determines the role of the state in the 

inspection and control, training and transfer of 

technology and renovation. 

Current operation 4 

In which the parties are the financing institutions - 

the contracting government - the project company - 

the operator in order to follow up and prepare the 

transfer procedures. The project shall be delivered 

without any mortgages or according to the agreed 

situation and compromise of any financial matters. 

Termination of 

license or 

commitment and 

transfer of assets 

5 

BOT contracts requirements 

There are many requirements that the relevant aspects of the BOT projects 

need to consider in preparation. We will address the requirements that the 

government must provide in the BOT projects and the requirements that the 

sponsoring company must ensure to provide, and study the possibility of 

providing a legal framework for them. 



40 

 

Requirements must be provided within the government side of the 

BOT projects 

Good practice dictates that government policy, statutory and regulatory 

frameworks should be in place to enable long-term project under a BOT 

scheme. Good regulation largely relates to whether, and to what extent, the 

regulatory process helps achieve government policy objectives for the 

infrastructure sector, whatever those policies may be. However, one should 

bear in mind that regulation is only part of an entire sector reform package 

that might encompass sector restructuring, corporatization, commercialization, 

and private sector participation (Canlas, & et al., 2006). Under a BOT 

scheme, it is necessary to ensurethat the construction and operation is 

performed according to existing regulations and laws, as well as to regulate 

the allocation and split of risks between the developers and the off-taker, 

for instance, assuring the take-or-pay principles (Tenne, 2010).In countries 

where no regulator or regulatory regime has been established, the terms and 

nature of the commercial agreement between the private operator and the 

grantor becomes even more important, particularly considering the impacts 

of the future introduction of a regulatory regime. There must be a clear 

division of operational responsibility between the private and public sector. 

It is expected that such statutory and regulatory frameworks may not be 

extensively in force in developing countries, in addition to the lack of 

knowledge and experience of the off-taker and/or host country 

governmental bodies and entities in charge, thus imposing certain 



41 

 

constraints and obstacles to both the developer and the lenders (Wolfs& 

Woodroffe, 2002). 

During the negotiation stage between host government and 

concessionaire/promoter, a proper agreement should be achieved in order 

to mitigate currency risks; host government should provide guarantee for 

currency mismatches and fluctuations to avoid any defect in project 

implementation and operation. (S.Q. Wang, &etal, 2000) 

Requirements that must be provided by the sponsoring company for 

the BOT projects 

BOT Projects pre-qualification requirements include the following details 

like Profile of company and associates, showing the financial capacityof 

the firm/consortium, annual turnover, financial management, technical 

capability, available human resources, organization, present business 

activities, type of registration (memorandum of association, deeds) and 

experience of similar type of project. Details of credibility/capability to 

undertake this type of work in order to make the project viable in terms of 

planning, construction, commissioning and management. Brief 

methodology for financing proposed funding arrangements to be lined up 

for undertaking the project, both local and foreign financing. (Khan, 2008). 

The Suggested marketing plans and strategy (Andreas, W, 2004). In 

addition, the submission of the above mentioned documents usually 

enables the government to shortlist and pre-qualify the interested 

enterprises in the project. The documentations evidence must be furnished 



42 

 

before the final acceptance of the pre-qualification (Irem, D.O., and Talat 

M.B., 2000). 

The Obstacles of Adopting BOT 

A successful implementation of a BOT infrastructure project requires in-

depth analysis of all aspects related to economic, environmental, social, 

political, legal, and financial feasibility of the project (Ahmed&etal., 2007). 

As other human activities, BOT projects face numerous kinds of obstacles. 

The various economic and legal literature indicates that the partnership 

projects between two sectors projects financed by the private sector 

according to the BOT face drawbacks and normal risks that are controlled 

by partners, and unusual ones that are outside the control ability of the 

partners. Table (3) illustrates the most important risks: 

 

 

 

 

 

 

 

 

 

 

 



43 

 

Table (3): Risksfacing the implementation of Build-Operate-Transfer 

(BOT) in infrastructure projects 

Most dominant BOT risks Reference 

Risk of non-acceptance of bid, risks of construction 

and completion, risks of feasibility preparation of the 

project, risks of increase in the time taken during 

construction, operational risks, political risk, transfer 

risk, legal risk. 

Mai Tobar, 2008, 

pp. 48-52 

Construction risks, external exchange risks, 

environmental risks, risks of undisclosed defects, 

political risks, Residual value risk, risk of inflation, 

input and production risks, demand risks, and 

Technical risks. 

Kosie,2008,pp23-24 

Risks arising from events controlled by the parties 

concerned, political risks, construction and operating 

risks, trade risks, exchange rate & other financial 

risks. 

Taha Mohammed 

Mohammed Abu 

El-Ola, 2007, p. 14-

138 

Risks of specifications, risks of resources ( 

inadequate or underutilization), risks of delay, 

Operation and maintenance risks, technical 

efficiency, host country environment risks(currency, 

changing the regulations, taxes, tariff), contracts 

interpretation risks, non compliance to obligations by 

the parties 

Ahmed Rashad 

Mahmoud Salam, 

2010, p. 166-179 

 risks, design specification, poor risks, Planning

 needs, general changing of risk risks, construction

 legislative risks, procedural operational scheduling,

.risks value residual and risks, financial risks, 

Elisabetta,2007,p18 

Return risks, construction risks, exchange risks, 

contractual, procedural, political & environmental 

risks, general acceptance risks, sustainability risks. 

Michel,2003,pp52-

56 

There have been many previous studies which dealt with the contracts of 

BOT. A number of international and local studies were reviewed, focusing 

on the orientation towards partnership, as many studies believe that BOT 

contracts come within the context of the public-private partnership. Below 

is a brief of some of them. 

Many international studies have examined the public- private sectors 

partnership to the provision of public services. Bognetti and Robotti, (2007) 



44 

 

conducted a study (The Provision of Local Public Services Through Mixed 

Enterprises) reviewed the Italian experience in providing public services 

via private sector. It concluded that the private sector partner should be 

selected through general bids procedures and allow for the concept of large 

economies. Other studies have handled partnership initiatives with the 

private sector in the European Union countries with reference to the 

Spanish Government. The study noted that there is a need for developing 

the accounting standards for such partnership. It also focused on the need 

for the establishment of regulatory bodies to prevent monopoly excesses 

(Torres and Pina, 2001). 

In developing countries, there have been some trends towards partnership. 

The Indian experience in this context concluded that the partnership should 

play an important role in providing public services in the light of the 

pressure to provide basic services in India (Nallathiga, 2007). A number of 

researchers, in France, used the original database of about 5,000 French 

local authorities, to examine the choice impact of a public-private 

partnership model of water supply and distribution in France. The study 

concluded that there was no random and considerable increase in the 

average prices of services provided to consumer (Chong, et al., 2006). 

Some studies have been directed to show the most attractive aspects of the 

private sector in partnership projects in terms of better technology used in 

project management. They showed an increase in the level of public 

interest in such partnership which keep many organizational and financial 

obstacles away. The experience showed a reduction of the basic cost of the 



45 

 

public sector. The negative impact of partnership was related to several 

factors, such as: lack of experience among concerned parties, excessive 

treatment of basic services, and the high cost of joint projects in terms of 

time and money, make outcomes of partnership projects less attractive 

(Bing Li&et.al., 2005). On the other hand, another study found that, 

partnership project funding systems have the potential to become an 

important tool for promoting and revitalization of urban areas. In Poland, 

recently launched study discussing public-private partnership found that 

close cooperation between citizens and authorities is a necessity for 

achieving such activation (Mullins, et al., 1999).  

In the Middle East studies on the public- private sector partnerships in 

water sector in Algeria, Egypt, Jordan, Morocco and Tunisia. A review to 

those studies reveals that, the involvement of the private sector doesn't 

always lead or systematically increasing the efficiency of water supply 

services. Such conclusion is owed to the weak institutional framework. 

Other studies on water projects in 60 developing countries implemented 

between 1990-2004 through checked several factors, like the protection of 

property rights (Pérard, 2008). Ranasinghe (1999) studied the feasibility of 

private sector participation in water supply projects in Sri Lanka. He 

concluded that the best option available to the Government is by using 

(BOT) arrangements (Ranasinghe, 1999). Another study clarified the 

concept and characteristics of the BOT contract concluded the need for 

clarifying formulas for legitimizing BOT contracts. (Abu Gouda, 2009). 



46 

 

However, it should be noted that the above literature review contains 

different opinions which summarize the positive and negative experiences. 

Below is an in-depth view of certain studies pointing out specific obstacles 

as: administrative, financial, technical, social, political and legal. 

Administrative Obstacles: 

Administrative obstacles are related to performing management functions 

in relation to BOT operations. Below is a brief summary of some research 

finding related to administrative obstacles. The followings form threats to 

the adoption of BOT: 

 Project planning in build operate and transfer(BOT) project is a 

complicated decision making process because the model has a complex 

financial and organizational structures, which is influenced also by the 

socio economic environments in the country (Irem and Talat, 2000). 

 Different designs reflect different risk control strategies for completion 

time overruns (Ye and Tiong, 2003). 

 The incapacity to run the project smoothly results into failure to 

complete the project within budget sanctions within timely manner, 

(Haarhoff,2008). 

 Lack or shortage of an able local professional work force and sub-

contractors to support BOT operations (Barnier,2003). 

 The difficulty to identify the possible contingencies, events and issues 

that may arise during strategy adoption because of the long-term nature 

of BOT projects. Consequently, a lot of associated and anticipated 



47 

 

complexities will be lead to negative impacts (world Bank group, PPP 

IRC, pp:6-8). 

 The challenge to bring about stakeholders’ agreement on the various 

issues of BOT. As there are many interests of the various parties may 

contradict with each other. This will adversely affect the performance 

and funding prospects of the project (El-Gohary et al. 2006). 

 BOT bidding process is regarded as lengthy and complicated one. For 

example, bidders are required to prepare tender proposals attached with 

a bundle of additional materials, which may take up to 3 to 4 months. 

Additionally, several lengthy negotiations will be required for the 

formation of the contract. This can slow down the bidding process 

(Chan et al. 2006). 

 Private sector will also expect enjoying a significant level of authority 

over operations, if they accept significant risks (world Bank group, 

PPP IRC, pp: 6-8). 

Studies on the administrative aspects: Sabri examined the partnership 

contracts for successful systems of public-private sectors partnership in 

providing health services in the Palestinian situation (Sabri, 2015). The 

Philippines experience using the BOT contracts helped in presenting the 

most important administrative drawbacks which formed an obstacle while 

applying projects using BOT strategy (Gilberto M. Llanto, 2008). Besides, 

Ghanem examined the private sector which benefited from the economic 

climate created by the peace agreements between the Palestinians and 

Israelis (Ghanem, 2009). Jalaluddin talked about the feasibility of 



48 

 

implementing BOT delivery system in Saudi Arabia, assessed the impact of 

obstacles, success factors and mechanisms for implementing this strategy. 

It found that there is not enough awareness among owners and contractors 

regarding the concept of BOT, and having no independent regulatory body 

for those contracts (Jalaluddin Shah, 2001). 

Political Obstacles: 

Political obstacles are issues related to the political situation prevailing the 

country. Some of those issues may form obstacles at a certain point of time. 

Below is a brief listing of the outcomes of research in concern to this type 

of obstacles. 

 Additional political constraints can be associated with the risks of 

nationalization, a succeeding government repudiating the acts of the 

prior government. Various governments have their own policies 

regarding foreign currency restrictions, which will definitely 

influence project efficiency when imports are needed (F. Lokiec & 

G. Kronenberg, 2001). 

 Another common complaint by the public is the high tariff charged 

for the services provided. More often, the private sector would face 

political uphill in raising tariff to a level sufficient to cover its costs 

and earn reasonable profits and returns on investment. The 

participation of the private sector to provide public service will 

undoubtedly bring innovations and efficiencies in the operation, but 



49 

 

may produce a fear of downsizing in the role of public sector (Li 

2003, Li et al. 2005b, Zhang and AbouRisk 2006). 

 Private firms will also want to know if rules of the game are to be 

respected by government to come. Nationalization in this regard 

might be a critical fear to investors. 

 Governments can take action to improve risk distribution 

environment through transparency in the handling and disclosure of 

information. The good implementation of labor laws and regulations 

should take into account the public interest in parallel with the rights 

of investors. 

Studies on the political aspects: (Khan, A.H., Jamil, M., and Sattar, 

M.,2008: p.94) mention the major constraints faced by the stakeholders, 

these complaints comprise political, economical, ecological, technological, 

social, environmental and ecological. In the last twenty years, the political 

scenario of Pakistan has been under notable transition. The political 

instability remained as a serious hurdle in the formulation of various 

infrastructure development reforms like BOT, and shows the major 

political constraints in BOT Projects in Pakistan. Other studies have 

confirmed that a stable political environment in the relevant developing 

country is a mandatory pre-condition for the successful implementation of 

BOT projects. Private sector sponsors will not be willing to spend the 

substantial amounts money and the timeframe required to put together a 

BOT project, and after that remain at risk for the 10 to 25 year periods 

duration that are typically required, if they cannot count on political 



50 

 

stability and continuity over this period (Lokiec, and Kronenberg,2001: 

p.3). 

Legal Obstacles: 

The legal and legislative frame is very critical to the adoption of BOT since 

it controls the process from the initiation of the project to the last minute of 

completion of the project The most important factor here is contract affairs. 

Below is a brief summary of the outcomes related to this component: 

 A clear legal and regulatory framework is crucial to achieving 

sustainable solutions to issues arising out of BOT adoption (World Bank 

group, PPP IRC, pp: 6-8). Changes in laws such as articles related to 

quality of the water supply legislation and regulations, or land property 

concession, obtaining license and permits, etc. (F. Lokiec& G. 

Kronenberg, 2001) may pose a lot of challenges to all parties concerned 

since it implies a lot of contradicting interests. In this context the status 

of judicial courts plays a critical role and necessitates investors and 

government to pay a lot of concern to it.  

 To a certain extent, there would be less employment of opportunities if 

no regulatory measures were implemented (Li 2003, Li et al. 2005b, 

Zhang and AbouRisk 2006). 

 BOT project exerts unprecedented pressure on the legal framework as it 

plays an important role in the economic development, regeneration, and 

mechanism for developing infrastructure. Still, some countries do not 

have a well-established legal framework for BOT projects and the 



51 

 

current legal framework is only supposed to deal with the traditional 

command and control model. Although BOT involves a great deal of 

legal structuring and documentation to deal with potential disputes 

among BOT parties, legal framework is still lacking protection of public 

interests vs. legitimate rights of private sector. Without a well-

established legal framework, disputes are inevitable (Satpathy, and Das, 

,2007), if the process really starts and investors are attracted. 

Studies on the legal aspects: Many studies have dealt with the legal 

requirements of the BOT contracts. Some studies have found that the 

availability of partnership laws and regulations is one of the major 

requirements for BOT traits. (Barghouti, B., 2009). While other studies 

examined the available mechanisms for resolving disputes between the 

parties of BOT contracts. They concluded that there is ambiguity in the 

legal side of forming this contract. 

Other studies focused on the contractual approach. In Algerian experience, 

focus was paid on the role of contracts in lifting the economic burdens as 

they provide a legal framework for financing of infrastructure projects. 

Those contracts were characterized by some complexity as a result of 

diversity of objectives, mainly if funding is combined with administration 

aspects (Sohaib, 2013). In the Jordanian experience, studies stressed the 

absence of legislation that regulate BOT contracts. That stressed the need 

fora special law to ensure the success of this initiative. This has led to new 

terms and conditions in BOT contracts (Alagarma, 2013). 

 



52 

 

Financial Obstacles 

The adoption of BOT may involve many financial obstacles; some of them 

are highlighted below: 

 Economic Challenges are mostly related to the facility’s operation 

which consist of materials supply, labor supply, equipment 

availability, inflations, tariffs, fiscal policies and exchange rates 

(Florence&Linda, 2006) (Abu Bakar, & et al., 2010). 

 BOT adoption requires huge funds to finance the establishment of a 

wide spreading infrastructure. To make those amounts available is a 

challenge itself since it costs millions of dollars, a process that may 

involve many banks and financial institutions. It may create poor 

appetite of international commercial banks and finance markets and 

lack of experience of local financial institutions (Merna and Njiru, 

2002).  

 The fluctuations in currency in use is considered as an austere 

problem in international transactions (Bing Li, A. ,2005) (N.J. Smith, 

2003) (Wang, & et al.,2000).  

 The Interest Rate obstacle is also a constraint, which means that the 

interest rate will affect the project performance. Any fluctuation in 

the interest rate will definitely affect the lenders. An appropriate 

interest rate should be agreed upon beforehand. The lenders have to 

pay extra cost if the interest rate becomes high or benefit them if the 

interest rate becomes low. More foreign investors or private sector 



53 

 

could be attracted by providing interest rate guarantees by the host 

government in the BOT project (Wibowo, A., 2004). 

 The Equity Risk means that the Performance of the concessionaire is 

crucial in seeking funds to implement a BOT project. Usually, equity 

risk is related with the performance of the company whic