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ANALYSIS OF EPC CONTRACT AS BOT
MODEL FOR THE PROPOSED WATER
TREATMENT PLANT
S.Vaitheeswari1
PG Student,Construction engineering and
Management,
Sona college of technology,Salem
636005&Tamilnadu
S.Priscil Nidhu2 Asst.Professor,
Sona college of technology,
Salem-636005
Tamilnadu
Abstract-Over half of the world's infrastructure
investment is now taking place in developing
countries for which, BOT model shall be
considered as a way of facilitating private
provision to help meet an increasing demand for
public infrastructure. BOT model can be
implemented for Water treatment plants and will
be more effective than EPC with O&M contracts.
The private party shall incur cost of design, if
included in scope, construction and recurring cost
on operation and maintrenance. The Private party
shall get back the entire cost along with the
interest through collecting from domestic and
industrial users based on their intake during the
agreed concession period.It may be noted that
most of the project risks related to the design,
financing and construction would stand
transferred to the private partner .
Key words:BOT,EPC,PPP,WTP,Financial feasibility.
I.INTRODUCTION
Governments in most developing countries
face the challenge to meet the growing demand for
new and better infrastructure services. As available
funding from the traditional sources and capacity in
the public sector to implement many projects at one
time remain limited, governments have found that
partnership with the private sector is an attractive
alternative to increase and improve the supply of
infrastructure services.
The partners in a PPP, usually through a
legally binding contract or some other mechanism,
agree to share responsibilities related to
implementation and/or operation and management of
an infrastructure 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
1.1KEY CHARACTERISTICS OF EPC
• Single point of responsibility
• Time
• Contract price
• Procurement
• Quality/performance guarantees
• Owner’s involvement
• Defective works and services
1.2KEY CHARACTERISTICS OF BOT
• A key characteristic of BOT projects is
raising of finance entirely by the private
sector without the involvement of
government. The private sector is fully
responsible for a design, construction,
finance and operation and maintenance
• BOT projects are complex structures
comprising multiple interdependent
agreements among the various participants.
• BOT projects are typically large-scale
infrastructure projects. Transaction costs
amount on average 5 to 10% of total project
cost.
• BOT projects are associated with
uncertainties and high risk.
• BOT projects transfer the risk to the private
sector.
• BOT formula can be applied to any sector of
the economy. But it has been used widely in
power plant sector, transportation and
telecommunications.
1.3ISSUES RELATED TO EPC
• EPC project are highly schedule driven
where phases are overlapped to complete the
project as early as possible.
• EPC project are massive, utilize high skill
and well train employee, acquires complex
and complicated methodology/ technology.
• Needs fast information flow between
different phase and close collaboration of
multidiscipline as well.
• EPC project are facing serious problems like
crew idleness, rework and management
dilemma which lead to cost overrun and
schedule delay.
• In addition, poor planning and controlling,
lack of top management, unrealistic project
scheduling and poor coordination ,
communication are poor project
management practices explored in EPC
contract
1.4ISSUES RELATED TO BOT CONTRACT
• Interdependancy
• Mismatching of risks
• Stakeholders equity
• Long term contracts
• Changes in circumstances
• increased demand
• liquidated damages
• performance standards
• options/takeouts
1.5ADVANTAGES OF BOT PROJECT
• Finance
• Use of construction cost
• Project risk
• Project possibilities
• Benefit to country
• Privatization
• Model to other contracts
• Time
• Quality
1.6BARRIERS OF BOT
• The main barriers that often arise in BOT
agreements are related to financial
uncertainties, technical problems and legal
and political disputes.
• One of the main barrier in establishing BOT
projects is the lack of legal certainty in some
States regarding the realisation of particular
aspects of a project.
• It might not be clear as to what extent
private entities may draw revenue from the
operations of public infrastructure projects.
• In other instances, there might be lack of
clarity as to the basis and effect of certain
construction and long-term contractual
assurances that the Government would need
to make to the private consortium.
• Enabling legislation to make the underlying
legal framework attractive for BOT projects
is therefore imperative.
II.LITERATURE REVIEW
2.1TYPES OF PPP
Build Operate Transfer (BOT):
BOT and similar arrangements are a
kind of specialized concession in which
a private firm or consortium finances
and develops a new infrastructure
project or a major component according
to performance standards set by the
government.
Under BOTs, the private partner
provides the capital required to Build
the new facility, Operate & Maintain
(O&M) for the contract period and then
return the facility to Government as per
agreed terms.
Importantly, the private operator now
owns the assets for a period set by
contract—sufficient to allow the
developer time to recover investment
costs through user charges.
BOTs generally require complicated
financing packages to achieve the large
financing amounts and long repayment
periods required. At the end of the
contract, the public sector assumes
ownership but can opt to assume
operating responsibility, contract the
operation responsibility to the
developer, or award a new contract to a
new partner. The main characteristic of
BOT and similar arrangements are
given below:
Design Build (DB):
Where Private sector designs and
constructs at a fixed price and transfers
the facility.
Build Transfer Operate (BTO):
Where Private sector designs and builds
the facility. The transfer to the public owner takes
place at the conclusion of construction.
Concessionaire is given the right to operate and get
the return on investment.
Build Own Operate (BOO):
A contractual arrangement whereby
a Developer is authorized to finance, construct, own,
operate and maintain an Infrastructure or
Development facility from which the Developer is
allowed to recover his total investment by collecting
user levies from facility users. Under this Project, the
Developer owns the assets of the facility and may
choose to assign its operation and maintenance to a
facility operator. The Transfer of the facility to the
Government, Government Agency or the Local
Authority is not envisaged in this structure; however,
the Government, may terminate its obligations after
specified time period.
Design Build Operate (DBO):
Where the ownership is involved in
private hands and a single contract is let out for
design construction and operation of the
infrastructure project.
Design built finance–operate (DBFO)
approach the responsibilities for designing, building,
financing, and operating & maintaining, are bundled
together and transferred to private sector partners.
DBFO arrangements vary greatly in Terms of the
degree of financial responsibility that is transferred to
the private partner.
Build Operate Transfer (BOT):
Annuity/Shadow User Charge: In this BOT
Arrangement, private partner does not collect any
charges from the users. His return on total investment
is paid to him by public authority through annual
payments (annuity) for which he bids. Other option is
that the private developer gets paid based on the
usage of the created facility.
2.2STAGES OF BOT PROJECTS
Six stages are identified during the concession
period. After the preliminary study, usually
conducted by the government, a consortium is chosen
following a specific selection procedure. After the
selection, the concessionaire starts the
implementation of the project by forming the team,
executing studies, obtaining permits, and proceeding
with design development. Once the design is
approved, construction begins.
Upon Completion of construction, the
facility opens for use and the repayment of the
facility is covered by the incoming revenues. After a
predetermined concession period, the facility
transfers to the client (government) and then state
Agencies will own and operate the facility
2.3‘Value for Money’ (VFM) in PPP projects
These type of projects were subjected to a
factor analysis, which grouped them into four
categories: ―project efficiency‖, ―project
sustainability‖, ―multi-benefit objective‖ and ―public
effective procurement‖.The second analysis
discussed in this paper, concerns qualitative risk
allocation.The suggestion is that project participants
should adopt any measures associated with ―project
efficiency‖, ―sustainability‖, ―multi-benefit
consideration‖ and ―effective procurement
arrangement‖ in order to fully achieve VFM in
construction PPP projects.
2.3 A CASE STUDY APPROACH TO EPCM
EPCM contract is the ideal procurement
method for warehouse projects with respect to the
time, cost, and quality that a customer will demand.
The limitation and future research directions related
to the EPCM contract are also discussed in this
paper.EPCM is more flexible and facilitates the
construction of new facilities without affecting the
existing operation. This research has demonstrated
how EPCM can be considered an ideal option for
procuring warehouse projects based on the evaluation
of three case studies validation with respect to time,
cost, and quality. The outcome of this research
provides valuable insights into EPCM because it
involves real case studies in the discussion of
applying the associated success criteria.
2.5 CONCEPTUAL ISSUES IN DEFINING PPP
The several gaps that have been identified
related to issues of governance, management and
policy design of PPPs. This article offers some
suggestions relating to different conceptual issues
which emerge in defining PPPs. The common
features such as nature of cooperation, inter-
organisational arrangements, financial relationships
and commitment should be very precise. Roles of
different policy communities and policy networks
should be evident. Governance aspects such as
decision making process, and roles and responsibility
of different organisations/actors should be
specific.PPP is viewed in different approaches, hence
this article offers some suggestions as mentioned
above which might be helpful in defining different
conceptual issues of PPP.
III. SCOPE OF THE PROJECT
The project taken for study is based on
Engineering procurement and construction for a
water treat plant 300 MLD in Coimbatore city, Tamil
Nadu for Coimbatore city Municipal Corporation.
Our objective is to study this project under BOT
model and to analysis the advantages, risk and
financial feasibility for this project.
An analysis of the advantages of BOT over
EPC contract shall be studied. Based on the
Construction cost, Interest, depreciation and
operative expenses the payback period of the initial
investment of the project shall be calculated.
Risk related with the BOT projects shall be
identified and listed with details.
IV. OBJECTIVE
To study the EPC contract and
BOT contract and various
characteristics of each
To analyse the EPC O&M contract
of proposed water treatment plant
based on the specifications &cost
of construction.
To check whether the same EPC
can be executed as BOT model.
V. METHODOLOGY
The viability of any project mainly depends
on the technical analysis, financial analysis,
economic analysis and ecological analysis.
Hence it can be very well understood that
feasibility study is the base for the success of a
project and major part of the success lies in
proper financial analysis.
Financial analysis is useful for every business
entity to enhance their performance, competitive
strength and access their financial stability and
profitability of the firm. This paper investigates
the financial analysis of the BOT model Water
treatment plan.
Based on the scope of project, operation cost,
construction cost, cash inflow and cash outflow.
The investment strategy shall be calculated based
in Internal Rate of Return method.
VI. PROPOSAL FOR WATER TREAMENT
PLANT
• The water supply to the city of Coimbatore
is looked after by two agencies.
• The Siruvani and Pillur Water Treatment
Plants are under the O&M of the Tamil
Nadu Water Supply and Drainage (TWAD)
Board.
• The distribution of water is under the
Coimbatore Municipal Corporation
• Pillur dam on river Bhavani and Siruvani
dam on river Siruvani are the two major
water sources for drinking water supply to
Coimbatore city.
• O&M agency for both the schemes Siruvani
and Pillur is Tamil Nadu Water Supply and
Drainage (TWAD) Board.
• At present the city is getting 36 MLD water
from Siruvani dam and 65 MLD water from
Pillur dam.
• At present, the supply of drinking water is
maintained at 110 lpcd. The entire water
supply from Siruvani water supply scheme
is by gravity whereas pumping is involved
in the Pillur scheme.
• There are two water treatment plants, one at
Siruvani Adivaram and another at
Velliangadu. Siruvani Scheme is supplying
water to the city through 20 OHSRs and
Pillur through 27 OHSRs.
Analysis and Results
Non-Discounted Cash Flow Criteria: -
(a) Pay Back Period (PBP)
(b) Accounting Rate Of Return (ARR)
Discounted Cash Flow Criteria: -
(a) Net Present Value (NPV)
(b) Internal Rate of Return (IRR)
(c) Profitability Index (PI)
COST ESTIMATE
OPERATIONAL EXPENSES PER YEAR
FINANCIAL FEASIBILITY OF THE PROJECT
EPC:
The cost of the EPC type of the contract is 81.5Cr
and the cost breakup of the Electrical & Mechanical,
Civil and also the profit of 10% is assumed. The cost
breakup for the operational and Maintenance is
calculated which is 18.83Cr.
COST OF THE PROJECT IN EPC
BOT:
Discounting factor – 14.1%
Debt-Equity Ratio – 4:1
Construction period – 15 years
Interest on debt – 13.5% per annum
Cost of equity – 16.5%
Cost of water sold in urban areas: 3.5 INR per Cubic
meter as per TWAD board, Tamil nadu.
through metering system.
Total revenue per year: 383250000= 38.32 crore
rupees
FINANCIAL DATA AS BOT MODEL
COST ESTIMATE
AMOUNT OF E&M
WORKS
RS 388,706,894
INCLUDING ALL
WITHOUT PROFIT 10%
AMOUNT OF CIVIL
WORKS
RS 427,022,920
INCLUDING ALL
WITHOUT PROFIT 10%
OPERATIONAL EXPENSES PER YEAR
POWER 6,424,000
MAINTENANCE 1,000,000
MANPOWER INCL SERVICE
CHARGE / ST 7,800,000
CHLORINE 18,067,500
SLUDGE DISPOSAL 300,000
TOTAL COST WITHOUT PROFIT 33,591,500
COST ACCORDING TO EPC
TYPE
OF
WORK
COST PROFIT TOTAL
E&M 388,706,894 38,870,689 427,577,583
CIVIL 427,022,920 42,702,292 469,725,212
TOTAL 815,729,814 81,572,981 897,302,795
PRESENT CASH INFLOW 81.57
PRESENT CASH OUTFLOW 118.03
NPV 36.45
IRR 23
NET PROJECT COST 81.57
PAY BACK PERIOD 8.53 YEARS
Client
Consortium
Organization
Financier
Sub -
Contractor
s
Designers
Facility
Managers
Buil
ders
BOT FORMATION STRUCTURE
INFERENCE:
The following results have been inferred
NPV is positive.
Debt Ratio is 4:1.
So the project could service scheduled repayments
during its life cycle. So the project is acceptable from
investment criteria and also acceptable by lenders.
Thus now that the project falls under the financially
acceptable. Municipal administrations in India, as in
many other developing countries, can advantageously
apply the BOT scheme to implement public
infrastructure projects, such as the construction of
bridges, without increasing the sovereign debt.
Government may contribute financial assistance to
the project by way of an outright grant. The financial
model described in this paper facilitates the study of
the financial viability of a BOT project as affected by
various options relating to the toll structure, toll
revision schedule, extent of government grant, and
the duration of the concession period, as
demonstrated by the case study. By careful
consideration of the results of the financial study, the
project sponsor and the project promoter can arrive at
a reasonable agreement on the sharing of risks and
the terms of the concession.
VII. CONCLUSION
A BOT project is a public project utilizing
private-sector benefits. Therefore, to become a BOT
project, the project must, first of all, have value from
a socioeconomic perspective. In addition, we must
demonstrate that the project will be commercially
profitable under the BOT model.
BOT projects have the goals of introducing advanced
technologies owned by private parties, as well as
cutting public expenditures.
The private participant will recover his investment by
levying charges through Rupees per cubic meter of
water supplied. The cost of land acquisition,
environmental clearance, distribution network,
shifting of utilities and other legal issues will be
borne by the government so as to make the project
more attractive to private participants. All other cot
apart from construction of project shall be levied by
govt. directly. All other risks like the risks involved
with toll collection, interest rate fluctuation, foreign
exchange fluctuation etc. will be borne by the private
participant.
Thus now that the above project falls under the
financially acceptable and is more feasible compared
to EPC model. Municipal administrations, can
advantageously apply the BOT scheme to implement
in water treatment projects and supply. By careful
consideration of the results of the financial study, the
client and the project contractor shall arrive at a
reasonable agreement on the sharing of risks and the
terms of the concession.
REFERENCE
1. A Guidebook on Public-Private Partnership in
Infrastructure, BY ECONOMIC AND SOCIAL
COMMISSION FOR ASIA AND THE
PACIFIC.
2. ARTICLE: Types of Public Private Partnership
Models in India
http://swapsushias.blogspot.in/2013/09/typesofpu
blicprivatepartnership.
3. CASE STUDIES ON BUILD OPERATE
TRANSFER by Prof. Drs. Ir. Sebastiaan
C.M. Menheere, Prof. Spiro N. Pollalis, Dipl.
Eng., SM., MBA, Ph.D.
4. http://www.mbaskool.com/business-
articles/operations/867-how-to-improve-ppp-
projects-in-india-a-learning-from-the-past.html
5. http://toolkit.pppinindia.com/pdf/case_studies.pdf
6. United Nations Industrial Development
Organisation, ―Guidelines for Infrastructure
Development through Build-Operate-Transfer
(BOT) Projects‖. Vienna: UNIDO Publications,
1996.
7. THE ROLE OF BUILD OPERATE TRANSFER
IN PROMOTING RES PROJECTS.
8. Compendium on Public Private Partnership in
Urban infrastructure, Case Studies, CII
9. International Review of Business Research
Papers,Vol.6, No.1 February 2010, Pp. 367-381.
10. Urban - JNNURM presentation by Ashok
Natarajan, Former MD, Latur Water
Management Company
11. The ABC of EPC and EPCM Contractin Cullen,
David Senior Associate
12. ―Projects Planning, Financing, Implementation
and Review‖, Chandra Prasanna, Tata McGraw-
Hill, New Delhi, 2002.\