Building hope

PUBLISHED : Thursday, 09 October, 2003, 12:00am
UPDATED : Thursday, 09 October, 2003, 12:00am

With so many major infrastructure projects started in Taiwan in recent years, and so little government funding available to pay for them, the model du jour has become the build-operate-transfer one. It sounds like a win-win idea for all parties involved. A private company, or most commonly a consortium, gets the contract to construct a very big and very expensive project in exchange for the right to operate it.

Throughout what is known as the concession period, the contracting consortium keeps the revenue from the project - which will hopefully be enough to pay for it, and then some.

At the end of that period, the project transfers back to government ownership. For its part, the government gets a shiny, new piece of infrastructure for nothing. A railway line, highway or sewerage system, for example. Well, that is the theory. It does not always work that way, though. For one thing, the project will no longer be new, leaving critics to wonder if there is any incentive for the contractor to maintain it in its final years of private ownership. Lawyers, however, argue that provisions can be written into the contract to ensure that does not happen.

Another concern is costs. Taiwan's high-speed rail project, the world's largest build-operate-transfer project, was supposed to be self-funded, with the contractor covering the costs from its own pocket. But before it has even been finished, the contractor has been going back to the government to ask for assistance. And a Taipei-CKS Airport rail line was scrapped after years of build-operate-transfer bungling. According to PricewaterhouseCoopers, 20 per cent of public-private partnership projects in Britain, which includes build-operate-transfer schemes, ran over budget. But that is good news, says PwC, because 73 per cent of traditionally funded projects go over budget.

Part of the problem is the relationship between the government and the contractor. Bickering over rights and responsibilities, costs, timelines and all manner of fine details can delay the project and escalate costs. In Taiwan, even the authority says it has not done a good job. Public Construction Commission chairman Kuo Yao-chi was quoted by the Taipei Times as saying: 'We have to admit that even the government officials responsible for undertaking the projects have a hard time figuring out the procedures.'

Given that admission, one can only hope they will figure it out pretty quickly. Later this month, the government is marketing dozens of build-operate-transfer projects as part of an 'Invest in Taiwan' drive, aimed at luring NT$100 billion (HK$22.7 billion) in funds. The Ministry of Transportation and Communications has put forward 18 of the projects, including some that have previously failed to find backers. This time, the government is hoping its vision of a build-operate-transfer-led boom will be accepted by investors. If not, then it is going to have a lot of spending ahead.