Is Dubai ready for a BOT frenzy?

With experts warning that government inertia to relinquish control over projects is holding back the potential of BOT procurement in the region, Angela Giuffrida looks at the advantages and pitfalls of this form of contracting.

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By  Angela Giuffrida Published  December 16, 2006

While the build-operate-transfer (BOT) construction process has been used for decades in the US and Europe, the scheme has only started to gather pace in the Middle East over the last few years. One of the main drivers behind governments across the world opting for the concept, is that approval for essential infrastructure and civil projects is achieved faster, allowing for the actual work to get underway and completed on time. Another reason for relinquishing control of civil projects to the private sector, particularly in the field of water and wastewater treatment plants, power plants, airports and transport network development, is because funding is more readily available and the bulk of the risk is transferred. In short: the government needs public facilities, but with a shortage of time, capital and human resources, it looks to the private sector to carry things through. One of the most high-profile projects developed using BOT was the Channel Tunnel rail link between England and France. Although government involvement in the construction process is limited, it still takes on a supervisory role to ensure the design is implemented in accordance with what was stipulated in the contract. “Every project is different – although the government is not supposed to be involved, they become involved to ensure the design is correct and what they want,” said Spiro Pollalis, professor of design, technology and management, Harvard Design School. “The Channel Tunnel project is a classic example, because when the project wasn’t going well, the government came in and salvaged it. The government doesn’t stay completely out of it, and they’re usually there to bail the private sector out.” One of the first airport developments in the Middle East that was run under a BOT contract was the Kuwait Airport Mall. Other projects in the region that have adopted BOT include the soon-to-be-tendered light railway linking the Jordanian capital of Amman with Zarqa, along with the extension of the country’s Queen Alia International Airport. BOT projects have also been implemented in Saudi Arabia, while in the UAE, Abu Dhabi’s Al Qudra Holding recently tied up with Al Malik Group to launch Q Car Park, a system through which multi-storey car parks will be built and maintained in cities across the Emirates. And in Bahrain, Al Enma’a House for Real Estate recently received approval for the construction of a labourers’ ‘township’, which will run under a BOT contract. “These projects are usually quite lucrative for the private sector,” added Pollalis. “And it’s often the private sector that initiates the project, it has the idea, presents it to the government, and asks to take it on.” Pollalis said that because of the pace of development in Dubai, if the government assigns too many BOT contracts it runs the risk of losing sight of exactly what’s happening with a project. “One of the dangers of BOT is that it’s relatively easy for the government to assign projects because it doesn’t have the money or people to do it, and so it may assign too much – when this happens, the government may lose track of what is going on,” he said. “This may be an issue in Dubai because everything is happening very quickly and is very large scale. The problem is that if you do too many projects too fast, even with BOT, you run into some danger.” While the Dubai government may have the money to back a project, and getting approval is usually swift, one of the drawbacks it may face is the lack of qualified people to undertake the job, which is when a BOT scheme proves worthwhile. “I believe BOT is good for Dubai. And while there’s an emphasis on doing many projects quickly, through this method you distribute the effort among several parties so that way you involve more people in the construction – but the process needs management, it’s not something you can let loose,” said Pollalis. “What’s needed is very careful thinking. As Dubai and other places in the region apply BOT, they should get experience from other countries in the world, and should apply them to the local conditions and understand well why they’re doing it.” Another advantage of BOT is that more attention is placed on facilities management early in the process to ensure the project performs the way it was set out to during operation. “You think more about things such as energy consumption and having more efficient mechanical systems in place,” added Pollalis. While government involvement in BOT may be supervisory, Pollalis warned that regional authorities should play close attention to project design. “If the government does not pay attention to the quality of the design it has a high risk of getting sub-optimal design because there’s no incentive for the private sector to do a very good design – they want to do something that’s functional and profitable,” he said. “So if you’re interested in design quality, sustainability, safety and seismic assurances, you have to have regulations in place on what people should do, and you must ensure they comply.”

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