The Role of Japanese Companies in Asia's BOT (Build -Operate-Transfer) Infrastructure Projects

Toshinobu Takahashi

Summary

The BOT (build-operate-transfer) scheme of economic development uses private capital to build infrastructual components such as power plants and roads. Under the scheme， which was first developed in Turkey for a thermal power genetation project， private operators undertake the risks of constructing and operating infrastructure facilities. Then after recovering their investment， they transfer the facilities to the government at a low price. BOT offers many advantages to developing countries with shortages of development capital. and since the 1980s many such projects have been implemented particularly in Asia.
However， BOT has a structural contradiction in that private operators are seeking profits from constructing and operating what essentially are non-profit public infrastructure facilities. Thus companies are confronted with many problems involving profitability and operating risks. Contract negotiations usually encounter difficulties regarding rate setting and terms of transfer. Thus implementation requires time and effort， and aside from thermal power pants in the Philippines and highway projects in China， there are few successful cases. Appraisal of the BOT scheme's effectiveness in infrastructure development remains a moot issue.
Nevertheless， the number of BOT projects in Asia has continued to increase in the 1990s. It has become an important development strategy among the high-growth ASEAN nations， China， and Vietnam because they can acquire development funding on more favorable terms by inducing foreign companies to compete for BOT projects. Foreign companies also stand to gain by participating in BOT projects through expanding their presence in China and Vietnam markets. Thus we expect the BOT scheme of infrastructure development to continue growing for the foreseeable future.
Amid this development， foreign companies are becoming increasingly active in commercial negotiations in Asia. Especially in the field of electric power， European and U.S. firms are increasing their orders with BOT projects using their experience in IPP (independent power production). Toll road projects are suited to the swift decision making and bold risk taking of overseas Chinese capital. Meanwhile， in communications projects， where growth is ecpected， to acquire communications business rights through BOT， European and U.S. communications operators， equipment manufacturers， and Japanese general trading companies are engaged in heated competition.
The increase in BOT projects is raising new problems as they grow in scale and test the limits of preferential measures offered by local authorities. There are also problems with uneven development across countries， regions， and infrastructure fields. While BOT infrastructure development in Asian countries has become established as a trend， its role in infrastructure development has been limited to a supplementary one， and the most effective areas for BOT projects will become limited to those fields with relatively high operating profits such as electric power， communications， and toll roads. As a result， these fields will see increasingly severe competition among companies.
In this competitive environment， Japanese manufacturers need to shift from a conservative stance in BOT projects to a more aggressive risk-taking stance. In particular， unless they are willing to invest in power plant and communications projects， they will not be able to successfully compete for orders with European and American firms. However， BOT poses problems for Japanese firms. Group decision making， a characteristic of Japanese companies， is delaying thier participation in BOT projects. In addition， unlike Europe and U.S. firms， Japanese companies cannot count on the government to back them up. The infrastructure business in Asia will test the comprehensive strength of Japanese companies in their internatinal business development and financing ability.