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Evaluation and management of foreign exchange and revenue risks in China's BOT projects

Author

Listed:
  • S. Q. Wang
  • Robert Tiong
  • S. K. Ting
  • D. Ashley

Abstract

China is actively investigating ways to introduce project financing, specifically through the build-operate-transfer (BOT) scheme to meet the needs for the country's infrastructure and to be attractive to foreign investors and lenders. The advent of concession agreements, backed by new BOT laws, will be a positive move forward to achieving project-financed infrastructure projects. There are thus opportunities especially in the power sector for foreign investors. However, it is important to identify and manage the unique or critical risks associated with China's BOT projects. This is especially so after policies were introduced in late 1996 when the first state-approved BOT project, the US$650 million 2 × 350 megawatt (MW) coal-fired Laibin B Power Plant (Laibin B), was awarded. They include a competitive tendering process and 100% foreign ownership of the operating company. This paper is based on the findings from an international survey on risk management of BOT projects in developing countries, with emphasis on power projects in China. It discusses specifically the criticality of foreign exchange and revenue risks which include exchange rate and convertibility risk, financial closing risk, dispatch constraint risk and tariff adjustment risk. The measures for mitigating each of these risks are discussed also.

Suggested Citation

  • S. Q. Wang & Robert Tiong & S. K. Ting & D. Ashley, 2000. "Evaluation and management of foreign exchange and revenue risks in China's BOT projects," Construction Management and Economics, Taylor & Francis Journals, vol. 18(2), pages 197-207.
    • Handle: RePEc:taf:conmgt:v:18:y:2000:i:2:p:197-207
    DOI: 10.1080/014461900370825
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    Citations

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    Cited by:

    1. Abraham Park & Chen Yu Chang, 2013. "Impacts of Construction Events on the Project Equity Value of the Channel Tunnel Project," ERES eres2013_97, European Real Estate Society (ERES).
    2. Miranda Sarmento, J. & Renneboog, L.D.R., 2014. "Public-Private Partnerships : Risk Allocation and Value for Money," Other publications TiSEM b9218010-a357-4c0a-805a-7, Tilburg University, School of Economics and Management.
    3. Zhao, Zhen-Yu & Zuo, Jian & Zillante, George & Wang, Xin-Wei, 2010. "Critical success factors for BOT electric power projects in China: Thermal power versus wind power," Renewable Energy, Elsevier, vol. 35(6), pages 1283-1291.
    4. Song, Jinbo & Song, Danrong & Zhang, Xueqing & Sun, Yan, 2013. "Risk identification for PPP waste-to-energy incineration projects in China," Energy Policy, Elsevier, vol. 61(C), pages 953-962.
    5. Jokar, Ebrahim & Aminnejad, Babak & Lork, Alireza, 2021. "Assessing and Prioritizing Risks in Public-Private Partnership (PPP) Projects Using the Integration of Fuzzy Multi-Criteria Decision-Making Methods," Operations Research Perspectives, Elsevier, vol. 8(C).
    6. Hongyan Chen & Ruwen Qin, 2012. "Real options as an incentive scheme for managing revenues in transportation infrastructure projects," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 6(1/2), pages 77-101.
    7. Durdyev, Serdar & Ismail, Syuhaida, 2017. "The build-operate-transfer model as an infrastructure privatisation strategy for Turkmenistan," Utilities Policy, Elsevier, vol. 48(C), pages 195-200.
    8. Florence Yean Yng Ling & C. William Ibbs & Javier Cuervo, 2005. "Entry and business strategies used by international architectural, engineering and construction firms in China," Construction Management and Economics, Taylor & Francis Journals, vol. 23(5), pages 509-520.
    9. Cecil A. L. Pearson & Lanny V. Entrekin & Tengku H. Safina, 2004. "Managerial and Organizational Trends in a BOT Treatment: A Study in the Indonesian Telecommunications Sector," Global Business Review, International Management Institute, vol. 5(1), pages 97-111, February.
    10. Zhao, Zhen-Yu & Zuo, Jian & Zillante, George, 2013. "Factors influencing the success of BOT power plant projects in China: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 22(C), pages 446-453.
    11. Babatunde, Solomon Olusola & Perera, Srinath, 2017. "Analysis of traffic revenue risk factors in BOT road projects in developing countries," Transport Policy, Elsevier, vol. 56(C), pages 41-49.
    12. Henry J Liu & Peter ED Love & Jim Smith & Michael CP Sing & Jane Matthews, 2018. "Evaluation of public–private partnerships: A life-cycle Performance Prism for ensuring value for money," Environment and Planning C, , vol. 36(6), pages 1133-1153, September.

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