Recent mishaps involving build-operate-transfer (BOT) projects have sparked a debate about the growing risks the private sector faces when participating in public infrastructure projects, but it is too early for a verdict.
On Tuesday, Taiwan High Speed Rail Corp (THSRC) chairwoman Nita Ing (殷琪) stepped down from her post, paving the way for much-needed government support for the company, which has more than NT$70 billion (US$2.16 billion) in accumulated losses.
On Wednesday, city councilors in Kaohsiung urged the government to take over the debt-ridden mass rapid transit system there, which is losing NT$250 million a month and is likely to incur nearly NT$6 billion in losses by the end of the year.
On the same day, the Taipei City Government said it might terminate a BOT contract it signed with the Farglory Group in 2006 for the construction of the Taipei Dome after 18 years of planning. The announcement came in response to a Control Yuan warning.
These BOT troubles are just some of the indications in recent years that private firms are feeling the pain of a fragile state of public-private relations. Three years ago, the government threatened to terminate its electronic toll collection contract with Far Eastern Electronic Toll Collection over a dispute concerning service fees.
The BOT model is relatively new in Taiwan compared with other countries and the government did not enact the Act for Promotion of Private Participation in Infrastructure Projects (促進民間參與公共建設法) until 2000.
The advantage of a BOT system is to bring private-sector efficiency to the construction and management of public infrastructure. The recent troubles have raised doubts about the model’s viability, but what has made private investors even uneasier is the government’s handling of BOT projects.
Prior to her resignation, Ing questioned the government’s “consistency and credibility” in its support of the nation’s first BOT project.
In an interview with the Chinese-language Commonwealth Magazine, Ing said working with the government was the biggest risk the rail project faced.
Meanwhile, Farglory chairman Chao Teng-hsing (趙藤雄) said he was so disappointed by the city government that he has sworn off public infrastructure projects.
Their criticism took aim at the betrayal of the spirit of BOT — a healthy public-private partnership. The mutual trust that BOT projects require between the private and public sectors has evaporated. If the government wants the model to be successful, it must stop making the same mistakes.
What we have learned from recent disputes is that the BOT model is not suitable for all public construction projects — especially transportation projects. We have also learned that our concept of the BOT model remains ambiguous, which complicates risk-sharing between the public and private sectors. Moreover, the BOT model needs to be allowed to adapt to the changing business environment.
However, critics who argue that Taiwan should abandon the BOT model should consider the problems of government inefficiency and poor-quality construction.
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