Thu, Oct 01, 2009 - Page 8 News List

THSRC fall brings BOT craze to an abrupt halt

By Wang Yu-fong 王御鳳

The resignation of Taiwan High Speed Rail Corp (THSRC, 台灣高鐵) chairwoman Nita Ing (殷琪) ended the 11-year long wave of “build-operate-transfer” (BOT) projects that began with THSRC. Kaohsiung’s famous Urban Spotlight (城市光廊), which was built under an “operate-transfer” (OT) contract, also closed down quietly not long ago.

These two events put a symbolic end to the BOT and OT craze. One can’t help wonder why truly private operations cannot survive and even become the targets of strong criticism, just as everyone is praising privatization. What is the problem?

The BOT concept is used when a government lacks the funds for a large-scale infrastructure project. The private sector invests a certain amount of funds in the construction, and the government then allows private investors to recoup their investments by operating the project for a certain number of years. Once the time is up, the project is handed over to the government.

The process does not mean that the government does not invest any money. Rather, it is a question of how much it can save.

Unexpectedly, the teams that won some bids promised that the government would not have to pay a cent, leading the public to believe that BOT meant the government could get a public project for free. Suddenly, everyone who didn’t want to be left behind was talking about BOT.

The best example was the Kaohsiung MRT project, which from the start was completely unsuitable for a BOT contract. Since the BOT system was so highly praised, the project suddenly turned into a BOT contract.

The BOT idea merged with the privatization trend. The less government involvement the better, and anything that needed building became a BOT project. All this was an empty dream, because BOT is not a cure-all.

The BOT system both rose and fell with THSRC. The model has been widely criticized since the high speed rail failure as if it were a vicious beast, but a comparison with the chronically delayed Taiwan Railway Administration service raises the question of whether state-run businesses are any better. I am afraid not.

So what happened with the BOT system?

I took part in an investigation on the construction of a cultural hall last year. After interviewing several private OT operators, I realized many won their bid without having a cultural mission. They just wanted to make money. They mostly complained that the government wanted too much compensation, and hoped for looser restrictions so they could make more money, otherwise they worried income would not cover expenses. As for the promotion of culture, that could only be discussed once they got what they wanted.

The question is who decides on the size of the compensation. In Taiwan, those who tender the highest bids — those who promise the biggest returns — are frequently the winners.

The operators’ first priority is simply to win the tender, and the government doesn’t care if it is the lowest bid that wins, often forgetting the importance of sustainable operations, as well as the original intention of the project, such as the promotion of culture. As a result, operators only care about making a profit, and they give up as soon as that becomes difficult. Where does that leave the rights of the taxpayer? The same situation cropped up in the THSRC and Kaohsiung MRT projects.

The BOT system is not a natural disaster or a vicious beast, but when dealing with ­businesspeople who only care about money, the government should open its eyes and choose its partners with caution.

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