The change in an economic drift across the world has changed the dynamics of many industries across the globe. With a pandemic striking the world, the oil industry is one of the most affected ones. With no oil trade development, the major oil-producing nations have to switch their ways and open many other forms of private investments. One such country where private investments were introduced in Saudi Arabia.
Introduction of the Saudi Arabian Water Sector
Saudi Arabia is the largest producer of desalinated water in the world. One of the largest industries, as a consequence of Covid-19 and oil sector stagnancy, had to open its doors to public-private partnerships. There have been a lot of shifts in public-private partnerships since the past few decades and the market has seen shifts in the way.
Public-private partnerships are very important for nations to focus on results through input. PPP in the water sector is not only important for the development of the economy but it also adds value to the lives in that area.
Saudi Arabian Water Strategy and Public-Private Partnerships
The Saudi National Water Strategy with alignment to its 2030 vision of privatization has an aim to privatize the government assets. Ports, healthcare, public transportation, and a few other sectors are a part of this scheme.
The water strategy in Saudi Arabia is designed with a sustainable approach to the water sector. It has a commitment involved that prioritizes the safeguarding of natural resources and the environment of the nation with high-quality cost-effective services. This ensures a competitive environment in the water sector and maintains a contribution to the national economy. The collaboration of private firms with the government enables innovation in the water sector of the kingdom.
The water scarcity in Saudi Arabia has led to decisions of private-public partnerships in the sector. Private sector involvement has been a key point of the National water strategy to improve water management in Saudi Arabia. Investments from all around the world have led to the development of the domestic capabilities of the nation. The contracts for these partnerships are simple and less complicated and have opened the doors for many regional companies to emerge and contribute to overcoming these issues.
The results of these partnerships have shown that Saudi Water Partnership Company (SWPC) has emerged as one of the leading firms in PPP grantors in the nation. The SWPC model is one of the finest models to develop the right infrastructure in the sector in Saudi Arabia. It covers all the shortcomings of the area and copes up with them in the most suitable way. There are a few models that are working and have yielded outputs in the finest way. One such model is Build Operate Transfer.
Build Operate Transfer Model
Pandemic has hit the global economy in the worst way possible. It has made transformation a necessity for the industries to survive in the post-pandemic world. Firms all around the globe are working to figure out ways to manage their margins and build a long-term strategy that will meet the needs of the business in the post-pandemic market. In this run, Build Operate transfer seems to be a relevant solution.
Build operate Transfer (BOT) is a type of project model of public-private partnership infrastructure, that is highly focused on outputs. In these BOT projects, the public sector grantor gives permission to develop and operate a facility or system for a pre-decided period of time, to a private company. The project remains a public sector project only.
Understanding the Commercials of BOT
For the period of a project in BOT, the operator or the private firm finances the project, operates it, maintains it, constructs the facilities required, and then transfers it entirely to the authority after the period is over. There is a significance of every key component of the project and it has a certain effect on the commercials.
In the build phase, that is the initial step, the enterprise does very minimum or no investment, and the investment is offered by the vendor. The investments in this stage comprise building the infrastructure, getting resources on board, and other requirements of ground service delivery. This entire expenditure is recovered by the service provider in the next two stages.
In the operating phase, the service provider charges a fee to the enterprise to maintain the ongoing operations. The ongoing operation fee involves the margins of the service provider which is higher than those in pure outsourcing construct. This fee varies with the nature of the project.
The last phase of this entire project is the transfer phase, where the service provider charges a transfer fee that is based on the contract signed.
The commercials of the BOT projects may seem complex, but they are yielding good results for the water sector public-private partnerships projects.