ACCOUNTING FOR BUILD-OPERATE-TRANSFER (BOT)

Definition and characteristics of a BOT

• Under a build-operate-transfer (BOT) contract, an entity—usually a government (called grantor) —

grants a concession to a private company (called operators) to finance, build and operate a project
through competetive bidding or direct arrangements.

• BOT projects are normally large-scale, undeveloped infrastructure projects that would otherwise be
financed, built and operated solely by the government but due to capital constraints, being dealt with
private companies.

• The private company (called operators) awarded with the contracts is allowed to finance the
construction, development or maintenance of the infrastructure and commercially operate it for a
fixed period of time sufficient for them to recoup their invested capital and earn profit from it.

• After the BOT contract expired, the operator transfers the infrastructure to the government without
cost or compensation

Other terms for BOT Arrangements

1. Service consession arrangements: instead of the government doing the service to the public, they
will contact a private company to do it for them. Example: Maynilad & MWSS

2. Rehabilitate-operate-transfer: the private company will be contracted by government or other

public sector body to rehabilitate/restore a government properties so that it can be used by the
public. Example: Rizal Park (Luneta Park); Manila Zoo

3. Public to private service consession: A government or other public sector body contracts with a
private operator to develop (or upgrade), operate and maintain the grantor's infrastructure assets
such as roads, bridges, tunnels, airports, energy distribution networks, prisons or hospitals.

4. Private to public partnership (PPP): the government granted the rights to a private company to
build and operate a government owned property. Example: NLEX, SLEX, Cavitex, TPLEX

Features of a BOT

1. The service to be provided by the operator under the BOT arrangement is of public service in nature
and shall be provided to the public on behalf of the private sector or entity.

2. The grantor of the BOT contract is a public entity or the government

3. The operator is responsible for some of the management of the infrastructure and related services
and does not merely act as an agent on behalf of the grantor

4. The contract sets the initial prices to be charged by the operator and regulates price revisions over
the period of service arrangements
5. The operator is obliged to hand over the infrastructure to the grantor in a specified condition at the
end of the period of the arrangement, for little or no incremental consideration, irrespective of which
party initally financed it

IFRIC 12 – Service Concession Arrangements

IFRIC 12 applies to BOT contracts if:

1. The grantor controls or regulates

a. what services the operator must provide to the infrastructure
b. to whom it must provide them
c. at what price

2. The grantor controls through ownership, beneficial entitlement or otherwise, any significant residual
interest in the infrastructure at the end of the term of the arrangement

Note: the outsourcing of the operation of a govermental units internal service (example: employee
canteen, building maintenance, and accounting information technology function) is not a service
concession arrangement under IFRIC 12.

Treatment of the operators rights over the infrastructure

• The infrastructure under BOT contracts accounted for under IFRIC 12 shat not be recognized as PPE
of the operator.

Recognition and measurement of arrangement consideration

Under BOT contracts accounted for under IFRIC 12 the operator acts as a service provider
Such services maybe:
Construction or upgrade services – for public use or service
Operations services – operates and maintain for a specific period of time

The operator shall recognize and measure revenues in accordance with PFRS 15

IFRS 15 is a revenue recognition standard that affects all businesses that enter into contracts with
customers to transfer goods or services – public, private and non- profit entities. Both public and
privately held companies should be IFRS 15 compliant now based on the 2017 and 2018 deadlines.