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Lessons learned from BOT infrastructure development in Taiwan: a case study of the Taiwan High Speed Railway (THSR) project.

INTRODUCTION

Since 1980s, a new political agenda was set for decades. This agenda was based largely on a free market philosophy, which included deregulation and the privatization of state assets, and it fundamentally altered the relationships among government, businesses, and citizens (Bailey, 1995:7). Privatization and deregulation policies have been proposed as important elements in any strategy that aims to restore or create economic dynamism (Bergeijk & Haffner, 1996:3). Popular in countries throughout the world, these policies have developed into many different forms, but the BOT model has become one of the most useful privatization strategies. BOT is a model of public-private partnership (PPP), which is regarded as a form of joint governance by public and private sectors. In defining PPP, Peter Kooiman states that "there is interaction between government and business, and the focus in achieving convergent objectives is on synergy. The objectives have both social and commercial characteristics, and the respective identities and responsibilities of the parties involved remain intact" (1993:120). The PPP mode gained popularity from the beginning of the 1980s, initially with a number of spectacular examples of new forms of cooperation in the field of urban renewal, and then was applied in a multitude of different markets and areas of policy, including infrastructural projects, environmental projects, and even employment and education projects (Kooiman, 1993:119). In a BOT project, a private developer is awarded a franchise to finance, build, and operate a public facility and then to collect user fees for a specified period, after which ownership of the facility is transferred to the public sector. This approach is perhaps the most common form of PPP used for building new public infrastructural projects. In contrast to a sale or permanent concession, the government retains strategic control over the project (Savas, 2000:244).

Developing economies need adequate services and public facilities to successfully meet the challenges of alleviating poverty, coping with population growth, improving the environment, and modernizing, globalizing, and expanding trade. (United Nations Industrial Development Organization [UNIDO] 1996: 31-32). When Taiwan's government began to suffer from financial shortfalls in the late 1980s, engaging the private sector's participation in public construction became an increasingly popular concept. As a result, the "policy window" (Kingdon, 1995:165) for the privatization of public construction in Taiwan opened in the 1990s and has been open ever since.

With a budget of 16 billion US dollars, a consortium comprising seven private companies, the involvement of numerous central and local governments, and almost two years of planning, the Taiwan High Speed Railway (THSR) project is unique not only for its scale but also for the many political and economic complexities it had to resolve throughout its planning and implementation. On March 26, 1999, a year after the invitation for bids was first issued, which was then followed by a year of intense negotiations, the largest BOT project in the world finally broke ground. Both the government and the private investors declared firmly that the project would be finished and begin operations in October 2003. Nonetheless, the operating date was postponed again and again, and the THSR did not actually begin operating until January 5, 2007. One of the many problems that has not yet been entirely explored and solved in Taiwan is the increasingly high transaction costs-both financial and institutional--that surfaced during the project's implementation.

Applying related theories and case-study approach, this paper aims to identify and explain crucial lessons that can be learned from the THSR project. This study has collected data and information from news, research reports, literatures, and the chronicle of significant key events as described in the section "Crucial Lessons from the THSR Project" were taken mainly from official documents from 1996 to 2006. Interviews were also conducted with five high-ranking governmental officers, including two senior engineers and three directors, who have actively participated in the formulation and implementation of the THSR project.

THE ESSENTIAL CHARACTERISTICS OF THE BOT MODEL

The Origins of BOT

The acronym BOT was first coined in the early 1980s by Turkey's late Prime Minister Targut Ozal (Walker & Smith, 1995:6). BOT emerged as a viable strategy during the sweeping waves of privatization throughout the world in the 1980s, and it has been promoted ever since by both developed and developing countries as a way to supply badly needed infrastructure services while under stringent budgetary constraints (Huang, 1995:1). The popularity of the BOT model was driven by three key pragmatic considerations. First, the oil crises during the 1970s had strained the government budgets of both developed and developing countries. Secondly, international contractors welcomed this new approach because the debt crisis was transforming their businesses into a buyer's market. To prevent the idling of enormous capital, they became promoters of major construction projects rather than the passive risk-takers they had been previously (Huang, 1995). Finally, "project finance" is its cornerstone. Lenders in the BOT model do not look for government guarantees or the assets of the project sponsors; instead, they look to the project's assets and its revenue stream for repayment (United Nations Industrial Development Organization [UNDO], 1996:3). In a BOT project, private sector companies usually provide equity and debt, and the government secures the private sectors' interests by continuing to be involved in the project. This approach to project finance has three benefits. First, the financing method especially suits projects that cannot gather sufficient funds through ordinary means because of the huge financing requirements and high risks. Second, the provision of funds is for a single-purpose facility that generates the cash flow to repay the debt. Third, for leaders and investors, the essence of this kind of project finance is the analysis of all kinds of risks which are contractually allocated to parties best able to manage them through construction guarantees and many types of contracts, agreements, and insurance policies (Davis, 1996).

Structural Elements-Policy and Institutional Development

Being a PPP model, BOT projects require certain structural elements. Before a BOT project is implemented, certain structures should already be in existence, and some should be further well developed. A. Williamson has outlined eight structural elements that are prerequisites for partnerships (2001:122). A BOT project requires that the host government play an active role. The government usually initially approves the policies using the BOT model and identifies the sectors and projects that would be suitable for this approach. UNDO (1996:41-43) suggests that in order to enhance the private sector's interests in BOT projects in a developing country, it is necessary to have an explicit national development policy that clearly commits the host government to promoting the private sector's participation in BOT projects. A credible legal and regulatory framework to facilitate a BOT strategy is also needed. In addition, a efficient administrative framework is necessary to expedite the implementation of BOT projects.

Partnership--Actors' Elements

In a BOT project, both the public and private sectors must build a long-term partnership. This partnership is different in important ways from "contracting-out," a principal-agent relationship in which the public actor defines the problem and provides the specifications for the solution (Klijn & Teisman, 2000:85). By contrast, a long-term partnership involves a strategic partnering and focus on a complex set of relationships between a public organization and a company or consortium (Sullivan & Skelcher, 2002:84-87). This long-term partnership engages in joint decision-making and production in order to achieve a desirable outcome for both partners (Kliijn & Teisman, 2000:86), and it is supported by financial incentives to bring the potential partners together (Balloch & Taylor, 2001:1).

Besides, how can the public and private sectors cooperate with one another in a strong and positive trust structure? An "interface management" mechanism that is composed of trust-building and joint learning elements in relation to PPP is crucial. Interface management is a mechanism for promoting joint learning and trust-building so that different partners can effectively coordinate with one another in the dynamic process of BOT projects. This study proposes an "Actors' Triangle model" to illustrate the structural relationships among all participants in a BOT project (see Figure 1):

[FIGURE 1 OMITTED]

Actors' elements can be seen as each individual participant's capacity for collaboration. This individual capacity comprises several skills, including an understanding of different organizational contexts, a knowledge of one's role and the ability to play it, communication, problem-solving, self-management, and the ability to network, negotiate, resolve conflicts, and take appropriate risks (Gaster, 1995; Hague & Malos, 1996; Skelcher et al., 1996; Wilson & Charlton, 1997; Sullivan & Skelcher, 2002). These skills can be learned and developed as collaborative actors interact with one another.

In collaborative management, a kind of "groupware" must be developed (Agranoff & McGuire, 2003:181). One ingredient is "social capital" (trust) (see Coleman, 1990; Fountain, 1998; and Putnam, 1993). In PPP, relational transparency--in other words, trust--is crucial to its success (Klijn & Teisman, 2000). Trust is important for both entering into and functioning in cooperative relationships (Kouwenhoven, 1993:126). When suspicions and second-guessing are minimized, the transaction costs are also minimized. The second ingredient crucial for developing groupware is a "joint learning system" that synthesizes the players into a collaborative whole and is often accompanied by a conscious attempt to frame the players' perceptions of their interactions (Agranoff & McGuire, 2003:178-180). Continuously promoting the function of a joint learning system can help build a better trust structure.

The process of interacting in partnerships involves many signals or events that can be perceived by participants either as negative, here defined as "disturbances of trust," or as positive, defined in this model as "input of credit." A disturbance of trust involves any occurrence or action by any participant during the implementation process whose impact on the PPP relations is negative. If such a disturbance occurs, the participant involved should do something as an "input of credit" to help fix or rebuild the injured relationship lest the BOT project be seriously damaged or even terminated. Thus, the collaborative actors' main focus is to build trust through a joint learning process.

What Makes a BOT Project Successful?

Each BOT project evolves in a unique administrative ecology and has to be viewed in its own policy context. The BOT structure will vary to reflect the political and physical project environments (Walker & Smith, 1995:10). UNIDO points out that the decision of whether or not to use the BOT concept depends on the particular project and the circumstances prevailing in the host country at the time. Nonetheless, UNIDO does describe particularly important elements crucial for the successful implementation of BOT projects(1996:281286). These elements can be divided into three categories. First, in terms of policy and institutions, the country risks must be manageable, there must be strong government support, stable legal framework, efficient administrative framework, fair and transparent bidding procedure, and the BOT transaction should be structured so as to be concludable within a reasonable time and at a reasonable cost. Second, in terms of finances, the project must be financially sound, feasible and affordable; the financial structure must provide the lenders adequate security; the currency, foreign exchange, and inflation issues must be solved; and the sponsors must have sufficient financial strength. Finally, in terms of partnership, the sponsors and construction contractor must be experienced and reliable; the project risks must be allocated rationally among the parties; the BOT contractual framework must be coordinated and must reflect the basic economics of the project; and the public and the private sectors need to cooperate on a win-win basis. The elements of these three dimensions--policy and institutions, finance, and partnership--provide criteria by which to analyze the THSR project.

THE BACKGROUND OF TAIWAN'S THSR PROJECT

Beginning in the late 1980s, Taiwan's government was convinced that the privatization of public construction projects would reduce government debt, help balance public expenditures, introduce entrepreneurship to the government, enhance administrative efficiency, and encourage foreign investment; moreover, the government and the private sector would share the risks and public responsibilities (Cheng, 1999).

In 1987, the Ministry of Transportation and Communication (MOTC) was charged with pre-evaluating the THSR project's feasibility in terms of how it would make the economy more prosperous. The MOTC's report predicted that the THSR project would promote inter-city transportation between northern and southern Taiwan in a whole new way by transforming the western Taiwan corridor into a one-day access sphere. At first, the THSR project was envisioned as one of the government's high-priority public construction projects, to be implemented by the government. On July 2, 1990, the Preparation Office of the High Speed Rail System in the Transportation Bureau (POHSRSTB) was established to plan THSR project. In 1993, Taiwan's main political parties were beginning to reach a consensus that privatization was the best way to finance public projects. The promulgation in 1994 of "Regulations Governing Encouragement of Private Participation in Public Transport Projects," otherwise known as the Jiang San Regulations, enabled the Legislative Yuan to agree that the BOT model was the best possible way to implement the THSR project. Finally, in January 1995, the Legislative Yuan approved the THSR project with the proviso that the private sector's investment on this project could not be less than 40% of the project's total budget.

On January 31, 1997, POHSRSTB was reorganized and became the Bureau of the High Speed Rail (BHSR) for the implementation of the THSR project. The project was finally ready to begin. It was estimated at that time by Public Construction Commission (PCC) that the THSR would provide more than NT$60.1 billion dollars (approximately US$ 1.88 billion) in of tax income per year and might offer a return rate as high as 9.66% to its investors. The statistics provided by PCC for 2002-2003 (see Table 1) was an effort to prove that private sector participation in public construction was a successful policy.

CRUCIAL LESSONS FROM THE THSR PROJECT

Lessons in Policy Formation and Institutional Development

The following is a chronicle of significant events that had a major impact on the project.

In order to achieve political legitimacy, Taiwan's government promulgated the Jiang San Regulations in 1994. The regulations were created specifically to prepare a legal foundation for implementing the THSR project using the BOT model and also to provide a general legal foundation for promoting private investment in public transportation projects. So, the private sector's participation in public transportation projects gained depth and frequency. The Jiang San Regulations, however, still has other restrictions on foreign investment and tax benefits.

From 1996 to 2000, the Executive Yuan and the Legislative Yuan worked together to propose and pass new laws and regulations governing the implementation of BOT/PPP projects. In December of 1996, the main political parties met together at a National Development Convention and issued a joint declaration about national economic development. The joint declaration, "Redefining Government's Role and Function," stated that the government should "as soon as possible plan ... public construction projects that can be deregulated for outsourcing to the private sector." After that, the Executive Yuan enlarged the scope of the Jiang San Regulations and drew up the "Law for Promotion of Private Participation in Public Construction Projects." The Legislative Yuan passed the law on February 9, 2000. Through these efforts, Taiwan built up a comprehensive legal system for BOT/PPP projects.

On September 25, 1997, the Taiwan High Speed Rail Consortium (THSRC) was formed with five domestic and two foreign companies and granted the right to negotiate contracts. In October, the chief of the new BHSR proposed to secure the involvement and investment of four government-run businesses as "inputs of credit." After a year of negotiations, the THSR project agreement was finally signed on July 23, 1998. The BHSR announced that the THSRC was given operating rights for the next 35 years and the right to develop new stations areas for the next 50 years. The main media in Taiwan all called the signing event a "big, epochal wedding." However, Taiwan's government had no experience in implementing BOT projects and seemed overly confident in the private sector's abilities. The government found itself the target of constant criticism and speculation; it was accused of foul play and corruption. The government realized, from this experience, that their initial planning was grossly inadequate; therefore, on July 22, 1998, the Executive Yuan issued an addendum stipulating new and more stringent requirements for all PPP project applications and implementations.

During the early implementation stages, another disturbance occurred. A competitor of the THSRC, the China Development Company, filed several complaints with the MOTC and challenged the fairness of the bidding process on Oct. 27, 1997. It further questioned and protested through the media, especially the modifications to a regulation relating to the purchase of private properties along the construction route. One principle of the BOT model is that if investors and contractors are involved at the outset of a project, they can help to improve the establishment of legislation and related institutional settings by proposing alternative insights from the point of view of the private sector. One problem, however, is that the deep participation from the private sector in a BOT model can often provoke criticism that it is unfairly benefiting certain private organizations and not others.

In 2000, the THSR project faced another political disruption. The THSR project had been formulated and planned by the ruling party-the Kuomintang (KMT). On March 20, 2000, however, the KMT lost the presidential election, so the governing power of the central government, along with responsibility for implementing the THSR project, was handed over to the new ruling party, the Democratic Progressive Party (DPP). The construction schedule during the implementation phase of the THSR project was delayed, then, for two main reasons. One was that the new opposition party, the KMT, was hypercritical and found fault on every issue. The other reason was that the main press and media developed distorted views of the BOT model. The main press and media took distorted views of the project and reported incorrectly. These distortions misled the general public about the THSR project.

In addition, a lack of continuity and coordination has characterized the government's role. Since his election in 2000, President Chen Shui-bian has changed prime ministers six times. The prime ministers and their ministers have each needed time to become familiar with the THSR project and the THSRC leaders. Likewise, the Consortium's leaders have needed time to become familiar with each set of new government officials. The unstable and short tenure of prime ministers and ministers has caused damage to the "joint learning system" and to much of the social capital (trust) that had been established. Inadequate coordination among government organizations was another problem. Because the THSRC had to deal with several different governmental representatives during the negotiation period.

Between 2002 and 2005, increasing numbers of BOT projects were suspected of being ineffective or even corrupt. Because of these "disturbances of trust," the general public nearly lost faith in the BOT model. On Sep. 25, 2003, President Chen Shui-bian announced that instead the government would construct these projects. Even the former MOTC minister Lin Ling-san, speaking to the Transportation Committee of the Legislative Yuan on November 28, 2005, stated that "BOT is not guilty, but it is not suitable for Taiwan at this time." This lack of government commitment to the BOT model made its implementation more difficult.

Besides, Taiwan's government needs to build a more comprehensive legal system for future BOT projects. The laws and regulations that were established in preparation for the THSR project were simply not adequate. The existing legislation presents unforeseen restrictions and obstacles to foreign investment, loans, insurance, use of land, company stocks, asset transfer, and profit distribution. The Legislative Yuan needs to pass bills soon to deal with such issues as transferring and taking over BOT facilities.

Lessons in Finance

The most successful BOT projects, according to John Mobsby (1992:7), former head of Project Finance for WS Atkins International, are those in the small- to medium-size range, with concession values up to US$ 500 million, and when the private sector equity requirements for such projects are available. That's why "Bankable or Terminate" is an appropriate alternative set of words for the BOT acronym. The THSR project required a lot of private equity. Financing was one of the most challenging THSR problems from the very beginning. The project financing concept was new not only to the banks but also to the government and to the general public. Domestic banks preferred to be bankers rather than participants. Most of them wanted strong credit guarantees or visible pledges from the government before taking on the risks of financing. In December of 1997, when most scholars and members of the press seriously doubted the ability to finance the Taiwan High Speed Rail Consortium, the MOTC had to guarantee its financing ability as an "input of credit" to reduce the public's doubts.

The domestic banks lacked experience in working with a large BOT project. Even when the banks finally became involved, they were reluctant partners, and their roles and responsibilities were never well defined. Taiwan's government had to step up and assume a great portion of the financial risks, thereby distorting the "Actors' Triangle" structure from the start. As a result, on February 3, 1998, the nongovernmental Council for Economic Planning and Development (CEPD) asserted that if the THSR were not well operated, the government should take it over. The government gradually became the greatest investor and the most important guarantor of the THSRC. On May 11, 1998, the Taiwan High Speed Rail Corporation, the construction and operation team had finally been established. Nonetheless, the negotiations between the MOTC and the THSRC for the THSR contract had reached no conclusion by even July 1, 1998. If the negotiations had not continued, this project would have had to return to the starting line.

On July 20, 1998, a tenth meeting was convened by the oversight committee pertaining to the deposits that would be put up by THSRC as a performance guarantee for fulfilling the contract. It was decided that the Bank of Taiwan would hold the funds in escrow. Fortunately, the THSRC obtained loans from Germany's Morgan Fund. Banks from Japan and Europe also expressed interest in becoming involved in the investment. The Central Bank, a Taiwan government bank, also promised to provide financial aids when necessary. As a result, it seemed that the some of the financing problems were resolved.

On July 23, 1998, the MOTC and THSRC officially signed the contract. Soon after the signing of the contract, the MOTC initiated the formation of a team composed of members from different government organizations. The task of the team was to ensure that all initiatives stipulated in the addendum of "Government's Responsibilities" would be carried out within one year. At the same time, due to the economic crisis in Southeast Asia, the THSRC experienced a financial setback and was slow in getting the funds it needed. Despite the signing of the contract and the government's endorsement, the public and the banks still had doubts about the THSRC's financing.

On Feb. 2 2000, the THSRC and the financing alliance, which was made up of 25 banks, signed a contract for US$ 10.1 billion' worth of fiduciary loans. The THSRC, government, and financing alliance then signed an additional contract that asked the THSRC to raise enough funds on its own for at least 20% of the total budget. The equity gap was still large. So, after some persuasion by the government, the Taiwan Sugar Corporation (TSC), a national corporation, decided to invest US$ 156 million in the THSRC project in May. 2000. By virtue of this decision, the TSC had become the largest shareowner of this project. In order to invest legally in the THSR project, the China Aviation Development Foundation changed its rules and on September 29, 2005, announced its decision to invest US$ 140 million in the project. Main media in Taiwan were convinced that the Executive Yuan forced this decision on it. Just as the government was losing faith in the THSRC's ability to carry through with the project, the already fragile partnership was further weakened in this way.

Lessons of Partnership

People who get involved in a BOT project should work on developing their capacity for collaboration and show their commitment to being a reliable partner. For the THSR project, the government needed to learn how to jointly create and share a suitable environment for implementation of the PPP policy. Participants should also fairly and equally share risks, actively build mutual trust or credit, and jointly learn with partners within an "Actors' Triangle" mechanism. However, for the THSR project, the essential long-term public-private collaboration spirit was not yet well formed.

1. A Lopsided, Unstable Partnership

Because of the THSRC's lack of confidence in the government's ability to fulfill its contractual obligations, the additional addendum of "Government's responsibilities" was added to the contract. That addendum took on an importance that went far beyond the original contract. It provided the THSRC with excuses for any delay, and again, the balance of the triangular formation of the BOT project was distorted. The financing actors were unwilling to provide loans to the THSRC because of its insufficient credit. The THSRC, therefore, asked the government to provide the guarantees needed for the loans. The government, in return, required the THSRC to raise the percentage of its private funding in the total budget of the project.

When there is a negative perception of PPP, an "input of credit" or promise from the government is needed. In 1998, as the THSRC experienced more and more difficulties in obtaining the necessary fiduciary loans from banks and the market, Lee Teng-Hui, the president at the time, along with his ministers of Finance and the MOTC, declared that the government would support and guarantee the THSR project. A cross-agency committee was established and promised to execute some crucial government work as soon as possible. Most of the risks were assumed by the government instead of being distributed equitably among the three main actors, which completely went against the spirit of a BOT/PPP project and did damage to the ideal "Actors' triangle" relationship.

In January 1998, a "disturbance of trust" took place when Ministry of Finance's demonstrated its reluctance to relax its regulations on loan limitations and foreign investment, causing the THSRC to encounter difficulties in procuring bank loans. Because the THSRC was a consortium and not a registered, incorporated company, banks were unwilling to provide the necessary bank loans; and the THSRC remained a consortium because there was a lack of trust in the government's ability to go through with the project. As a registered and licensed corporation, there are capital and tax implications, and the THSRC was not about to make that commitment without the government's reassurance. In March of 1998, the MOTC invited and obtained the necessary financial support from three major domestic banks to resolve the loan issue. The government assumed the role of the "guarantor" and the ultimate financial risks of the whole project.

It became necessary to redistribute the risks and responsibilities reasonably among the project's actors. In April 1998, in order to clear away doubts and speculation regarding the financing aspect of the THSR project, the CEPD called a meeting, convening all the representatives of all parties to discuss the issue. It was decided that the THSRC's investment in the project should be raised from 25% to 30% to demonstrate its commitment to the project; another purpose was to dispel the growing concerns from the public that the government was digging itself into a deep financial hole from which it would not be able to extricate itself. Around the same time, the THSRC asked the government to add an addendum to the contract. The addendum stipulated a long list of government responsibilities. After two meetings of failed negotiations with the MOTC, the THSRC announced it was pulling out of the project on July 1 1998. The original planned opening date in 2003 was doomed to delay. The competitors of the THSRC were prepared to step in at this point on the condition that the government put up US$ 4.6 billion in an emergency fund that was to be used for unforeseen costs. The Executive Yuan stepped in and created a Third-Party Committee in hopes that this committee would become the mediator between the government and the THSRC in future contract disputes. The Third-Party Committee continued to mediate between the government and the THSR until the completion of the project in 2007.'

2. The Government's Role

In the THSR case, the government faced a dilemma in defining its role. The general principle is that if a government takes a positive stance and participates as a proactive partner with the private sector, the expected benefits of private participation in developing infrastructure are more likely to be realized. The logic of trust-building is that the deeper the commitment to the BOT, the more credit input it should get from its partners with a resulting growth of the sense of partnership among the participants. Because the cost of terminating a BOT project is very high, it is difficult for the government to play the role of supervisor, and there are opportunities for private partners to play a negligible role or to become free riders. The Executive Yuan proposed an addendum to make the PPP application process more specific about private partners' responsibilities. The addendum was passed on June 30, 1998, and a committee was formed to oversee the execution of every contract and financial transaction. However, public speculation and suspicions about political power plays plagued the formation of the committee, and the Minister of the Executive Yuan had to repeatedly deny all accusations.

The threat of the high cost of terminating the project made the government weaker than the THSRC and the primary lender in the negotiation process. In addition, because of its bureaucratic red tape, the government found itself constantly under suspicion and frequently pressured to restate its position. Some government officials interviewed by this author complained that the THSRC's demands went beyond what should have been reasonably expected of the government. At the same time, the chairperson of the THSRC, Mrs. Yin Chyi, more than once stated, "The government is our biggest risk factor." She was alluding to the government's bureaucratic red tape that was notorious for causing delays in many government-run construction projects. These accusations and mutual suspicions meant that a trustful relationship between the government and the THSRC was never successfully established.

3. The Private Sector's Role

In Taiwan, most of the private participants in BOT projects have not played their quasi-government role very well. They usually think and act as contractors do in contracting-out relations, an attitude that is harmful to promoting the real kind of partnership necessary to a PPP. In the THSR project, most credits came from the government's guarantees, the general public and media perceived the private participants as suspicious and believed they behaved like elusive, inadvertent, and unreliable partners. Therefore, the advantages to be gained from being in a partnership were not as great as expected. With respect to the financial aspects of this project, the question of the distribution of costs, risks, and returns was of particular importance. That is why the THSRC, financial alliance, and the government, which had guaranteed the THSRC, needed to sign the contract together and make an extra request for the THSRC to raise enough funds to cover at least 20% of the total budget.

THE FUTURE OF THE BOT MODEL IN TAIWAN

Taiwan's government is facing a new world situation in which public projects are no longer the exclusive domain of governments. Public management today has entered an age of collaboration. There is a move for Taiwan's government to take steps towards entrepreneurship and to work in partnership with the private sector. The reasons for privatization are practical, of course, such as the opportunities it provides to relieve fiscal deficit and promote administrative efficiency. Ever since it chose the THSR, Taiwan's largest-scale BOT project, as its pioneer model, Taiwan's government has actively encouraged using the BOT model for infrastructure projects. Its governance mode and administrative system have been continuously changing in response to the issues raised during the implementation of THSR and other BOT projects. The THSR project has made possible the evolution and transformation of government policy toward a PPP policy style. Taiwan's government has adopted a general legislation approach that allows all or most of the important matters in this kind of partnership to be contained or illustrated in items or articles of law. This approach avoids many of the uncertainties of implementation and the delegation of a great deal of power to the host government, local governments, or street-level bureaucrats.

There is an abundance of expertise embedded and required in the dynamic relationships of BOT projects, such as how it is to be managed, how to keep the machine on track, and how to efficiently and effectively engage the private sector. As a formal basis for BOT projects, laws and contracts can help to reduce moral hazards, promote relational transparency, and clearly distinguish rights and obligations. In addition, to lower the costs of these interactions, there is a need to establish trust for collaborative actions. In the opinion of this author, more work needs to be focused on what is necessary to facilitate the crucial relationships among partners in a BOT project. The public and private interests should be integrated into a win-win situation. Host governments need to be aware that some private partners may try to test the government's bottom line. The public greatly cares about the high costs for terminating projects, so the pressure to keep a BOT project alive and make it succeed

have often put host governments into a position of feeling "captured." The ultimate responsibility for any public infrastructure construction has often been anchored on host governments.

Trust-building and joint learning are very important to BOT projects. These qualities help to maintain sustainable partnerships among a BOT project's participants. For trust building, the essence of trust at the beginning phase must gradually be transformed into a real partnership with high commitment and involvement. Trust is the fundamental BOT/PPP force necessary not only to sustain the project's life but also to produce a mature, healthy, productive project environment. Trust provides the foundation for joint learning and collaboration. As the THSR project illustrates, trust can only be achieved when all constituents thoroughly understand the roles and responsibilities of each partner and believe that a partnership of collaboration is the best way to achieve synergy. It is very important to establish a platform for participants to intensively and informally communicate with its partners in order to promote information exchange. As for joint learning, it takes a long time for both public and private participators to shed some of their ideology or interests in order to reach mutual understanding and consensus. Proceeding step by step, learning by doing, and being willing to engage in trial and error are essential. Finally, a clear vision and a bigger picture of change are necessary to coordinate each participant's actions. The general public should also be engaged to perceive the BOT model in a positive light as a PPP policy instrument rather than as illegal public-private collusion. According to this study's research, this perception is a more crucial test for Taiwan's government than for its private sector. Changing the public's perception is probably the Taiwan government's biggest and most important challenge. The unfortunate reality is that there is a deep-rooted sense of distrust prevailing on implementation of the BOT model in Taiwan. We need to go deep into the heart of this problem as we seek to improve both the reality and perception of the BOT model in Taiwan.

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HSI-KAI CHENG

St. John's University, Taiwan
Table 1
The total revenues (from 2002-2003) of private sector
participation in public construction

        Reduced           Reduced          Government   Job
        Government        Government       Income       Opportunities
        Construction      Operation        (billion/    (number of
        Budget(billion)   Budget           year)        persons)
                          (billion/year)

Total   139.19            12.47            9.57         40,343
2002    7.27              0.23             0.13         350
2003    62.47             2.05             2.36         20,413
2004    69.45             10.19            7.07         19,580

Source: Public Construction Commission of Taiwan
(2005).
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