As discussed in Chapter 1, PPP structures are ultimately flexible. Instead of endeavoring to dissect contractual structures and risk allocation for every possible PPP structure, this chapter will use the example of a project-financed BOT project to show how risk can be managed in the context of PPP. Project-financed BOTs are highly structured, risk-sensitive projects and therefore present a convenient opportunity for a discussion of key issues that arise in any PPP project.

The BOT project places the responsibility for financing, constructing, and operating the project on the private sector. The host country grants a concession to the private company to build and operate the facility over a period of time. The private company then uses the revenue from the operation of the facility to service debt and provide the investors with a return. Where the host country is also the offtake purchaser, the project is likely to be treated as payment for a service rather than financing of infrastructure. This can keep the project debt from being counted against the country's debt ratios or public sector borrowing requirements.