Infrastructure BOOT contract, page-5

Hi H,
Yes that does help. My previous exposure to BOOT contracts has been where the infrastructure was for the sole use of the Mining Company. In these cases the contractor has Built the infrastructure at their cost, Owned it and carried and debt on their balance sheet (and charged the mine owner a fee for capital recovery + financing), Operated it (on an agreed annual budget cost plus margin basis) and then Transferred the asset to the mine owner at the end of the BOOT contract period (in these cases 10 years). At this point the ownership fee ceased and the mine decided to bring the operation and maintenance of the infrastructure in house, hence the Operating fee ceased as well.

It will be interesting to see how, if it is a BOOT, the fees are structured. I am struggling to see how (or why) Mota Engil would agree an ownership and operating fee that does not cover all of their ownership and operating costs of the rail and port, particularly in the first years when SDL is likely to be the only real user. I guess this could be through the rail rate per tonne being set high enough to do this, however I would hope there will be a mechanism for this rate to reduce once other users come on line. Hopefully SDL do not lock in the ability for ME to continue full cost recover from SDL and then to make a super profit from the other users. (if structured right, this could have the effect of passing on the benefit, as other users start using the line, to SDL, without them actually having to devote management time to run it)

The other interesting thing to understand is how the mechanism will work at the end of the BOOT contract (particularly if it is set to recover capital fees over the life of stage 1 (10 years??)). When the ownership of the infrastructure is Transferred to SDL, presumably all of the revenues will as well (plus operating costs as either remaining outsourced or bought in house).

Will be interesting as the deal is finalised and the details announced.

Cheers
Z