Lessons Learned from BOT Infrastructure Development in Taiwan: A Case Study of the Taiwan High Speed Railway (THSR) Project

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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. …