Dubai Municipality has made nearly Dh1billion since the beginning of 2007 from the build, operate and transfer (BOT) form of project financing. Under this system an investor pays to lease a piece of land for a set period, builds on it and operates the asset. At the end of the lease period the land and everything on it – including buildings and machinery – revert to the landowner.
A key BOT investment is the WonderLand theme park near Garhoud Bridge. Other examples are the Carrefour hypermarket in Shindagha and the Dubai Marine World, which will be completed soon in Creek Park.
Engineer Mohammed Julphar, Assistant Director-General for Financial Affairs and the head of the municipality’s investments committee, told Emirates Business that the system saved the municipality time and effort.
“For example, if the municipality wanted to build a park, the total cost of building and running it and supervising the workers and machines, among many other things could be around Dh100 million. With the BOT system, a private company approaches the municipality and builds the park at their own expense, runs it and carries out all the work related to it. And the company pays the municipality rent throughout the lease period.
“In this way the municipality saves the Dh100 million it would have spent on building the park as well as saving time and effort. Plus it makes some money. The total cost of the 10 BOT leases issued by the municipality since the start of last year is Dh610,500m. The rent we will get from these projects over the period of the leases is Dh374,200 million.
“These figures add up to Dh984,700 million – the actual gain made by the municipality for spending nothing in return.”
Strict regulations limit the number of projects that are approved.“The main objective of the municipality is to serve the community and we are a non-profit organisation,” added Julphar. “Therefore we don’t look at the proceeds as much as the benefits of the projects for the community.” He said lease periods varied from 10 years to 20 years depending on the type of project, and the cost of the leases also varied.
“At the end of the period the ownership of the land and all the buildings, equipment and machinery on it goes back to the municipality. The lease is paid in instalments to the municipality. However, the money we receive from the private companies is not really what matters – we care about the service received by the public.”
Julphar said developers benefited from BOT. “If a company buys the land to set up a project then it will take it many years to make enough profit to cover the cost. In this system, they are making profit much sooner.”
Dubai nets Dh1bn from land leases