Environmental & social risk

Heavy rail Heavy rail

Description (What is the Risk)

The risk of the existing latent environmental conditions affecting the project and the subsequent risk of damage to the environment or local communities.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

Network Rail will be expected to manage this risk (but may get force majeure protection in certain circumstances)

The Manufacturer will usually take this risk, particularly in the context of Environmental Losses arising from maintenance activities.

Mitigation Measures (What can be done to minimize the risk)

Network Rail would be expected to factor in environmental considerations when planning its activities.

Government Support Arrangements (What other government measures may be needed to be taken)

None.

Comparison with Emerging Market

Environmental scrutiny is increasing even in developed markets, as both Private Partners and Contracting Authorities have come under increasing burdens to develop sound environmental and social risk management plans before construction begins.

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Description (What is the Risk)

The risk of the existing latent environmental conditions affecting the project and the subsequent risk of damage to the environment or local communities.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Private Partner will have primary responsibility to manage the environmental and social strategy across the project, however existing environmental conditions which cannot be adequately catered for or priced may need to be retained by the Contracting Authority.

The Contracting Authority may also need to retain responsibility for social impacts which are unavoidable from the development of the project (e.g. compensation for expropriation of indigenous land rights and/or relocation of urban communities / businesses).

Mitigation Measures (What can be done to minimize the risk)

The Private Partner should have a comprehensive environmental and social plan in place which can be audited by project lenders and the Contracting Authority.

Government Support Arrangements (What other government measures may be needed to be taken)

Government will need to take meaningful steps both before and during the project to manage social impacts of construction and operation.

Investors and lenders may expect to see a plan to see how these aspects are dealt with and this may need to be set out in the concession agreement.

Comparison with Developed Market

International lenders and development finance institutions are particularly sensitive about environmental and social risks, as a result of their commitment to the Equator Principles. They will look very closely at how these risks are managed at both private and public sector level and this scrutiny is helpful to mitigate the risks posed by these issues.

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