Environmental & social risk

Natural gas distribution Natural gas distribution

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 accept the project site and existing assets in an 'as is' condition, subject to the Contracting Authority's disclosure of relevant matters, and manage the environmental, public health and social strategy across the project, as well as obtaining and maintaining all required licenses, permits and authorisations as necessary.

Existing environmental risks of the site prior to the Private Partner's acceptance of the site that have not been disclosed or could not have been known by the Private Partner prior to commercial close may be deemed to be the responsibility of the Contracting Authority. See comments on 'Land purchase and site risk' for a gas distribution project in developed markets.

Social risks, insofar as they may involve indigenous groups, may be the responsibility of the Contracting Authority but are often borne by the Private Partner.

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

The Contracting Authority should conduct the necessary due diligence in order to ascertain the environmental fitness of the site and existing assets and disclose all known environmental issues to the Private Partner.

The Contracting Authority may review all environmental plans put forward by the Private Partner, to ensure that such plans will be adequate to appropriately manage the risks of the project.

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

The Contracting Authority 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.

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, public health and social risk management plans before construction begins. For example, in Australia the requirement for such plans is required by legislation.

Lenders 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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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, public health and social strategy across the project, however existing environmental conditions will usually to be retained by the Contracting Authority.

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

The Contracting Authority should conduct the necessary initial due diligence in order to ascertain the environmental fitness of the site and disclose all known environmental issues to the Private Partner.

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

The Contracting Authority 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.

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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