Environmental & social risk

Power transmission Power transmission

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 takes the risk of existing environmental and other conditions which the Contracting Authority has disclosed or which are discoverable by the exercise of reasonable due diligence prior to the Private Partner accepting the project route (or prior to the Private Partner obtaining an approved route), and the Contracting Authority retains the risk of existing latent environmental and other conditions.

Social risks, insofar as they may involve indigenous groups, will be the responsibility of the Contracting Authority.

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 disclose all known environmental issues to the Private Partner.

The Contracting Authority will be required to review all environmental plans put forth 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 and this may need to be contractualised.

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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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 takes the risk of existing environmental and other conditions which the Contracting Authority has disclosed or which are discoverable by the exercise of reasonable due diligence prior to the Private Partner accepting the project route (or prior to the Private Partner obtaining an approved route), and the Contracting Authority retains the risk of existing latent environmental and other conditions.

Social risks, insofar as they may involve indigenous groups, will be the responsibility of the Contracting Authority

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 disclose all known environmental issues to the Private Partner.

The Contracting Authority will be required to review all environmental plans put forth 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 and this may need to be contractualised.

Comparison with Developed 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.

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.

Back to Power transmission