Environmental & social risk

Water Desalination Water Desalination

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 (such as intake water contamination) may 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.

The Private Partner would also be required to carry out a full site investigation and the Contracting Authority will be required to review all environmental plans prepared 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 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 (such as intake water contamination) may 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. In light of these investigations, the contract between the Contracting Authority and the Private Partner will generally provide for the allocation of environmental and social risk.

The Private Partner would also be required to carry out a full site investigation and the Contracting Authority will be required to review all environmental plans prepared 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. The Contracting Authority will often be required to manage a range of different interests and stakeholders in relation these issues. The Contacting Authority is unlikely to be able to provide any warranty in relation to these issues.

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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