Land purchase and site risk

Airport Airport

Description (What is the Risk)

The risk of acquiring title to the land to be used for a project, the selection of that site and the geophysical conditions of that site.
Planning permission.
Access rights.
Security.
Archaeological
Existing pollution.
Noise.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Contracting Authority bears the principal risk as it is best placed to select and acquire the required land interests for the project.

The Contracting Authority would generally be responsible for providing a 'clean' site, with no restrictive land title issues, and existing utilities and contamination either dealt with or extensively surveyed and warranted or, in the case of utilities to be provided near to the time of completion, if state owned or capable of influence. The Private Partner may take some risk for dealing with adverse conditions revealed by surveys but other unforeseeable ground risks (e.g. archaeological risks or munitions) are likely to need to be held by the Contracting Authority.

The Contracting Authority should also consider the impact that the project will have on neighbouring properties and trades and may need to retain this risk of unavoidable interference particularly in the case of noise and air pollution.

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

The Contracting Authority should undertake detailed environmental and social assessments and should disclose such information to the Private Partner as part of the bidding process. The Contracting Authority may itself conduct detailed ground surveys or leave this to the preferred bidder. However, in the case of the preferred bidder conducting its own detailed survey this may lead to a charge in price.

The Contracting Authority should, to the greatest extent possible, ensure that it has a complete understanding of the risks involved in securing the site and the site constraints that will impact on the construction and operation of the system.

The Contracting Authority should also manage any indigenous land rights issues that may impact on the use of the site.

Prior to awarding the tender the Contracting Authority should (in view of the sensitivity of airport development), through legislation and a proper consultation process, limit the ability for potential land right owners or neighbouring properties and trades to raise claims on the land and/or for injurious affection , in particular, noise and air pollution.

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

The Contracting Authority may need to use its legislative powers to secure the site (e.g. through expropriation / compulsory acquisition).

Even where you have a legally clear site, Government enforcement powers may be needed to properly secure the site for the private sector. There may be historic encroachment issues that the Private Partner cannot be expected to deal with.

Examples include the need to manage the relocation of people (e.g. the removal of informal housing or businesses) and continued efforts to manage the social and political impact of the project on and around the site. If the effect of increased costs or air pollution is increased the state or local authorities may need to relocate people or pay compensation.

The Contracting Authority may be required to provide additional site security / assistance during operations to manage this risk. However, in the case of large scale demonstrations and criminal actively, this will need to be carried out by state security.

Comparison with Emerging Market

Land rights and ground conditions in developed markets are typically more established and risks can be mitigated with appropriate due diligence with relevant land registries and utility records.

The Private Partner's obligations with regards to indigenous rights are generally well legislated in developed markets, for example requirement to enter into indigenous land use agreements under native title legislation in Australia and the equivalent under first nations law in Canada.

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Description (What is the Risk)

The risk of acquiring title to the land to be used for a project, the selection of that site and the geophysical conditions of that site.
Planning permission.
Access rights.
Security.
Archaeological
Existing pollution.
Noise.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Contracting Authority bears the principal risk as it is best placed to select and acquire the required land interests for the project.

The Contracting Authority would generally be responsible for providing a 'clean' site, with no restrictive land title issues, and existing utilities and contamination either dealt with or fully surveyed and warranted. Existing assets proposed to be used in the project should also be fully surveyed and warranted. The Private Partner may take some risk for dealing with adverse conditions revealed by surveys but other unforeseeable ground risks (e.g. archaeological risks) are likely to need to be held by the Contracting Authority.

The Contracting Authority should also consider the impact that the project will have on neighbouring properties and trades and may need to retain this risk of unavoidable interference.

We have seen the contrary position adopted in an equivalent PPP project in Colombia, the land purchase and site risks are typically allocated within the Private Partner risks. It must undertake at least, and not necessarily limited to: i) the land purchase (including the direct agreement with owners or title holders and, if necessary, initiating expropriation procedures); ii) the submission until its issuance of all the necessary environmental permits and licences, including water, air, noise and waste management; iii) the previous consultation process with communities whenever there is a 'titled community' (eg. Indigenous, afro-descendants or constitutionally protected tribes, communities or settlements); iv) the acquisition and arrangement of public services provision to the infrastructure; v) Planning and designs approval before the competent municipal or regional authority for any works on the land; vi) provision of private security for better control and safety of the infrastructure (although the police and army security work is public). For the case of archaeological findings the risk is shared. The Private Partner assumes all the future loss of income earnings derived from archaeological findings, including mineral mines or other deposits or fields, while the Public Partner assumes the direct loss (damnum emergens) derived from those same findings. The allocation of this risk may depend on whether the Contracting Authority had secured a site and/or whether a project is unsolicited.

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

The Contracting Authority should undertake detailed ground, environmental and social assessments and should disclose such information to the Private Partner as part of the bidding process. The Contracting Authority may itself conduct detailed ground surveys or leave this to the preferred bidder. However, in the case of the preferred bidder conducting its own detailed survey this may lead to a charge in price.

The Contracting Authority should, to the greatest extent possible, ensure that it has a complete understanding of the risks involved in securing the site and the site constraints that will impact on the construction and operation of the system.

The Contracting Authority should also manage any indigenous land rights issues that may impact on the use of the site.

Prior to awarding the tender the Contracting Authority could (through legislation and a proper consultation process) limit the ability for potential land right owners or neighbouring properties and trades to raise claims on the land and/or for injurious affection, in particular noise and air pollution.

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

The Contracting Authority may need to use its legislative powers to secure the site (e.g. through expropriation / compulsory acquisition).

Even where you have a legally clear site, Government enforcement powers may be needed to properly secure the site for the private sector. There may be historic encroachment issues that the Private Partner cannot be expected to deal with.

Examples include the need to manage the relocation of people (e.g. the removal of informal housing or businesses) and continued efforts to manage the social and political impact of the project on and around the site.

The Contracting Authority may be required to provide additional site security / assistance during operations to manage this risk. However, in the case of large scale demonstrations and criminal actively, this will need to be carried out by state security.

Comparison with Developed Market

Land rights and ground conditions (in particular reliable utilities records, and land charges) in emerging markets may be less certain than in developed markets where established land registries and utility records exist.

In the absence of legislation in emerging markets, indigenous land rights issues and community engagement can be managed by the Contracting Authority through the adoption of IFC Safeguards for the project, particularly in order to ensure international financing options are available to the project. See comments on 'Environmental and Social Risk' for an airport project in emerging markets.

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