Land purchase and site risk

Heavy rail Heavy rail

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.
Heritage.
Archaeological.
Pollution.
Latent defects.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The UK heavy rail network is owned by Network Rail. The private sector Train Operating Company (Operator) is required to enter into a Track Access Contract with Network Rail in respect of the particular section of the Network on which it is permitted to operate services under its franchise agreement entered into between the Operator and the Contracting Authority.

The rolling stock manufacturer (Manufacturer) will be required to manufacture and supply rolling stock meeting the technical characteristics of the particular section of the Network. It will also be required to maintain the rolling stock at a specified depot.

The Manufacturer is responsible for providing maintenance, and therefore for ensuring that the specified depot is sufficient for this purpose.

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

The risk of delays to passenger services caused by the infrastructure being in poor condition is allocated under the Track Access Contract. Compensation is payable in specified circumstances if the track is not available when expected.

From the Manufacturer's perspective, the risk is mitigated by limiting its obligation to provide rolling stock which meets the Technical Requirements specified under the MSA, and which can be operated on (i.e. which meets the gauging and other technical requirements of) specified routes (usually set out in a Schedule to the MSA).

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

There is no direct Government support, except insofar as the UK Government provides a direct grant to Network Rail, and subsidises the agreed works programme of Network Rail. The Government also has a statutory duty to ensure the provision of railway passenger services on the UK rail network.







Comparison with Emerging Market

Unique to the UK's heavy rail market.

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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.
Heritage.
Archaeological.
Pollution.
Latent defects.

Risk Allocation (Who typically bears the risk)

Allocation: Public Private Shared
Rationale

The Contracting Authority bears the principal risk as the Private Partner is acquiring an interest in an existing railway.

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.

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

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.

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

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.

The Contracting Authority may be required to provide additional site security / assistance during operations.

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 standards such as the 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 existing rail ROT project in emerging markets.

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