Land purchase and site risk

Hydro power Hydro power

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 Private Partner bears full responsibility for the suitability of the project site, including geological, geotechnical, archaeological conditions.

The Private Partner is obliged to obtain and maintain the peaceful use and possession of the project site, as well as all requisite access rights and servitudes that might be required.

The Private Partner bears full responsibility to procure the construction, operation and maintenance of the facility in accordance with all laws and consents and accordingly, bears full responsibility for obtaining all environmental permits, consents and licenses.

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

The Private Partner 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 facility.

The Private Partner should engage with the community on social, environment, planning and land acquisition issues at an early stage. The land requirements for hydro can be significant and may involve the relocation of communities.

The Private Partner may seek to pass the site risk down to the EPC contractor and in terms of the lease agreement (if applicable), to the extent possible.

The Private Partner must ensure that the construction and/or operating contractor complies with any applicable permits and consents by way of the inclusion of corresponding obligations in the construction contracts.

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

Generally, neither the Government authority nor the Contracting Authority has an obligation to facilitate the issuance of the required permits or consents, nor does it have any obligations in relation to assisting with securing the site. However, it will likely have a facilitating role to play in relation to environment, planning and social issues, given the large land needs of hydro projects and the impacts on local communities.

The exception will be where the project requires new transmission lines to be constructed; construction of transmission lines will be done by the contract authority, but at the costs of the Private Partner. In such case, the Contracting Authority will be responsible for securing the right of ways required for construction of the transmission lines.

Comparison with Emerging Market

Land rights and ground conditions (in particular reliable utilities records and land charges) in developed markets are typically more established than emerging markets, 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.
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 it is best placed to select and acquire the required land interest for the project and manage indigenous land issues and engagement with local communities.

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 or warranted and disclosed to the Private Partner.

Typically, the Contracting Authority will provide a non-exclusive licence, rights of use and access to the lands as is required and sufficient for the Private Partner to perform its obligations, however, the Private Partner will not receive any right, title or ownership interest in the lands.

The Private Partner will agree to accept the site condition on an 'as-is' basis subject to the Contracting Authority's disclosure of any relevant defects. The Contracting Authority will often assume responsibility for any further unforeseen or undisclosed risks, such as contamination, endangered species, items of geological, historical or archaeological value.

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

The Contracting Authority should undertake detailed ground and environmental assessments and should disclose such information to project bidders as part of any tender process.

The Contracting Authority should:

(1) aim to have 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 project;

(2) provide reliable data on the site, which will allow the Private Partner to assess site risk; and

(3) manage any indigenous land rights issues that may impact on the use of the site.

These issues can be significant since hydropower projects often involve the relocation of communities.

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

The Contracting Authority will likely be responsible for handling land acquisition, social issues and unforeseen risks and will be required to remove and/or handle such risks as they arise with minimal disruption to the Private Partner's operations.



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

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. Land ownership may not be formally established and registered and substantial delays may be suffered.

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.

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