Land purchase and site risk

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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 will generally bear the principal risk and is best placed to select and acquire the required land interests for the project. That said, there may be some cases where the Private Partner will bear such risks, particularly in jurisdictions with well-developed administrative processes which provide access to lands with relative cost certainty.

The Contracting Authority will generally bear the risks associated with unforseen geophysical conditions, archaeological discoveries, heritage discoveries, pollution and latent defects. 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.

On the other hand, the Private Partner may be expected to address certain restrictive land title issues and otherwise address the concerns of existing utilities.

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 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.

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 with 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.

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 will generally bear the principal risk and is best placed to select and acquire the required land interests for the project. That said, there may be some cases where the Private Partner will bear such risks, particularly in jurisdictions with well-developed administrative processes which provide access to lands with relative cost certainty.

The Contracting Authority will generally bear the risks associated with unforseen geophysical conditions, archaeological discoveries, heritage discoveries, pollution and latent defects. 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.

On the other hand, the Private Partner may be expected to address certain restrictive land title issues and otherwise address the concerns of existing utilities.

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 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.

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 with 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.

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.

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