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 and hydrological 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 for ensuring that the required land interests in the sites designated for the project are within its ownership or control, or that it has sufficient legal rights (contractual or statutory) over them to enable this to occur.

The land interests may be provided by the Contracting Authority to the Private Partner, if it has or has acquired the relevant land rights (through contract or statute), or a third party landowner who has agreed to grant the relevant land rights. As the project will be transferred to the Contracting Authority at the end of the agreed term, the land rights are usually granted to the project under lease or similar arrangements.

Additionally, the Contracting Authority bears the principal risk of ensuring that the existing assets are located on the sites and within the easements that it owns or controls.

The Private Partner will be responsible for assessing the adequacy of the sites designated by the Contracting Authority and the land rights granted (including any associated easements and access rights) and any restraints that the designated sites may impose on the design and construction of the rehabilitation works. This will be particularly important in relation to obtaining access to the pipe network, including temporary occupation of sites for maintenance and laydown areas.

The Contracting Authority would generally be responsible for pre-existing contamination, archaeological finds or fossils and man-made substructures, to the extent not already known or revealed by site surveys, either by dealing with such finds or providing relief for the impacts on the project.

The Contracting Authority would also generally be responsible for compliance with planning and environmental laws and approvals as at the commencement of the term.

The Contracting Authority may also accept responsibility for unknown geotechnical conditions although this may be limited to certain types of conditions and will be restricted to conditions that were not reasonably foreseeable based on site surveys performed by the Contracting Party.

The Private Partner may be required to perform its own site surveys to provide a baseline report to demonstrate pre-existing site conditions.

The Private Partner may be expected to satisfy itself as to the status of any existing assets proposed to be used in the project or of any existing assets which have been identified and required to be removed or relocated.

Where it is not possible to fully survey prior to award (eg. Identification of underground existing assets) risk will be allocated to the Contracting Authority or shared.

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 also undertake detailed site surveys to identify the location of the existing assets and to confirm, or otherwise, that the existing assets are located on the sites and within the easements that it owns or controls.

The Contracting Authority should allow access to the Private Partner during the bidding process to carry out its own surveys of the sites and the existing assets.

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 may impact on the rehabilitation and operation of the facility. This includes third party interference, whether accidental or wilful, to the pipe network.

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

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

The Contracting Authority may need to use its legislative powers to obtain and then secure the sites and easements (e.g. through expropriation / compulsory acquisition).

Even where there is a legally clear site, Government enforcement powers may be needed to properly secure the site for the project. There may be historic encroachment issues that the Private Partner cannot be expected to deal with. This may particularly be the case in relation to the pipe network.

Examples include the need to manage the relocation of people, either permanently or temporarily and continued efforts to manage the social and political impact of the project on and around the sites and easements.

Comparison with Emerging Market

Land and access 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. Where there are deficiencies, these can often be easily cured through the exercise of statutory powers for acquisition and access.

The Private Partner's obligations with regards to indigenous rights are generally well legislated in developed markets, for example the 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 for ensuring that the required land interests in the sites designated for the project are within its ownership or control, or that it has sufficient legal rights (contractual or statutory) over them to enable this to occur.

The land interests may be provided by the Contracting Authority to the Private Partner, if it has or has acquired the relevant land rights (through contract or statute), or a third party landowner who has agreed to grant the relevant land rights. As the project will be transferred to the Contracting Authority at the end of the agreed term, the land rights are usually granted to the project under lease or similar arrangements.

Additionally, the Contracting Party bears the principal risk of ensuring that the existing assets are located on the sites and within the easements that it owns or controls.

The Private Partner will be responsible for assessing the adequacy of the sites designated by the Contracting Authority and the land rights granted (including any associated easements and access rights) and any restraints that the designated sites may impose on the design and construction of the rehabilitation works. This will be particularly important in relation to obtaining access to the pipe network, including temporary occupation of sites for maintenance and laydown areas.

The Contracting Authority would generally be responsible for pre-existing contamination, archaeological finds or fossils and man-made substructures, to the extent not already known or revealed by site surveys, either by dealing with such finds or providing relief for the impacts on the project.

The Contracting Authority would also generally be responsible for compliance with planning and environmental laws and approvals as at the commencement of the term.

The Contracting Authority may also accept responsibility for unknown geotechnical conditions although this may be limited to certain types of conditions and will be restricted to conditions that were not reasonably foreseeable based on site surveys performed the Contracting Party..

The Private Partner may be required to perform its own site surveys to provide a baseline report to demonstrate pre-existing site conditions.

The Private Partner may be expected to satisfy itself as to the status of any existing assets proposed to be used in the project or of any existing assets which have been identified and required to be removed or relocated.

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 also undertake detailed site surveys to identify the location of the existing assets and to confirm, or otherwise, that the existing assets are located on the sites and within the easements that it owns or controls.

The Contracting Authority should allow access to the Private Partner during the bidding process to carry out its own surveys of the sites and the existing assets.

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 may impact on the rehabilitation and operation of the facility. This includes third party interference, whether accidental or wilful, to the pipe network.

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

The Contracting Authority may need to use its legislative powers to obtain and then secure the sites and easements (e.g. through expropriation / compulsory acquisition).

Even where there is a legally clear site, Government enforcement powers may be needed to properly secure the site for the project. There may be historic encroachment issues that the Private Partner cannot be expected to deal with. This may particularly be the case in relation to the pipe network.

Examples include the need to manage the relocation of people, either permanently or temporarily and continued efforts to manage the social and political impact of the project on and around the sites and easements.

Comparison with Developed Market

Land and access 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. Lenders and sponsors often have to become comfortable with wholly contractual land rights (registered only through the notarisation process).

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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