Land purchase and site risk

Water Desalination Water Desalination

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 site designated for the project are available as it has selected the site. The land interests may be provided by the Contracting Authority, if it has or has acquired the relevant land rights, 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.

Land arrangements will need to extend to those required for water pipelines and other utilities (for example if significant electricity connection or generation works are required). Some responsibility for these may sit with the Private Partner if they are dependent on project design.

The Private Partner will be responsible for assessing the adequacy of the site designated by the Contracting Authority and the land rights granted (including any associated easements and access rights) and any restraints that the designated site may impose on the design (such as the overall layout and proposed foundation solution) and construction of the project (including access routes to the site and available laydown areas).

That said, there will be some areas where risk of site conditions will be shared with the Contracting Authority.

The Contracting Authority would generally be responsible for pre-existing contamination, archaeological finds or fossils and manmade 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 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 or which should have been performed by the Private Partner.

The Private Partner may be required to perform 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 require such assets 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 allow access to the Private Partner during the bidding process to carry out its own surveys of the site and any existing assets or constructions.

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 construction and operation of the facility.

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 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 project. 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.

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 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

Regardless of whether the land is Government land or private land, the Contracting Authority would generally be responsible for obtaining the relevant land rights for the developer to access and use the land - this is sometimes in the form of an usufruct agreement.

If, as is sometimes the case, the land for the project (particularly in the case of distribution or transmission pipelines) does not have any title deeds, the Contracting Authority will be required to arrange for a contractual licence to use the land. The Private Partner and their lenders are generally comfortable with these arrangement, although such an interest will not be registrable.

The Private Partner will be responsible for assessing the adequacy of the site designated by the Contracting Authority and the land rights granted (including any associated easements and access rights) and any restraints that the designated site may impose on the design (such as the overall layout and proposed foundation solution) and construction of the project (including access routes to the site and available laydown areas).

That said, there will be some areas where risk of site conditions will be shared with the Contracting Authority.

The Contracting Authority would generally be responsible for pre-existing contamination, archaeological finds or fossils and manmade 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 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 or which should have been performed by the Private Partner.

The Private Partner may be required to perform 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 require such assets 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 may also commence the environmental impact assessment process during the bid phase to speed up an often very protracted process. The Contracting Authority should allow access to the Private Partner during the bidding process to carry out its own surveys of the site and any existing assets or constructions.

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 construction and operation of the facility.

The contract between the Contracting Authority and the Private Partner should also address specific relief in relation to ground conditions (including contamination).

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).



Typically the Contracting Authority will be required to manage a range of different interests and stakeholders in relation the land rights being provided over a designated site area.

Examples include efforts to manage the social and political impact of the project on and around the site. This can be a particularly sensitive issue in an emerging market.

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. 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. See comments on 'Environmental and Social Risk' for a desalination plant project in emerging markets.

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