Globalization, Environmental Law, and Sustainable Development in the Global South

Challenges for Implementation

Kirk W. Junker, Paolo Davide Farah, Kirk W. Junker, Paolo Davide Farah

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000472431
• Edition: 1
• Topic: Law
• Subtopic: Environmental Law
• Index: Law

This volume examines the impact of globalization on international environmental law and the implementation of sustainable development in the Global South.

Comprising contributions from lawyers from the Global South or who have experience in the Global South, this volume is organized into three parts, with a thematic inquiry woven through every chapter to ask how law can enable economies that can be sustained, given the limited carrying capacity of the earth. Part I describes and characterizes the status quo of environmental and economic problems in the Global South during the process of globalization. Some of those problems include redistribution of environmental burden on the public through over-reliance on the state in emerging economies and the transition to public-private partnerships, as well as extreme uncontrolled economic expansion. Building on Part I, Part II takes an international perspective by presenting some tools that are in place during the process of globalization that lead to friction and interfaces between developed and developing economies in environmental law. Recognizing the impossibility of a globalized Northern economy, the authors in Part III present some alternatives through framework ideas of human and civil rights, environmental rights, and indigenous persons' rights, as well as concrete and specific legal tools to strengthen justice and rule of law institutions. The book gives new perspectives to familiar approaches through concrete examples by professional practitioners and theoretical discourse by academic researchers, and can thereby form the basis for changes in practices, as well as further discussions and comparisons.

This book will be of great interest to students and scholars of environmental law, sustainable development, and globalization and international relations, as well as legal professionals and practitioners.

Part I The environment in the Global South during the globalization of “sustainable development”

1 Managing environmental risks in privately financed infrastructure projects in Nigeria

George Nwangwu¹

DOI: 10.4324/9781003160236-3

1.1 Introduction

From the mid-1980s to the present, Nigeria has been experiencing a privatization program through which over two hundred publicly owned assets that were hitherto owned by the government have been divested and sold to private sector entities.² The privatization program also included a reform program encompassing the liberalization and deregulation of several sectors of the economy.³ Taking advantage of the liberalized economic environment, Nigeria subsequently engaged in a public-private partnership (P.P.P.) program to run in parallel to the privatization program.⁴ Under the P.P.P. program, both existing and new infrastructure assets have been made concessions to private sector entities.⁵

1 Dr. George Nwangwu is currently a Research Fellow at the Department of Mercantile Law, Stellenbosch University, South Africa. 2 See the Annexure to the Public Enterprises (Privatization and Commercialization) Act 1999 (2007 print) for a comprehensive list of the privatized assets. 3 This program was pursed through the Bureau of Private Partnership (B.P.E.). 4 This was enabled by the Infrastructure Concession Regulatory Concession Act 2005. 5 Several assets mostly in the transport and electric power sectors have been concessioned to private sector operators.

Nigeria, like many countries of the world, turned to private finance to fund large infrastructure projects like roads, dams, ports, and railways, due principally to the paucity of funds.⁶ These large infrastructure undertakings, however, come with many project risks, including significant environmental risks. Some of the environmental risks that are likely to arise as a consequence of these projects include air and water pollution, land contamination, and resettlement risks. Previously, when these large scale projects were funded through the public purse, the issues of environmental risks were less pronounced, as the government quietly assumed the risks and therefore all potential liabilities that were likely to arise from the eventuation of such risks. These risks that were shouldered by the government were subsequently passed down to the public in the form of high remedial costs settled from the public purse and in worst cases, a badly degraded environment.

However, with the growth in the use of private finance for the development of infrastructure projects, the issues around environmental risks have become more prominent.⁷ The need for the two principal parties to the infrastructure contract—the public and private sector parties—to identify environmental risks and manage them better have become more apparent.⁸ Particularly, the likelihood of transferring environmental risks along with the infrastructure assets ensures that environmental risks are vigorously negotiated by the contracting parties. The private sector parties are typically more commercially orientated than the government and therefore warier of the sort of liabilities that arise from the eventuation of environmental risks. This is because the occurrence of the risk event is likely to lead to catastrophic commercial, penal, and even criminal liabilities. The inclusion of environmental risk in contracts for infrastructure has been highly beneficial to the environment. Therefore, as parties strive to make their projects commercially viable and avoid criminal liabilities, environmental issues are being properly identified and remedied or mitigated.

The main research question that this chapter explores is: Compared to traditionally procured infrastructure projects, do privately financed infrastructure (P.F.I.) projects lead to the better management of environmental risks in large scale infrastructure projects? This chapter explores the accuracy of this position by looking at how environmental risks were managed in some large projects funded and operated previously by the government. This is compared with how projects are currently being managed under P.F.I. projects. The chapter then analyzes some of the legal tools that are being employed by the parties in privately financed projects to identify, price, allocate, and mitigate environmental risks.

6 There are other factors that motivate governments to use private finance to fund infrastructure projects. For instance, it is said that P.F.I. projects promote a more efficient procurement regime, reduced life cycle costing, and had better value for the money, among other things. See for example: P.P.I.A.F, “Toolkit for Public-Private Partnerships in Roads and Highways,” March, 2009, available at: https://ppiaf.org/sites/ppiaf.org/files/documents/toolkits/highwaystoolkit/6/pdf-version/1-14.pdf (retrieved 2 November 2020). 7 For instance, the likely impact of climate change risk on water availability for power generation became relevant to the parties involved in the negotiation of the concession of government owned Kainji and Shiroro hydropower dams to private sector investors. This was taken into consideration in calculating the wholesale electricity tariff due to the investors. 8 This is evident from the detailed negotiated environmental liability clauses in some of the agreements discussed in this chapter. The intensive negotiations themselves could be attributed to the increased likelihood that environmental liability would be penalized where the asset is operated by private sector parties as opposed to where they are operated by the public sector.

1.2 What are privately financed infrastructure projects?

To understand the term “privately financed infrastructure projects” as used in this chapter, it is important to distinguish the term from its direct opposite “publicly financed projects,” also referred to as “traditional” or “conventional” procurements. Publicly financed infrastructure projects are projects delivered by the government through its normal budgetary process. In this case, the government finances, constructs, or operates the project, or both constructs and operates the project, using its own funds raised through taxes or sovereign loans.⁹ The key aspect of projects that are publicly funded is that government assumes the majority of the project risks.¹⁰ Privately financed infrastructure projects, on the other hand, are projects that are delivered through the use of private sector funds. In this case, in addition to providing a substantial portion of the funds required to deliver the project, the private sector party typically may also assume responsibility for operating and maintaining the infrastructure asset on behalf of the user public. Under this financing structure, the private sector party assumes more risks than it would ordinarily assume if the infrastructure project was financed using public sector funds.

The most common type of privately financed infrastructure arrangement is the public-private partnership (P.P.P.). However, there are other widely used models such as joint ventures, contractor finance, and privatization.¹¹ It is not uncommon to see these different terms used interchangeably among practitioners as these arrangements are very fluid, typically morphing from one form to the other and sometimes subject to geographic and legal differences across jurisdictions.¹² However, using risk transfer as a measure, it is commonly agreed that P.P.P.s provide a middle ground between contractor finance, with minimal risk transfer, at one end, and privatization, with complete risk transfer, at the other.¹³

9 George Nwangwu, “The Management of Risks in the Procurement of Privately Financed Infrastructure Projects in Nigeria,” in Public Procurement Regulation in Africa: Development in Uncertain Times, (Johannesburg: LexisNexis South Africa, 2020), p. 271. 10 These risks include most risks that are ordinarily assumed by the private sector party under P.F.I. projects. These include finance, construction, revenue, and environmental risks. 11 The differences between the models are determined by the level of risk transfer between the private and public sectors. Privatization occurs when the government completely divests all its interests in the asset, thereby transferring the entire risk to the private sector. Joint ventures are where the public and private sectors jointly own equity in the entity that owns and or operates the asset, thereby sharing risk. Contractor finance models allow the private partner finance the asset in return for periodic repayment of its investment by the public sector, in which case there is little or no risk transferred to the private sector party. 12 For instance, it is not uncommon to see practitioners and academics in the United States refer to all types of P.F.I. projects collectively as privatization. See for example: Drury D. Stevenson, “Privatization of State Administrative Services,” 68 (4) Louisiana Law Review (2008), p. 128; Ellen Dannin, “Crumbling Infrastructure, Crumbling Democracy: Infrastructure Privatization Contracts and Their Effects on State and Local Governance,” 6 Northwestern Journal of Law and Social Policy (2011), pp. 47–105. 13 For further discussions, see for example: Jean-Paul Rodrigue, “Risk Transfer and Private Sector Involvement in Public-Private Partnerships,” in The Geography of Transport Systems, found online at https://transportgeography.org/?page_id=8689 (retrieved 14 December, 2020); Graeme Hodge, “Risk in Public-Private Partnerships: Shifting, Sharing or Shirking?,” 26 Asia Pacific Journal of Public Administration (2004), pp. 155–179.

Due to the popularity of P.P.P.s over all the other private finance methods and the fact that risk allocation and balancing of interests is more delicate under this model, the discussions that follow in the subsequent sections of this chapter will be centered mostly around P.P.P.s.

P.P.P.s refer to long-term contract relationships between public sector agencies and private sector entities, under which the responsibility for any or all of the combination of designing, financing, construction, management, and operation of public infrastructure and utilities that were traditionally undertaken by the public sector are contractually shared and jointly undertaken by both the public and private sector, usually in proportion to the kind of risks each party can best carry.¹⁴ The allocation, transfer, mitigation, and management of risks are therefore central to the way P.P.P.s are structured and delivered.

1.3 Privately financed infrastructure and environmental risks

Environmental risks in large scale infrastructure projects take various forms, degrees, and duration. First, the scale of construction and earth moving equipment deployed in these large infrastructure projects is likely to lead to the degradation and pollution of the environment. Pollution may be in the form of air pollution, noise pollution, water pollution, or any combination of the three.¹⁵ Large projects like the construction of dams may also lead to the displacement of people...