13 Assessing Environmental Feasibility[40]

Infrastructure projects will often have significant environmental impacts arising from construction and operation, which can be both positive and negative. The impacts may also include follow-on effects beyond the immediate project area, as well as beyond the people directly associated with the project (secondary impacts).

These impacts (including secondary impacts), and the corresponding formal process of approvals (which varies enormously from country to country), are a common source of delays in PPP projects.

The mitigation strategies for environmental risks imposed by approving agencies are also a significant component of project costs that can reduce the expected return on investment or impact directly on the governmental liabilities, depending on the risk allocation regime.

Thus, an effective evaluation of the environmental issues and a structured recommendation about the project’s environmental feasibility is a very important output of the Appraisal Phase. Readers should also note that the Equator Principles[41] may be more rigorous than national requirements in some countries, and the compliance of the former will be required by many lenders and all multilateral development banks (MDBs).

The main purpose of a comprehensive assessment of environmental issues in the Appraisal Phase is to ensure that environmental considerations are explicitly addressed and incorporated into the green light decision, and that there are no unmanageable environmental obstacles ahead of the project. This allows anticipating, avoiding, minimizing, or offsetting the adverse significant bio-physical effects of the infrastructure. It is also very relevant that all the measures required for the environmental approvals be taken to prevent unnecessary delays in the project schedule.

Recently, some debt providers and other financial institutions (such as multilateral development banks) have acquired environmental concerns of their own, requiring projects they finance or support to meet environmental standards that can be different from the mitigation strategies imposed by the formal approval process[42]. If it is expected that bidders will want or need to rely on financing from a particular financial institution, or class of financial institutions, it is good practice to understand those institutions’ environmental requirements and include them in the appraisal process to ensure the project is eligible for finance from that particular source.