The project team, typically with specialized consultants, must address a fundamental question during the environmental feasibility analysis: is there any specific aspect of the project that makes environmental approvals impossible or the costs to obtain them prohibitive?
To approach the question adequately, four steps are necessary. They allow an effective assessment of the environmental aspects of a PPP project.
The first step is the identification of all legal and regulatory aspects relevant for obtaining the environmental approvals. It requires an analysis of the institutional environment of the country where the approvals will be conducted. Responsibility for approval may rest with a supra-national agency (for example, the European Union), with a centralized agency of national government, or with a sub-national government, and the process may include several levels of approval.
Effectively, each country imposes its own environmental regulations and determines standards to be met by infrastructure projects as well as defining processes for obtaining approvals, including the definition of compensation measures. At this stage, the project team needs to produce a thorough and detailed evaluation of those regulations, specifically searching for the following.
- What are the stages for environmental approval?
- What is the level of detail required in each of those phases?
- What is the content of the environmental assessment needed for the approvals?
- What are the sector-specific requirements? and
- How long will the process take, given the size and sector of the project?
Once the environmental regulations regarding the specific sector of the project are fully mapped, good practice suggests the design of an environmental requirements log that will serve as a guide for the project’s environmental due diligence.
The second step is a thorough due diligence effort to identify, describe, and as far as possible, quantify the environmental impacts of the project. Several countries call this exercise an Environmental Impact Assessment (EIA).
The EIA should be a formal report that addresses the project’s environmental impact from a comprehensive perspective. It also needs to address the issues identified in the environmental log. Its content depends significantly on the sector and specific characteristics of the project. However, it generally includes the following.
- A full description of the area to be influenced by the project in order to characterize the main environmental fragilities before the construction of the infrastructure. This should include both the physical (land, water, and so on), and biological (flora, fauna, and so on) characteristics of the area;
- An analysis of the project’s environmental impact on the area previously described (including direct and secondary impacts), immediate or long-term effects, and temporary or permanent consequences. These effects, depending on the nature of infrastructure, may involve greenhouse gas emissions, fauna disruption, waterway interventions, wastewater disposal, and so on;
- An identification of the consequences of the construction of the asset in terms of its main inputs, such as material consumption, water usage, and energy sources; and
- A full description of the physical and biological aspects of the area after the construction and operation of the infrastructure.
The third step is the definition of a strategy to mitigate the specific effects. There should be a focus on the most significant environmental effects, and mechanisms should be identified to minimize them. These could include feedback of the technical requirements to alter aspects of the design (of the infrastructure or output specification) when such changes can significantly reduce the environmental costs. For example, small changes in road design can be enough to avoid a valuable headwater region, dramatically reducing the corresponding environmental impacts.
This mitigation strategy should also focus on measures to compensate for inevitable environmental consequences, such as tree replanting in the face of deforestation. The aim here is not to neutralize environmental impacts, but specifically to mitigate unintended consequences given the regulatory requirements that will need to be considered for the final environmental approvals.
The fourth step is to obtain, wherever possible, the environmental permits and final approvals needed for construction of the infrastructure. It should be recognized that in many cases it will not be possible to obtain the final environmental approvals during the Appraisal Phase because the level of information demanded by the environmental authorities might only be available in later phases of the PPP process, specifically for large projects. Also, in some countries, the costs to obtain the full studies and file for environmental approvals are exceptionally high, particularly in environmentally complex projects. In these cases, the permits should not be initiated before the green light decision to procure the project is taken at the end of the Appraisal Phase.
Thus, in most large infrastructure projects, the environmental feasibility assessment concluded in the Appraisal Phase is not going to provide the level of detailed environmental investigation required to obtain full approval.
It has to be noted that it is good practice to obtain the environmental permits, at least in a preliminary or “provisional” mode, before launching the project. In fact, the higher the certainty about environmental approvals before the procurement phase, the less risky and more effective the procurement process will be.
Independently, the official approval (at this stage), the analysis of the regulatory framework, and the assessment of the project’s environmental impact should be able to provide the answer to the following questions.
- What are the total costs for environmental licensing in terms of future investigations?
- What are the costs of compensation measures? and
- What is the estimated time to obtain full environmental licensing?
The answers to these questions are a key result of this exercise, and they largely contribute to the quality of the information considered at the final green light decision at the end of the Appraisal Phase.