COMPENSATION & LIVELIHOOD RESTORATION PLANS

With development comes the need to compensate the affected public. This is manifested in different ways. The first example relates to linear or site development where a schedule of payments must be made to compensate a landonwer for land rights and damages incurred in traversing a property with a pipeline, cable or power line. Typically the full market value of the land is paid, even for an easement providing for pipeline operations and ingress and egress. Time spent, injurious affection to the remainder and damages to crops and trees must also be included. Temporary use of additional working room and storage yards is typically paid at 50% of market value for the roject duration for agricultural land. Crop losses are also paid as incurred, typically for two or more years and for over 10 years where soils are damaged or specialty crops like orchards removed. Thus, Total Compensation = C1+C2+C3+C4+C5+C6 + X. This process for compensation to an owner may involve payment for subsurface use and access, as is the case for pipelines, fibre optic cables etc. or for surface use for hydro lines, tower or well sites and acccess along the RoW or via access roads to facilities. Compensation is usually made early in the life of a project and fosters solid relations with landowners who typically tend the land where the facilities are installed. Increasingly there is interest in receiving annual rentals for linear facilities, in keeping with the rentals charged to pipeline companies for the occupation of the hydro corridors through Toronto and Montreal  e.g. land value X 50% X prime interest rate. Since this pertains to high value lands in urban areas, a median industrial land value is typically used on a very narrow easement of 3 m width with the rental reviewed every five years. Access along the hydro corridor is included following construction, for occasional maintenance work, on the narrow working room width (10 to 20 m).  Although an up front lump sum payment is most often arrived at, a rental or periodic payment, as mandated by the National Energy Board Act, fits in with the principle of sustainable development, as per the hydro example above, since it addresses the needs of future generations to benefit from the installation of facilities, which are virtually perpetual. This is relevant if a property is handed down, or sold to another party. In this case the rental becomes a benefit to the new owners, just as compensation is paid to landowners in Western Canada who derive annual incomes from oil and gas production when they have surface rights agreements in place for well sites. The following sets out the compensation framework out west, as provided by Alberta Agriculture & Forestry:

"The compensation payment considers the following aspects when using the Surface Rights Board as an arbitrator:

1. Entry Fee: The entry fee is equal to $500 per acre of land granted to the company, to a maximum of $5,000. For example, if the company needs a 4.25-acre site, the entry fee would be: 4.25 acres x $500 = $2,125. The $5,000 maximum applies when the area is 10 acres or larger. If the area is less than one acre, then the fee is that fraction of one acre x $500. The minimum entry fee is $250, paid when the area is half an acre or less.
2. Land Value: Usually the value of the land leased to the company is determined by the price expected if the land were sold on the open market by a willing seller to a willing buyer at the time when the lease was prepared or the Right-of-Entry Order issued. The value is also based on the highest approved use (agricultural, industrial, residential) for the land. The per acre value for the well site is determined by dividing the value of the titled unit by the number of acres required.
3. Initial Nuisance, Inconvenience and Noise: This payment is for nuisance during the first year of the lease. For example, in the first year you will likely have to spend time dealing with the company’s representatives and surveyors, preparing documentation, negotiating with the company and/or seeking advice from government agencies or lawyers. There may also be noise and inconvenience related to construction. The company should pay reasonable compensation to you for nuisance. Keep a record of all time spent, phone calls made and expenses incurred.
4. Loss of Use of the Land: The company pays an annual compensation for your loss of the normal use of the well site area during the well site’s life. The amount should approximate the value of the gross annual production reasonably expected from the area. To calculate the amount, you can use the greater of yield and price averages from the past five years, or today’s street price. For example, assuming canola production at 35 bushels per acre on a well site and access road occupying four acres, the loss would be 4 x 35 = 140 bushels. At $8.50 per bushel, the total annual loss would be $1,190. Because you are asked to agree on losses for the next five years (see “Five-year Review” below), consideration should be given to future prices.
5. Adverse Effect: This payment is related to your inconvenience, nuisance and extra costs on the rest of the quarter section where the well site is located. For instance, farming around the well site may require constantly turning corners, which can cause overlaps, extra strain on machinery, soil compaction, loss of seed and grain, and extra field and labour costs. Other factors related to adverse effect can be noise, dust, odour, additional traffic on the land,and proximity to a residence or farm site.
6. Other Relevant Factors: If there are other considerations specific to your situation, include them when negotiating compensation.

The company must pay the first-year compensation – the total for the above six considerations – before doing any work on your land. Every year after the first year, the company pays compensation for the loss of use of the land and adverse effect (items 4 and 5).


Five-year Review - Under the Alberta Surface Rights Act, the annual compensation must be reviewed every five years during the life of the well site. The company must give notice to you on or within 30 days after the fourth anniversary of the date the lease commenced or the Right-of-Entry Order was made. You do not have a right to an increase; only to a hearing. You need to have evidence to support an increase."

In Europe, for major pipeline projects where rural property values are high, a different approach to easement acquisition is taken. In Greece and Turkey for example a narrow permanent easement, 8 m wide, inside the standard 38 m wide contruction RoW is acquired through negotiations or expropriation, with the right of ingress and egress across the entire parcel included. A safety zone of 20 m or 7.5 m for these countries respectively, either side of the pipeline, which is installed in the centre of the easement, is established, so that no residential development encroaches on the pipeline. Further, in Greece, for 200 m either side of the pipeline, no more than 45 residential buildings per 1.6 km are permitted. Compensation for injurious affection to the remainder of the land where subdivision potential exists is thus made. This requires detailed appraisal of the partial acquisition and points out the virtue of routing a pipeline through remote, rural tracts of land, both for safety and economic reasons. Block valve and compressor or pump station acquisition at market value is also needed, generally every 30-35 km for valves and every 50-100 km for stations, depending on throughput. Permanent access roads may also be purchased with work camps, pipe yards and marshalling areas leased for the construction period which generally runs to two years for major projects.

 

Excavation work during an integrity dig up of a 30 inch oil pipeline on an 18 m wide RoW is shown. Topsoil conservation methods include stripping and storage and  laying down sheets of plywood to prevent rutting and compaction of this silty soil so that damage to this specialty vegetable crop production land would be minimized.

 

IFC compliant livelihood restoration plans (LRP) are required where project related restrictions affect individuals, families or communities' ability to make a living. The main objective should be to ensure that landowners and users are treated fairly, with respect and provided with just compensation. This relates to wage-based income, agriculture, fishing, foraging other natural resource-based livelihoods, informal trade and bartering (see IFC PS 5, 2012). Under these requirements the proponent must compensate project affected people for loss of assets, at full replacement cost and provide other assistance to help them improve or restore their livelihoods, particularly vulnerable groups. Where commercial businesses are displaced owners are to be compensated for the cost of re-establishing commercial operations elsewhere. Engagement with affected communities is required to review suitable options, with a grievance mechanism available to address concerns regarding the compensation on offer. Monitoring of the LRP is required to determine if the objectives have been met, and if not, to establish corrective actions to get it back on track.

To establish those who are to be compensated a census and asset inventory of the project area is required, from the outset. The compensation package is then presented to the project affected people with payments made in advance of construction. Crop losses and other business losses are paid for at following the loss so that equitable payments can be made based on current market values.

Lessons learned from the Chad oil field development from 2000 onward include:

• Evolution of the project design and project affected people's needs will take place over time so the initial so solid land use and socio-economic baseline data is needed to manage the compensation program;
• Follow up is therefore needed to measure effectiveness and to determine barriers to success so that corrective actions can be taken;
• Land mapping tools using GIS technology and periodic socio-economic surveys is required to manage the LRP;
• Key performance indicators need to be established from the outset to measure how well the LRP is functioning and how well obligations are being met;
• A key position checklist is required to manage the transition from one project stage to another so that there is an understanding and appreciation of the commitments and obligations made form the outset for construction through to production onward. This is needed to assure that management continues to follow through on LRP objectives.

Local communities with a tradition of subsistence agriculture and very basic housing may be vulnerable if access to grazing land is restricted so compensation needs to be paid to offset long term effects of development. These may include livelihood issues that provide for the survival of local residents so good socio-economic baseline surveys are needed to develop an effective LRP that will contribute to the sustainable development of the project and the local communities.

Feel free to contact info@alexramsay.ca regarding the assessment and resolution of damage claims.