United Nations – UN-Habitat – Urban Development and the LawUrban development, private investment and regulation
14 March 2014
Urban development, private investment and regulation
• Overarching themes
• Context
• Significance
• Linkages
• Practicalities
• Challenges
• Example – Iraq
• A way forward
• Policy concerns
• Priorities
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Overarching themes
• Look through prism of deliverability from an investor’s viewpoint
• Vision
• Due diligence
• Holistic project planning
• Holistic project management
• Law as a hygiene factor and facilitator
• Not about creating legal systems
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Context
• Urban development does not pay for itself
• It is rare for urban development to be paid for by public funds alone
• Even if paid for by sovereign funds external private sector finance will usually be needed
• In any event the private sector may well be needed as occupiers or operators
• Especially where mobile, international institutional private sector interests are to be attracted, private sector drivers, sensitivities and expectations must be addressed
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Significance
• If investors will not invest, things will not happen, or cannot happen beyond funding based on sovereign wealth running out
• So for urban development to be economically sustainable in the long term, it is essential to create the right environment for investment
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Linkages
• Close links between urban development, private investment, law and regulation
• Regulation is at the heart of creating and conserving and enhancing investor willingness and investor values
• Regulation can take many forms: restrictions on rights to develop and build; creation of state sanctioned monopolies for providers of public utilities and services; limitations on rights to use services to permit holders
• Regulation, applied rightly, can therefore be both a driver of and a catalyst for investment in urban development
• Regulation and the rule of law go hand in hand – regulation without even-handed, proportionate enforcement is meaningless
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Practicalities (1)• Forms of private sector investment:
• Collaboration with public sector to introduce innovation and best practice as well as capital
• Public procurement of specific assets/ public goods
• Confidence to invest in wider urban space
• Investor expectations:• Political and applicable law stability for duration of
investment
• Property rights clearly identifiable, transferable recognised and enforceable
• Contract rights recognised and enforceable against counterparty
• Ability to repatriate returns
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Practicalities (2)Promoting investor confidence:
• Effective legislation supported by proportionate, transparent regulatory, licensing and enforcement regimes
• Credible urbanisation strategies and objectives which are supported by credible budget strategies and programme for delivery
• Robust strategic planning and civic governance procedures are necessary pivot points for investor engagement and delivery
• Democratic legitimacy - Key stakeholder support and engagement criticalwww.blplaw.com Page 8 © Berwin Leighton Paisner
Practicalities (3)
Requirement for an holistic approach:
• legislative and regulatory processes - underlying and anticipated
• development of policy and strategy
• implementation by public stakeholders
• Due diligence, anticipation and project management are inter-related and critical
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Challenges
• Foresight
• Focussing on delivery
• Proportionality versus perfectionism
• Legal Clarity versus legal straightjacket – need for frameworks first
• The squeezed balloon problem
• One size doesn’t fit all
• Portability of concepts
• Clarity of vision comes first. Quality of governance, machinery of regulation and project management are every bit as important as quality and clarity of legislation and policy
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Example - Iraq
• Direct investment into land based urban infrastructure and housing development (65,000 units)
• High level issues encountered symptomatic of those more generally encountered
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Iraq – High level issues (1)
• Counterparty risk – lack of legal representative status and enforceable substance of National Investment Commission and inability to bind/ commit all relevant permitting authorities
• Lack of clarity on enforceability – Riyadh/ ICC convention
• NIC/ One Stop Shop concept not work
• Political risk
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Iraq – High Level Issues (2)
• Lack of clarity on landownership rights: rights in rem and musataha – inability to grant security or subdivide and lack of efficient and certain land registration capability
• External infrastructure interfaces – lack of certainty will be delivered/ sufficient capacity/ risk of interruption
• Inability to sub-grant rights to third party developers
• Repatriation of profits and inability to pass FDI incentives to third party developers and supply chain
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Iraq conclusions
Challenges:• Levels of expertise/ desire to address investor
expectations
• Flexibility - positions adopted in contractual negotiations
• Legislative structure and wider regulations
• Underlying financial models to be developed in greater detail
• Confidence in public stakeholders/ procuring authorities
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A way forward
• Economically Sustainable urbanism
• Creation of investor confidence
• Long term strategic plan
• Project planning
• Project management
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Policy Concerns
• Law for law’s sake and regulation for regulation’s sake are counter-productive
• Vision, strategic planning, law, regulation and policy sit side by side
• How to energise delivery at local level without being bogged down by national political debate?
• How to avoid over-prescription
• How to balance
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Priorities
• Focus on and work back from a selection of real life priority projects
• Develop some real world template frameworks, recognising that one size doesn’t fit all
• Recognising local granularity
• Recognise the inherent linkage between regulation, investment and urban development and use that recognition to frame plans of action
• Identify examples of workable best practice
• Engage with the investor community early when planning and developing
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THANK
YOU
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Tim Pugh and Mukhtiar Tanda14 March 2014
This document provides a general summary only and is not intended to be comprehensive. Specific legal advice should always be sought in relation to the particular facts of a given situation.