Investing, Leasing Land, and Compensating Landowners: The Addax Bioenergy Experience in Sierra Leone
Much has been written about the impacts of long-term land-based investments on local land rights, development, and livelihood opportunities—and much of the commentary, driven by notable controversies, has been hostile to the land investor. But while investors now have a plethora of guidelines and principles to follow in implementing their projects, they still confront a dearth of hard information and statistics based on actual experience.
As demand for land for investment continues to grow, particularly in Africa, the situation has reached a crossroads. Investors, so often labelled the villains of the piece, must come together with the drafters of guidelines to determine how best to implement them in compliance with national and international best practice. While most governments and responsible investors would want to see the best possible outcomes for all stakeholders, it is not always easy to reconcile best practice, on the one hand, with economic development imperatives on the other. Certainly, there can be no one-size-fits-all solution: the range of possible investment types, scales, and socioeconomic settings is almost infinite.
It is all too easy to congratulate ourselves when we set a high bar for land investors and governments and then set about raising them even higher. We often forget, however, that someone, somewhere, is charged with managing and implementing these initiatives on the ground. The issues that may arise are complex, involving not only land tenure but also matters such as environmental impact, resettlement action planning (RAP), employment, and health. There are also perennially tricky issues of costs, roles and responsibilities, and the need for independent monitoring. When it comes to implementing policies and procedures, it does not necessarily follow that governments and/or district authorities are best equipped to take the lead. Ensuring equitable tenure arrangements and RAP may be especially problematic where stakeholders (investors or governments) have no practical implementation experience to draw on, and where they may be operating under ill-defined laws and regulations, without precedent, and in situations prone to conflicts of interest.
In such contexts, well-meaning nongovernmental organisations and civil society groups often claim the moral high ground and an exclusive interest in protecting the rights and needs of local communities. Issues can become polarized and acrimonious. The prospects for the successful implementation of land investment can be significantly diminished.
The Example of Addax Bioenergy Sierra Leone (ABSL)
One ongoing example relevant to most of the issues sketched above is Addax Bioenergy’s sugarcane project in Sierra Leone (see my presentation with co-author Jörgen Sandström at the World Bank, 2014 and 2015, for ABSL). ABSL started production near Makeni, Sierra Leone, in May 2014 after an intensive four-year development process. The estate includes 10,000 hectares (ha) of irrigated sugarcane, an ethanol factory, and a renewable electricity plant fed with sugarcane biomass to power the ethanol factory. When complete, the project is projected to provide approximately 20 percent of Sierra Leone’s electricity on the national grid.
The ABSL project remains the first in Africa to be certified under the Roundtable on Sustainable Biomaterial (RSB) and brought to financial close. The project was co-funded by eight international development finance institutions, which required compliance with the highest standards in all aspects of corporate social responsibility, respect for tenure rights, monitoring of land use, and environmental and social monitoring, both of the plant and related agricultural operations. In addition to the RSB, the project met International Finance Corporation (IFC) and African Development Bank standards for environment and social development.
The company also committed to innovative and, at times, pioneering programmes to promote local development and long-term sustainability. Initiatives included a Farmer Development Programme to promote food production in the area, and an out-grower sugar cane scheme for income generation. ABSL also assisted traditional landowners to establish deeds of land ownership, set up a formal asset compensation process, and funded infrastructure development such as roads that gave local people access to new land and new opportunities for commercial agriculture, food production, and market access.
All of these programmes were implemented against the background of a fully transparent stakeholder dialogue at all levels.
The final boundaries of the developed leasehold land (inclusive of that under acknowledgment agreements with local communities) gave an area of 23,840 ha. A total of 11,000 ha was used for operations (cane fields, the ethanol factory, and related infrastructure such as roads, power lines, and pipelines). The 12,840 ha of residual land (land not used by ABSL for its operations) was occupied and farmed by 51 villages, home to more than 35,000 people.
Early in the project, ABSL committed to the principle that no resettlement of these communities would be required. The villagers would remain in situ and receive compensation for lost assets, training, and assistance in developing additional, alternative land through the Farmer Development Programme. They would also be prioritised for job opportunities. With the exception of a small group of pastoralists (numbering nine households), the policy of no resettlement was adhered to.
In some countries, responsibility for resettlement and compensation rests with the government and local authorities. The investor may pay the government directly to enable it to implement resettlement action planning (RAP) and calculate compensation; in turn, government agencies or contractors may take the lead in implementing these processes, which might involve complex negotiations to secure additional land for resettlement, or the movement of people to new settlements out of the area—a sensitive and difficult operation.
From an investor’s perspective this arrangement might appear beneficial: a one-off payment to enable vacant possession without the problems of RAP or compensation programmes. There are, however, risks. In the event RAP and associated operations are not well planned, implementation is weak, or funds are allocated corruptly or ineffectively, both government and investors may be held accountable, especially when there is a breach of international standards. Sometimes, the investor alone may be blamed for any malpractice and subject to retrospective claims and even lengthy, high-profile litigation.
This point emphasises the need to ensure roles and responsibilities are clear, and that the rush to development does not compromise the key principles and parties involved.
In the case of ABSL, the Government of Sierra Leone granted responsibility for implementation of RAP and compensation activities to the investor, in partnership with local authorities (the District Council and the Ministry of Agriculture, Forestry and Food Security), the Chiefdoms, the affected communities, and landowners themselves. In the absence of modern resettlement policy and law in Sierra Leone, Addax defaulted to IFC principles, international best practice, and—later in the development of the project—to the criteria set by the Roundtable for Sustainable Biofuels.
With support from international resettlement experts and the local Chiefs, ABSL played the lead role in managing RAP. The government set compensation rates, and the Chiefdoms and local communities partnered with Addax in field assessment and valuation of the land—prior to development—so they could agree land rents. This process required lengthy stakeholder engagement and public consultation. The final output was agreements on land leases and landowner acknowledgement agreements (with rents).
Work on these initiatives began in 2010 in a limited part of the ABSL leasehold area. Making use of GPS technology and high-resolution aerial photography, the team subdivided the area according to landowner communities for rental purposes, counted crops and trees in cooperation with local farmers and village headmen, and calculated compensation accordingly.
Following the subdivision of the land to the land-owning communities, ABSL helped traditional landowners establish deeds of ownership over land previously allocated and managed under customary systems. Under the new leases, ABSL paid rent directly to the recipients. These long-term payments, designed to cover the full lease period of 50 years, represented a significant injection of capital into the 51 communities.
The compensation process presented a range of management problems in cash disbursement, grievance management, and record keeping. Nevertheless, ABSL met these challenges and its RAP process complied with the international standards of its lenders.
It is all too easy to congratulate ourselves when we set a high bar for land investors and governments and then set about raising them even higher. We often forget, however, that someone, somewhere, is charged with managing and implementing these initiatives on the ground.
Now several years old, the ABSL investment offers many lessons for potential investors, both in terms of management of land rent and compensation assessments, and the relative merits and impacts of large cash infusions into poor communities.
From an early stage ABSL took a lead in establishing roles and responsibilities in the consultation process and the formulation of methods, including rates of compensation, rent, and the overall management structure. Given the limited capacity of local institutions, some of this responsibility defaulted to the company by virtue of the sheer amount of technical assistance and inputs required. ABSL was also better placed to meet the burden of cost associated with fieldwork, such as managing payments and associated records. Thus, unlike in many countries, the investor—ABSL—rather than government agencies accepted prime responsibility for implementing tenure arrangements and asset compensation programmes linked to its land development project.
ABSL paid compensation over the four-year period 2010 to 2014, either directly to project-affected persons for individual assets (such as crops and trees) or to representatives of communities for communal assets such as wild trees. The company also paid land rents—on land lease and acknowledgement agreements—over the same period, which resulted in large cash infusions into the communities. In addition to the costs for compensation and rent, ABSL also had to meet the costs of running its Social Affairs Department, the Farmer Development Programme’s food security programme, and various environmental social health impact studies. The Ebola outbreak in 2014 added to the list of challenges and costs.
Most of the costs incurred by ABSL went to meet legal obligations, internal lender and certification requirements, and expenses necessary to meet the demands of international best practice and corporate social responsibility. After disbursement of cash under its programmes, ABSL had to deal with secondary issues relating to how the cash was retained and used within the household and the communities; there were also issues of gender exclusion, waste, theft, and fraudulent claims against the company and—at times—within and between households and villages.
Despite these difficulties, an important consequence of the ABSL programme was the trust that the company gained with the communities and Chiefdoms. Inherent conflicts of interest notwithstanding, the parties made effective compromises and found ways to resolve problems by mutual consent.
The most important lessons for investors are as follows:
Programme implementation should be the responsibility of the party—government or investor—best equipped to ensure best practices are followed and the highest standards achieved and to ensure those standards are applied by whichever party is responsible.
The parties should ensure that roles and responsibilities—and all costs and liabilities—are clearly allocated and put under a single management system. It is not sufficient for investors (as some do) to allow governments to address these sensitive issues on their behalf, especially where the government’s management capacity and experience is limited.
Early investment in professional management for RAP and all related programmes will pay dividends, preventing corruption and ensuring the integrity of project records. The maintenance of authoritative records, in particular, is essential to ensure the long-term future of the company on the land, especially land lease and acknowledgment agreement records, the history of land lease and relinquishments, and—crucially—rent compensation payments.
For ABSL, meeting all of the requirements in these key areas in the difficult socioeconomic environment in which the project was implemented was testing, even to the hardiest of international workers and professionals. An additional obstacle for ABSL was the virulent national and international criticism, which the project attracted despite meeting all its commitments and stringent lender requirements.
These commitments and related costs, wherever they may be encountered in Africa, would be unpalatable or simply too risky to most investors and would drive many away. Despite these challenges the ABSL project has progressed through development to the production phase. Land leases with the Chiefdoms and acknowledgement agreements with land-owning families have been signed. The company has continued to pay rent and compensation directly to the “landlords” and affected households, with minimal government or local authority intervention.
The factory has been completed and the sugar cane fields planted. By 2015, more than 3,400 people were employed and the material well-being of the communities improved significantly.
ABSL continued to operate all of these programmes through the Ebola crisis, even as other projects closed down. The company intervened strongly with material and management support to facilitate Ebola monitoring and containment, and played a leading role in public education, health extension services, and direct support to local authorities, including the construction of treatment centres and isolation units. These initiatives further consolidated trust at the local level.
The ABSL project remains not only an innovative technical project—with attendant risks—but also a bold social experiment. Because it was implemented on such a large scale, it offers many lessons that can benefit other investors in other parts of the continent. Other investors no doubt have similar stories to tell, and, as the demand for investment land grows, it is more important than ever that they share these experiences, so that the practical issues of implementation and management are heard in the ongoing debates on best practice.