May 9 2012

The coming two decades will see tremendous investments in infrastructure projects, all over the world; at a scale never seen before. In fact, it is already happening. Projects to win energy: hydro dams, solar parks, wind parks, other electricity plants, oil and gas extraction. Projects to extract minerals: gold, uranium, iron ore, copper, and coal. Projects to produce water: desalination, pumping stations, and water recycling plants. Projects to build infrastructure: roads, airports, ports, and sometimes even whole towns. 

This is all connected with population growth and economic development in Asia, Latin and South America, Africa, the Gulf, and elsewhere and the connected energy, water, and other resource needs. Some of the staggering amounts: US$ 40 trillion in the next 20 years; US$ 4,35 trillion in the next decade for only the BRICS, the GCC and the N11 states; and an average 3.5 percent of world gross domestic product through 2030, or about US$71 trillion¹.

The problem: big infrastructure projects really don’t fit into the traditional parameters for which national legal systems were built. We are looking at some serious challenges.

Firstly, they almost always have transnational dimensions. Quite literally, because a pipeline, cable, access road, or mine pit runs through the territory of two or more states. Or more indirectly because investors and sub-contractors are from third countries. This means that they have a synchronization problem to overcome: needs that are transnational, political power and legislation that is mostly state-based. A second aspect is that they are by definition long-term. They require huge financial investments and a lot of work. They stay, even after they have gone: think of a mine that closes or a pipeline that is no longer used. Their impact on populations is inter-generational. This means that organising long-term predictability is important. Thirdly, these projects involve many stakeholders with many conflicting interests and power bases. Financiers have the money and want a return on investment. Governments have public power and want tax revenues, utilities, jobs for the people. Local, rural communities (good places for mines and hydro dams are never close to big cities) own the land and want social and financial returns. Environmentalists have the media and want minimal impact on Mother Nature. They all need each other and they all have the ability to destroy the project.

Such projects are also very dispute-prone. It’s built into them. Many stakeholders, many interests, many levels and types of governance, many types of rules, and all that tied together for a really long time. Unexpected things can happen. What seemed to make sense today may not make sense tomorrow. CEO’s and ministers change. Buy-in from communities is lost. Prices fall. Geopolitical circumstances take a turn for the worst. So conflict management around such projects has to be extremely good, geared towards many eventualities and types of disputants. A fifth issue is the fact that these projects cannot have, also almost by definition, one-size-fits all approaches. The combination of interests, geographical location, stakeholders, timeframe, and other things will always differ. This means that whatever rules apply, they also need to be flexible and adaptable. There needs to be room for judgement. At the same time: this conclusion is no excuse not to learn and to develop and share best practices. Finally, complying with the law is no longer enough for these projects. The ‘social licence to operate’ is the single most success-defining factor. The rule is no longer ‘don’t do what is not allowed and avoid negative impact’. It is ‘do good and ensure that there are tangible, concrete benefits. This means that law is only a limited piece of the puzzle and its use depends on many other factors, just as those other factors depend on law.

Listening to lawyers who work on these projects one becomes acutely aware of the limits of the law and a world view neatly divided into national legal systems, an international system, a public realm and a private realm. And within each group further neatly divided sectors. That simply does not work when three leading international investors finance a hydro-dam on a river that runs through four states along which both towns and indigenous communities live.

What these projects need is a dynamic, multi-stakeholder custom-made justice infrastructure built around each of them.

This structure would need to be able to deal with each of the challenges above:

• The transnational dimension that involves law from different states, and regional and international agreements;
• The stability-dimension: being able to provide a degree of stability and predictability for the long term;
• The multi-stakeholder dimension: being able to deal with many, very different stakeholders – national and international;
• The dispute dimension: the fact that there will be disputes, it’s unavoidable.
• The flexibility dimension: having a basic fixed structure, but also providing adaptability to each situation;
• The social dimension: being able to deal with the social dimension of such projects, especially relating to local communities.

The justice infrastructure should be flexible and solid at the same time. Open and inclusive yet able to decide. A good feel of the best levels at which things need to be decided/resolved. As non-judgemental as possible in terms of value systems. And able to provide fair and quick justice against reasonable costs, or, as we call it, good and effective basic justice care.

While some aspects have clearly been developed, there seems a wide-open field for justice innovation here. What is already out there? Many national legal systems have consultation procedures for the permits that these large infrastructure project require, coupled with regulatory bodies for those permits. Most governments are bound by international instruments on human rights and the environment. The World Bank has formats for community management around such large projects. As regards the private sector, we have the Guiding Principles on Business and Human Rights, endorsed by the UN Human Rights Council on June 2011. The OECD has its Guidelines on Multinational Enterprises. So there is quite some standard setting, both vis à vis government and business. However, it would seem that much of this is still very much fairly high above the ground. There is still a huge way to go on how all these general rules actually work in a concrete situations. ‘Case law’ on this is going to develop slowly, and on many levels, in many places. There will not be a world supreme court to give this case law any coherency. In addition, not all that is done and decided will be able to be known, as case law is. Much of it will be practice by governments and businesses, which they do not necessarily publish. There is also is issue of how, very practically, one goes about applying all these rules: as vice-president for legal affairs of a large conglomerate that is about to build two huge hydro-dams in the Amazon, what precise processes and structures to I need to advise that the board of my company set up to minimize risk in this regulatory, dispute prone jungle? How to keep the local tribes on board? The investors? The local governor? The media?

It is obvious that the justice innovation needs here are tremendous. More coherency between rules, better rules, and rules for making rules. Smart conflict prevention and resolution systems that can deal with Wall Street and Amazonian Indians. Standards and terms of reference for its different components so you can have some measure of success (When is a rule making process ‘good’? When is a justice process ‘fair’?). Finding good ways in which IT and social media can provide support. Developing the right management skills. Designing the best governance structures, like smarter public-private partnerships.

Given the huge amount of energy and resources the world will be sinking into infrastructure the coming decades, being much smarter about the justice infrastructure around such projects seems critical. There are examples where stakeholders have been able to deal well with the many challenges that these large infrastructure projects bring. The Antamina mine in Peru – with the many awards it received – is mentioned as one of them. But there are also many failures.

It’s time to take stock and see how the successful projects worked to build a justice infrastructure. It’s also time to take stock of the failures. And then, based on that, to build networks between academics and practitioners, focussing on justice innovation that builds on the best knowledge available from different fields. We also need more coordinated investment in this justice field; linked to sound business cases. There’s a lot at stake. Bad infrastructure projects cause conflict, waste, financial losses, political minefields, and they ruin the environment. Good ones bring prosperity and stability.

¹ Estimate Cohen & Sanders Global infrastructure report: US$ 40 trillion in the next 20 years. Goldman Sachs estimates only for the BRICS, the Gulf Cooperation Council, and the N11 countries 4,35 trillion in the next decade, read more. For more mind-boggling figures, see also a report by PWC.