VALUATION AND COMPENSATION OF UNREGISTERED AND CUSTOMARY LANDS Land tenure is a social construct and usually manifests as a set of rules that regulate how land rights are allocated among members of society. These rights are myriad, but the main ones relate to the right to use, transfer, alienate the property and to exclude others…. Relationships between the rights and those who hold them can be complex and difficult to identify, particularly if the rights are unregistered.1 The international financing institutions (IFIs) typically require that those who have a claim to land recognized or recognizable under national law are eligible for compensation at replacement value if their land is involuntarily acquired under the development projects the IFIs finance, even when they do not have formal legal rights to the land in question. The challenges to fully implement this requirement are numerous. Identification and confirmation of unregistered tenure rights are time consuming and complex. Formally recognizing ‘legalizable’ land and tenure rights is not a straightforward process and neither is the proper compensation of such lands and tenure rights. The problem is further compounded if the land is customarily occupied with unclear boundaries, overlapping claims, and political economy issues. Market valuation is the cornerstone of the current valuation practice, but this alone may not achieve adequate compensation for expropriation. The ‘market value’ is a value where properties exchange hands based on a willing-seller willing-buyer transaction, unlike involuntary land acquisition where the buyer, the state, has the power of eminent domain. Other concerns, such as disturbance, special value to owner, injurious affection, severance, and solatium allowances, may be needed to achieve the core principle of compensation, to leave the persons affected no worse off than they were before the expropriation.2 Recent efforts to develop methodological guidelines on the valuation of unregistered lands illustrate the complexity (for example, UN Habitat, 2021). UN Habitat. 2021. Valuation of Unregistered Land. A Practice Manual. Nairobi. 1 McDermott, M., P. Wyatt, and K. Aslama. “An Introduction to The Manual for the Valuation of Unregistered Land.” PowerPoint presentation. 2 1 The study comprises cases studies compiled from Indonesia (3), Sri Lanka (2), Uganda (3), Nepal (1), and Afghanistan (1). The case studies (summaries annexed) reflect public investment projects where land-for-land or cash compensation was paid or monetary support provided for compulsory acquisition of unregistered and customary land and tenure. The definition of eligibility and valuation methodology used by valuators in response to specific project contexts is presented, along with the solutions to provide fair and adequate compensation and livelihood restoration outcomes for the affected peoples. This study aims to contribute to global knowledge on the valuation and compensation of unregistered land and tenure rights under compulsory acquisition to assess the valuation methodologies used; the legal, historical, and cultural contexts that informed them; and the outcomes achieved. SCOPE OF ELIGIBILITY The legal framework for land acquisition defines ‘eligibility’ for compensation for loss of access to/possession of land based on specified ‘recognizable’ rights to the land in question. These compensable ‘rights’ may include both the freehold over land and various other rights including usufruct, hunting, and fishing rights, as well as communal lands owned or collectively managed under customary rights. Further, squatters and those without recognizable land rights are eligible for compensation for non-land assets, provided that their occupancy can be proven at the cutoff date, given the widespread lack of enforcement of legal rights in many developing countries. The land rights of project-affected persons (PAPs) across the case studies in the four countries range from individual, communal, customary, usufruct rights, and squatting. In some cases, the definition of recognizable rights was expanded/applied creatively, while in other cases, legal space was explored to compensate for loss of informal access to or use of lands. In Afghanistan and Uganda, most land is unregistered property under customary land tenure. The legal system and common practice include a wide range of measures to prove PAPs’ ‘recognizable’ and thus compensable interests in land. Visible proof of occupancy and local testimonies play a significant role. Uganda broadly recognizes collective property rights, and the case studies reflect collective compensation hereof both in kind and in cash, which may be granted to the affected community at large and used for purposes that benefit the entire community. Afghanistan has a more restrictive policy of recognition of collective rights and has no clear policy formulation on the compensation for involuntary acquisition of such. In Nepal, the protection of the rights and identities of various ethnic groups is constitutionally enshrined, and the promotion and recognition of collective rights to forests are established by law too. Affected households pursuing economic activities on public/government land will not be entitled to compensation for land loss but only for income loss from the affected economic activities, including loss of/reduction in the access to communal natural resources (firewood, medicinal plants, and other forest produce). The losses suffered from a reduction of such collective rights to access are compensated at an individual household level. 2 The impact to sociocultural resources includes not only access to physical cultural heritage but also social cohesion—a reflection of their status as indigenous peoples (IPs). In response, the Upper Arun Hydroelectric Project (UAHEP) will, to the extent possible, opt for resettlement within the community to allow affected households to maintain their social networks and ties. Hence, the loss of social cohesion caused by acquisition is recognized and mitigated by minimizing impacts rather than compensating for the loss. Both Nepal and Sri Lanka have approved various policies on land and on land acquisition, which contain provisions for recognizing, and thus compensating, informal rights holders. Although these provisions are only partially enacted in laws, they have created a space for donor-funded projects to justify compensation payments to informal rights holders. For instance, the UAHEP (Nepal) and recent IFI-funded projects in Sri Lanka used the policies as a basis to ensure that all project-affected households (PAHs) would be eligible to compensation irrespective of land tenure status. In the Asahan 3 Project (Indonesia), compensation eligibility of affected people with recognizable tenure rights of their customary lands, which have been used and managed for generations, was contested as the affected lands were also formally registered as forest land. The legal limbo was resolved only by the adoption of a Presidential Decree and Ministerial Regulation which recognized affected people’s loss of land, buildings, and/or plantations in the forest area as the project’s ‘social impact’, a category of loss recognized under the national valuation standard. This provided a legal basis for the project to pay ‘Technical Completion’ in lieu of compensation for loss of physical assets without explicitly stating it as “compensation for loss of land.” In the National Urban Flood Resilience Project (NUFReP) (Indonesia), the active use of existing space in national laws and regulations allowed an improved alignment between international and national requirements in terms of eligibility for compensation to informal land occupants. Discussions with central and local government officials helped identify potential mitigation measures consistent with national laws and regulations, including some that had already been used in project participating cities, which were also compliant with international standards. The project implementation just started, and detailed technical guidelines are under development to guide the project participating cities to determine eligibility and compensation. The importance of consistency with national regulation as well as official technical guidelines is emphasized by many project staff and certified appraisers who need protection against the allegation of financial misdeed or corruption as they authorize compensation payment to informal land occupants who would normally be denied compensation. LAND REGISTRATION AND COMPENSATION Formally recognizing ‘legalizable’ land and tenure rights is not a straightforward process, and legitimate land occupants may end up in a ‘legal limbo’ due to overlapping claims. In addition to multiple and competing claims, collective/communal rights are quite common and so are different levels of usufruct rights. Some countries like Sri Lanka, Nepal, and Afghanistan recognize only documented/registered landowners and tenants while Indonesia does not require registration or documented evidence as a requirement for eligibility. Nepal’s latest amendment (2019) to the Land Act grants land rights to informal land occupants meeting criteria of >10 years consecutive occupation but barring transfer of ownership of such land for 10 years. The eligibility for compensation in case of expropriation before acquiring full ownership (after 10 years) is not addressed. 3 In Afghanistan, the prevailing law fails to recognize collectively owned, special grazing land as a registrable, lawful form of landownership eligible for compensation, even though such lands have historically been common among many communities. This reflects that over the years, the definition of ‘state land’ has expanded at the expense of public and communal lands, often clashing with customary notions of usufruct and property rights. While communal usufruct right to special grazing lands (for example, communal possession and use of lands in the vicinity of a village) is recognized, it does not constitute ownership, and therefore, no one is entitled to compensation in the event of acquisition, and no replacement land or cash compensation is offered to the affected persons. However, individuals occupying unregistered land possessing one or more of 11 recognized documents as proof of valid ownership will be entitled to a land deed. Occupiers of land without any valid documentation may be granted a title deed up to 1 ha of grade 1 land and, in case of acquisition, entitled to compensation for the loss incurred of up to 1 ha if they can prove demonstrated possession of the land for generations. In the Asahan 3 Project (Indonesia), local residents had recognizable rights under one law which made them eligible for compensation but were denied compensation because the land was also registered as forest land under another law. The land should not have been classified as ‘forest land’ without compensation since the area had already been occupied by local people with recognizable tenure rights. This legal limbo was only resolved and affected people received compensation when the loss was recognized as ‘social impact’ under ‘nonphysical component’ of the land. In the National Slum Upgrading Project (KOTAKU) (Indonesia), which implemented an in-situ upgrading of urban slums, existing laws and regulations were thoroughly reviewed so recognizable tenure rights of slum residents were identified as a basis of their receiving improved housing stock with ownership rights to the land. A strong leadership and commitment by the political leaders of Surakarta City was the key to the extraordinary efforts made by the city governments to manage the lengthy land ownership transfer processes from the central government to the city government, and eventually to slum residents. As a result, the project provided 95 percent of informal residents in the slum areas with an improved housing with ownership rights. VALUATION Market value is the cornerstone of property valuation, but it requires professional experts, a good social assessment (SA) to identify all compensable losses, a good stakeholder engagement, and a participatory approach to ensure that a comprehensive valuation adequately capturing all losses. Nevertheless, the proper valuation of collective/communal rights and tenure rights may be challenging for lack of reliable data necessary to apply standard valuation methods. In addition, ‘nontransferable rights have no market value and various values (for example, sociocultural and natural) that the landowner derives from the land s/he owns or occupies are not fully captured in the market value. An inherent problem in applying the market value approach to involuntary land acquisition is the fact that the ‘willing buyer-willing seller’ precondition, assumed for establishing the ‘market value’, is nonexistent under compulsory land acquisition where the owner/possessor cannot choose not to give up the land, since the state can ultimately exercise its power of eminent domain. 4 In the Asahan 3 Project (Indonesia), land rights of most affected people were contested as the land was classified as the State Forest Land. As a practical solution, perceived monetary losses due to the severance of land were assessed by a social scientist based on interviews with affected people and paid in lieu of compensation for land loss. This creative solution helped resolve the long-standing legal limbo while the risk of overreporting was minimized as the adequacy of compensation was reviewed by a local certified appraiser. However, a rigorous SA could have ensured more granular and adequate identification of compensable losses and their valuation. In the Uganda cases, the cost replacement method was used even for customary lands. The cost of replacing individual land plots used by respective IP community members was quantified and aggregated. The total replacement cost of the entire affected communal lands was thus established, and the affected IP communities used the compensation on common goods such as the construction of a clinic. This approach allowed avoiding the otherwise complex and time-consuming identification of every single rights holder and determining their bundle of rights, including those exercised only temporarily by distant relatives, such as rights for hunting or grazing, and it risks leaving significant impacts unmitigated especially for vulnerable groups who may not be able to voice their grievances. The same approach was also used for the valuation of tangible sociocultural properties of communal value such as shrines, churches, mosques, and graves. However, this approach could not be used for the valuation of nontangible assets such as disruption of goodwill, disorganization of communal networks, inability to access communal activities and cultural sites, trauma associated with the relocation of ancestral graves, and inability to access spirits due to the relocation or removal of shrines, among others. National valuers reportedly developed an approach acceptable to the PAPs, which included the discussion with the heads of cultural sites to agree on a price that would alleviate the impact, plus capitalization of costs for remedying the notional impact, and finally, provision of professional support for PAPs until the notional impact would be reversed. In-situ slum upgrading under KOTAKU (Indonesia) applied extensive participatory processes using the existing community engagement platform to determine and verify eligibility and asset inventory while minimizing risk of elite capture and exclusion errors that are common in the compulsory acquisition of unregistered lands. The community groups established and strengthened under the World Bank-funded Community-Driven Development (CDD) project provided basic community profile to inform eligibility criteria, and community facilitators trained under the projects and well known to local communities supported the census taking and inventory development. Professional valuers were hired to do the valuation of losses thus identified, so any immovable assets affected were properly compensated. The combination of professional valuation and participatory identification of rights holders and their bundle of rights was successfully piloted in Surakarta City and was adopted in other cities. In Sri Lanka, the Land Acquisition Regulation (LAR) 2013 provides that each project forms the divisional Land Acquisition and Resettlement Committee (LARC) which was instrumental in filling the gap between the statutory compensation amount for affected properties and their replacement values. The LARC plays a key role in the determination of eligibility, impact, and compensation amounts including ‘Ex Gratia Compensation’ and other non-statutory compensation to fill the gap. Each LARC meets the PAPs individually to determine their entitlements and negotiate compensation. As a result, the compensations received by the PAPs are significantly higher than the statutory compensation. The LAR 2013 also provides for a grievance mechanism in the form of a ‘Super LARC’ in case an aggrieved party is not satisfied by the determination of an LARC. The LAR 2013, however, applies only to 18 predefined projects approved by the Parliament (Cabinet) due to their national importance. In Afghanistan, the prevailing law does not include a standardized system for valuation and pricing, and there is an absence of a functional real estate market, regulations, and guidelines. In view of this, and in realization of the government’s limited ability to enforce unpopular decisions, negotiated settlements are common and preferred by projects although not stated as a requirement in the statutes or policy. 5 RESTORATION OF LIVELIHOODS OR COMPENSATION OF VALUE-GENERATING LEGAL RIGHTS The UAHEP (Nepal) has a major focus on livelihood restoration in addition to its compensation of value- generating legal rights. The range of compensatory and livelihood restoration measures includes particular attention to marginal and vulnerable groups (such as indigenous groups, women, and Dalits), and a range of measures are put in place to ensure as a minimum the full livelihood restoration for all affected households and efforts to preserve community identity and cohesion. In Sri Lanka, the LAR 2013 stipulates that compensation be equal to the fair market value, covering transaction costs, interests accrued, transitional and restoration costs, and any other applicable payments. In the Strategic Cities Development Project (SCDP), PAPs losing land, shelter, business, income, and/or sources of livelihood due to the project were eligible for compensation and/or resettlement, rehabilitation, and restoration (RR&R) assistance to enable restoration of living conditions to a state better or equal to the pre-project situation. Squatters and subfamilies living with legal landowners were eligible for receiving land in a resettlement site or cash compensation. Informal business owners having to physically relocate were provided a shop on long-term lease at a commercial resettlement site. The intra-household disparity in access to compensation between husbands and wives and between older and younger household members often prevents fair sharing of compensations among household members who experience impacts differently. Besides cultural gender and generational norms, administrative costs and complex procedures often make a fair distribution of compensation difficult. In Indonesia, joint land ownership between husbands and wives is legally allowed, however, additional administrative costs can create a large hurdle for the project especially when the total number of affected households is large. Vulnerable community members often face difficulties to voice their customary, or legitimate but undocumented, use of lands or natural resources, and may fail to receive due compensation unless an active community engagement was conducted, as was done under Indonesia KOTAKU project or Sri Lankan projects under LAR 2013. SUMMARY The case studies reflect how countries address the challenges inherent in the valuation and compensation of unregistered and customary lands differently, but all seem to combine some formal eligibility criteria with participatory verification processes. International Financial Institutions (IFIs) played an important role in advancing compensation eligibility of legitimate informal occupants, which is becoming more important than ever as climate mitigation and adaptation require construction of a large number of renewable energy generation and transmission capacities where tenure rights are not clearly established. Below is a list of key findings and recommendations of the study: Creative use of existing space in laws, regulations, and policy measures provides a basis to recognize the • compensation eligibility of legitimate informal occupants. A combination of compensation at the market value of affected assets with additional support to mitigate • associated livelihood and welfare losses can help overcome inherent limitations of the market value as a basis of compensation and contribute to a full restoration of livelihoods. Social assessment and ongoing stakeholder engagement are key to identifying all legitimate, value- • generating rights and stakes, particularly for vulnerable groups, and addressing a gender and inter- generational disparity in access to compensation within the household. Accessible and functioning Grievance Redress Mechanisms are vital to identify and redress missed • compensable losses cost-effectively. 6