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Valuation and Compensation During Expropriation


Grade

Compensation range in birr

Rent/m2 in birr

Example of land size in m2

Annual rent

Total payment

Grade 1

Below 80,000

20

200

20 × 200 × 12

48,000

Grade 2

80,001–275,000

40

300

40 × 300 × 12

144,000

Grade 3

275,001–500,000

60

375

60 × 375 × 12

270,000

Grade 4

Above 500,001

80

400

80 × 400 × 12

384,000


Source The Addis Ababa valuation directive



Concerning the size and location of the replacement land, the laws give discretion to regional governments and urban administrations to determine thereupon.87 Accordingly, the city of Addis Ababa has included a detailed procedure in its Valuation Directive.88 The Directive also provides the modality of determination of land sizes. This modality is shown in Annex A.

As a matter of principle, displaced people are offered with three alternatives of replacement land: a replacement land at the original site, a replacement land in the expansion zone, and a condominium house.

A replacement land at the original site is given when a replacement land is available in the expropriated area. This happens when a large area is expropriated for an urban redevelopment project. Part of the land is usually reserved for housing constructions of higher standard. A replacement land in the expansion zone is one found in the periphery of the city. A condominium house is a third alternative whereby people prefer a finished condominium unit instead of land and compensation for construction.

Most poor people do opt for this third alternative since they lack money to carry out the construction. As already emphasized, the compensation money is not usually enough to construct a building of similar nature. Those people who have some money or get support from their relatives choose the replacement land in the expansion areas. Those who have enough money go for the first choice, because they could afford to construct larger buildings in accordance with the master plan.

To corroborate this with evidence, let us see one of our case studies in Addis Ababa city. Arada sub-city, in Addis Ababa, has cleared and acquired 25 ha of land in the Arat Killo area for redevelopment purpose. The project is known as Basha Wolde Chilot number 2. The total number of people displaced from this project area was 1553.89 Among these, only 520 were owners while the rest were tenants of government/kebele houses. Among the 520 owners, 148 preferred condominium houses, 290 owners chose replacement land in the expansion zone, and 70 people got land at the redevelopment/expropriated site. And among the 70 owners who were given land at the redevelopment site, 27 were commercial buildings. In general, of the total number of people displaced from the study area, about a thousand people have been moved to condominium houses.

This shows that only few people prefer their old place at the center, because they have the money to construct expensive buildings according to the city’s plan. Poor people preferred condominium houses. Even in that case, since the compensation money could not cover the cost of the condominium houses, they had to add extra money from their savings.

The amount of compensation paid in the study area, ranges between 3,909 and 348,581 birr. On the other hand, the price of one studio condominium house is 51,800. The law says that at any time, the compensation money should not be less than an amount that can buy a single studio house.90 So, all those people whose houses were valued below this amount were offered 51,800 birr or a studio house. Those who got more than 51,000 birr could either get the money or a condominium house depending on their choice. For instance, a one bedroom condo costs about 136,000 and a person who wants to get that must add to the compensation money s/he was given to buy the condo house.

Selected interviews91 conducted with the people who chose to receive land at the expansion zone show that most of them have not still constructed the houses for various reasons, such as unavailability of utility services and inadequacy of funds. But in the meantime, the compensation money they were given has been spent on other things. Further, during the discussion, they revealed that their original plan was to sell the land and to buy smaller houses inside the city. But, as discussed in the Chap. 2, the new lease proclamation makes the sale of a bare land useless.

The other complaint associated with the replacement of land is the location aspect. Displaced people are not compensated for the location of the place they were in. This has two consequences: firstly, since location has no value, displaced people do not get market value for their properties; and secondly, they are not compensated for additional cost they incurred as a result of change in location. Both points are elaborated as follows.

As already discussed, the location or land is not considered during the estimation of compensation. The modality of redressing this loss is, though, made through land to land compensation. Although there seems to be no harm in this type of redress, in reality, it does not make the compensation full. As in the Basha Wolde Chilot and other similar cases around the country, most urban displaced people are given replacement land at the peripheral area. The value of properties at peripherals is smaller than in the city centers from where the people have been moved. It is a clear fact that home sales at the center bring higher value as compared to the periphery, because of the location. Had property owners been allowed to sell their prosperities, they could have collected three to tenfold higher price as shown in Table 6.2.


Table 6.2
Lease and sales land values in birr in Addis Ababa City







































S.N

Zone

Initial lease price in birr/m2

Upfront paid market prices in birr/m2

Auction lease prices in birr/m2

Compensation for land in birr/m2

1

Central market

894–1,686

8,000–10,000

20,000–25,000


2

Transitional

555–1,035

5,000–7,500

14,000–20,000


3

Expansion

191–355

3,000–5,000

5,000–14,000

18


Source Addis Ababa City lease price directive (See Capital news release, supra note 7 of Chap. 3), Access Real Estate data (Access Real Estate is one of the leading real estate companies that acquired land through purchase from private owners from around the city and its data can reflect the market price of the properties), and auction prices in 2012/13 (See for example Addis Fortune, May 12, 2013, Vol. 13, No. 680; Ethiopian (Amharic) news reports of Sunday May 12, 2013)

The other side of the story is that it is the state that reaps the highest profit from land expropriation and its subsequent transfer by lease to developers and investors. As can be seen from the above table, the Addis Ababa City administration, for example, expropriates land from farmers by paying displacement compensation calculated at 18 birr/m2 and subdivides and transfers it by leases to private residents for an average of 8,000 birr. Assuming farmers have an average land size of 1 ha (10,000 m2) one can imagine the size of profit that is collected by the government, while leaving the farmer with insignificant amount of compensation.

The same thing happened to the Basha Wolde Chilot residents as well. For example, one resident,92 who was interviewed in Jemo condominium site (16 km far from Basha Wolde), had a house in Basha Wolde Chilot area that was rested on 400 m2 of land. He received around half a million birr as compensation for the house and an opportunity to buy a condominium (instead of land replacement). His old residential place at Basha Wolde Chiolot was transferred by lease to a high-rise building developer for 24,000 birr/m2. This means, by paying half a million to the owner, the municipality collects 9.6 million birr. The point is that it is unfair beyond any proportion to leave the displaced people with compensation which is not enough to replace what they had, while the state takes away an exaggerated profit.

It is true that the state has its own role in the value addition of an area through provision of infrastructure, but by and large, it is the residents themselves who contribute a lot for the increase. Especially in areas, such as new and un-serviced ones, infrastructure usually comes years after residents moved to it. If this is the case, it would be unjust to completely deny them a share of the profit.

The second point raised in relation to land location aspect is that people are not compensated for the costs they incur as a result of the change in location. Except those who get land at the redevelopment site, all the others have to move to the periphery, whether they chose condos or replacement land. In the study area, most of the subjects had been either working in the city center or operating small business in their homes. When they moved to the new homes in the periphery, the people (mostly women) who used to do small home based business lost their income. The new settlement has little demand for their products. This is also what exactly happened in another case in Bahir Dar City. The people were displaced from the city (the bank of river Abay-Blue Nile) for the construction of the conference hall and the governor’s office. The women in that neighborhood used to process lentil, peas and beans for the local grain stores. The moment they were moved to the city’s outskirt, the storeowners gave the processing business to other people who live nearer to the city. As a result, the displaced women were forced to rent their houses to others and come back to the city again by paying higher rents.93

The location caused not only the loss of incomes, as in the above case, but also an additional burden on those who work in the city center. In their former residential areas, people were close to public services and work places. Now, however, they have to travel longer distances to go to their workplaces and to access public services, such as market places and government offices. This means, again, additional expenses for transportation. One respondent accurately described the situation saying, “I used to walk 500 m from my home to work, while now I have to commute 32 km every day.”94 In short, it can be said that the expropriation resulted not only in physical displacement of the people but also in unrecompensed economic displacement.95

Another problem is that displaced people are not guaranteed to get equal size of replacement land. For example, even if it is too much to bring in here for analysis, it is enough to summarize that in Addis Ababa, as illustrated in Annex A, the size of the replacement land that is given in the redevelopment area (center) is reduced by half, while the land given at the expansion areas is almost equal to the expropriated one.

Last but not least, business entities are not compensated for business loss or trading loss that is caused as a result of the expropriation. The Expropriation proclamation has clearly stipulated that compensation modality applied for residential houses shall, mutatis mutandis, apply for business houses as well.96 In practice the only difference is that owners of business may be given replacement land on preferential basis.97 The replacement land is one found in central location.



6.5.2.3 Cost of Relocation


Relocation compensation refers to the cost of demolition, transferring and installing the property from the expropriated land to another replacement land.98 As mentioned above, these properties are utilities, household furniture, salvaged things and graves. In all cases the law requires the payment of estimated costs of labor and material for the demolition, transporting and installing the utility, the house or the grave.



6.5.3 Determination of Compensation in Rural Areas


Peasants who lose land by expropriation receive the following compensations: compensation for property on the land, compensation for improvement to the land, replacement land, or (in the absence of replacement land) displacement compensation.

Similar to the urban area, the types of properties found in rural areas are building structures, plants, improvements to the land and the land itself. These are examined in three main divisions as follows.


6.5.3.1 Compensation for Structures and Improvements


The modality of assessing compensation for rural buildings and structures is similar to what has been discussed above in relation to urban constructions. The only difference is that in rural areas the constructions and structures are smaller in scale and different in nature. Rural houses are mostly made of mud and wood and besides, farmers also keep crop depots, animal sheds and fences.

Permanent improvements to rural land include clearing and leveling of an uncultivated land, digging of a water well, constructing terraces, building irrigation canals, preparing water harvesting reservoirs, and other structures that protect the land from further damages and erosions. In both cases, the basic elements considered during assessment of compensation are the current cost of material and labor expended.99


6.5.3.2 Plants


In considering the compensation for plants grown on the land, the law recognizes the following as compensable types of plants: annual crops, perennial crops, trees and grass.100

a. Annual Crops

Compensation for annual crops grown on expropriated land is assessed based on the type, amount and current market price of the crop which would have been collected from the land. As an alternative, the owner of a ripe crop is given the opportunity to collect the grain from the land.101 This happens if the crop is ready for immediate harvest. The usual complaint raised by farmers is that the price fixed for crops is not updated as frequently as it should be. Crop prices should be updated at least annually, but in some places it remains without being updated for 2 years and more.102

The other problem identified during our investigation is that the prices of crops fixed by urban and rural administrations are different. Since the urban and rural areas are administered by two different organs, different prices are set for the same crop of same locality. The implication is that farmers of the same locality who lost an equal amount of land may be awarded different compensations only because the expropriating organs are different-one urban and another rural.

b. Perennial Crops

Unlike annual crops, perennial crops are crops that give fruit once or twice a year for many years.103 For some farmers, perennial crops are supplementary crops while for others they are the main ones. For example, for farmers of southern and south-eastern Ethiopia, coffee is the main crop that sustains their livelihood. In northern Ethiopia, mango and orange trees are not the main products; but they do exist in their field together with other trees. The reason this is mentioned is that in southern Ethiopia where farms are covered with coffee trees, the assessment of compensation is different from other perennial crops as discussed below.

Perennial crops are identified in the laws as ripe and unripe perennial crops. The compensation for unripe perennial crops is determined by “calculating the estimated cost incurred for growing the plants”; while the compensation for ripe perennial crops is assessed based on the “market price of average annual yield of the plants.”104 Therefore, there is no basic difference between annual crops and ripe perennial crops since the compensation is based on the market value of the annual yield collected from the land. The only exception, as mentioned above, is the assessment of compensation for coffee trees. This exception was observed in the Tulu Kapi Gold Mine Project of the Oromia Region.105 In that project, the farmers who lost their land completely were provided with replacement land. If replacement land is given, the compensation for the crops (annual or perennial) should be based on one year’s harvest only. But in the Tulu Kapi Project, the compensation for loss of the coffee trees was calculated on 10 years’ basis. Such type of compensation modality is, of course, not recognized by the Federal Compensation Regulation. It is a mere practice since the Oromia region has not yet adopted a valuation regulation, like that of the Amhara Region. The assessment was based on 10 years yield because one year’s compensation could not adequately compensate the loss.106 One farmer from this project is said to have declared that he would prefer to retain his coffee land rather than giving it away for a 50 years’ compensation.107 The reason is simple: coffee brings higher income when compared to other perennial crops.

Another interesting case is one that is related to the palm trees grown in the Afar desert.108 The palm trees were grown in the desert and the pastoral community used to collect fruit occasionally. Then when Allana Potash wanted to expropriate the land,109 the community demanded compensation. The researcher was also asked to give his opinion on the matter. The issue was whether naturally grown perennial trees, which are found on the desert (open access) and untreated and unclaimed by a specific group could be compensable. Since there are other similar cases related to trees, this issue shall be raised and answered below.

C. Trees

The term “trees” refers to big trees like eucalyptus, acacia, ficus vasta or other indigenous trees. They grow by themselves or are planted by man for timber, construction or firewood purposes. Compensation for such trees is assessed based on “the type and level of growth of the tree and the current local price per square meter or per unit,” but if the owner chooses, an alternative is given for the owner to “cut and collect the woods in lieu of compensation.”110 During calculation of compensation, three sizes of tree (big, medium and small) are identified for which market price is fixed.111 So, in short, tree plants are compensated on the basis of the market value of the specific type and size of the trees.

One issue that we tried to identify during valuation of trees was whether all types of trees (natural or planted by man) would be considered as compensable. In Amhara region, except shrubs and the like, every tree is compensable. So long as the tree is found in one person’s land and so long as it is protected by the person, compensation would be paid for it.112 On the other hand, in Oromia region, the practice is that natural or indigenous trees are not considered during valuation. In the Tulu Kapi Gold Mining Project, one of the controversial issues was whether those naturally grown trees which the farmers used as sheds to their coffee plants would be valued for compensation or not. Owners and the local woreda administration argued that the trees should be considered as private property and qualified for compensation. But the regional land administration bureau adamantly rejected the idea of assessment of these trees. The reason given was that if they permit this, farmers would claim the whole forest around as their property and would inflate the compensation for the company.113

As already mentioned above, the same issue was also raised in the Afar region in relation to the Allana Potash’s expropriation of palm trees grown on the desert land. The decision of the Regional government is not yet known. The reason for all the confusion is that unlike Addis Ababa and the Amhara region, the Oromia and Afar regions have failed to adopt valuation directives. Issues of this nature which are not covered in the Federal Expropriation proclamation and Compensation Regulation should be answered by detailed regional valuation directives.

But it seems unjustified to deny compensation in Oromia for trees which happens to be grown on one’s land. The law does not discriminate on the basis of naturally grown or planted by a person. Whatever attachment found on the land and has a worth is considered as a private property and subject of compensation. Besides to being a clear violation of the constitution and the expropriation laws, the denial of compensation for naturally grown trees may cause one possible problem if uncorrected: knowing such truth, farmers may tend to cut the trees and sell them as firewood or lumber that in turn causes environmental problems.

d. Grass

The other compensable plant is grass. Grass is used as forage for animals and for construction of houses. Farmers who have excess grass can also sell it to others. The value of grass is assessed based on the market value of grass collected from a given land.114 The same law allows owners to collect the grass in lieu of receiving compensation. The problem identified with compensation for grass is that when the grass is held in common, compensation may not be paid. This happens mainly for two reasons: first, there may not be unity among the farmers to enforce their rights to receive compensation; and secondly, if the project is made in the interest of the rural community, compensation for common lands, such as grazing land, is usually waived. In our case study, in Rib Dam Project, the farmers who lost their grazing land for a campsite claimed that they did not receive compensation for the grazing land. Of course, they were compensated for grass found in their private holdings.


6.5.3.3 Compensation for Loss of Rural Land


In this section the following three modalities of compensations for loss of rural land are examined: full monetary compensation (displacement compensation), partial monetary compensation, and land to land compensation.

a. Full Monetary Compensation

A person who lost a landholding forever as a result of an expropriation procedure is entitled to displacement compensation (monetary compensation) for his/her loss. This is in addition to the compensation provided for the property situated on the land and the improvement s/he brought about on the land. As has been argued (Sect. 6.5.1.2), a displacement compensation is not as such a compensation that replaces the lost property, for land is not a private property. Displacement compensation is rather a kind of rehabilitative support provided to farmers until they are able to regain a capacity to put themselves in their original position.115 Concerning this the law provides:

A rural land holder whose land holding has been permanently expropriated shall, in addition to the compensation payable. … [for property on and improvements to the land], be paid displacement compensation which shall be equivalent to ten times the average annual income he secured during the five years preceding the expropriation of the land.116

A complete loss of land often happens when the land is required for the intended project. The assumption here is that unless the land is needed for temporary purposes such as building campsites or detour roads, the taking would be most probably forever. Thus, when the farmer is left without land, a monetary compensation equivalent to 10 years’ compensation will be awarded. The amount of compensation is fixed at 10 years annual income, based on the average annual income earned in the preceding 5 years. The justification for fixing this amount is unknown, and probably baseless. Even the parliamentary discussion made during the adoption of the expropriation proclamation reveals nothing as to why the multiplier was made ten and the average income 5 years.

Nonetheless, a systematic search makes us to believe that the principle must have been copied from the Chinese Land Administration Law (LAL) of 1986 (as amended finally in 2004.).117 Article 47 of the Chinese LAL provides for three types of compensations in the event of expropriation of cultivated land: compensation for land, resettlement subsidies, and compensation for attachments and young crops on the requisitioned land. Compensation for expropriated cultivated land is six to ten times the average annual output value of the expropriated land, calculated on the basis of 3 years preceding such requisition.118 Resettlement subsidies for expropriated cultivated land is calculated according to the agricultural population needing to be resettled, and it shall be four to six times the average annual output value of the expropriated cultivated land calculated on the basis of 3 years preceding such expropriation, provided that it is not more than fifteen times of the average annual income.119 Of course, the value of property and plants is also considered. The law further provides that if the land and resettlement compensations are not enough to enable the farmer to resettle, additional money could be given provided that the total compensation does not exceed 30 times the average annual output value of the expropriated land calculated on the basis of 3 years preceding such expropriation.120

There are slight differences between the Ethiopian and the Chinese compensation methods although the basic principle remains the same. The first difference is that the Chinese LAL provides additional cash compensation for the loss of the land. The second type of compensation termed as resettlement compensation is something similar to what is known as displacement compensation in Ethiopia. Unlike in China, there is no as such compensation given for loss of land in Ethiopia. The second difference is that while compensation is calculated on the basis of the preceding three years average value in China, in Ethiopia it is 5 years. Thirdly, while in China the multiplier is given in a range of 6–10 years, in Ethiopia it is fixed at 10 years. Finally, in China the compensation modality is elastic (it can go to a maximum of 30 times121), but in Ethiopia it is a rigid one.

In following this type of compensation modality, the Chinese LAL from the outset describes the principle it follows. The first sentence of Article 47 clearly declares that the “land expropriated shall be compensated on the basis of its original purpose of use.”122 This is the other side of the “highest and best use” principle already discussed (Sect. 6.3.3). One cannot be sure whether the Ethiopian compensation of rural land also follows this type of principle. Because the Ethiopian law does not give compensation for the loss of the land, it cannot be said the compensation is based on the original purpose of use of the land.

Coming back to the discussion at hand, it is already emphasized that the displacement compensation is an equivalent to the value of 10 years produce. The practice of computing the displacement compensation is discussed below.

Valuators first collect data about the types of crops growing in the area, the size of the land in hectare, productivity per hectare, productivity of the land per year (for example, once, twice, or thrice-in irrigable land). The data includes all such particulars of the past 5 years. By assuming that the land grows one type of crop per year, valuators take five kinds of crops with different value and production level. Using the market prices of the cereals witnessed during the past 5 years, the valuation committee calculates and derives an average annual income for the farmer and multiplies it by ten.

The general assessment is that the amount of displacement compensation provided for farmers is not enough. This assessment is based on the feelings of interviewed farmers, land administration experts, and my comparison of the actually paid compensation with the current food prices. By and large, one can look into the statistical data on inflation of food prices.123 Legal and practical problems that make the displacement compensation principle contentious are identified and presented below.

The first legal problem stems from the constitutional right to the land itself. As already explained in Chap. 2, land belongs to the joint ownership of the state and the people. To ensure this right, the constitution and the rural land proclamations provide equal access to rural land and the protection against arbitrary eviction. Farmers are recognized as collective owners of the land and entrusted with holding right which is not limited in time and which provides all land rights except sale. But the protection and guarantee given to this right in terms of compensation is not adequate. When land is taken for public purposes, the damage that is caused to the holders is not equally compensated by the average value of 10 years’ production.

In simple terms, the loss sustained and the compensation given do not match, since the 10 years compensation does not replace a loss of a lifetime and even beyond. It is an acceptable fact now that the amount of displacement compensation to farmers cannot buy them an equal livelihood.124 It would not even buy enough food for 3 years. On the other hand, the money awarded as compensation could be recovered within fewer years if the farmer were allowed to keep his land. The money could be easily recovered because firstly, the price of goods is always on the increase, and secondly, the yield of the land improves from year to year.125

The other flaw with the law is that the calculation is measured on the basis of the average annual income gained over the past 5 years. The question is whether it would be wiser to apply the value of 5 years back instead of the present market value. Besides, why did the legislator choose 5 years instead of, for example, two or three, like the Chinese one? This question is raised because inflation on food items is continuously increasing at a very high rate, and thus the money given now cannot buy for the farmers the same amount of food that they bought in the past. Most farmers interviewed, as well as people from the land administration organs, share this concern and criticize the rule on this ground. This means the price of goods two to 5 years ago does not reflect the current market situation, let alone that of the coming 10 years. It is like forcing the farmer to sell his crops today and tomorrow at yesterday’s price. It should rather have considered the likely future increases in the inflation rate to calculate the present and future compensation to be paid.

A third problem has to do with the incompleteness of the law and the lack of practical support to the displaced farmers. Previously, it has been argued that the Ethiopian legislation does not clearly envisage the need for and the requirements of resettlement and rehabilitation programs. Although the displacement compensation is understood here as rehabilitative support, the law gives no additional assistance to the displaced farmers. The government does not either give any practical training or additional assistance to help the farmers on how to invest the money. Our argument is that onetime payment does not create a sustainable form of compensation because the sum is often squandered by farmers of little experience in handling cash capital. Hence, after expropriation, the farmers usually ended up in daily laboring that brings them very little income.

b. Partial Monetary Compensation

Sometimes, there is the possibility of dispossessing the farmer from his land for a temporary period of time. Farmers may be left for few years without land. The idea is that either their original land would be returned to them or a new replacement land would be given at the end of the project. For example, land may be taken provisionally for workers’ campsite, storage, or detour during road construction. Moreover, land nearby a big project may be temporarily shut down by the project owner for health and safety reasons. Or farmers may be disrupted from cultivation because of a delay in the provision of replacement land. The mode of payment of compensation in this regard is given as follows:

A rural landowner or holders of common land whose land holding has been provisionally expropriated shall, in addition to the compensation (for property on the land and improvement), be paid until repossession of the land, compensation for lost income based on the average annual income secured during the five years preceding the expropriation of the land.126

The insufficiency of compensation that I raised above is also more or less true to temporary dislocations. The other practical problem that surfaces in relation to this practice is that an agency that took the land provisionally may not give it back in the same condition as it was before. For example, road companies tend to spoil and destroy the fertility and usability of the land by mixing asphalt and other toxic substances which they used during the construction work. Fortunately, however, most of the land given for such purposes is communal or state owned. Nevertheless, there are cases which have even reached the courts. The nature of such cases is that a road construction company has left piles of stones and earth on their land after it has finished the work at hand. Courts usually decide either compensation be paid127 or the land be reinstated to the original condition.128 In other cases, road companies use excess land for detour road and refuse to pay compensation for the interruption.129

Sometimes, when project works continue for more than the intended period, the project owners are reluctant to pay additional compensation. A good example of this situation is the condition of the farmers in the area surrounding the Koga Irrigation project.130 The Koga irrigation project was constructed with the aim of cultivating 7,000 ha of command area. The people displaced from the reservoir area would be compensated by land replacement in the cultivation (command) area after conducting redistribution (readjustment) of land. The original plan was that it would take the government 3 years to finish the construction and readjustment works. Therefore, the displaced farmers were given a 3 years compensation anticipating that after 3 years they would get new land for irrigation farming. But, it took the government more than 5 years to complete the process. Farmers complained at that time that compensation was not paid for the additional 2 years.131

c. Land-to-Land Compensation

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