When PS 5 Applies
PS 5 kicks in when a project causes involuntary resettlement - either physical displacement (people lose their homes) or economic displacement (people lose income or access to resources they depend on). "Involuntary" doesn't necessarily mean people are dragged from their homes. It means they cannot refuse. This happens through:
- Expropriation - The government takes the land using its legal authority.
- Negotiated settlements under threat of expropriation - The company offers a deal, but if you don't agree, the government will expropriate anyway. That's still involuntary.
PS 5 does not apply to voluntary, willing-buyer-willing-seller transactions where the seller has a genuine choice, or where land use isn't changing.
The First Rule: Avoid Displacement
Before anything else, the client must try to avoid displacement through alternative project designs. Can the road be rerouted? Can the plant be built 500 meters to the east on vacant land? Only when displacement is truly unavoidable does the rest of PS 5 come into play.
When displacement can't be avoided, the goal shifts to minimizing it - affecting the fewest people possible - and then ensuring everyone affected gets fair treatment.
The Impoverishment Risks of Displacement
Why does PS 5 treat displacement so seriously? Because decades of research show that displacement doesn't just inconvenience people - it systematically impoverishes them. The Cernea Impoverishment Risks and Reconstruction (IRR) Model identifies eight interconnected risks that displacement triggers:
| Risk | What Happens | Reconstruction Strategy |
|---|---|---|
| Landlessness | Expropriation removes the main productive asset for land-dependent families | Provide replacement land of equivalent or better productive potential |
| Joblessness | Displacement disrupts employment, especially for wage workers and small-scale entrepreneurs | Job placement, skills retraining, transitional income support |
| Homelessness | Loss of shelter - sometimes temporary, sometimes prolonged when resettlement is delayed | Provide replacement housing at equivalent or improved standards |
| Marginalization | Displaced households drop in social and economic status relative to their new neighbors | Targeted support to restore social standing and economic position |
| Food insecurity | Disruption of food production and supply chains, especially during the transition period | Transitional food support, replacement agricultural land, access to markets |
| Morbidity and mortality | Stress, exposure during relocation, loss of access to health services, contaminated water at new sites | Health services at resettlement sites, safe water and sanitation infrastructure |
| Loss of common property | Access to shared resources - forests, grazing land, water bodies, burial grounds - is severed | Replacement access to equivalent common resources or compensating ecosystem services |
| Social disarticulation | Community networks, mutual aid systems, and social cohesion break apart | Relocate communities together, support community institution rebuilding |
These eight risks are cumulative and interconnected. A family that loses land (landlessness) often loses income (joblessness), can't afford adequate food (food insecurity), and falls sick from stress or poor conditions at the new site (morbidity). Effective resettlement planning must address all eight risks simultaneously - tackling land compensation alone while ignoring social networks and health services will still produce impoverishment.
Compensation at Full Replacement Cost
Compensation must be at full replacement cost - what it actually costs the displaced person to replace what they lost. This means market value plus transaction costs (registration fees, transfer taxes, moving expenses). Critically, there is no deduction for depreciation. If someone's 20-year-old house is demolished, they get what it costs to build an equivalent new house - not a depreciated value that wouldn't buy them a shed.
Replacement Cost by Asset Type
What "full replacement cost" means in practice varies by asset type. The Guidance Notes spell out the calculation for each:
| Asset Type | Replacement Cost Includes |
|---|---|
| Agricultural land | Market value of land of equivalent productive potential in the vicinity, plus the cost of preparing it to equivalent levels (clearing, leveling, irrigation), plus any registration or transfer taxes |
| Fallow land | Market value including the option value of the land - even land not currently cultivated has future productive potential that must be compensated |
| Urban land | Market value of a plot of equivalent size and use, with equivalent infrastructure and services, in the same or a comparable urban area |
| Houses and structures | Cost of purchasing or building a new replacement structure of equivalent area and quality, plus materials, labor, contractor fees, and registration costs - with no deduction for depreciation or salvage value |
| Natural resources | Replacement access to equivalent natural resources (forests, fisheries, grazing areas) or compensation for the equivalent provisioning ecosystem services lost |
Example: Why "no depreciation" matters
A farmer's house is 25 years old with a mud-brick construction that originally cost $3,000 to build. A government assessor using depreciated value might offer $500. Under PS 5's full replacement cost, the compensation must cover what it actually costs today to build an equivalent house - perhaps $5,000 with current material and labor prices. The farmer walks away able to build a comparable home, not clutching a check that wouldn't cover the foundation.
Three Categories of Displaced Persons
Not everyone affected by displacement has a title deed. PS 5 recognizes three categories of displaced persons, and all three get some level of protection:
| Category | Description | Entitlements |
|---|---|---|
| (i) Formal legal rights | Hold recognized legal title to land or assets (deed, registered lease) | Full replacement cost compensation for land and assets. Resettlement assistance. Livelihood restoration. |
| (ii) Recognizable or customary claim | Don't have formal title but have a claim recognized under national law or custom (e.g., long-term occupants, customary tenure) | Same as category (i) - full replacement cost and resettlement assistance. The project must help them formalize their claim where possible. |
| (iii) No recognizable claim | No legal or customary right to the land (e.g., recent squatters) | No compensation for land itself, but entitled to resettlement assistance, compensation for structures and improvements they built, and livelihood support. Cannot simply be evicted with nothing. |
The key principle: even people without any legal claim to the land still receive resettlement assistance and compensation for the structures they built. Nobody gets left with nothing.
Physical Displacement: The Resettlement Action Plan
When people must physically relocate, the client prepares a Resettlement Action Plan (RAP). This is a detailed, budgeted, scheduled document that covers:
- Compensation at full replacement cost for all affected persons
- Identification of resettlement sites and development opportunities
- Entitlements for each category of displaced person
- A timeline and budget for implementation
- Arrangements for monitoring and evaluation
New resettlement sites must offer improved or at minimum equivalent living conditions. Displaced persons get a choice of resettlement options - the client can't simply assign them to a location and call it done.
Think of a RAP like a corporate relocation package - but for entire communities instead of individual employees. When a company moves an employee to a new city, it covers moving costs, helps find housing, and sometimes provides a cost-of-living adjustment. A RAP does the same thing at community scale: it covers the move, ensures equivalent or better housing, and makes sure people can earn a living in their new location. The difference is that the "employee" didn't ask for the transfer.
Economic Displacement: The Livelihood Restoration Plan
Sometimes people don't lose their homes but lose their livelihoods - a farmer whose fields are taken, a fisher whose access to a river is blocked, a market vendor whose customers disappear. For these cases, the client prepares a Livelihood Restoration Plan that includes:
- Compensation for lost assets and income
- Assistance to restore or improve income-earning capacity
- For land-based livelihoods, replacement land of equivalent productive potential where feasible
Cash compensation alone is rarely sufficient. Handing a subsistence farmer a check doesn't replace the skills, networks, and seasonal rhythms of farming. Livelihood restoration means helping people actually rebuild their economic lives - through replacement land, job training, employment opportunities, or business development support.
Livelihood Restoration by Livelihood Type
The Guidance Notes detail specific restoration measures depending on how people earn their living:
Land-based livelihoods (farmers, herders, gatherers):
- Replacement land of equivalent productive potential and locational advantage
- Improved agricultural inputs (seeds, fertilizer, tools, irrigation access)
- Transitional food support until the first harvest from replacement land
- Access to natural resources equivalent to what was lost (forests, fisheries, grazing)
- Agricultural extension services and technical training
- Secure tenure arrangements at the new site
- Access to markets and transportation comparable to the original location
Wage-based livelihoods (employees, daily laborers):
- Priority hiring for project-related employment where skills match
- Skills training and vocational education for alternative employment
- Transitional income support during the retraining and job-search period
- Job placement assistance and connections to local employers
Enterprise-based livelihoods (shopkeepers, traders, service providers):
- Relocation assistance to commercially viable sites with equivalent customer access
- Transitional income support during the re-establishment period
- Access to equivalent customer base and market conditions
- Assistance re-establishing business networks and supply chains
The common thread across all livelihood types: replacement, not just compensation. A cash payment calculates what was lost in the past. Livelihood restoration ensures people can generate equivalent income in the future. The two are fundamentally different objectives, and PS 5 requires both.
The Cut-Off Date
The client must establish and publicize a cut-off date for eligibility. Anyone present in the project area before this date is eligible for compensation and assistance. Anyone who moves in after - often attracted by the prospect of compensation - is not.
This prevents speculative settlement but must be handled carefully. The cut-off date needs wide publicity, and the census of affected persons must be thorough.
Government-Managed Resettlement
Often, the government manages the resettlement process directly, especially for public infrastructure projects. The client can't wash its hands just because the government is handling it. PS 5 requires the client to:
- Ensure that outcomes are consistent with PS 5, regardless of who manages the process
- Prepare a Supplemental Resettlement Plan if government measures fall short of PS 5 requirements
- Collaborate with the government to achieve PS 5-consistent results
Forced evictions - removing people without due process, adequate notice, or compensation - are prohibited except where conducted in accordance with law and consistent with PS 5 requirements.
Forced Eviction Protections
The Guidance Notes draw on the UN Basic Principles and Guidelines on Development-Based Evictions and Displacement to define eight procedural protections that must be in place before any eviction can proceed:
- Genuine consultation with affected persons - meaningful engagement, not a one-way notification
- Adequate and reasonable notice to all affected persons well in advance of the scheduled eviction date
- Information on the proposed evictions - why, when, where people will go, and what alternatives exist - made available to all affected persons in a timely manner
- Reasonable time period between formal notice and actual eviction, sufficient for people to prepare
- Legal remedies and right to counsel - affected persons must have access to legal recourse to challenge the eviction or its terms
- Legal aid for those who need it to access legal remedies - the right to counsel is meaningless if people can't afford a lawyer
- Compensation for all losses at full replacement cost
- Resettlement or access to productive land - people must have somewhere to go and a way to earn a living
These protections apply regardless of whether displaced persons hold formal legal title. Even Category (iii) persons with no recognizable legal claim are protected from forced eviction without due process. The prohibition on forced eviction is a fundamental principle - not a reward for having the right paperwork.
Grievance Mechanism
A grievance mechanism specific to resettlement concerns must be established early - before displacement begins, not after complaints pile up. Affected persons need a clear, accessible way to raise issues about compensation calculations, resettlement site conditions, or livelihood restoration progress.
Example: Highway project displacing a mixed-tenure village
A new highway alignment requires displacing 150 households in a peri-urban village. The tenure situation is mixed:
- 45 households hold registered title deeds (Category i). They receive full replacement cost for their land and houses, plus moving costs and resettlement assistance. No depreciation is deducted from the value of their structures.
- 70 households have lived on the land for 15-30 years under customary arrangements but never formalized their title (Category ii). Under PS 5, they receive the same compensation as titled households. The project also assists them in obtaining formal title at the resettlement site.
- 35 households are recent informal settlers with no legal or customary claim (Category iii). They don't receive compensation for the land itself, but they do receive compensation for the houses they built, moving assistance, and livelihood support at the resettlement site.
The project prepares a RAP with a budget of $12 million and a 24-month implementation timeline. Three resettlement site options are presented to displaced households, all with improved water and sanitation infrastructure. Farmers receive replacement agricultural plots of equivalent quality. A grievance committee with community representatives is established six months before relocation begins.
The Resettlement Action Plan: 19 Key Sections
The Guidance Notes (Annex A) provide a detailed outline of what a comprehensive RAP must contain. This serves as both a planning checklist and a quality benchmark:
- Description of the project - project scope, components requiring land acquisition or displacement
- Potential impacts - identification of project component(s) causing displacement, zone of impact, alternatives considered
- Objectives - key objectives of the resettlement program
- Census and socioeconomic surveys - results of the census, asset inventories, socioeconomic baseline, and identification of vulnerable groups
- Legal framework - applicable national laws, gaps between national law and PS 5, and measures to bridge those gaps
- Institutional framework - agencies responsible for resettlement, their capacity, and any capacity-building needs
- Eligibility - cut-off date, criteria for eligibility by displacement category, entitlement matrix
- Valuation and compensation - methodology for valuing losses, description of compensation packages by asset type
- Community participation - how affected persons and host communities were consulted, how their views shaped the RAP
- Integration with host populations - measures to mitigate impacts on communities receiving displaced persons, including infrastructure and service expansion
- Grievance procedures - mechanism for addressing complaints, including escalation pathways and timelines
- Organizational responsibilities - who does what, staffing, reporting lines
- Implementation schedule - phased timeline linking resettlement to civil works (no displacement before compensation and relocation are complete)
- Costs and budget - itemized budget with contingencies, funding sources, and financial accountability measures
- Monitoring and evaluation - indicators, monitoring frequency, reporting, and independent evaluation
- Transitional assistance - support during the transition period (temporary housing, food support, transportation)
- Site selection and preparation - criteria for new sites, infrastructure to be provided, environmental assessment of resettlement sites
- Housing, infrastructure, and social services - standards for replacement housing, water, sanitation, schools, and health facilities
- Environmental protection and management - measures to address environmental impacts at both the displacement and resettlement sites
The Completion Audit
After resettlement is implemented, PS 5 calls for a Completion Audit - an independent assessment of whether the resettlement objectives were actually met. This is not the client grading its own homework. An independent auditor evaluates five areas:
- Compensation and entitlements - Were all affected persons compensated at full replacement cost? Were all entitlements delivered?
- Restoration of livelihoods - Have displaced persons restored their income and living standards to pre-displacement levels or better?
- Effectiveness of transitional support - Was transitional assistance adequate and timely?
- Resolution of grievances - Were complaints addressed? Are there unresolved issues?
- Adequacy of resettlement sites - Do new sites meet the standards promised in the RAP (housing quality, infrastructure, services)?
The Completion Audit is what transforms PS 5 from a planning standard into an outcomes standard. Writing a good RAP is necessary but not sufficient - the audit checks whether the plan actually delivered results on the ground. If the audit finds gaps, the client must take corrective action.
Key Takeaways
- 1Displacement should be avoided first - PS 5 applies only when it is truly unavoidable
- 2Even people without formal land title are entitled to protection and compensation under PS 5
- 3Compensation must be at full replacement cost with no deduction for depreciation
- 4Cash compensation alone is usually insufficient - livelihood restoration requires replacement land, training, or alternative income opportunities