

Well planned infrastructure projects are critical

Infrastructure investment is recognised as a tool to increase productivity, facilitate trade and industry as well as effectively address demographic and behavioural changes in society.

Achieving optimum value for the money invested can be challenging.

Engagement with industry is essential to generate opportunities to maximise returns, which can be achieved through holistic design driven by active value, high-quality procurement and delivery management.

However, the ability of the public sector to fund infrastructure requirements are limited and therefore alternative funding models are imperative, including public private partnerships and asset recycling.

‘Beneficiary pays’: the value capture mechanism

Value capture is based around the concept of “beneficiary pays” rather than the traditional “user pays”, spreading the contributions to those that realise the greatest benefits.

Investment in infrastructure can create advantages for businesses and communities within a sphere of influence from the project.

Value capture is the mechanism by which those benefits are identified, assessed, quantified and retrieved by governments and the private sector to fund the infrastructure investment.

The purpose is to more equitably fund projects, taking into account the full range of benefits attributable to those investments.

How does value capture work?

A simple example is the additional value that can be achieved if government owns land adjacent to an infrastructure investment and sells it with an increased value based on proximity to it. In most circumstances, urban rail projects usually do not return dividends, however they do lead to increases in land value.

If the government purchased strategic land parcels, subject to demonstrating their relevance to the project, in greenfield or brownfield areas adjacent to future stations on urban rail projects, it could provide significant returns in the long-term.

Active value capture occurs when the project is driven to generate additional revenue, for example the development of land around a rail station that would not have actively been developed had the project not gone ahead.

Benefits must be directly attributable to the investment for it to be legitimate. This link must be clearly shown and accurately measured. It is also important to ensure advantages are long-term and sustainable, similar to funding models for infrastructure investment.

Related: Melbourne Airport’s $15 Billion Rail Link Gets Private Boost