John Marinopoulos - Partner, PwC. This article first appeared in The Courier Mail (online), 6 September 2017
With 660,000 more people to call Brisbane home by 2031 we must immediately start planning for the infrastructure we will need.
Just as important as the type of infrastructure we need is the question of how we pay for it. At a time when government budgets are under pressure this is a critical question to be explored.
Across the world the traditional options to fund infrastructure are struggling to meet present and future demand for city-enabling infrastructure. We need innovation to help close the funding gap. A key example of this innovation is value creation and, only from there, value capture.
While not a new concept, value capture, sometimes also called value sharing, is quickly becoming the catch-all phrase synonymous with infrastructure delivery across Australia. It is being used to help fund rail, roads, bridges and airports around the world.
But what does value capture mean, and why is it important for government and the community to think about it in the context of the future of our city?
Let’s start with a definition: Value capture identifies the benefits of the investment in new infrastructure by asking those who benefit and receive measurable value to make a contribution to the project funding for which they are willing and capable of paying.
If you view this as the capture of the value created, the focus changes from one centred on cost recovery to one of sharing the immense value created.
Value capture on projects has occurred in many guises, from the council levy on the Gold Coast Light Rail, to the toll on the Sydney Harbour Bridge from the 1930s and through to the special levy and rate for the Melbourne Underground Rail Loop in the 1970s. In these projects, those who benefited directly from the infrastructure helped contribute to the costs to pay for them.
While it is possible to help fund infrastructure through value capture, its use has been sporadic. The key to getting it right is to ensure that what is being proposed is justifiable to the public good. To do this we must be confident that we can identify and quantify the value that is created to a detailed level.
In the context of major city-shaping infrastructure projects such as airports and roads, there is no doubt that investment in infrastructure creates value and benefits in a broad range of areas such as land value uplift, job accessibility, retail access, travel time savings and proximity to services, retail and amenities.
The task is to define who this newly created value flows to. Once again it can be wide ranging and will depend on the type, location and scale of the infrastructure. It may include property owners, developers, employers, governments, businesses and community organisations.
In practice, value creation and value capture encourage decision-makers, project planners and designers to fully consider the opportunities to create value.
This means that you don’t just think about a new rail line and the suburban stations it reaches, but all the value it creates. That could include increased service frequency; a reason to build new amenities; new property outcomes, such as mixed-use development and employment precincts; better commercial opportunities, such as expanded retail precincts; and social and cultural amenities, such as community centres. These beneficiaries may then be willing to contribute to the cost of it.
In all cases where value capture is applied it must be underpinned by strong principles such as equity and fairness. The last thing we should do is propose a value capture approach that burdens a specific beneficiary and so a principles-based approach is an integral part of all successful value capture frameworks. This means that an ongoing two-way conversation between project partners and beneficiaries will be required.
The reality for Brisbane is that we need to deliver substantial infrastructure over the next 30 years but we have to think carefully about the costs of these projects and who benefits from them. As we talk this through as a community the opportunities presented by value capture should be part of the mix.
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© 2017 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. Liability limited by a scheme approved under Professional Standards Legislation.