The Municipal Public-Private Partnership Framework - Module 17: Capturing Commercial Value

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September, 2019
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Summary

Municipalities often perceive investment needs, in particular infrastructure, solely as a public service, a cost center for the municipality. In fact, such investments may also create commercial opportunities.

Commercial activities around municipal investments often result in significant profits for the private sector, in some cases creating an increase in land value adjacent to the investment (see Module 16: Harnessing Land Value Capture), in others, providing opportunities for higher value, more or new commercial activities (the term ‘Commercial Value Capture’ will be used in this module). For example, BRT systems result in increased land values and commercial revenues for those located near access points, such as bus stations. A share of this increased value can be captured by the government, for example through property taxes. The operator of the BRT system can be allowed to develop space in, around, and above bus stations for retail letting, office setup, or other commercial activities to generate income and improve project revenues. This module provides a brief introduction to commercial value capture by PPP projects. The project summaries provide a number of examples of innovative commercial value capture in different countries and sectors.

PPP can provide a useful mechanism to mobilize commercial revenues to fund public services. To replace some or all of the public funding that would otherwise be needed to make a project viable, the project can generate commercial revenues. Such commercial revenues can be mobilized for many PPP projects, alongside or linked to public services. 

When considering a municipal PPP, the municipality may want to assess the possibility of commercial value capture, by considering:

  1. Commercial activities under, above, or around the project facilities; and
  2. Commercial activities delivered from the project facilities; but
  3. Should always ensure that the project focuses on the public services that form the core of the PPP.

This module will then describe commercial value capture in a few sectors, as an example of some approaches adopted globally.