How innovative revenues for infrastructure can fundamentally reshape infrastructure funding

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How innovative revenues for infrastructure can fundamentally reshape infrastructure funding

  • Media Type:
    Blog
  • Author:
    Jennifer Tay I Pajnapa Peamsilpakulchorn
  • Published:
    Sep 24, 2024

 
Take a step into a metro station today and there’s no doubt you’ll find countless advertisement banners. It turns out these advertisements play an important role in getting needed infrastructure funding for mass transit projects. We call these funding mechanisms Innovative Revenues for Infrastructure (IRI).
 
Funding infrastructure is a challenge for many countries because of high upfront costs and uncertain demand, as experienced during the COVID-19 pandemic. Governments in developed countries may choose to subsidize infrastructure—but this option is limited for cash-strapped developing countries. Moreover, a warming climate is leading to a higher rate of flooding and wildfires, increasing costs due to repairs and investments in climate-resilient assets. As it stands, PwC estimates the global infrastructure funding gap to be a whopping $3.9 trillion per year.

IRI as a novel funding mechanism

IRI builds on conventional infrastructure funding through land value capture (LVC) and commercial value capture (CVC), novel mechanisms that can raise critical funds. They are more resilient in practice as they depend less on government budgets and more on demand for services, while opening another source of revenue. This is how it works:
Infrastructure funding challenge
CVC is not limited to mass transit, it can also be applied to a variety of infrastructure from tourism and energy to telecommunications. For example, in wastewater treatment, CVC opportunities may include selling biogas for electricity, recovered phosphorous and nitrogen for fertilizers, or biosolids for biochar production or as compost for agriculture. 
 
In urban transit development projects, CVC can be used to enhance infrastructure funding including locating retail and residential areas at or near the transit hub. For example, in India, residential and commercial properties have been developed around the Hyderabad outer ring road, enhancing its value by providing more opportunities for CVC. 
 
Here’s an illustration of how CVC works in an urban transit development project: 
Public infrastructure
If you happen to visit Tengeh Reservoir in Singapore, you may also find that the reservoir is used for a floating solar farm. It was leased out by the Singaporean government in 2021 for a 60 MW floating solar farm that supplies green energy to water treatment plants. The project optimizes urban space in Singapore (a rare and expensive commodity) on an otherwise unused water body to generate commercially viable revenues as well as delivering sustainable development. 

The benefits of implementing CVC

Other benefits of CVC in infrastructure projects may include:
  • Complements core services by enhancing the demand for infrastructure
  • Increases levels of service for users and other beneficiaries when CVC is an integrated solution
  • When correctly implemented, CVC is seamless and does not complicate core services
  • Can increase economic growth, job creation, community development, and conservation of natural resources

Further resources on CVC

To better guide countries and interested stakeholders in assessing opportunities for CVC, the World Bank has developed a set of guidelines with assistance from PwC that aim to provide a framework to implement CVC opportunities. They encourage governments and project owners to be creative and develop solutions suitable to each country and project context. Intended to be aspirational and operational rather than detailed and exhaustive, the guidelines are relevant to those looking for alternative ways to increase public infrastructure funding or build a better business case for an infrastructure project. 

The guidelines and further resources can be found here:

 
Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff, or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.
 

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