Focus: Victoria's plan for value creation and capture
6 April 2017
In brief: The Victorian Government has released the Victorian Value Creation and Capture Framework which articulates its policy on value creation and value capture in the planning and delivery of public projects. The intention of the framework is to harness the potential of government investments to create additional value for the community and signal to the public, private and community sectors how the Victorian Government will go about doing so. Partner Paul Kenny (view CV) and Lawyer Patrick Easton report.
How does it affect you?
- The Victorian Value Creation and Capture Framework (the Framework) is a guide to government departments and agencies as project sponsors and their private delivery partners on the approach to be taken in assessing the economic, social and environmental benefits of public investments in Victoria.
- The Framework is mandatory for high value projects with a total estimated government investment of at least $100 million and is directed in particular at precinct projects, the development of public land and capital investments.
- Each proposed high value project will be supported by a Statement of Intent setting out the project objectives and a Value Creation and Capture Plan, approved by the relevant Minister.
- The Framework provides guidance on how the Victorian Government views the generation of value from public projects and how it will assess proposals by its private delivery partners.
The Framework follows the October 2016 policy paper Value Capture – Options, Challenges and Opportunities for Victoria (and a federal discussion paper on value capture – see our Client Update: Value capture for major transport infrastructure projects discussion paper) in relation to the use of value capture mechanisms for public projects in Victoria.
It sets out a comprehensive statement of principles. In line with recent policy discussion, the government stresses the need for value capture mechanisms to be equitable, fair and proportionate to the private value created.
The Framework distinguishes between value creation and value capture as follows:
Value creation refers to delivering enhanced public value, in terms of economic, social and environmental outcomes. This enhancement is the public value above and beyond what would ordinarily be achieved as a direct consequence of the relevant government investment.
The Caulfield to Dandenong Level Crossing Removal Project is provided as an example. In this project, the Level Crossing Removal Authority consulted with stakeholder groups and the Victorian Government Architect before, during and after designs were released to inform the value to be created in, for example, the creation of new adjacent public facilities, reduction of noise and enhanced public safety through improved design.
Value capture refers to government capturing a portion of the incremental economic value created by government investments, activities and policies. This capture may generate alternative revenue streams, assets or other financial value for government which could assist in funding those investments.
Beyond the broader economic, social and environmental benefits flowing to the public from government investment, private benefits may flow to private beneficiaries such as transport users, nearby property owners, occupiers and developers, businesses and private infrastructure operators (ie, toll road, train and tram operators).
These private benefits may be captured through various mechanisms to supplement existing funding sources, like taxes.
Only high-value projects with a total estimated government investment of at least $100 million are required to comply with the Framework, with the remainder of government projects expected to apply the Framework as a guide. The Framework is directed to specific project types seen as having potential for significant value creation and/or value capture opportunities, namely:
- precinct projects (eg, urban renewal of the Moolap precinct in Geelong);
- developments of public land (ie, public or private development of public land); and
- capital investments, such as infrastructure projects.
For each project, government departments and agencies, as the project sponsors, will be required to prepare a project-specific Statement of Intent setting out the project objectives and a Value Creation and Capture Plan (VCC Plan) for approval by the relevant portfolio Minister. The VCC Plan will include value creation and value capture options which are appropriate to the project type and circumstances.
A 'menu of mechanisms' is provided in the Framework for government departments as project sponsors and the private delivery partners to consider in creating and capturing value.
The mechanisms referred to in the Framework for assessing value creation in project development, include:
- Strategic Land Use Assessments (ie, government plans determining optimal use of land);
- land creation (ie, rezoning land and decking over projects);
- land consolidation, acquisition and reservation (eg, the consolidation of properties for the Revitalising Central Dandenong project);
- planning scheme amendments (ie, rezoning land prior to sale);
- planning conditions (eg, the Victorian Government's provision for floor area uplift in return for the provision of public benefits);
- third party incentives (ie, grants to councils for achieving density targets);
- procurement conditions (eg, the application of the Victorian Industry Participation Policy for training and skills development);
- procurement model selection (ie, the use of early contractor involvement, alliancing or PPP models to harness private sector initiatives); and
- design review (eg, using the Office of the Victorian Government Architect’s Victorian Design Review Panel).
The Framework encourages government project sponsors and private partners to consider value capture opportunities, including:
- property development rights, including land, air and joint venture rights;
- commercial opportunities (eg, the fibre optic cable for broadband installed along VicTrack rail corridors);
- infrastructure levies on development (eg, the existing Growth Areas Infrastructure Contribution charge in Victoria);
- user charges (eg, road tolls);
- private asset manager user charges and efficiency dividends (eg, savings and revenue for private asset managers generated by public infrastructure investment); and
- voluntary contributions by key beneficiaries (eg, contributions to the London Crossrail Project by Heathrow Airport and the Canary Wharf Group).
Victoria is the first Australian jurisdiction to adopt a formal value capture policy. It will be interesting to see if other jurisdictions follow.
- Paul KennyPartner, Sector Leader, Government,
Ph: +61 3 9613 8860
- Leighton O'BrienPartner,
Ph: +61 2 9230 4205
- Phillip CornwellSenior Finance Counsel,
Ph: +61 2 9230 4748
- Emma WarrenPartner, Practice Group Leader, Projects & Development,
Ph: +61 3 9613 8856
- David DonnellyPartner, Sector Leader, Infrastructure & Transport,
Ph: +61 3 9613 8112
- Nicholas NgPartner,
Ph: +61 7 3334 3139
- Kate ToweyPartner, Sector Leader, Real Estate,
Ph: +61 2 9230 5053
- David McLeishPartner,
Ph: +61 3 9613 8954
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