Business Models for Value In Complex Infrastructure
3th February 2017
Professor Peter Sharratt
Presented at Consortium for the 4th Revolution | Executive Briefing Day (#C4IR) Cambridge, UK 2-3 February 2017 | www.cir-strategy.com/events
Todaytheworld’slargest600ci4esgenerate:
Top23Mega-ci4eswithjust1/20thworld’spopula1ongenerate14%globalGDP.Metro-regionsare2%oftheworld’ssurfaceandgenerate80%oftheworld’swealth.20%ofglobalGDPcomingfrom190ci4esinNorthAmerica&Canada.
In15years’1me....
2 billion (1/4 world’s population)
$64 trillion Will Generate 60% global GDP
1.5 billion (about 1/5th of the world’s population)
Generate $30 trillion Over half of global GDP
CITY REGIONS AS DRIVERS OF THE GLOBAL ECONOMY
Source:McKinseyGlobalIns1tuteCityscope
World’s top 10 cities in the next 15 years: Rank By GDP By Growth By
Population
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
New York Tokyo Shanghai London Beijing Los Angeles Paris Chicago Rhein-Ruhr Shenzhen Tianjin Dallas Washington Houston Sao Paolo
Shanghai Beijing New York Tianjin Chongqing Shenzhen Guangzhou Nanjing Hangzhou Chengdu Wuhan London Los Angeles Foshan Taipei
Tokyo Mumbai Shanghai Beijing Delhi Kolkata Mexico City Dao Paulo Mexico City New York Chongqing Karachi Kinshasa London Lagos
Impacts50%60%33%12%40%10%
GlobalGHGemissionsWorld’senergyuseGlobalresourceconsump4onGlobalfreshwateruseGlobalsolidwasteproduc4onGlobalworkforceemployed
Global Urbanisation
NEW URBAN MODELS
$23bn – of which 1/3 was infrastructure
Re-inventing Growth: Critical National Infrastructure
RenewableenergypumpingsystemsonthecanalSource:Foster+Partners
Red
2Dead
Cities and City Regions are the power house of the global economy and will continue to grow in importance. The projected infrastructure spend to support urban economic growth and development is estimated to be over
$40 trillion. Today’s Cities Urban growth challenges are increasingly about global security, energy and resource constraints, re-alignment of the global economy, social equity and demographic issues and the impacts of disruptive change.
CITY REGIONS AS DRIVERS OF THE GLOBAL ECONOMY
Lineenablesupto200,000newhomesandhasaHousingLand
ValueupliSof£15bn Note–Na1onalRailAbstrac1on=13%(lossoffareboxrevenueonotherlines) Theindirectcontribu1onisprojectedtobesomewhere
between160-212%ofthecosts. Developmentphase5-6years|10-12yeardeliveryphase|duetobeopera1onal2032.
Capital Funding Sources Crossrail 2 Opera1ngSurplusBusinessRatesSupplementMayoralCILRe-saleLand/PropertyCouncilTaxLondonContribu4on
11.6% 20.3% 16.9% 6.3% 1.4%56%
THE CHALLENGE OF PAYING FOR ECONOMIC INFRASTRUCTURE
Tax Increment Financing (TIF)
Incremental Business Rate Income
Community Infrastructure Levy Borough (CIL)
Mayoral CIL
Stamp Duty Land Tax (SDLT)
STATION CENTRIC DEVELOPMENT
WSP TFL BRIEFING: THEROLEOFTRANSPORTINMEETINGTHEMAYORSSTRATEGICOBJECTIVESFORLONDON
HeathrowGateway ClaphamJunc1onEarlsCourt
OpportunityAreas AreasforIntensifica4on12345678910111213141516171819
BexleyRiversideBromleyCanadaWaterCharltonRiversideCityFringe/TechCityColindale/BurntOakCricklewood/BrentCrossCroydonDephordCreek/GreenwichEarlsCourt&WestKensingtonElephant&CastleEustonGreenwichPeninsularHarrow&WealdstoneHeathrowIlfordIsleofDogsKensalCanalSideKingsCrossStPancras
20212223242526272829303132333435363738
Lewisham,Cahord&NewCrossLondonBridge,Borough,Banks.LondonRiversideLowerLeeValleyOldKentRoadPaddingtonParkRoyalOldOakCommonRoyalDocksBecktonWaterfrontSouthallThamesmead&AbbeyWoodTokenhamCourtRoadUpperLeeValleyVauxhall,NineElms,Ba`erseaVictoriaWaterlooWembleyWhiteCityWoolwich
39404142434445
Farringdon/SmithfieldHarringayHeartlandsHolbornKidbrookeMillHillEastSouthWimbledon/ColliersWoodWestHampsteadInterchange
Red=projectswearecurrentlyengagedon
REALIZABLE VALUE CAPTURE
Sta4onPipeLine
ClaphamJunc1onWimbledonChelseaStadiumGunnersburyRossmoreRoadKingsRoadRoyalMintGardens
STATION OVERBUILD + LAND BRIDGING DEVELOPMENT
‘ the scale of the cuts means we need
to completely re-think the role and
structure of the city council and how we
achieve the outcomes we seek …..
This is the end of Local Government as
we know it. ‘
Sir Albert Bore, Leader of Birmingham City Council, 2014
‘Snap-Shot ‘ City Profile
• Birmingham is the largest municipal authority in Europe and is underperforming
• Birmingham’s GVA is lowest of the core cities at £19,523 • UK’s second largest city ONS predict a population growth of 85,000
between 2011 – 2021 to • 1,160,100 – an increase of 8%. • Overcrowding rose 3.6% in 2001 to 12.4% in 2011 • Ethnicity is more diverse that the UK average 47% BME. • 22% current population born outside the UK • 44% primary and 38% secondary school children have English as second
language. • Youngest population of any European City: 46% population under 30
years • 11% growth in pensioners 2011 to 2021 • Population 85yrs + expected to grow 30% between 2011 – 2021.
Revenue Challenge
• 90% from central Government ( ring fenced for public service delivery) • 10% from Council Tax. • By 2018, cumulative Revenue Support Grant will reduce by 50% Key Growth Challenges
• Maintaining public service commitment with a reducing funding from central government.
• Housing shortage • High localised deprivation • Securing private sector Inward investment • Having a clear vision of a City Government Reform for 2020
2015 2016 2017 2018 2019 2020
Core Grant £403m £353m £293m £256m £260m £264m
% Change -14% -21.3% -12.4% -16.9% -12.9% +1.6%
% Cumulative Change -14% -32.3% -40.7% -50.6% -57% -56.3%
CityCouncilBusinessPlan
CITY CITY STRATEGIC CHALLENGES
HS2
StrategiesforLVC:Extend high density central core areas to city fringe Population Dispersal to South East Region New Settlements: Eco-towns (Land Release: Brownfield + Green-Belt) Suburban Intensification
Access Charges
New Infrastructure
Land Value Capture
New Finance Models
MODELS FOR TRANSPORT ENABLED DEVELOPMENT
Focus on Supply Side: How projects are brought to market.
Less on ‘Demand Side’ – how projects are delivered + financed
Use tax incentives to boost affordability for Public Sector
Develop models to release Capital from existing surplus Or underutilised Public assets To invest capital in new projects.
Public Sector Social Value Funds
SWF / Govt Bonds
‘One Belt, One Road’ – China’s Silk Road Initiative will create A connected global economic infrastructure.
Projects Completed or Planned 2015 Source: Merics – Mercator Institute
NEW INVESTORS
Collaboration between Govt, industry and 9 research organisations.
CIVIL SOCIETY
NON- ALIGNED
ORGANISATIONS
OPINION FORMERS
PRIVATE ORGANISATI
ONS
PUBLIC SECTOR
ENTERPRISE
PUBLIC DEBATE
GOVERNMENT
SUPRA-NAT8IONAL
ENTITIES
PUBLIC PRIVATE PARTNERSHIPS
CITY
Regions
UNDERSTANDING COMPLEXITY AND HOW THINGS HAPPEN ….
GeographicInforma1onSystem(GIS)applica1onscanenableorganisa1onstovisuallyassesstheLikelihood(Vulnerability,ThreatandTargetAkrac1veness)oftargeted,environmentalandsitua1onalbusinessrisksonasingle,integratedplahorm.Thisempowersriskstakeholderstotakekeydecisionsbasedonenhancedsitua1onalawarenessandvisualisa1onofsimultaneousdatasets.Ourteamworkwithorganisa1onstoiden1fyspecificdata‘layers’fromacomprehensiveàlacarteselec1onfallingintothefivecategories(listedleS)recognisingthroughoutthisprocessthateachbusiness’individualcharacteris1csoSendetermineriskexposureandthatinternalriskappe1tedefinescontrols.Together,theselayersprovideadetailedRiskOpera1ngPicture(ROP).sHORASoutputsaretailoredtoclientrequirements.ROPscanbeincludedinwrikenGRAreportsordeliveredasstand-aloneKMZ/KMLfiles,augmentedbydashboardrepor1ng(seebelow),forinclusionwithininvestmentriskappraisalsoraspartofop1onstes1ngforna1onal,regional,districtorsitelevelappraisals.
Geopolitical & Macroeconomic
Socio-economic
Physical Security
Energy Security & CNI
Environmental
Sustainability Risk and Value Management Tools VisualisingLoca4onIntelligenceforInfrastructureeco-systems
Theme Anti-Bribery & Corruption Compliance
Overseas Investment Risk Global
Environmental Threats Regional
Location Intelligence District
Total UK Carbon 1.215 million t Case Study: GenericTotalCosttoServemodelforDataCentres
DATA CENTRE ‘COST TO SERVE’ MODELS INPUTS Engineering – Tier rating, IT load per hall, number of halls, PUE Technology – Applications, server complexity, rack size, IT load projected growth Real Estate – Years to plan for, location, site cost, inflation
OUTPUTS Engineering – area required for plant, energy and carbon tax costs Technology – IT Load per rack & hall, number of servers and racks required, costs (IT hardware, operating, migration) Real Estate – site size required, construction costs, maintenance and running costs Facility parameters defined together with cumulative total cost of ownership and spend profile for the life of the data centre.
Cities & Infrastructure: Pulse Survey Howstronglydoyouagree/disagreewiththefollowingstatements? Agree Neutral Disagree
TheGovernmentshouldcon1nuetoinvestinmajorinfrastructureprojects
99% 1% -
TheGovernmentshoulddelayinvestmentdecisionsun1lthereisgreatercertaintyonBritain'srela1onshipwiththerestofEurope
2% 4% 94%
Ci1esshouldhavegreaterfiscal/revenuecontrolanddecisiontakingpowersoninvestmentpriori1es
73% 18% 9%
Thepublicdon'tunderstandtheroleofinfrastructureinenablinggrowth
80% 7% 13%
Theindustryshoulddomoretoengagekeydecisiontakersontheimportanceofinfrastructureanddevelopment
94% 5% 1%
Britain'sleavingtheEUwillsignificantlyweakentheUKGovernment'sEnvironmentalcommitmentsandcarbonreduc1ontargets
42% 27% 31%
Thequalityofourci1esandthepublicrealmwillbeofincreasingimportanceinincreasingourna1onalcompe11venessshouldweleavetheEU
79% 15% 6%
A(14%)
B(14%)
D(14%)
I([PERCENTAGE])E
([PERCENTAGE])L
([PERCENTAGE])
E(8%)
K([PERCENTAGE])
J([PERCENTAGE])
E([PERCENTAGE])
E([PERCENTAGE])
C([PERCENTAGE])
TOP5investmentpriori4estohelpensureourlongtermcompe44venessImprovedtransportlinksbetweenci1ese.g.HS2,HS3NorthernPowerhouseImprovedtransportlinkageswithinci1esandcityregionse.g.CrossRail2IncreasedairportcapacityintheSouthEast
Conven1onalPowerGenera1on,Transmission,Distribu1onIncreaseRenewableEnergy
SystemsImprovemente.g.electrifica1on
ImprovingUK'smainTrunkRoadsandMotorwaysImprovingLocalRoadTransport
FloodDefense/ClimateResilience
Ranking Priority
1st AB
ImprovedTransportbetweenci1esImprovedtransportwithinci1es
3rd C Digital&ITInfrastructure
4th D AirportExpansioninSE
5thEFGH
TrunkRoad&MotorwayImprovementIncreasedRenewableEnergyUrbanHousingSocialInfrastructure
9th10th11th12th
IJKL
Conven1onalPowerFloodDefence/ClimateresilienceLocalRoadTransportSystemsImprovements,Electrifica1on
Cities & Infrastructure: Pulse Survey
SinglemostimportantareasforGovernmentandpolicymakerstoensuregrowthandcompe44veness
Na4onalInfrastructure 28%23%20%
Beker,integratedinter-urbantransportsystemsLongtermna1onalinfrastructureplanwithcrosspartysupportNa1onalcleanpowerstrategy+supportsystems
City&CityRegions 22%20%17%
BekerpublictransportsystemsBeker,integratedmul1-modaltransportsystemsDevolu1on
Rural 52%10%7%
Broad-BandCommunityInvestmentPlanningpoliciesthatsupporteconomicdevelopment
KeyThemes
Cities & Infrastructure: Pulse Survey
Housingwassurprisinglynotamajorissueeventhoughthepublicandpoli<ciansseehousingastheirmostimportantinfrastructurerelatedissue(ignoreimmigra<on).Ifinfrastructurewantstobevocalitshouldtalkinthelanguageofhousing(development)thatthepublicunderstands.
Compe44veness Wehavebeencallingforgreaterinfrastructureinvestmentforyears,wewereonthisjourneyanyway.Brexitdoesn’timpactthedesireorlongtermneedforupgradingourtransportnetworksthatneedittocopewithagrowingpopula1onandeconomy.
Confidence Is Brexit Infrastructure’s opportunity to find it’s voice? Notonlydoesitprovideenormousbenefitstotheeconomy,weasanindustryaresignificantemployersofhighendtechnicalskillsinourownright.
Advocacy&Awareness
Howdowedoabekerjobincommunica1ngthecomplexi1esandbenefitsofinfrastructureandconnecteddevelopment?Dowethinkthatbypersuadingthepubliccanwepersuadegovernment?Howcanweakractyoungbrightpeopletotheindustry?
Engagement&Influence
Howcantheindustrydomoretoengageandinfluencedecisiontakersandpoli1cians?Whatdoweneedtodobeker?
1 2 3 4
‘Thereisanexis<ngskillsgapinthiscountry.Wewantyoungpeopletoseegreatcareersaheadofthemwiththepromiseofworldclassiconicprojectstoworkon,otherwisetheymaychooseotherindustries.MajorprojectscanhelptheUKtoinspirethenextgenera<onofBrunel’s.’
Professor Peter Sharratt MA, DipArch, MSt. IDBE, FRSA
Director Strategic Consulting, WSP Parson Brinckerhoff
Professor of Industry & Professional Practice, University of Westminster
07713 - 985 833 m