Funding For Smart City Development
By Jeffrey John Delmon World Bank, Singapore
The Municipality needs to identify robust revenue streams for PPP projects, sufficient and timely to fund capital and operating expenses, including debt service and equity return. Municipalities often perceive Smart City initiatives solely as a public service, a cost center.
When a Municipality partners with the private sector to deliver a Smart City initiative, the private sector does not provide its support for free. Even if in the early days of the partnership, the private sector does not speak directly of revenues and profits, these need to be a focus of the partnership. Whatever the form of private investment and financing, equipment needs to be purchased, debt needs to
be repaid and equity investment needs to earn a return. This focus on revenues is also good for the Municipality, it will make the Smart City initiative sustainable, it will have a life and resilience of its own, without constantly competing for scarce Municipal resources or relying on benevolent funds from the private sector.
Main Sources of Revenues for Smart City Projects: User payments
Charges may be collected from the users of the service. The level of user charges allowed is generally defined by agreement and/or by a regulator. Charges must be affordable to all poten�al users, and demand for the services must be sufficient to ensure the an�cipated revenues. Users may need to be disconnected for failure to pay, which may not be legal or prac�cal for core The development of Smart City services might result in an increase in land values adjacent to the project site, for example, the construc�on of technology-driven communi�es will result in an increase in the value of the land around the community. Innova�on parks designed Land value The project generates commercial revenues from part of, or in some way related to, the Smart City services it delivers, for example, concession rights, land and access rights provided for technology driven communi�es and innova�on hubs can leverage addi�onal commercial revenues from commercial ac�vi�es such as adver�sing, parking, office space, residen�al space, and retail The private sector may be paid a fee (an ‘availability payment’) by the Municipality (or some other public source) to make specified Smart City services available for use. This approach is used where the contrac�ng agency itself is the main user (for example, paying the private partner for providing a building or facility), where the contrac�ng agency is itself collec�ng charges from users (for example, where the contrac�ng agency collects solid waste charges from households and pays the private partner for services),or where users cannot be charged (for example, where a contrac�ng agency pays the project company to provide street ligh�ng). The contrac�ng Municipal payments Commercial revenues
services. Disconnec�ng users from key services like access to data, key public services, water, solid waste or sewerage can be unpopular and even dangerous. While user payments may be economically appropriate, they o�en do not deliver enough revenue to cover the Smart City investment.
for start-up incuba�on will a�ract several associated commercial ac�vi�es. The Municipality has several methods available to capture part of this land value increase to help fund its investment.
facili�es. Data collected on energy usage, traffic volume and pa�erns, pollu�on levels, and other topics may have commercial uses and value. Adver�sing space may be available on the aps and websites used for smart city ini�a�ves. Installa�on of energy-efficient ligh�ng for public roads may provide opportuni�es to sell adver�sing space. agency may prefer to retain responsibility for collec�ng charges, where placing collec�on risk on the project company is not efficient or prac�cal (for example, where people are less likely to pay charges to a private en�ty, where collec�on risk is too high for the project company to manage or where it is illegal for the project company to collect user charges). Some projects may receive addi�onal support in the form of grants from na�onal government and/or external donors or agencies and in the form of capital grants to reduce ini�al construc�on costs.
Malaysia Smart City Outlook 2021 - 2022 |
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