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  • January 2017 (Revised April 2019)
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The Olmos Project: Value Creation and Value Capture

By: John Macomber, Fernanda Miguel, Laura Urdapilleta and Valeria Moy
  • Format:Print
  • | Language:English
  • | Pages:27
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Abstract

Private investment in public infrastructure can be encouraged when there are multiple avenues to capture and to share the value created by such a project. Gains in the market value of land adjacent to projects are not customarily channeled back into defraying the original capital cost of the project—but they can be. This case uses irrigation, agriculture, land values, and an arrangement between the local government in northern Peru and the privatizer firm to accomplish the irrigation of vast areas of land, leading to jobs and GDP growth in the state, based on a combination of fees for water, auction price for raw land, investment in enabling infrastructure, and market value increases for irrigated land. The mechanics of this three-component deal (land company, water distribution company, construction company) are tracked on a pro forma multi-year cash flow basis with the ability to make and test a variety of different assumptions. The choice of an agricultural setting with one possible use case (farming at ground level) leads in to more complex value capture analyses. Real estate, for example, can have more dimensions (more floors allowed) and more use cases (retail, housing, office) than does agriculture. The local government can accomplish hundreds of millions of dollars of construction without advancing any funds to do so.

Keywords

Value Capture; Infrastructure; Decision Making; Agribusiness; Value Creation; South America; Peru

Citation

Macomber, John, Fernanda Miguel, Laura Urdapilleta, and Valeria Moy. "The Olmos Project: Value Creation and Value Capture." Harvard Business School Case 217-052, January 2017. (Revised April 2019.)
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About The Author

John D. Macomber

Finance
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Related Work

    • January 2017 (Revised April 2019)
    • Faculty Research

    The Olmos Project: Value Creation and Value Capture

    By: John Macomber, Fernanda Miguel, Laura Urdapilleta and Valeria Moy
Related Work
  • The Olmos Project: Value Creation and Value Capture By: John Macomber, Fernanda Miguel, Laura Urdapilleta and Valeria Moy
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