Financing for London’s ‘super sewer’ gets approved

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Financing for London’s ‘super sewer’ gets approved

Water bills in London will rise less than expected to pay for the city’s planned £4.2bn “super sewer”, after regulators approved the financing for the biggest overhaul of the capital’s waste plumbing system since it was first built in the 19th century

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Water bills in London will rise less than expected to pay for the city’s planned £4.2bn “super sewer”, after regulators approved the financing for the biggest overhaul of the capital’s waste plumbing system since it was first built in the 19th century.
Construction of the 15-mile (25km) Thames Tideway Tunnel, which will reduce the overflow of sewage into the river, will begin next year following the grant of a licence by Ofwat and the confirmation of building contracts and investors.

Customers of Thames Water will face extra charges of £20-25 a year, rather than the additional £80-90 initially forecast.
The project has come under criticism for its funding structure and was attacked for an alleged lack of competition in the bidding process.

Instead of funding the scheme on its own balance sheet, Thames Water set up a separate company to build and own the tunnel. About one-third of the cost will be funded by Thames, with the remaining £2.8bn raised by the project company. The government pledged to act as the backstop or insurer, bearing the brunt of cost overruns and incidents during construction, which will take place at 24 sites across the city.

While customer bills will pay for the sewer, it is being financed and delivered by Bazalgette Tunnel Limited, with the utility to assume ownership once the tunnel is completed in 2023.

The consortium is named after Sir Joseph Bazalgette, who built the original network in response to the “great stink” of 1858. It is made up of Allianz, Dalmore Capital, Amber Infrastructure, DIF, Swiss Life Asset Managers and International Public Partnerships, and is making an investment of up to £1.28bn.
Thames Water on Monday said that the investor group included pension funds covering 1.7m savers, fulfilling the government’s long-stated aim of getting domestic institutional investors to fund UK infrastructure projects.

Six banks provided loans and one person involved in the deal said the debt would initially comprise a 10-year revolver facility — where the borrower pays a fee and can draw funds as and when they are needed — of about £1bn, which would be “periodically refinanced with longer-term debt or bonds”.

Thames also announced contracts for the construction of the three sections of the tunnel.

Costain, the engineering group, is leading a joint venture that includes Vinci and Bachy Soletanche, two French construction groups. It said it had been awarded a £605m contract for the eastern portion of the Thames Tideway.

Balfour Beatty and its joint venture with Morgan Sindall and BAM Nuttall was awarded a £416m contract to build a 6km west section of the tunnel that will run from Acton in west London to Wandsworth in the city’s south-west.

The contract for the middle section, worth £746m, was awarded to Ferrovial Agroman UK and Laing O’Rourke Construction.

Source: Financial Times

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