M25 motorway £5bn (now £6.1bn!!) upgrade to go ahead

[Comdot]

Government to approve M25 road upgrade
Wed May 20, 2009 12:07am BST

LONDON (Reuters) - The government will approve a Private Finance Initiative scheme to widen and maintain London's M25 motorway despite a jump in the cost of the project, the Times newspaper reported without citing sources.

Under the scheme, the Highways Agency will over the next 30 years pay the consortium chosen to carry out the work 6.2 billion pounds, up from an original estimate of 5 billion pounds, the Times said.

The Connect Plus consortium, comprising engineering firms Balfour Beatty (BALF.L), Atkins (ATKW.L), Egis Projects and Skanska (SKAb.ST), was named as the preferred bidder for the project in July last year.

A spokesperson for the Highways Agency declined to confirm the Times report.

"We're working towards a financial close and we hope to achieve that very soon," the spokesperson said.

The Times said one reason for the cost increase is that banks which have provided Connect Plus with a 925 million pound loan towards its 1.3 billion pound contribution to the project are demanding higher margins.

Under the Private Finance Initiative, private consortiums raise finance to carry out public infrastructure upgrades in return for guaranteed payments from the government over a number of years.

(Reporting by Myles Neligan)

[Comdot]

this article from october explains the cost increase...



Crunch puts M25 revamp in jeopardy

Vital PFI schemes face battle to secure funding
The Observer, Sunday 19 October 2008

Britain's most expensive road improvement programme, the £5bn upgrade of the M25, is struggling to raise finance as a gathering cash crisis threatens the government's controversial £44bn private finance initiative (PFI).

The reluctance of banks to lend money is sparking delays in the delivery of new schools, hospitals, roads and other key facilities.

A 'funding competition' to pay for the M25 upgrade and widening, scheduled to begin next April and to be completed before the London 2012 Olympics, is in danger of failing to attract backers. Delays could mean improvements are not ready in time for the London games.

The financial crisis has now also embroiled a multi-billion programme to build new waste incinerator and recycling facilities, needed to meet waste reduction targets, in several local authorities. A £350m agreement in Manchester is understood to be close to collapse.

The cost of financing the waste programme has left local authorities questioning the value of procuring infrastructure via PFI.

There is also concern that the Tube Lines consortium modernising the Jubilee, Northern and Piccadilly lines could face difficulties. Tube Lines is backed by a complicated £2bn cash facility. It relies on Depfa, a Dublin-based subsidiary of Hypo Real Estate Group. Hypo last month received an emergency £40bn bail-out from the German government. If Depfa cannot pay the consortium, senior financiers believe it could mean Tube Lines will struggle for cash.

Separately, there are concerns that the crisis that has brought down Royal Bank of Scotland could cause delays to hospitals and other facilities. RBS is funding £10bn of PFI projects in the UK, ranging from roads, prisons, and mental health projects to schools and hospitals. On projects where the financial package has been signed off it is expected to sell equity stakes to recoup desperately needed revenue. On those which have yet to be finalised, there is a question mark over whether they will proceed.

HBOS, which is attempting to sell its stake in a string of PFI hospital and school projects, is now simply weighing up whether to sell them as a portfolio or individually.



Champions of PFI believe it is an efficient way of delivering new facilities, but critics say the government always has to pick up the tab when things go wrong.

The government last week increased to 70 per cent the share of receipts it can claw back when projects are being refinanced.

'The current state of chaos in the market is definitely having an impact on the PFI market,' said Richard Tierney, corporate finance partner at BDO Stoy Hayward. 'Firstly, the problems in the banks mean that PFI project funders are now restricting the amount they will lend on individual projects.

'There is an increasing tendency for banks to club together to fund even quite small projects which is delaying some projects. The problem is even more acute on bigger projects such as waste PFI schemes. And banks are now charging higher rates of interest on PFI deals. The credit crunch could become a real issue for PFI projects.'


===================


as does the current times article-



May 20, 2009
PFI deal for M25 agreed despite price rise

The long-awaited M25 Private Finance Initiative (PFI) scheme will finally be approved today but the total cost has risen by more than £1 billion.

The Highways Agency will agree to pay the Connect Plus consortium, comprising Atkins, Balfour Beatty, Egis Projects and Skanska, £6.2 billion in today’s prices over the next 30 years to maintain the London orbital motorway and add a fourth lane to some sections.

The price is well above the £5 billion estimate of the cost of the project when Connect Plus was made preferred bidder in July last year.

The Times has learnt that part of the increase is because of higher margins being demanded by the 17 banks involved in the deal. The cost has increased despite the project being cut back, with the Highways Agency abandoning plans to widen two congested sections of the motorway.

Connect Plus will commit today to building an extra lane in time for the Olympic Games in 2012, from junctions 16 to 23 and from 27 to 30, and to upgrading the Hatfield tunnel.

The agency has dropped its previous plan to widen from junctions 5 to 7 and from 23 to 27. Connect Plus will build gantries over these sections after the Olympics, instead, to allow the hard shoulder to be used as a running lane at peak times.

Connect Plus is contributing £1.31 billion to the deal, of which £200 million is equity from the four partners and the rest is debt. The European Investment Bank is lending £185 million and 16 commercial banks are lending £925 million.

Despite the increase in cost, the agency will claim that the deal is a success because reports that it would need to call on government funding to secure the finance have proved unfounded.

The credit crisis has made project financing much more difficult and this was the main reason for the delay in signing the M25 contract, which was due to start last year.

In March, the Government set up the Infrastructure Finance Unit to meet funding shortfalls for PFI projects and it had been thought that the M25 would be one of the first schemes to need a government-backed loan.

Connect Plus will be responsible for the road surface, barriers, bridges and other structures. It will be expected to ensure the smooth running of the country’s busiest motorway.

It will be under great pressure to complete the two sections of widening, totalling 36 miles, in time for the Olympics. There are likely to be heavy penalties for any overruns and infrastructure failures that result in lane closures.

Hard shoulder running costs about £10 million a mile, compared with about £40 million a mile for widening.

Using the hard shoulder as an extra lane has proved successful on a ten-mile section of the M42 near Birmingham and the agency is planning to extend the idea to 500 miles of motorway over the next few years.

comments

Madness. PFI... at what cost??!
Gordon, why not just issue a gilt, use that money to hire some contractors and in the process own everything. If you get desperate for a bit of new-wave economics then you still have the opportunity to sell what you've built and rent it back!! Won't be the first time!

Nick Grayson, Manchester/ Cambridge, UK

[Comdot]

of course if the government had raised or borrowed the cash itself, there would be no extra costs from financiers wanting higher margins!! the government would just issue a gilt. triple-A credit rating.

[hoosier]

The government should just pay for this project itself. PFI is just a way to transfer tax dollars to the private sector.

[Splish]

If only the M25 could be like how it is around Heathrow the whole way around

[pricemazda]

Originally Posted by Comdot

of course if the government had raised or borrowed the cash itself, there would be no extra costs from financiers wanting higher margins!! the government would just issue a gilt. triple-A credit rating.

No, if they had issued more bonds the rate the market would want from the govt would increase as well!

[Octoman]

Given the torrent of debt issuance this year (£350 bln including refinancing maturing loans) it would be a drop in the ocean. We are already paying more to borrow. Cost of 10 year borrowing has risen from 3% in Feb to 3.5% today.

This is the sort of essential infrastructure projects we should be borrowing to invest in. The problem with private financing as we have seen is it costs more and rapidly ends up as government borrowing when things go wrong anyway.

[Comdot]

exaclty. it's getting so bad that the lay person can figure out that government borrowing would cost less than PFI.

[pricemazda]

Originally Posted by Octoman

Given the torrent of debt issuance this year (£350 bln including refinancing maturing loans) it would be a drop in the ocean. We are already paying more to borrow. Cost of 10 year borrowing has risen from 3% in Feb to 3.5% today.

This is the sort of essential infrastructure projects we should be borrowing to invest in. The problem with private financing as we have seen is it costs more and rapidly ends up as government borrowing when things go wrong anyway.

So Octoman you are saying the govt should borrow more money? I'll remember that for other threads. So what you are saying is you don't mind them borrowing money for things you like, but despise them for things you don't. In future can you stop pretending your issues around govt borrowing are principled but partisan.

[Comdot]

Originally Posted by pricemazda

So Octoman you are saying the govt should borrow more money? I'll remember that for other threads. So what you are saying is you don't mind them borrowing money for things you like, but despise them for things you don't. In future can you stop pretending your issues around govt borrowing are principled but partisan.

it's not partisan. octo may be a tory but the logic can be reached without taking sides. it is simple maths and i know you know it. you are the one being partisan here, that's all.

[pricemazda]

There is hypocrisy on the right, they claim to hate debt and are attacking the Labour govt for borrowing to save the banks, but now Octoman himself is saying we should borrow when in other threads he is talking about apocolyptic futures for our children and how the country is going to collapse and how the whole public sector has to be cut back and how projects of all kinds have to cancelled.

He defends Boris for cutting projects like the DLR extensions, cross river tram and even the Thames Gateway bridge which would have been funded in the same way he now approves of for the M25 widening.

It is deliberately partisan, govt borrowing is good for the M25 why isn't it for the Mayor to borrow for the Thames Gateway bridge?

[Octoman]

This is not hypocracy at all. The borrowing is happening anyway so it is not new borrowing. I am just pointing out that if we are going to do this then there are cheaper ways to raise the finance than via PFI's.

I remain resolutely against letting our debt spriral but as I have pointed out before if we are going to borrow for investment then infrastructure projects are the best candidates. I have mentioned HSR as a candidate on a number of occasions.

And you know full well that Boris doesnt have the borrowing powers of central government. He is on a fixed budget. I dont think it is ideal that these projects were cancelled but as I commented at the time if it secures the completion of crossrail I can live with it.

[pricemazda]

^ What about the Thames Gateway bridge - should the Mayor be borrowing to fund it?

[Octoman]

No. But I would like to see it go ahead in some form when funds permit. The whole Thames Gateway project needs to be reviewed before anything is committed. Its a shambles.

[pricemazda]

Originally Posted by Octoman

No. But I would like to see it go ahead in some form when funds permit. The whole Thames Gateway project needs to be reviewed before anything is committed. Its a shambles.

So in the same sentence you are urging the govt to borrow for the M25 but supporting Boris for refusing to borrow for a major London infrastructure project that the whole Thames Gateway regeneration depends on?

You want all the social housing to go in East London but support Boris in cancelling the DLR extension and Thames Gateway bridge, support him not borrowing to fund it while urging the govt to borrow and at the same time crying about gtovt borrowing.

Also support his £150 million noddy bus which would have paid for the bridge or DLR extension.

Your arguments on this one Octo are full of holes.

[Langur]

Which parts of the M25 will be widened? The area around Heathrow was widened recently right?

[Octoman]

Some details here. Looks like J16 to 23 mainly. Thats the northwest part just after Heathrow. The have already widened the stretch south to 6 lanes in places and minimum 4 lanes pretty much all the way round to Leatherhead.

http://www.highways.gov.uk/roads/doc...B070139wec.pdf

[Langur]

^ Thanks. It's a good project. Build!

[Parkey]

Amazing! Humming and harring for decades over the likes of Crossrail and Thameslink, but when it's a road out comes the chequebook.

After all widening the M25 worked so well to elminate congestion last time, so why shouldn't we do it again.

£6Bn! My goodness, that's about enough for a light rail network for six UK regional cities!

[Langur]

^ Yeah right, because the British government has been so driven in providing new road capacity in recent decades. Goto Spain, France, or Germany, look at their motorways, and then come back and tell me we shouldn't improve ours.