http://www.ft.com/cms/s/0/9ee6ab3c-0635-11e2-bd29-00144feabdc0.html#ixzz27ick46Gy
Crossrail trains to receive state guarantee
By Jim Pickard, Gill Plimmer and Mark Odell
©Bloomberg
The £1bn order for new trains for the Crossrail east-west London rail line will be among the first recipients of a government guarantee designed to revive investment in essential infrastructure, Danny Alexander will announce on Tuesday.
Mr Alexander, chief secretary to the Treasury believes the guarantee will drive down the cost of the rolling stock order, which was launched in February. Industry sources are sceptical the move would cut the costs of borrowing for banks but acknowledge a guarantee should make it easier to secure financing, a problem that has led to delays on two other large rolling stock contracts, including the controversial Siemens contract for Thameslink.
The order is for a depot and 60 trains to be used on the new £15bn route, linking Heathrow in the west and Canary Wharf in the east. Four companies are interested – Siemens, Bombardier, Hitachi and CAF of Spain – and are expected to bid formally by the end of October.
The government was already providing 30 per cent of the funding for rolling stock and will say on Tuesday that it is prepared to guarantee the remainder, which will be financed as a private finance initiative.
The outlines of the new government guarantee scheme were first announced by George Osborne in July, with the chancellor suggesting tens of billions of pounds of projects could be underwritten.
The Financial Times has learnt Mr Alexander will use his speech on Tuesday at the Liberal Democrat conference in Brighton to flesh out how the scheme will work.
Separately, ministers have also been drawing up plans to underwrite a new “super-sewer” under London, a £3.6bn project designed to end the dumping of untreated effluent in the Thames river.
The project, being overseen by Thames Water, involves a 20-mile tunnel under the Thames between Acton in the west and Tower Bridge to the east. It has provoked controversy because it threatens to create years of “building blight” for residents in some of London’s most affluent riverside areas. The project is being considered for a Treasury guarantee but this has not yet been signed off.
The company said the relevant bill had paved the way for the government to provide “contingent” support for exceptional risks.
“The Water Industry (Financial Assistance) Act received royal assent on 1 May 2012. This legislation enables the government to provide contingent financial support for exceptional risks in the construction of the project,” said Phil Stride, head of the Thames Tideway Tunnel project. “We are currently in discussion with government on what form this financial support will take.”
The Treasury refused to comment.
The government appears to have relaxed one of its key criteria for guarantees – neither the super-sewer nor the Crossrail rolling stock schemes will be “shovel ready” within 12 months.
Ministers said in July that the Treasury would charge a levy on the initiative, which would cover risks on specific projects, whether that is construction or revenue risk. They came up with this idea, in part, because they believe this should encourage pension funds and bond markets to invest in infrastructure.
A second element of the scheme is a “temporary lending programme” that allows the government to invest money alongside private finance, where there is not enough commercial appetite.
That scheme, which could help up to £6bn of projects, is, in effect, a relaunch of a unit called the Treasury infrastructure finance unit that was closed after the 2010 general election.
The overall scheme was set up because of a withering of long-term lending to infrastructure by commercial banks, a situation that may worsen once banks have adjusted their lending policies as a result of the new Basel III lending rules.
Companies have also found it harder to get projects off the ground since the collapse of the monoline insurance market – a source of guarantees to issuers of bonds to enhance their credit rating – five years ago. There have been only a few tentative attempts by the private sector to replace that service.
Ministers have put increasing emphasis on using infrastructure investment to create economic growth but deep capital cuts during the last spending review make this more challenging.
Mr Alexander on Sunday night launched a forum for the infrastructure industry to engage with ministers: the National Infrastructure Plan Strategic Engagement Forum.
Richard Threlfall, head of infrastructure at KPMG, said the guarantee was about as “bold a move” as the government could make on unlocking finance. “It provides a basis for pension funds and bond financing of all Britain’s infrastructure needs,” he said.
Additional reporting by Michael Kavanagh
