UK spending watchdog to probe Thames Tideway

The National Audit Office will say this autumn whether the ‘unusual’ structure used to finance the £4.2bn tunnel is value for money.

The UK’s National Audit Office is investigating the guarantees provided to private investors in the Thames Tideway Tunnel to decide whether taxpayers and consumers could end up paying too much for the £4.2 billion ($5.6 billion; €5 billion) project.

The probe is a follow-up to a 2014 report by NAO, which warned then that the approach chosen to fund the project could prove expensive for taxpayers. It comes a year after the financial package put forward by the consortium chosen to build London’s “super-sewer” received the green light from Ofwat, the country’s water regulator.

Under the current arrangement, about one-third of the funding will come from Thames Water, which will repay the investment through higher customer bills, while £2.8 billion will be provided by Thames Tideway, the company set up to build and operate the project. Equity injections from private investors will account for £1.2 billion of this.

Backers of TTT, which were chosen as preferred bidders in July 2015, comprise Germany’s Allianz; UK-listed International Public Partnerships, through its adviser Amber Infrastructure Group; London-based Dalmore Capital; and Dutch-headquartered DIF.

The financing package’s peculiarities include a yielding investment through construction and operation, a fully Retail Price Index-linked revenue stream, and, according to a statement issued by INPP, a government support package providing “significant mitigation to some of the more severe risks of construction”.

Through its investigation, NAO will try to establish whether taxpayers will end up paying more through this scheme than if TTT had been entirely publicly funded and then privatised.

“Unusually for the privatised English and Welsh water sector, it is being delivered by a specially created company, and benefits from a contingent support package provided by government in its construction phase,” NAO said in a briefing note. The investigation will “set out the risks faced by customers and taxpayers as the project moves towards completion, and how these risks are being mitigated”.

It will also evaluate the project’s risks and costs compared to the four alternatives that had previously been considered “to address the problem of pollution into the Thames caused by spills from combined sewage overflows”.

Andy Mitchell, chief executive of Tideway, expressed confidence the scheme was “delivering this vital project in the most timely and cost-efficient way”.

The report is due this autumn, which is also when construction is set to start.