The Lower Thames Crossing (LTC) has outlined different private financing options to bring the project forward, including a semi-private option that would see its total anticipated cost increase to £10.2bn.
A decision on whether to grant a development consent order (DCO) for the major road and tunnel scheme between Kent and Essex is still pending, with a deadline of 23 May for the government’s decision.
Chancellor Rachel Reeves confirmed in January that the UK Government was actively exploring private finance options for the LTC scheme.
In updates to the DCO application, the LTC team has now outlined how the project could be being privately financed, either wholly or partly.
One option is fully regulated private equity funding, according to CN’s sister title New Civil Engineer.
The other option is for the 4.2km tunnel to be publicly funded while the 23km of new roads that will support its use be funded through a private finance model. In this case, the connecting roads would be delivered and funded by the private sector under Design, Build, Finance, Operate and Maintain (DBFOM) contracts.
DBFOM option
Currently, the LTC project, which will see the creation of a new road connecting the A2 and M2 in Kent to the A13 and M25 in Essex, and a tunnel under the River Thames, is anticipated to cost at least £9bn. The updates to the DCO application documentation state that £1.2bn has been spent on the project so far.
Under the new option, the cost would be £10.2bn, including historical costs. This includes a £9bn total capital funding required from this year, made up of £4.7bn of public funding and £4.3bn of private funding.
The extra £1bn added onto the estimated total costs would include around £350m relating to the DBFOM procurement and management of the interface between the tunnel construction (carried out by the government) and the DBFOM special purpose vehicle. It also includes an extra £650m due to a different costing basis for construction and financing under the DBFOM as it will take on construction risk under a fixed-price contract.
The total expected capital cost under the full regulated private equity funding model is £9.4bn. This includes the £1.2bn already spent and a further £8.2bn total capital funding from now onwards.
It is estimated around £1.9bn of the £8.2bn would be from RIS funding of National Highways, which would cover preconstruction enabling works for the entire project up to the completion of the regulated private entity transaction, including utility diversions and design work up to a developed scheme design. It also incorporates an allowance for compensation payments for compulsory acquisitions of land and delivery of the economic regulatory regime for the project, including the establishment of an independent economic regulator.
The remaining £6.3bn would be funded by private investment raised by the regulated private entity and would cover full construction of the project including any preconstruction enabling works not undertaken prior to financial close.
In its updates to the DCO application, LTC said it believed there will be a market interest for the regulated private entity delivery option and that recent market activity suggested there was strong “market appetite” for delivery of capital projects in the UK via this model, citing Thames Tideway Tunnel and Sizewell C as examples.
If this model is chosen, it said an economic regulatory regime would need to be established. This would allow an independent regulator to set an allowed revenue for the regulated private entity to cover its operating and financing costs.
New primary legislation is considered to be required to facilitate the regulated private entity model, should this delivery model be pursued.
The updates to the DCO also confirm that all models are viable and do not have a material effect on the project’s traffic or environmental assessments.
As part of its updates to the DCO, LTC has included further information related to the planned tolls for the tunnel.
With both the full public delivery model and the public tunnel and DBFOM roads model there is no link between the road user charge and the funding for the project. In both models, the revenue from the road user charge would go to the government.
Under the regulated private entity model, the same charges would apply at both the A122 Lower Thames Crossing and the Dartford Crossing, but the regulated private entity would collect the revenue from user charges from both crossings to cover its operating and financing costs. This would be regulated by an independent economic regulator.
The LTC project has been broken up into three main works packages. A Bouygues Travaux Publics/Murphy joint venture won the tunnelling contract in 2023, while Skanska and Balfour Beatty are in line to build new connecting roads, if the project goes ahead.
Read More
Ben Vogel