On Friday, the Department for Transport abruptly announced that it was pulling the plug on plans to use private finance – effectively a public-private partnership – to pay for the trains for the forthcoming Crossrail line across London.
This came as some surprise; not just because, I’m informed, the bidders only heard about it half an hour before the press release, but because this issue was supposedly dealt with last year. Transport for London argued at the time that using private finance would be wasteful and overcomplicated. They have now won out.
But what’s really interesting about this decision is it shows a lack of faith in the ability of private finance to deliver the project on time. The official statement says:
“By removing the private financing requirement and moving to a wholly publicly funded procurement the contract negotiations will be simplified and as a result Transport for London believes this will provide greater certainty that the contract can be awarded in time.”
I’m advised that this decision was probably taken in the light of the failure so far of the sponsors of the Thameslink rolling stock project to agree financing for their own trains. The Siemens-led XL Trains consortium was awarded the contract in 2011 and was supposed to sign financing that December, but over a year later, it still hasn’t managed to come to an agreement with its 13-strong bank group (More about this soon). The DfT resisted calls by Tfl and Boris Johnson to use public finance last year, but with Thameslink still struggling, they’ve bitten the bullet.
Not only do the problems of Thameslink illustrate the complication of agreeing what is a fairly new type of transaction (it’s a bit different from the privately owned trains used on Britain’s main line railways, which are owned and financed under a different contractual structure) but also there was a danger that the banks likely to back Crossrail rolling stock are the same ones currently wrangling with Thameslink, and would lack the resources – both human and financial – to work on both at the same time.
This is hardly reassuring for David Cameron, Nick Clegg and George Osborne, given their commitment to use private investment to pay for Britain’s infrastructure. What it means is that they cannot, under current market conditions, rely on the private sector to find the capital and arrange it in good time to close new infrastructure deals. Thameslink requires over £1.5 billion of debt; Crossrail would have needed a bit less, perhaps around£800 million.
What’s more, Crossrail was going to benefit from having its debt partly guaranteed under the Treasury’s UK Guarantees scheme. But even that wasn’t enough to provide the assurances that the money could be found.
The decision suggests a belief that there aren’t the funds available to do both deals at once. Not, at least, from the institutions prepared to provide finance. Those pension funds which the UK government wants so dearly to come in and lend money for infrastructure are still getting comfortable with the idea. It bodes ill for the Treasury’s National Infrastructure Plan and it raises the question of whether UK Guarantees actually does any good.
Meanwhile, the Crossrail trains tender documents will have to be junked and rewritten. Which won’t in itself save time.