London mayor Boris Johnson is still fighting hard for his plans for a brand-new London airport to be taken seriously, in spite of his plan being left out of a report on airport expansion options published by the government on Tuesday. Which may explain why he’s making new and strikingly unsupported claims about his plans.
Speaking on BBC Radio 4’s Today programme that morning, Johnson defended the cost of his proposed airport in the Isle of Grain (which I blogged about previously), which the Airports Commission report said would cost £82-112 billion including transport links. He told the programme:
“I don’t think it costs anything as much as he’s been saying. We think that the transport infrastructure alone comes in at about £20 billion, then you’ve got the cost of the airport, but that is relatively easily financed by international investment”
And his aviation adviser Daniel Moylan was equally bullish, telling Bloomberg News:
“The airport itself is likely to be built by the private sector”
That would be interesting. Because the document submitted by Johnson’s office and his transport authority, Transport for London, earlier this year, estimated the total cost of delivering the first phase of the airport and associated infrastructure at £96 billion over the next 29 years (2013-2032), and that all the upfront costs would most likely have to be met by government, not “international investors”. It says:
“Particularly in the early (pre-operational) stage of the project, Government is likely to be the only party able and willing to provide the level of funding required and take on the associated project risks.”
Doesn’t sound like the private sector building the airport to me. For sure, the mayor’s proposal confidently expects that the airport could be handed over to the private sector for a net profit, via a private sale, share offering or concession. But that is by no means guaranteed, as I blogged in October*. The price the government would get for the airport would not be related to how much money they’d sunk into building it, but how much money a private investor expected to be able to make out of the airport over its investment horizon, and also how much money (and at what interest rates or yields) that investor could borrow in order to pay for it. And the cost of delivering infrastructure in the UK is exceptionally high.
The point is, any ordinary listener would surely believe that the mayor’s office is saying that the costs of building this new airport, and the risk associated with time and cost overruns, would be met by the private sector, and that is not what his own proposal says. And despite his complaints that the commission overstated the cost, the cost his proposal suggested is within the cost range put forward by the commission report.
I am not saying that Johnson’s proposal is wrong or adding runway capacity at Heathrow (which the commission estimates would cost £13-18 billion and which could deliver more capacity than the new airport’s first phase would) is better, but the mayor doesn’t seem to be playing straight.
*Large infrastructure projects aren’t always able to cover their construction costs over a suitable investment horizon, even when they have an obvious revenue stream. The government built High Speed 2, the high-speed rail link to the Channel Tunnel, for £5.8 billion and sold a concession for it in 2010 for £2.1 billion. That is because the private sector didn’t expect to make enough money out of it to want to pay £5.8 billion.