Out-Law News 2 min. read
16 Dec 2011, 1:58 pm
According to a report in the Guardian newspaper, Boris Johnson wanted to borrow the funds to acquire the 60 trains directly through his Transport for London (TfL) authority, as it can take advantage of better interest rates than private companies. However, Transport Secretary Justine Greening refused his request to increase the amount of money TfL can borrow.
A spokesman for the Department for Transport (DfT) told Out-Law.com that the contract would still include a "substantial" element of public funding. The Guardian said this would likely amount to about 30% of the project, leaving the majority to be financed through PFI.
An invitation to tender (ITT) for the rolling stock was due to begin this year, with contracts awarded in 2013. However, Crossrail announced in September that the process will now begin in 2012.
"The Secretary of State has agreed with the Mayor of London that the contract for Crossrail's rolling stock should include a substantial element of public funding. This will ease the costs of private finance debt repayments and has the added advantage of reducing debt and equity requirements, helping to ensure a level playing field among bidders. It is too early to speculate on the outcome of the process before the ITT has even been issued," the DfT spokesman said.
TfL shares the Government's AAA credit rating, allowing it to borrow funds more cheaply than the private sector. However, it is currently only permitted to borrow another £1.9bn before 2015, and financing the Crossrail carriages on its own would breach that limit, the Guardian said.
The Crossrail contract is for 60 train carriages which will operate on the existing UK rail network from May 2017 before being put into service on a new route across London. The Crossrail route, which runs between Heathrow in the west and Canary Wharf in the east via new tunnels under central London, will open in 2019 and serve around 200 million passengers each year.
Announcing the delay to the project in September, Crossrail said that France's Alstrom had withdrawn from the contract bidding process leaving a shortlist of four – Bombardier, Construcciones y Auxiliar de Ferrocarriles, Hitachi and Siemens - to compete for the work.
It had been suggested that the delay would allow time for the process to take account of recommendations made by a review called by the DfT following the decision to award a contract for 1,200 carriages for another cross-London route, Thameslink, to Germany's Siemens instead of Bombardier. The Canadian owner of the UK's last train-making facility, in Derby, laid off nearly half of its 3,000 staff in July after losing the Thameslink bid.
The Guardian said that financing the Crossrail rolling stock programme through a PFI scheme would make the contract more similar to the Thameslink scheme and potentially jeopardise a successful bid from Bombardier for the work.
PFI was introduced in the early 1990s as a way of using private sector skills and finance to provide public services. The Thameslink carriages will be financed by a private sector consortium created by Siemens for the sole purpose of owning the project. This consortium will then lease the trains back to the train operator for a monthly fee over the life of the project.
The Treasury is currently reviewing the way in which private sector funding is harnessed for public sector infrastructure projects. However, it has confirmed that projects using the PFI model that are already at the procurement stage will be considered on a "case by case basis" and depend on their value for money to the taxpayer.
Crossrail has announced that construction for the 21 kilometres of twin-bore tunnel required for the project will begin at Royal Oak, near Paddington, in March 2012. Eight tunnel boring machines, manufactured by German firm Herrenknecht AG, will be used in total. Herrenknecht also manufactured tunnel boring machines for the capital's recent Jubilee Line Extension and Docklands Light Railway Extension.
