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Tideway proposed route

Thames picks preferred bidder to finance, build and own Tideway

Thames Water has selected its preferred bidder to deliver the Thames Tideway Tunnel and kick start work to create the UK’s first sewerage only utility.

The newly-created, special purpose company Bazalgette Tunnel Limited, whose shareholders are a consortium of investors comprising funds managed by Allianz, Amber Infrastructure Group, Dalmore Capital Limited and DIF, is in line to own, finance and deliver the landmark project.

The group is expected to finance around £2.8bn of the project with £1.4bn from Thames Water.

Bazalgette Tunnel will be the first sewerage only utility in the UK with customers in the Thames region paying it direct for the service it will provide.

Appointment of the Infrastructure Provider will be subject to formal designation and licensing by regulator, Ofwat. CEO will be current Thames Tideway Tunnels chief executive Andy Mitchell with Tideway chairman Sir Neville Simms chairing the new organisation.

There has been global interest in the project and following competition 12 parties were invited to tender culminating in two competitive bids received in the final ‘revise and confirm’ round. 

The group is expected to put in around £2.8bn to the project with £1.4bn from Thames Water. Bazalgette Tunnel will be the first sewerage only utility in the UK with customers in the Thames region paying it direct for the service it will provide.

The delivery model, developed by Thames Water, Government and Ofwat, forms a potential blueprint for other major infrastructure projects, according to Thames Water.

As well as managing the procurement for the Infrastructure Provider, Thames Water has also run the tender process to select the contractors who will build the project.

It says that “the highly competitive nature of both of these processes has paved the way for a substantial reduction in the maximum impact the project is expected to have on customers’ bills”. The figure will be announced later in the summer, once all the contracts have been signed but according to Mitchell in an interview with Infrastructure Intelligence in January “the quoted increase in customer bills of up to an average maximum of £80 per year is very much a worse-case scenario, and we are confident it will be lower than that”.  

The Infrastructure Provider will be independent of Thames Water and have its own licence from Ofwat. It will be responsible for delivering the Thames Tideway Tunnel, which will tackle the discharge of untreated sewage into the tidal River Thames through central London and to significantly increase the capacity in the London sewerage network. 

Along with the recently completed upgrade of five sewage treatment works on the tidal Thames (including at Beckton, East London), both the Lee Tunnel and the Thames Tideway Tunnel are needed to stem the 39 million tonnes of untreated sewage that overflow into the tidal river in a typical year from the capital’s overstretched, Victorian sewerage network, Thames Water said.

The Infrastructure Provider’s responsibilities will include managing the contractors, who will construct the Thames Tideway Tunnel. The tunnel will stretch 25 km largely beneath the bed of the River Thames, from Acton in the west to Abbey Mills near Stratford in the east. There it will join up with the Lee Tunnel, currently under construction by Thames Water.

 

Bazalgette Tunnel – the parties involved

Allianz:

About 85 million private and corporate customers are insured by Allianz. In 2014, it had around 147,000 employees in over 70 countries with total revenues of 122.3 bn euros and an operating profit of 10.4 bn euros. Allianz Capital Partners is the Allianz Group's in-house investment manager for alternative investments managing around 12 billion euros of alternative assets. The investment focus is on direct investments in infrastructure and renewable energy as well as private equity fund investments.

www.allianzcapitalpartners.com

 

Dalmore Capital Limited:

Dalmore Capital Limited is an independent UK fund manager with over £1.5bn of investors’ funds under management and offices in London and Edinburgh. Dalmore has made over 90 investments in lower risk UK infrastructure, in both greenfield and brownfield assets. To date Dalmore’s main investment vehicle is PPP Equity PIP L.P, a £500M fund established for long-term investment in operational UK infrastructure assets, targeting yielding assets with inflation-linked returns.

For the purpose of investment in the Thames Tideway Tunnel, Dalmore has established a single purpose fund which has secured £440M of commitments, primarily from leading UK pension funds as well as a small number of European investors.

Alistair Ray, Partner at Dalmore said: “To date it has been difficult for UK pension funds to invest into major UK infrastructure projects such as Thames Tideway Tunnel where overseas funds have dominated. We hope that following this structure we can similarly bring UK investors into other high profile transactions with similar low risk inflation linked returns. Dalmore believes this is good news for both the consumer and UK PLC."

 

DIF:

DIF is an independent dedicated fund management company managing funds of approximately 2bn euros. DIF invests in infrastructure assets that generate long term stable cash flows, including PPP / PFI / P3 and renewable energy assets in Europe, North America and Australia.

 

International Public Partnerships:

International Public Partnerships Limited is a listed infrastructure investment company which invests in global public infrastructure projects developed under the public private partnerships and private finance initiative procurement methods. Listed in 2006, INPP is a long-term investor in 116 social and transport infrastructure projects, including schools, hospitals, courts, police headquarters, transport and renewable energy projects in the U.K., Europe, Australia and Canada. INPP seeks to provide its shareholders with both a long-term government-backed yield and capital growth through investment across both construction and operational phases of a project.

Visit the INPP website at www.internationalpublicpartnerships.com for more information.

 

Swiss Life Asset Managers:

Swiss Life Asset Managers has more than 150 years of experience in managing the assets of the Swiss Life Group. This insurance background has exerted a key influence on the investment philosophy of Swiss Life Asset Managers, which is governed by such principles as value preservation, the generation of consistent and sustainable performance and a responsible approach to risks. As at 31 December 2014, Swiss Life Asset Managers managed a total volume of over CHF 183 bn assets for the Swiss Life Group.

 

Amber Infrastructure Group:  

Amber Infrastructure Group is a leading international infrastructure specialist, providing asset management and investment advisory services in respect of over £5bn of assets in the UK, Europe, Australia and North America. Amber’s core business focuses on sourcing, developing, advising on, investing in and managing infrastructure assets within the utilities, PPP, transport, renewable energy and regeneration sectors. Amber provides investment advisory services to International Public Partnerships Limited as well as private investment funds, specialising in urban regeneration. Amber is headquartered in London with offices in Munich, Sydney, Melbourne and San Francisco and employs over 80 people, making it one of the largest international infrastructure specialists.

If you would like to contact Jackie Whitelaw about this, or any other story, please email jackie.whitelaw@infrastructure-intelligence.com.