Richard Threlfall, KPMG’s Head of Infrastructure, Building and Construction comments on the financial close of the Mersey Gateway project announced today:
“Today’s’ financial close of the £500m Mersey Gateway PPP project is a big deal in all senses. As one of the largest transport projects outside London in a decade, it is a big deal for Merseyside. As the first project in the UK to be contracted for open road tolling, it will be a big deal for drivers who don’t want to get stuck in queues at toll booths. And it is a big deal for the Treasury as it is the first project to be supported by a UK Government Guaranteed Bond under the UK Guarantees programme."
“After the failures of previous projects like Merseytram, it is highly symbolic that Merseyside has been able to close a deal of this size, and that it has been done by a Council whose financial income is dwarfed by the scale of the project. It is also a politically important deal for the UK Government who is keen to show that it is investing in infrastructure in the North as well as in the South of the country."
“The project is also a story of remarkable political bravery. It has not been easy, particularly in one of the most economically deprived regions of the country, to defend the introduction of a tolled crossing when the existing crossing is free. But Halton Borough Council argued consistently for over a decade that the future of the region depended on a new crossing and that in an age of austerity tolls were the only way it would happen. That position was severely put to the test when the Government last year unexpectedly announced the withdrawal of plans to toll the A14, but once again local politicians remained firm, took a long term view and headed off one of many threats to the project."
“But the Mersey Gateway project also shows the many challenges infrastructure projects of that size face in the UK. It has taken more than 20 years from when the need for the bridge was first identified to where we are today, about to start construction. But it is also testimony to the determination and leadership of Halton Borough Council that the project has survived through the financial crisis, a change of Government and numerous changes in policy. In the end the project has happened with support from the very top of Government working in partnership with one of the smallest local authorities in the country."
“It is also a great deal from a taxpayer perspective. Not only is more than 90% of the cost funded by tolls, but the level of central Government support required for the project in the end was less than half that which was originally envisaged. The Treasury was watching closely as the first Government Guaranteed Bond priced, and have no doubt breathed a sigh of relief as it has been brought in at only 0.42% above the price of government borrowing, setting an expectation that future issues will be at least that keenly priced too."
Some will still argue that the guarantee, being more expensive than government borrowing, is poor value, but miss the point that when Government finances are constrained a government guarantee is by far the cheapest way of supporting a project. And by retaining private sector equity and senior debt in the deal, the public sector has successfully transferred both risk and incentive to the private sector to deliver on time and on budget.
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For further information please contact:
Katrin Boettger, KPMG Press Office
T: 0207 694 8773
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This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.