Consultants question viability of Crossrail 2

Crossrail 2 will struggle to meet 50% of its funding requirements from local sources, and contributions form the private sector are likely to be limited, a new report claims.

Transport for London commissioned consultants PwC to produce a funding and feasibility study in March. The total capital cost of the scheme is now estimated to be £27.5bn, substantially higher than the £20.8bn forecast by Mott Macdonald in 2012. The difference is mainly due to additional capital expenditure for surface works, purchase of rolling stock, step-free station access and Lea Valley track quadrupling.

The PwC study looked at both the ‘regional’ and ‘metro’ options, and concludes that the former represents better value-for-money. Although the ‘metro’ would cost less to build (£20.4bn), it is a stand alone scheme running between Wimbledon and Alexander Palace only, whereas the ‘regional’ option between Wimbledon and Tottenham allows trains to run through to other parts of the rail network.

The £27.5bn ‘regional’ scheme favoured by PwC  includes a 66% optimism bias, accounting for £10.9bn, by far the largest single item of capital expenditure; the other costs include: stations £5.7bn; surface works £2.6bn; tunnels £2.3bn; indirects £2.1bn; systems £1.4bn; rolling stock £1.4bn; and land & property £1.2bn.

Crossrail 2 is expected to generate a net operating surplus of £13.6bn (at 2014/15 prices) between 2030/31 and 2064/65 (construction is assumed to start in 2020 and would take 10 years to complete).

Fifty per cent of the funding is expected to come from local sources. PwC estimates the contributions to be: generated revenue (ie from the farebox) 20%;   business rate supplement (BRS) 15.2%; enhanced mayoral community infrastructure levy (CIL) 5.8%; resale of land & property 1.9%; doubling of mayoral CIL 5.8%; and council tax precept 1.5%. Collectively this makes up 50.2%

However, PwC points out that this compares unfavourably with Crossrail 1 funding. CR1’s BRS contribution was 27.7% (as compared to CR2’s 15.2%). Also, that the business rate supplement would only be available to CR2 in 2033, three years after opening, whereas it was available to CR1 eight years before its planned completion.

PwC notes the contribution from developers will be small:

“We have considered the potential for the scheme to be partially funded from existing landowners along the route, but conclude that there are few large landowners are likely to contribute directly to the scheme, in the same way, for example, that Canary Wharf Group or BAA made direct contributions to Crossrail 1.

“We have also considered whether value generated from large scale transformational developments could be captured for Crossrail 2, but conclude that only a small proportion could be funded this way. The costs and risk associated with development in London make it risky to rely on proceeds from developing land. Any value contributed to developments is likely to be extremely sensitive to house prices and land values.

PwC is equally sceptical about the role of the private sector to provide funding:

“While there are opportunities to introduce private finance into elements of the Crossrail 2 project, the proportion that could be privately financed is relatively small, as the core infrastructure project is unlikely to be feasible or provide value for money. The scale of Crossrail 2 makes it too big for the financing market to handle as a single privately-financed project. The prime candidate for private financing would be the rolling stock and depot, as there are viable PFI/PPP options for such projects.

“Some commentators cite a ‘wall of money’ from sovereign wealth funds, infrastructure funds, pension funds and other similar investors is available to invest in infrastructure, however Crossrail 2 is unlikely to meet many of their investment requirements. The size of the project, the construction risk, the demand risk and the likely reliance on non patronage revenues to pay the bulk of the project means that, without direct government guarantees, such investors are unlikely to invest in Crossrail 2.”

662/Dec 14

 

 

 

 

 

 

 

 

 

 

 

 

 

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