IN DEPTH: Slew Of UK Firms Win Thames Tideway Tunnel Contracts

LONDON (Alliance News) - A number of UK-listed companies were on Monday named among the ventures which will handle the construction of the Thames Tideway Tunnel project in London, the so-called 'super sewer' designed to ensure the sewerage system in the capital can support population growth for the next century.

A joint venture including construction and infrastructure company Balfour Beatty PLC and construction services company Morgan Sindall Group PLC won a GBP416.0 million deal to contract the west portion of the tunnel. Construction and civil engineering company BAM Nuttall Ltd is the other partner in the joint venture, called BMB.

The equal joint venture between the trio was named preferred bidder on the contract in February and will handle the building of the six-kilometre west section of the 25-kilometre tunnel.

Engineering services company Costain Group PLC is part of the joint venture that will handle the GBP605.0 million east portion of the tunnel. Costain is working alongside VINCI Construction Grand Projets, a subsidiary of French construction company VINCI, and Bachy Solentanche, the UK geotechnical engineering subsidiary of French contractor Soletanche Bachy.

The third contract award, for the central portion of the project, has been handed to a joint venture comprising Ferrovial Agroman UK Ltd, the UK subsidiary of Spanish construction group Ferrovial SA, and Laing O'Rourke Construction, the largest privately-owned construction company in the UK.

The Thames Tideway Tunnel is designed to ensure the sewer system in London is fit to support the city's projected population growth over at least the next 100 years. Thames Water said the tunnel will stem the flows from the 34 "combined sewer outflows" identified by the UK Environment Agency as the most polluting in the capital.

In addition to the expansion of five sewage treatment works recently undertaken by Thames Water, the tunnel, alongside Lee Tunnel, will significantly reduce the 39 million tonnes of untreated sewage which typically flows into the tidal River Thames per year. Lee Tunnel, which has already been constructed, will divert wastewater which would previously have flown into the river to Beckton sewage works in East London. It will be operational in early 2016.

The consortium said mobilisation work on the contract will start immediately, with the Balfour-Morgan Sindall consortium scheduled to complete its work in 2022, and the Costain venture expecting to complete the project in 2023.

Water regulator Ofwat said that the new process it used for awarded the licence has resulted in significant savings for Thames Water customers, who will pay for the project via their existing water bills. Thames Water customer bills will stay flat, before inflation, until at least 2020 and the overall cost to customers of the project is around two-thirds lower than previous forecasts, the watchdog said.

It added that the licence agreement includes a number of incentives, in the form of reward and penalties, for the contractors to complete the work on time and at the lowest possible cost. Ofwat said that if the project is completed under-budget, the majority of the cost savings will be passed on to Thames Water customers.

Thames Water customers will pay for the tunnel, but the project is being financed via Bazalgette Tunnel Ltd, a special purpose vehicle created separate to Thames Water.

The financing will come from the Bazalgette Consortium, which includes FTSE 250 infrastructure investor International Public Partnerships Ltd. INPP said it will invest GBP210 million in the project and now has a stake in the project of around 16.0%. The rest of the risk capital for the project is being provided by its partners in the Amber consortium.

The other partners in the Amber Infrastructure consortium include German insurer Allianz AG, Amber Infrastructure Group, Dalmore Capital Ltd, DIF and Swiss Life Asset Managers.

Balfour shares were down 3.1% at 256.00 pence on Monday, while Morgan Sindall shares were up 0.1% to 821.00 pence, Costain shares were down 0.7% to 367.00 pence and International Public Partnerships shares were down 0.7% to 136.20 pence.

By Sam Unsted; samunsted@alliancenews.com; @SamUAtAlliance

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