Rail and energy in, roads and waste management out. Luke McLeod-Roberts surveys the CSR fallout
While the recent Comprehensive Spending Review (CSR) hit local government and quangos particularly hard (The Lawyer, 25 October), infrastructure projects managed to escape more or less intact.
The Government’s CSR document pledges to prioritise “economic infrastructure that supports growth (such as investment in transport) and the transition to a low-carbon economy”.
The devil is in the detail, but in broad terms this is expected to entail continued investment in major rail projects – including Crossrail and Network Rail maintenance – alongside support for nuclear power, renewables and carbon capture and storage (CCS). This is at the expense of areas such as waste, streetlighting and a number of road projects.
“We’re still evaluating the full impact,” says Chris McGee-Osborne, senior partner in the energy, infrastructure and project finance team at SNR Denton. “The outcome of the spending review for infrastructure is perhaps more positive than expected though. Nobody expected a concerted push on infrastructure.”
“The Government recognises that continued investment in infrastructure is crucial to generating future growth,” believes Mark Elsey, head of energy, transport and infrastructure at Ashurst.
Ashurst and SNR Denton have advised on some of the biggest transport projects in the UK in the past year, including acting respectively for the Highways Agency and consortium Connect Plus on the £6.2bn M25 DBFO (TheLawyer. com, 21 May 2009).
Ashurst is also advising Crossrail on the £15.9bn procurement of rolling stock and construction of a depot for the London rail project (The Lawyer, 29 March). The M25 project has reached financial close but Crossrail is ongoing, and in the CSR the Government has committed to maintaining funding for the project, which is backed by London mayor Boris Johnson.
Projects such as Crossrail will take up the bulk of the capital investment in transport over the next few years, which the Government claims will be higher in real terms in 2014-15 than in 2005-06. But given the reduction in funding to Communities and Local Government (CLG), local public transport schemes may struggle to get off the ground.
“Few local transport schemes will come forward and those that do will need to be the best in their class,” argues Robbie Owen, planning and infrastructure partner and head of major projects at Bircham Dyson Bell. “Local authorities will have to provide a greater share of funding than they did in the past. They will have to think about things such as workplace levies and road-user charging,” he adds.
Waste management is also a major victim of the CSR, with seven PFI projects shelved. This is despite the fact that fines imposed by Brussels on Whitehall will be passed on to local government if authorities fail to meet their obligations under the EU’s Waste Framework Directive.
“It’s a real surprise for those in the sector,” says Simmons & Simmons projects partner Richard Dyton, who acts for local authorities and sponsors in this area. “The Government says they have enough projects in the pipeline, but that’s a very questionable statement. Only three closed this last year out of 11 that were anticipated. The emphasis will be on local authorities shipping waste out to other local authorities. It’s very inefficient and not good for the environment, but it’s an affordability issue.”
One of the more significant deals that Simmons was acting on, and which has been cancelled, is a North London project which sought to reduce incineration and waste landfill by recycling half
the one million tonnes of waste produced every year in that region, up from 24 per cent.
“It’s going to be quite a problem,” says Dyton. “When the fines come in, they’re going to be fining Boris [Johnson]. He’s going to have to put the taxes up and is not going to be very popular.”
Across the board, new funding mixes are likely to be considered and McGee-Osborne believes PFI could expand as a result.
“If the Government can defer capital expenditure by getting the private sector to come forward, it’s going to be a good thing,” he says.
“There’s still an ideological debate to be had,” thinks Elsey. “I’m not sure that Government funding per se is the best way of using scarce public resources. Market discipline is normally very good. I don’t think it makes sense to use money that the market could find.
“On the other hand, there are projects such as gas storage, where there’s a political and economic need and where it’s difficult to see how it can be funded solely using private sector money because the risks are just too high. The Government needs to focus its support where there are gaps.”
The specifics of funding may be up in the air but Dyton believes that greater clarity on strategic priorities, as laid out in the recent National Infrastructure Plan, is a positive move.
“Labour was going to do it anyway, but the plan means that for the first time ever the Government is thinking about the long-term needs of the UK, not just the next five years,” he says. “This is important in creating certainty, which in turn is good for generating investment.”
Casualties and survivors
Widening and improvement of A11 and junction between M4 and M5.
Easing congestion on M1.
Highway maintenance in Sheffield, Hounslow and the Isle of Wight.
Extending Midland Metro.
Extending Nottingham tram network with two new lines.
New River Mersey suspension bridge.
Upgrades to Tyne and Wear Metro.
£14bn maintenance and investment for Network Rail.
Legislation for new high-speed rail network to Midlands and North.
No further funding for Infrastructure Finance Unit.
Decision still to be made on InterCity train replacement, Thameslink and HLOS rolling stock.
No funding for Dartford Crossing upgrade.
A14, A21, A19, A1 and A47 road schemes cancelled.
£185m savings to be made from Network Rail.
Energy and climate change
£1bn Green Investment Bank funded by Government asset sale.
Flood and coastal erosion risk management.
£1bn for carbon capture and storage demonstration plant.
£200m for development of low-carbon technologies.
Funding for Carbon Trust, Energy Saving Trust, Coal Authority and Ofgem under review.
Building Schools for the Future.
Funding cut to seven waste PFI projects.
192 quangos abolished or reshaped.
Numerous streetlighting projects cancelled.
Source: HM Treasury