Britain scraps private finance plan for Crossrail trains

LONDON Fri Mar 1, 2013 2:02pm EST

A Crossrail construction site is seen at Farringdon Station in London January 30, 2013. The Crossrail scheme to build a new railway is the largest civil engineering project in Europe. REUTERS/Chris Jackson/pool

A Crossrail construction site is seen at Farringdon Station in London January 30, 2013. The Crossrail scheme to build a new railway is the largest civil engineering project in Europe.

Credit: Reuters/Chris Jackson/pool

LONDON (Reuters) - Britain has ditched a plan to use private sector money to fund the building of trains for its 16 billion pound ($24 billion)Crossrail project, putting taxpayers on the hook for an extra 650 million pounds.

Crossrail, a new railway link under central London, is Europe's largest infrastructure project and is set to cost 14.8 billion pounds, plus a little more than 1 billion pounds to build the trains themselves, of which 350 million pounds was originally going to come from the public sector.

Transport for London (TfL), a public authority partly funded by the Department for Transport, said that the money would mostly come from extra borrowing on its balance sheet.

It blamed a tough market for infrastructure funding, which it said meant that it needed to use public money to ensure that the project is delivered on time.

"It's taking longer to arrange commercial debt in recent years, with some banks withdrawing from long-term project finance lending and others significantly scaling down their commitments," a TfL spokesman said.

A Treasury spokeswoman said that public borrowing would not be affected because the cost would be funded from existing budgets.

Private sector loans to finance some key infrastructure projects have been given government guarantees by Britain's finance minister George Osborne - a core part of his plan to stimulate growth in the country's flat-lining economy.

By contrast he has hitherto rejected further increases in Britain's large budget deficit to directly finance infrastructure projects - an approach favored by some economists and other governments.

About 11 billion pounds of the project's total cost funding will now be financed by the public sector, the TfL spokesman said.

The opposition Labour party said that the move put the timetable for delivery at risk and could mean that bidders will have to be compensated for additional costs, though TfL denied both claims.

The four bidders in the running for the contract, which will now have to be re-issued, were Bombardier (BBDb.TO), Siemens (SIEGn.DE), Hitachi (6501.T) and Spain's CAF (CAF.MC).

TfL said that there would be a short delay while the tender was reissued but that the deal would still be awarded on time in mid-2014 because companies now did not have to present financing plans with their bids.

Friday's decision is another blow for the Department for Transport, which suspended the award of one of its biggest rail franchises in October last year after flaws were found in the procurement process following a legal challenge by losing bidder Virgin Trains.

(Editing by David Goodman)

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