Thames Water has announced that construction of the £4.2 billion Tideway Tunnel will start next year following the confirmation of independent investors to finance and deliver the scheme.

At the same time, Thames Water announced a much lower than predicted cost of the project to customers. The company’s current average household bill for water and wastewater of around £370 per year is now expected to remain at that level, before inflation, until at least 2020.

Bazalgette Tunnel Limited, the new special-purpose company appointed to take the project forward, has now received its licence from Ofwat as a new regulated utilities business, separate from Thames Water.

Martin Baggs, CEO of Thames Water, said:

“It’s no exaggeration to say this is a truly momentous day for London and the River Thames. I want to thank everyone who has played a part in getting us this far.

 “It’s a historic achievement and I look forward to supporting Bazalgette Tunnel Limited in ensuring the project is delivered safely, on time and to budget. The strong competition for both construction and financing has driven down costs for our more than five million bill payers.

 “Our current annual bills already include £7 for the tunnel and this will eventually rise to a total of £20 to £25, before inflation. This is sharply down from the original maximum estimate of £70 to £80 set four years ago. The really good news is that cheaper finance and other efficiencies mean that this hugely important piece of national infrastructure can be built while keeping our bills at or around their current level, before inflation, for at least the next five years.”

The cost of capital for the project, just 2.497%, has resulted in a significant reduction in the cost to customers. The expected bill impact of £20 to £25 by mid-2020s is two-thirds lower than previous projections. Previous worst case forecasts had predicted the impact of the tunnel on average bills would be £70 to £80. 

The Thames Tideway Tunnel is intended to stem the flows from the 34 ‘combined sewer overflows’ (CSOs) identified by the Environment Agency as the most polluting. The £4.2 billion project will connect up with the Lee Tunnel. This has already been constructed by Thames Water to take wastewater otherwise destined for the river to Beckton sewage works, East London, from early in 2016.

Along with Thames Water’s recent expansion of the five sewage treatment works on the tidal Thames, the two tunnels will greatly reduce the 39 million tonnes of untreated sewage that currently overflow into the tidal River Thames via CSOs in a typical year.

Andy Mitchell, CEO at ‘Tideway’, the delivery organisation for the Thames Tideway Tunnel, now owned by Bazalgette Tunnel Limited, added: “Our task over the next seven years is quite simply to make sure London has a sewerage system capable of meeting the capital’s modern-day needs. Everyone in the team is excited and can’t wait to get started.

 “It’s not just about cleaning up the river, important though that is. Nor is it just about building a tunnel. It’s about making sure we transform the River Thames, making it central to the capital’s wider social and economic well-being. This is a once in a generation opportunity and we are determined to raise the bar in every way, not least the way we treat local communities potentially most directly affected by construction works.”

Bazalgette Tunnel Limited is backed by pension funds and other long-term investors represented by Allianz, Amber Infrastructure Group, Dalmore Capital Limited and DIF. The investor group includes a significant proportion of UK pension funds through which over 1.7 million UK pensioners will have an indirect investment in Tideway. The Consortium’s backing fulfills a key component of the HM Treasury’s National Infrastructure Plan, designed to finance the development of UK infrastructure with the support of highly experienced private investors.

With planning approvals for the 25-kilometre (15-mile) tunnel already secured, the newly-created company can now award the construction contracts for the project. The winning contractors for the three tunnel sections were selected through a separate and highly competitive tender process run by Thames Water:

• West: Joint venture of BAM Nuttall Ltd, Morgan Sindall Plc and Balfour Beatty Group Limited
• Central: Joint venture of Ferrovial Agroman UK Ltd and Laing O’Rourke Construction
• East: Joint venture of Costain Ltd., Vinci Construction Grands Projets and Bachy Soletanche

The System Integration contract has been awarded to infrastructure support service provider, Amey, which will be responsible for providing process control, communication equipment and software systems for operation, maintenance and reporting across the Thames Tideway Tunnel system.

Commenting on the licence award announced this morning by the regulator, Cathryn Ross, Ofwat Chief Executive, said:

“I am delighted that the process for awarding the licence for the tunnel has resulted in a good result for customers. Once the tunnel had been confirmed as the best solution to the problem of sewage in the Thames, our job at Ofwat was to work with Government and the project to make sure that Thames Water’s customers got a fair deal. It is important they have trust and confidence that everything possible is being done to keep costs down and make sure it will be delivered on time with the benefit of a much cleaner Thames. There’s a long way to go, but our work has provided good foundations to make sure customers are protected.