Project Overview

The GBP 4.2bn Thames Tideway Tunnel ( TTT ) project, a 25km tunnel to run beneath the River Thames in the centre of London, is the largest sewer improvement project to be conducted in the UK for over a century. TTT will be connected to 34 existing combined sewer overflows running along the River Thames which are owned and operated by existing water utility Thames Water.

Once completed, Thames Water will operate the tunnel as an integral part of the London sewerage network, while Thames Tideway will be responsible for its day-to-day maintenance. Thames Water s wastewater customers will pay for the TTT through their bills.

Due to the significant scale and complexity of the TTT, the potential for impact on Thames Water s core business services and the fact that Thames Water already had an extensive capital works program of maintaining and updating its existing infrastructure, it was decided to procure the tunnel via a separate provider, which would become a new utility regulated by Ofwat (the Water Services Regulation Authority for England and Wales).

A competitive procurement process was conducted to select an independent infrastructure provider to finance, build and maintain the tunnel based on the lowest bid Weighted Average Cost of Capital ( WACC ), other commercial factors and deliverability. Bazalgette Tunnel Limited ( BTL ), subsequently known as Tideway , was the successful bidder and was granted by Ofwat a project licence to design, construct, finance, test, commission, own and maintain the TTT.

Project Highlights

Thames Tideway Tunnel is widely considered to be a landmark project and it has received broad recognition for some of its leading features. Some of the project highlights are considered to be:

• An innovative example of a substantive operating utility business contracting out a significant bolt-on project rather than undertaking the project itself
• Competitive tender process for cost of capital achieved benefits for customers in an uncertain regulatory environment
• Funding for the tunnel sourced via an additional charge to Thames Water customers estimated to be approximately GBP 20-25 (down from an initial estimate of approximately GBP 70) annually by the mid-2020s. The annual cost will be determined by the final Regulated Capital Value ( RCV ).
• Parallel procurement processes for construction contracts and the infrastructure provider ultimately linking them together
• Construction arrangements contain an underspend / overspend arrangement between the three construction consortia, Thames Water, Thames Water sewage users and Tideway.
• Tideway will start generating revenue from day one of construction, coming from Thames Water wastewater customers based on the return from the RCV.
• Not all project debt secured at financial close due to length of construction funding period.
• Mechanism for Financing Cost Adjustment, to provide partial protection against movements in the cost of debt when secured, with some of the cost / saving to be passed on to Thames Water wastewater customers under certain circumstances.
• Bespoke hybrid contractual and regulatory structure.
• Bespoke government support package purchased by Tideway as an “insurer of last resort” to manage certain key project risks.
• Strong private public working partnership between the private sector project participants and various Government departments.

Project Timeline

A committee to consider solutions to limit the sewage discharge into the River Thames from the Thames Water sewerage network was set up in 2001 and reported on potential solutions in 2005. While awaiting the report, in 2004 the European Commission initiated ‘infraction’ proceedings against the UK for breaching the EU Urban Waste Water Treatment Directive. Further assessment of options continued in 2006 and the UK Government confirmed support for the proposed solution in March 2007. Community consultation on the solution, tunnelling routes and shortlisted sites continued until 2012.