Peter Kenyon and Ian McInnes, TunnelTalk
Earlier this month (July 2012) the future of the estimated £750 million extension of the London Underground Northern Line received a welcome boost, with news emerging that a new developer had been found to take over regeneration of the derelict 39.1 acre Battersea Power Station site, south of the River Thames, across from the fashionable district of Chelsea. Striking a deal to develop the site of one of London's most iconic, though now redundant, buildings, is linked directly to the future development of a 3km Underground extension, but questions remain about where the money will come from to support the project. Peter Kenyon and Ian McInnes shared the hunt for answers from the various stakeholders involved.
- On the face of it, news of the successful £400 million bid by a Malaysian consortium to take over redevelopment for the Battersea Power Station site from its bankrupt predecessors should relieve all concerns about the future of the Northern Line underground extension. With the new owners pledging to stick with the existing planning application for the site, rather than submit entirely new proposals, as would have been the case had the rival bid from Chelsea Football Club, for example, been preferred, little actual project development time has been wasted.
Battersea Power Station site
- The project was plunged into uncertainty in December last year (2011) after creditors including Lloyds Banking Group and the National Asset Management Agency called in the £325 million that was owed to them by the then owner, Irish-based Real Estate Opportunities (REO). After failure to reach an agreement, the banks called in administrator Ernst & Young to find a new buyer for the Battersea site.
- Before then, REO's subsidiary company, Treasury Holdings, had been active in driving forward the Northern Line tube extension over the last three years, in partnership with Transport for London (TfL) and its system operator London Underground.
- Planning permission had been granted by the local Wandsworth Council for a huge office and residential scheme, with agreement reached for a £200 million contribution from the developer going towards the cost of building the underground Northern Line extension that will terminate at the site. Local public consultations had been carried out and were ongoing; a preferred alignment that incorporated two stations, at Battersea and Nine Elms, had been selected; locations for the shafts for pre-construction grouting works had been identified (Fig 1); and TfL had also thrown its weight behind the planning and implementation of the public transportation element of the overall project.
- But just days after a high profile visit to the site by the UK Chancellor of the Exchequer George Osborne, and on the eve of an Autumn Budget which placed the Northern Line extension on a list of 40 priority UK infrastructure projects, REO as developers of the Battersea site slipped into administration.
Fig 1. Preferred alignment and shaft locations
- The Mayor of London, Boris Johnson, moved quickly to transfer overall management of the transportation part of the project to TfL and it has continued to make the necessary preparations towards building the scheme. This includes preparing the Transport and Works Act Order submission to Parliament for Royal Assent which is required before detailed alignment plans can progress and construction procurement begin. Central Government also agreed to underwrite the £200 million private equity contribution that had been agreed by REO towards the extension, until such time as a new developer was found.
- Six months later and that has happened. On July 5 a consortium comprising Sime Darby, S P Setia and The Employees Provident Fund (EPF), two of the largest commercial property developers in Malaysia and its largest pension fund, announced that it had acquired the Battersea site and had formed the Battersea Project Holding Company Ltd (BPHCL) in Jersey on July 4. Sime Darby and S P Setia each have a 40% stake in BPHCL and EPF has the remaining 20%.
- The new owners also declared a firm commitment to the overall project's Northern Line extension. "The Battersea Power Station site is undoubtedly London's most important and central urban regeneration site," said Tan Sri Liew Kee Sin President and CEO of S P Setia when announcing the group's success. "We also believe that the construction of the Northern Line extension is fundamental to its success. As such we intend to support actively Transport for London and Wandsworth Council in their efforts to implement and make this essential infrastructure a reality."
TfL is now managing the Northern Line extension
- For Wandsworth Council, the Battersea development looks to be heading in the right direction at last. "BPHCL expressed a clear intention from the outset. As soon as they announced their involvement in the bid they said their plans were based on the existing planning permission for Battersea Power Station," said a Council spokesman. "BPHCL will be looking to build out the scheme, as it already has consent. From the local authority's point of view this is good news because it is a scheme that the Council is very supportive of."
- "The planning process for an [entirely new] scheme for a site the size and complexity of Battersea would have taken years," said the spokesman. "I am sure that there are some significant hurdles ahead for BPHCL before they get on site, but they certainly have a head start on the likes of Chelsea Football Club, had it been successful. It would have had to have gone right the way back to the start of the planning process for review of a new stadium that it had suggested for the old power station building."
- In terms of the underground Northern Line extension, the spokesman confirmed that the new owners will be contributing financially to the project, though whether it will be the same amount as the previous developers (£200 million) is not known. He added: "The whole underground aspect is very much dependent on a developer being in place at the power station as a large chunk of the funding and financing for the extension was always going to be coming from that key site. So that is another building block which is now in place, so the momentum is building again. We hope that the TfL will have the full planning application submitted during next year and based on that, the Line could be operational by about 2019."
- But questions about funding linger. The winning bidder has not, so far, stated publicly how much it will be contributing, and even if it is the same £200 million as committed by the previous developer, that will leave a shortfall of some £550-£700 million, depending on different reported cost estimates.
- The project cannot expect any direct Government funding. It did not appear in the Autumn budget as one of the projects that would benefit from direct investment, and no mention was made of it on a Department for Transport list of rail projects released earlier this month that are going to attract £4.2 billion of new public investment over the next seven years.
3km extension from Kennington to Battersea via Nine Elms
- Instead the project is part of a so-called National Infrastructure Plan, which sounds grand, but in fact describes the Government's role as "acting to resolve any barriers to these priority investments". This, in effect, means helping facilitate investment from private sources and assisting in resolving planning issues.
- The Plan pledges that: "The Government will use all the tools at its disposal to facilitate the private investment that will finance the majority of the UK's infrastructure. This includes bringing in new investors into UK infrastructure; introducing new sources of revenue such as tolls; allowing local authorities more flexibility in the way they use local receipts to fund major infrastructure in specific circumstances; and being willing to consider guarantees against specific risks that the market cannot bear."
- In the case of the Northern Line extension this means that TfL will be allowed to borrow against future receipts from the new Community Infrastructure Levy. In the case of London, this allows local councils to collect between £20-£50/m2 on all new commercial planning applications from April 2012. Via this mechanism TfL will raise £300 million towards its contribution to the £14.6 billion Crossrail project, for example.
- It would appear that the planning and regulatory processes are continuing and with TfL assuming the lead role, for now at least. But specific details of where the money is going to come from, how much is going to be needed to develop the extension, and how much the Battersea Power Station developer will actually contribute, remains even more of a mystery now than it ever has been.
UK Budget commits to infrastructure projects - TunnelTalk, December 2011
Underground extension to Battersea in London - TunnelTalk, October 2009
UK Government backing for Crossrail - TunnelTalk, June 2010
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