The Tideway Tunnel construction cost estimate rose 2% in 2021-22 compared to the previous year, according to its latest annual report and accounts.

The current capital cost estimate of the project is £4.3 billion, representing an increase of two per cent.

The company building London’s super sewer has just published its seventh annual report and accounts after a year in which tunnelling was completed. Tideway said the impact of the increase for Thames Water bill payers on customer bills “remains well within the £20-£25 annual cost range first set out in 2015.”

The completion date remains at 2025 - construction work was 77 per cent complete at year-end, with a number of key milestones achieved, including securing a further £300 million of green financing to complete the project.

With the tunnelling phase now complete and good progress being made on the secondary lining, Tideway said the focus is turning toward connecting the super sewer to the existing infrastructure, while building the above-ground public spaces.

Tideway Chair, Sir Neville Simms, said:

“I am very pleased with the progress we have made on the project this year, not just in achieving the completion of tunnelling but in the way our teams have adjusted to the ‘new normal’ of delivering vital infrastructure in this post-pandemic world.

“Our primary focus continues to be on the health, safety and wellbeing of everyone working on and around our sites, highlighting our ambition to do things safely or not at all.

“This year we also secured the capital to take us to completion of the project in 2025.”

Andy Mitchell CEO commented:

“We have now hit our most significant milestone to date – the completion of tunnelling. The hard work and diligence from the entire Tideway team has been invaluable in getting us to this point.

“And I’m pleased to report that for the first time, our work is as much about what we’re building above ground as it is about the super sewer, deep beneath Londoners’ feet. Our vision has always been to reconnect London with the River Thames, and with new areas of public space beginning to take shape, it’s great to see the visible legacy of the project on the surface.

“Still, we have work to do. Good progress is being made on the secondary lining of the tunnel and we’re focussing more and more on connecting this infrastructure to Bazalgette’s Victorian network – but the end is truly in sight, and a healthier River Thames is closer than ever.”

In March 2022 Ofwat agreed an amendment to Tideway’s licence to reflect the financial impacts of the pandemic to address the impact of increased spending connected with Covid-19 and “the effect of the extraordinary macroeconomic interventions” introduced by government, on revenue calculations. A further licence change to address the impact of Covid-19 on Tideway’s risk of schedule penalties is expected to come into effect in the second half of 2022.

Tideway is successful financial model for “future cost-efficient, long-term private capital investment in critical UK infrastructure”

In March 2022 the company issued a £300 million 12-year green bond in the public sterling market - Tideway said that with the additional funds, it has reached a point of financial resilience, where sufficient liquidity has been secured to cover the costs to the project handover.

Tideway’s total green debt issuance now stands at £1,883 million, which includes the bonds and a £75 million green US private placement.

As at 31 March 2022, the company’s total borrowings were £3,596.8 million made up of £799.5 million of shareholder loans and £2,797.3 million.

At the initial Licence Award for the Tunnel shareholders committed a total of £1,274 million in the form of £509.7 million in equity and £764.5 million as shareholder loans. This amount has been fully injected into Tideway and investments are now being debt financed.

Prior to System Acceptance by Thames Water, Tideway will not generate distributable profits and as such it will not be able to pay dividends to its shareholders. As a result, during construction Tideway’s shareholders have received a cash return on their investment through a combination of payments of interest on the loan and partial repayments of those loans, which now stand at £799.5 million.

The mechanism was put in place during the Infrastructure Provider equity procurement process run by Thames Water and overseen by Ofwat and the UK Government. The mechanism is described by Tideway as “key to achieving the low cost of capital bid by our shareholders” which Thames Water’s wastewater customers ultimately benefit from via a lower charge in their bills.

Chairman Sir Neville Simms commented:

“This outcome provides greater certainty for our company and confirms the integrity of the financial model being applied for Tideway as a successful one for future cost-efficient, long-term private capital investment in critical UK infrastructure.”

“The outcome also provides certainty for Thames Water bill-payers. The estimate of £20-25 a year, which we gave at the beginning, remains intact and the actual impact on bills continues to be at the lower end of this range.”

During the year also Tideway started a project with its supply chain, MWCs and programme manager to better understand the carbon implications of how it procured, designed and constructed the tunnel.

Tideway said the project, which will complete in 2022/23, should provide key lessons for future infrastructure projects about how to design, build and measure the carbon impacts associated with major infrastructure assets. The company intends to share the learnings from both the social value and carbon projects with the industry to support other infrastructure projects and future frameworks.

Click here to download Tideway's Annual Report & Accounts 2021-22