Thames Water seeks international backers for London’s £4bn super-sewer

Company to set up new firm to build £4.2bn network, paid for by £40 a year on bills

Business editor

Thames Water has started the hunt for international investors to fund the construction of its controversial £4bn super-sewer across London.

Britain’s biggest water firm will formally advertise for backers in May in a process led by the investment bank UBS. Rather than funding the scheme off its own balance sheet, Thames is setting up a new company that will own the tunnel, whose investors will be repaid with interest from increased water bills paid by Thames’ customers.

Thames is owned by a United Nations of investors, hailing from Australia, China, Abu Dhabi, and, closer to home, BT’s pension fund, Hermes. Several of them are expected to explore making an investment in the sewer. The fundraising will test the appetite of overseas investors to back British infrastructure as political uncertainty mounts. Financiers say Ed Miliband’s more interventionist approach to business, after pledges from the Labour leader to reform energy and banking markets if his party takes office a year from now, has raised investor concerns.

The 15-mile super-sewer, which will run west to east across the capital, is the centrepiece in an upgrade of the underground network that was originally constructed by Sir Joseph Bazalgette in the 1850s. Then, the capital had two million inhabitants, whereas the water and sewage system serves four times that population today.

Thames has had to battle opponents concerned about the environmental impact of digging a new tunnel. Planning consent is due in September. In addition, the company must wait until December to see if it has won approval from the regulator, Ofwat, to inflate bills by £40 extra per year by 2020 to cover costs of the project.

Two-thirds of the £4.2bn scheme will be built by the new company, with the remainder handled by Thames, where it will connect with the existing sewage system that runs alongside the river.

“We are creating a separate business, a special-purpose vehicle, to deliver the tunnel, but at the same time our customers will be paying for that investment,” said Martin Baggs, Thames Water’s chief executive. “The money will flow through from customer bills to this SPV when it is up and running.”

The company, which serves 8.5 million London customers with 2.6 billion litres of tap water every day and 14 million in the wider South-east with waste water, came under fire for paying zero corporation tax last year, even though rules let companies that are investing heavily defer payment.

 Thames has already shown its prowess in installing new infrastructure. Coming into service next spring, the Lee Tunnel is a giant, four-mile storage tank designed to cut roughly in half the 39 million tonnes of diluted sewage that is discharged annually into the river system.

At 75m, it is the deepest tunnel in London. Costing £650m, it will eventually connect to the Thames Tideway Tunnel – to give the super-sewer its official title – beneath the Abbey Mills pumping station near Stratford in east London.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones