The Mersey Gateway Project

Response to Campaign for Better Transport report “The Risks and Financing of the Mersey Gateway Bridge”

January 19, 2011LornaNews

Read the Mersey Gateway Project team’s response to the Campaign for Better Transport’s report “The Risks and Financing of the Mersey Gateway Bridge”

Steve Nicholson, Mersey Gateway Project Director, said:

“This report is fundamentally flawed and has been jointly commissioned by the Campaign for Better Transport and the North West Transport Activists Roundtable who locally are one of the few organisations opposed to the construction of Mersey Gateway. It is regrettable that the authors of the report did not check their assumptions with Mersey Gateway officials before drawing conclusions. The report at best does not add anything to the understanding of the financial risks associated with the Project and at worst it is misleading and a deliberate attempt to undermine the delivery of a project that benefits from widespread support across the region and in Government. “

Specific responses to the four key conclusions of the report:


Key conclusion 1:

“The disclosure of commercial information about the project during the planning enquiry (sic) was inadequate and more information could have been put in the public domain without endangering commercial confidentiality.”

Project response:
“We are surprised at and reject this conclusion. Both the planning inspector and the report’s authors recognise the desirability of confidentiality around the council’s negotiating position, which is essential to ensure we secure the best possible financial deal for the public purse. On a broader level, we have been very open and transparent about our plans and have placed an extensive amount of information on the public domain through the public inquiry, the website and through the media.”



Key conclusion 2:

“The interest margins which financiers now demand on PFI projects are higher than they were in the past and likely to stay at elevated levels. Against this background the case for using PFI as a project finance mechanism is weakened and an independent review of the value for money case for using PFI finance for the project should be carried out.”

Project response:
“This conclusion raises serious concerns over the author’s understanding of the issues that will determine value for money in delivering the project. The link to Private Finance Initiative (PFI) fails to acknowledge that Mersey Gateway is different to virtually all typical PFI procurement in the UK as the majority of the funding will be through a user paid toll revenue stream. The uncertainty over the actual toll revenue to be secured is a risk that is fundamental to the funding approach for this project. It is then a matter of judgement, informed by assessment, whether this risk can be transferred to the private sector on terms that represent value for money. The case put to Inquiry assumed the risk would be transferred to the private sector but this was not a condition of project delivery and we advised the Inquiry that procurement would be kept under review given that market conditions for project finance were particularly volatile in the summer of 2009. We are currently in detailed discussions with DfT officials about the best way to place revenue risk and how to provide the balance of the public sector contribution to the project. This situation would have been explained to the authors had they consulted us. We expect to reach a final agreement on the funding package, and to have our procurement strategy dealing with key risk allocation confirmed very soon. ”


Key conclusion 3:

“The viability of the project with tolls set at a similar level to those on the Mersey Tunnels is questionable without the benefit of enhanced PFI credits.”

Project response:
“We contest so much of this report that it is neither sensible nor productive to list all the individual issues in this response. Key errors to note are that the references to the M25 and M6 toll are irrelevant and the assumption relating to financial terms reflects the peak of the market and does not concur with current market evidence. The Government’s Spending Review looked at the delivery of Mersey Gateway on affordable terms leading to a conclusion that places Mersey Gateway as a top priority in the national programme of local transport schemes. This review was undertaken by the corporate finance team in the Department for Transport taking into account alternative options for funding and procurement so that we deliver the project at best value.


Key conclusion 4:

“Halton Borough Council, as the project promoter, and Government as a major source of funding face difficult decisions in negotiations with potential concessionaires and financiers and still have the option to withdraw from the project if they cannot achieve an adequate level of risk transfer to the private sector to justify what are likely to be high interest margins.

Project response:

“It is always possible to withdraw from procurement but the project will be subject to scrutiny to ensure that the proposals taken forward to market in the procurement process are deliverable on the terms expected. The long list of private sector firms, including sponsors and lenders, who are interested in competing for the project contract, demonstrates that we already have market confidence.

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