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Annex F - Lambeth Residents concerns on NLE funding and financing

This dossier sets out the ongoing concerns which residents feel about theproposals as set out in the current TWAO application and the accompanyingestimate of costs and funding statement. In particular, we are concerned that the

financial costs of the project may be understated, and that any cost overruncould lead to pressure on budgets for environmental mitigation measures whichare so needed in order to protect Lambeth residents.

Estimate of costsThe Estimate of costs in the TWAO application currently suggests that the overallscheme will cost 868.3m, expressed in 2012/3 prices. Roughly a third of thisbudget would be used for tunnelling, and another third would be spent onstations and depots.

It is worth noting, for reference, the history of cost escalation in the developmentof this project, as set out in the following table

Date Consultant Projected cost Base date forprices

Feb 2008 Mott McDonald1 282m ?Dec 2008 Parsons

Brinckerhoff2459m Q1 2008 prices

Dec 2009 SKM3 730m (including optimismbias and bus provision)

?

Aug 2010 Steer DaviesGleave4

506m Q1 2008 prices

Oct 2010 Corderoy5 564m (not including 66%

optimism bias)

Q1 2010 prices

Sep 2011 Corderoy6 739m including optimismbias

915m outturn prices

Q1 2010 prices

Outturn prices

Nov 2011 Press report 7 750m-950m ?Jan 2012 TfL evidence to

GLA 8850m-900m includingoptimism bias

?

Sep 2012 Corderoy 9 806m Q1 2010 prices Q1 2010 prices

1Quoted in SDG Feasibility Report accessed in 2011 athttp://northernlineextension.com/media/5536/sdg_feasibility_report_feb_08.pdf

2http://northernlineextension.com/media/5531/pb_feasibility_report_final_081208.pdfaccessed in 2011

3http://www.tfl.gov.uk/assets/downloads/corporate/oapf-nine-elms-transport-study.pdf

4http://www.steerdaviesgleave.com/sites/default/files/NATA%20Assessment%20-%20PDT%20100315.pdf

5http://www.lambeth.gov.uk/NR/rdonlyres/5787A725-8827-4818-8C4D-278FB7699CFA/0/VauxhallNineElmsBatterseaDevelopmentInfrastructureFundingStudyFinalReportOctober2010.pdf6 Quoted in KPMG paper for VNEB Strategy Board on 15 Sep 2011

7http://www.thisislondon.co.uk/standard/article-24015162-green-signal-for-northern-line-

extension-and-25000-new-jobs.do8http://www.london.gov.uk/moderngov/mgConvert2PDF.aspx?ID=7859 9 Quoted in KPMG paper for VNEB Strategy Board on 4 Sep 2012

http://northernlineextension.com/media/5536/sdg_feasibility_report_feb_08.pdfhttp://northernlineextension.com/media/5531/pb_feasibility_report_final_081208.pdfhttp://www.tfl.gov.uk/assets/downloads/corporate/oapf-nine-elms-transport-study.pdfhttp://www.steerdaviesgleave.com/sites/default/files/NATA%20Assessment%20-%20PDT%20100315.pdfhttp://www.steerdaviesgleave.com/sites/default/files/NATA%20Assessment%20-%20PDT%20100315.pdfhttp://www.lambeth.gov.uk/NR/rdonlyres/5787A725-8827-4818-8C4D-278FB7699CFA/0/VauxhallNineElmsBatterseaDevelopmentInfrastructureFundingStudyFinalReportOctober2010.pdfhttp://www.lambeth.gov.uk/NR/rdonlyres/5787A725-8827-4818-8C4D-278FB7699CFA/0/VauxhallNineElmsBatterseaDevelopmentInfrastructureFundingStudyFinalReportOctober2010.pdfhttp://www.lambeth.gov.uk/NR/rdonlyres/5787A725-8827-4818-8C4D-278FB7699CFA/0/VauxhallNineElmsBatterseaDevelopmentInfrastructureFundingStudyFinalReportOctober2010.pdfhttp://www.thisislondon.co.uk/standard/article-24015162-green-signal-for-northern-line-extension-and-25000-new-jobs.dohttp://www.thisislondon.co.uk/standard/article-24015162-green-signal-for-northern-line-extension-and-25000-new-jobs.dohttp://www.london.gov.uk/moderngov/mgConvert2PDF.aspx?ID=7859http://northernlineextension.com/media/5531/pb_feasibility_report_final_081208.pdfhttp://www.tfl.gov.uk/assets/downloads/corporate/oapf-nine-elms-transport-study.pdfhttp://www.steerdaviesgleave.com/sites/default/files/NATA%20Assessment%20-%20PDT%20100315.pdfhttp://www.steerdaviesgleave.com/sites/default/files/NATA%20Assessment%20-%20PDT%20100315.pdfhttp://www.lambeth.gov.uk/NR/rdonlyres/5787A725-8827-4818-8C4D-278FB7699CFA/0/VauxhallNineElmsBatterseaDevelopmentInfrastructureFundingStudyFinalReportOctober2010.pdfhttp://www.lambeth.gov.uk/NR/rdonlyres/5787A725-8827-4818-8C4D-278FB7699CFA/0/VauxhallNineElmsBatterseaDevelopmentInfrastructureFundingStudyFinalReportOctober2010.pdfhttp://www.lambeth.gov.uk/NR/rdonlyres/5787A725-8827-4818-8C4D-278FB7699CFA/0/VauxhallNineElmsBatterseaDevelopmentInfrastructureFundingStudyFinalReportOctober2010.pdfhttp://www.thisislondon.co.uk/standard/article-24015162-green-signal-for-northern-line-extension-and-25000-new-jobs.dohttp://www.thisislondon.co.uk/standard/article-24015162-green-signal-for-northern-line-extension-and-25000-new-jobs.dohttp://www.london.gov.uk/moderngov/mgConvert2PDF.aspx?ID=7859http://northernlineextension.com/media/5536/sdg_feasibility_report_feb_08.pdf

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933m outturn prices Outturn prices

When compared against the current cost estimate in the TWAO application, it isclear that costs have risen further above the previous cost estimates. Whenadjusted to nominal outturn prices, the TWAO itself believes that the overall cost

would be only fractionally under 1bn almost a doubling of the constructioncost estimate from late 2008.

Costs of environmental mitigation measuresTfL's TWAO application does not provide any comfort that the costs ofenvironmental mitigation measures are assured principal of which would be fullnoise mitigation measures along the whole track (including, but not limited to,resilient rail support and floating track beds) and compensation grouting toprevent subsidence. There is no guidance in the TWAO Estimate of Costs as tothe provisions which have been set aside for mitigation measures of any kind.

A public inquiry should be held, in order to allow proper scrutiny of TfL's planned

budget.

Financing strategyTfL is proposing a financing solution under which around three quarters of themoney for the NLE will come from incremental business rates, for which a dealhas been agreed between the Councils, the GLA and HM Treasury on the creationof an Enterprise Zone. The key principle underlying this is that the GLA would beentitled to retain, for 25 years, any incremental business rates generated in theVNEB region which otherwise would be returned to the Exchequer. This money as well as any dedicated GLA budget - would be retained by the GLA for theexplicit purpose of repaying Government-guaranteed loans that the GLA will takeout to finance construction of the NLE. The remaining quarter will be funded froms.106/CIL payments.

Serious concerns about lack of transparency on funding and financingDetails about the robustness of the funding and financing plan for the NorthernLine Extension are almost entirely lacking, either in the TWAO application or anyother public source.

In particular, there is no information about the forecast levels of incrementalbusiness rate revenues which are assumed from the Enterprise Zone and whichwill be crucial in allowing for repayment of any financing loans taken out in orderto pay for the construction. Moreover, incremental business rate revenues

provide one of the mainstays for the entire business case for the NLE ie that itis necessary in order to encourage additional economic activity in the VNEB areathat otherwise would not come about.

A public inquiry should test the evidence supporting any financial model relied onby the developer in order to justify its funding statement.

Discussion may also be justified at a public inquiry as to the timing of assumedincremental business rate revenues, which according to the KPMG report to theVNEB Strategy Board in September 2012 are heavily weighted towards the endof the loan period envisaged in the Enterprise Zone agreement. There istherefore a significant risk that the GLA will not receive sufficient revenues in

earlier years in order to service the Government-guaranteed debt.

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The effect of any shortfall will be a reduction in GLA budgets and potentially acall for assistance from the London Boroughs of Lambeth and Southwark. Ineither of these circumstances, it is local amenities which would suffer, and inparticular the capital budgets for other consequential infrastructureimprovements made necessary by the rapid urbanisation of the VNEB area as

set out in the 2010 Development Infrastructure Funding Study . Existingresidents along the line would suffer most of all, if sufficient budget forinfrastructure improvements was reduced in order to service NLE debt.