At the end of April Annie was through. The giant tunnel boring machine has drilled the final link for the Tideway Tunnel between Deptford and Surrey Quays in east London. Everything is prepared underground for a new sewage system in the British capital.

Along with Annie, named after astronomer Annie Scott Dill Russell, five other tunnel boring machines worked to complete the 25-kilometer main tunnel and two tributaries from the south.

It’s high time for that. Engineer Joseph Bazalgette generously designed London’s sewage system from the 1860s for a capacity of four million people. Today nine million live in the city.

The lines are correspondingly overloaded, not least because consumers carelessly dispose of wet wipes, baby diapers or grease from the kitchen down the sink. In the fall of 2017, this rubbish had clumped together with faeces to form a 130-ton mountain of fat.

Even without such pollution, the sewer pipes regularly fill up when it rains. An overflow system is used for relief, through which a significant part of the wastewater flows untreated into the Thames.

In Blackfriars in the City of London this is clearly felt. At the site of the Tideway Tunnel, one of 24 in the city, the old canal from Bazalgette’s time flows parallel to the River Thames. In addition, the Fleet flows here, a long-overbuilt river that engineers added to the drainage network in Victorian times. On average, it dumps half a million tons of untreated sewage into the Thames every year.

“In the future we will be channeling this through an underground channel into a shaft that flows directly into the main tunnel,” explains Peter Rouzel, project manager at Blackfriars Bridge. Because of the restrictions in central London – apart from the bridge, the underground railway Waterloo and City Line crosses the river at this point – this was associated with considerable complications. The system was built into the river in a kind of dry dock and later lowered.

The new system will be put into operation in 2025. Once all the pipe system linings, connections and testing are complete, most of London’s wastewater will be channeled through the 7.2 meter high tunnels for treatment to Beckton, Europe’s largest waste water treatment plant, to the east of the city. Last autumn it became known that Thames Water had dumped untreated sewage into the Thames and tributaries on 735 days in the previous three years.

“Once the Tideway is operational, there will be around 95 per cent less raw sewage entering the Thames. And London is regaining the flow,” says Andrew Cox, Managing Director Allianz Capital Partners.

The company, part of the Allianz Group’s investment company, is one of the key drivers behind London’s new sewer system. The local water supplier Thames Water and its customers will benefit from the system in the future. But the £4.2 billion (€4.9 billion) investment does not appear on Thames Water’s balance sheet.

Instead, a group of investors have found an alternative structure that is attractive to long-term investors such as insurers. Together they founded Bazalgette Tunnel Limited (BTL), in which Allianz holds the largest stake at 35 percent. There are also three other infrastructure finance specialists, Amber Dalmore and DIF.

BTL is responsible for the design, commissioning, construction and maintenance of the Tideway Tunnel, which is designed to have a service life of 120 years. After completion, the operator will be the water supplier Thames Water.

However, investors have been receiving regular payments since the start of construction, an annual surcharge on the water bill of the monopoly provider Thames Water of almost £20 per household. A change in the law was the prerequisite for this model of infrastructure project financing with payments already during the construction phase.

“This is a very interesting project for us: it is good for the environment. We receive regular payments even during the construction phase, which are also secured in the long term in the regulated sector,” says Cox.

The model is particularly attractive for institutional investors with a long investment horizon. You can calculate with annual inflows. The long-term risks are manageable due to the regulation of an important supply industry.

With construction projects of this size, there is always the danger that the calculated costs will be significantly exceeded. Tideway performs comparatively well. Overall, the project will be around a quarter more expensive than calculated seven years ago before construction began.

Rouzel explains one of the reasons for this. The original design at Blackfriars, to build and fill a sheet piling dam into the river, would have endangered two gas mains deep in the bank protection, it was found after work began. Work in Blackfriars therefore had to be suspended for weeks in order to work out an alternative, more complex solution.

The pandemic has also put pressure on the budget and schedule. While strict distance rules applied, work was not possible in several tunnel sections. But even such difficulties need not worry the investors too much: if the costs were exceeded significantly, a government guarantee would have taken effect.

Not all observers are enthusiastic about the model. Last but not least, Thames Water, like the other privatized water suppliers in the country, has long been accused of neglecting infrastructure maintenance and investments, but not holding back on dividend payments and management remuneration.

But for the British government, the appeal of the financing model is that it could also be used for large projects elsewhere. It is conceivable as a blueprint for other infrastructure investments, says Cox, even if this does not apply to all markets. “There are cultural barriers. For example, Germany is rather skeptical about private participation in public infrastructure projects.”

In Great Britain, too, the new model could reach its limits in an area of ​​care that has come into focus in recent months. On the one hand, Prime Minister Boris Johnson is banking on a massive expansion of wind energy in the country.

On the other hand, nuclear power should play an important role in achieving the statutory goal of reducing net new emissions to zero by 2050. However, the lack of funding repeatedly hampered these plans.

Four years ago, two investors, Toshiba and Hitachi, withdrew for cost reasons from some of the nuclear power plants that had already been started and which have been on hold ever since.

“Nuclear energy is one of those infrastructure areas that we are not interested in. Among other things, we rate the construction and financial risks as too high,” Cox clarifies that this area is not an option for Allianz either.

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