London’s $6.6 billion mega-sewer, known as Thames Tideway, formally crossed its final procedural hurdle on August 24, paving the way for the seven-year construction project to begin in 2016.

Under a privately financed deal, a consortium of investors was awarded the contract to build, own and operate in perpetuity approximately 25 km of tunnels across London to capture flows from 34 combined sewer overflows.

The overflows currently spew some 39 million metric tons of untreated sewage a year into the Thames River.

Designated the project’s “infrastructure provider” by the water sector regulator Ofwat, the consortium Bazalgette Tunnel Ltd., is now in a position to sign contracts with three teams of international contractors for the roughly 7-m-dia tunnel and large shafts. The privately-owned utility Thames Water plc., which is sponsoring the project, selected the joint ventures as preferred bidders earlier this year.

"This project will modernize a pivotal aspect of London’s essential infrastructure,” says Christian Fingerle, chief investment officer of Allianz Capital Partners, which leads the five investment funds that control Bazalgette.

"This investment will be a very important partnership between Allianz, our consortium partners, our contractors and Thames Water, working closely with the U.K water regulator Ofwat and the Environment Agency."

The $654-million west section to Tideway of tunnel will be built by a joint venture of BAM Nuttall Ltd., Morgan Sindall Plc. and Balfour Beatty Group Ltd. A team of Ferrovial Agroman U.K. Ltd. and Laing O’Rourke Construction Ltd. will bore the $1.2-billion central section.

A third joint venture, of Costain Ltd., Vinci Construction Grands Projets and Bachy Soletanche, will handle the $950-million eastern tunnel.

To handle the project, Bazalgette is acquiring Thames Water’s Thames Tideway Tunnel delivery organization, supported by CH2M.
Thames Water will also contribute about one-third of the required financing, leaving Bazalgette to provide the rest with about $1.6 billion of equity and the rest as commercial debt.

The Dept. of Environment, Food and Rural Affairs has agreed to underwrite certain project risks. Bazalgette will recover its investment and long-term running costs though customer user charges levied by Thames Water.

To cover the capital investment, average annual bills will increase by up to $39 before inflation, which is around one-third of originally forecast maximum because of “cheaper finance and other efficiencies,” says Martin Baggs, CEO of Thames Water.

The new project will create 9,000 jobs, according to environment department officials.