Thursday, 26 November 2015

Tram post 2: The financial case

I understand the case for completing line 1 from York Place down Leith Walk and along to Newhaven.  But the figures we have before us just don't make sense.

I am told that tram projects in the UK are more expensive than elsewhere in Europe.  Perhaps this is because of the bureaucratic way we approach such projects this side of the channel.  The benchmark rate for trams in the UK, I am told, is £25m per km.  The furthest option - the most cost effective one of the three options - is an extension of 4.7km to Newhaven.

That works out as £34.5m per km.  Now hold that figure in your mind as you recall the work which has already been completed.  Underground services have largely been moved and some structures and embankments have been built.  The trams have been bought.  So why are we being quoted a figure well above the accepted going rate for a new tramline?

Then how is the bill to be paid?  Last year there were all sorts of hints that the long overdue development of the St James Centre would mean the developer would be a possible lender at very low interest rates.  See here for some more details.  That possibility appears to have disappeared.  The focus of the report seemed to be raiding the coffers of Lothian Buses - perhaps to the tune of £25m.  That is to bridge a gap created by deferring the main borrowing costs away from the beginning of the project (saddling a future generation).

Annual borrowing costs are put at £9.5m (but that is only for the £145m total cost figure to Newhaven, not the higher figure of £162m).

But the financial part of the case for extending the tram is summed up in paragraph 3.42 of the report which the Administration pushed through last week:
"At this stage of project development no detailed assessment of the project finance/PPP solution has been carried out. . . "
There is certainly no credible case for proceeding with the extension based on these finances.

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