On the face of it AMEC and the Royal Bank of Scotland’s extension to London's Dockland Light Rail (DLR) under the Thames to the south bank may look like a carbon copy of previous extensions - but the scheme has hidden depths, writes Simon Ellis.

The Woolwich Arsenal Rail Extension (WARE) scheme was proposed in 1998 by DLR as part of its three-part scheme to extend the tram service south to Lewisham, east to Beckton and south east to Woolwich Arsenal via London City Airport.

The DLR extension formed part of the government’s plans to support housing and regeneration in east London has been a crucial part of both the government’s Thames Gateway housing agenda and the Olympic bid.

Another important driver was to support the construction of a 3000-home, hotel and commercial redevelopment – by real estate developer Berkeley Group – providing further ammunition to the council’s case for extending the line south of the river.

Despite the presence of a regular traffic ferry, Woolwich lies several kilometres from a major public transport connection to the north of the river.

After extensive public consultation and the selection of a route the project was endorsed by the DLR in November 2001 and by Greenwich Council cabinet committee in January 2002.

The rationale of the project was to build a 2.5km underground extension onto the DLR’s southeastern branch. The tunnel route would be located at a narrow point in the Thames, 2km to the east of the Blackwall Tunnel and 1km southwest of the proposed Thames Gateway road bridge.

After entering the Thames on a southeast trajectory, the project’s twin-bored tunnels curve in an arc under the Thames before emerging westwards to a new terminus under Woolwich Arsenal rail station.

In February 2004, the government gave the go-ahead for the Woolwich Arsenal extension.

Timeline

Interest in the project from both banks and developers was fierce, and drew the firepower of four international consortia for its April 2004 shortlist:

MVBB Consortium – Morgan Est/Vinci Concessions/Bachy Soletanche/Barclays WA Rail Link – Mitsui, Mowlem, Nishimatsu Woolwich City Link – Hochtief (UK)/HSBC/Innisfree a JV between AMEC and the Royal Bank of Scotland

In December 2004 Transport for London (TfL) awarded AMEC/RBS JV – already the concessionaire for the East India to King George V extension – a second DLR contract.

Construction of the line is estimated to last three-and-a-half years, with the line operational by 2009. A swift close was imperative to give the project a chance to meet its 2009 deadline – using the formula from the earlier deal led by AMEC and RBS.

Work started on the extension on June 2005.

The financing

The eye-catching element of financing the project is the way the senior debt is funded. Under an innovative arrangement, TfL stipulated that the pricing of the senior debt would be tied to performance, dropping by 25 per cent after construction phase – subject to the SPV meeting performance targets.

In addition to accommodating, this funding caveat and bearing the capital cost for the project’s construction, the consortium was expected to raise funding to cover the land and rolling stock for the extension – a total of £240m.

The European Investment Bank (EIB) – drawn by the project’s urban regeneration objective – had already committed the first senior debt tranche of £100m.

RBS’s added a commercial senior debt facility £115m tranche – which is due for syndication in July.

RBS infrastructure finance – the bank’s equity group – provided £22m (US$40m) equity bridge and a £3m (US$5.4m) standby facility.

Both AMEC and RBS provided pinpoint equity of £50,000 each.

Conclusion - Arsenal, a flash in the pan 

Coming at the end of the DLR’s extension agenda the WARE project may appear to be both metaphorically and literally a terminus/dead-end.

However despite its status as a virtual re-run of the London City airport extension, the WARE project achieved some notable challenges.

first of all, the teams negotiated the first in-built, performance-based pricing structure in a TfL contract, which could form the basis not just for TfL projects, but transport nationwide in addition to that, AMEC had to take into account the increased project risk encorporated in the tunnel element of the contract thirdly, despite the headstart provided by the familiarity of all parties – the project reached close from preferred bidder in just 20 weeks.

Moreover, a £6 billion commitment by deputy prime minister John Prescott to developing east London under the Thames Gateway scheme – including at least £1 billion earmarked for transport will snsure further development.

Also if London wins though in Singapore on Wednesday (6 July) as the venue for the Olympic Games in 2012, the WARE link may not prove to be anything but the end of the line for transport in southeast London.

Project name	Woolwich Arsenal Rail Extension
Location	Newham/ Greenwich, east London
Description	A 2.5km extension to the DLR under the Thames from King George V station, Newham to a new station at Woolwich Arsenal, Greenwich
Sponsors	AMEC/ Royal Bank of Scotland (RBS)
Operator	Serco (until April 2006)
Total project value	£240 million (US$434.6m)
Total equity	£25 million (US$45.3m)
Equity breakdown	£50,000 pinpoint equity £22 million (US$40m) equity bridge and £3 million (US$5.4m) standby facility provided by RBS
Total senior debt	£225 million
Debt senior debt breakdown	£115 million commercial senior debt facility provided by RBS; £100 million tranche provided by the European Investment Bank
Debt:equity ratio	92:8
Mandated lead arranger/s	Royal Bank of Scotland
Participant banks	Awaiting syndication
Legal advisor to sponsor	Pinsent Masons
Financial adviser to sponsor	RBS
Legal adviser to banks	Freshfields
Financial adviser to banks	PKF
Legal adviser to government	Ashurst
Financial adviser to government	Deloitte
Date of Financial Close	1 June 2005