Allianz consortium preferred bidder for $6.5-bn London super-sewer project

An investor consortium led by German insurance giant Alliaz SE has been named as the preferred bidder for London's Thames Tideway Tunnel, a landmark project, also known as the 'super-sewer.'

The proposed 25-km tunnel is required to manage the discharge of untreated sewage into tidal River Thames through central London and to significantly increase the capacity in the London sewerage network.

Other members of the consortium include global infrastructure sponsor Amber Infrastructure Group, the UK's Dalmore Capital Ltd, a fund focused on Public Private Partnership (PPP) projects, and DIF, a European fund manager investing in high-quality PPP infrastructure and renewable energy projects.

The consortium has formed a special purpose company Bazalgette Tunnel Ltd that will own, finance and deliver the prestigious super-sewer project which is valued at around £4.2 billion ($6.5 billion).

The UK's utility major Thames Water Utility Ltd has selected the preferred bidder which is subject to formal designation and licensing by the water industry regulator Ofwat.

The structure of the deal, developed by Thames Water, the government and water regulator Ofwat forms a potential blueprint for other major infrastructure projects, Allianz said in a statement yesterday.

"Thames Water could have done the financing on their own but Ofwat was very keen to create competition for the provision of capital", Reuters reported quoting a person familiar with the matter.

The construction work on the tunnel is due to begin in 2016 and to be completed by 2023.

Twelve global groups participated in the keenly contested bidding process led by UBS that began in early 2014 which culminated in two highly competitive bids reaching the final stage.

The other strongest contender was a consortium led by German banking giant Deutsche Bank and partners including Universities Superannuation Scheme, Borealis, M&G's Infracapital unit and Innisfree.

The new 7.2-metre wide tunnel will be built largely beneath the River Thames, which will be designed to reduce the tens of millions of sewage that overflow into London's River Thames annually.

The tunnel will begin at Acton in the west to Abbey Mills near Stratford in the east, where it will join up with Thames Water's Lee Tunnel which is currently under construction.

Thames Water has also run a process to select the contractors who will build the project.

Preferred bidders for the three sections of the tunnel include a joint venture of BAM Nuttall, Morgan Sindall and Balfour Beatty, a joint venture of Ferrovial Agroman and Laing O'Rourke, and a joint venture of Vinci and Bachy Soletanche.

The maximum impact the project is likely to have on customers' bills will be announced later after signing of the contracts, the statement said.