The funding arrangements between the UK Government and Halton Borough Council have been agreed on the basis that users of the Mersey Gateway and the Silver Jubilee Bridges will contribute the majority of funding through the payment of tolls.
The project uses toll revenue to fund the total investment required to construct the new crossing and for its maintenance and operation over the next thirty years.
Funding the project will cost £1.86bn over this time period (up to 2044). This figure is based on the figures agreed by all parties in the contracts awarded to the Merseylink consortium in March 2014 and reflects the £250m saved by Halton Borough Council and Merseylink through the innovative procurement process.
When the contracts were signed, Halton Borough Council entered into a Public Private Partnership with the Merseylink consortium.
To ensure the toll levels on both bridges will be in line with the Mersey Tunnels, the UK Government has provided funding in the form of annual grants which are expected to be paid to the Council each year for the first 12 years of operation. In total, this operating grant is set at £126m. (1)
Also, to support the Council in the development of the scheme and for compulsory purchase of land to allow the project to proceed, the Government has provided a capital grant of £86m (called the development cost grant).
The Project Company funding responsibility
Merseylink now has the formal responsibility for the design, build, finance, operation and maintenance of the new bridge and associated road infrastructure over a thirty year period. It is also responsible for the provision of tolling equipment on both the new bridge and the existing Silver Jubilee Bridge and a journey time measurement system on the new bridge and road infrastructure.
To be able to meet these costs, Merseylink has put in place a financial arrangement which consists of bank loans, a Council loan and funding through a bond investment supported by the HM Treasury’s UK Guarantees Scheme. To deliver this finance, it has been necessary for Merseylink to secure equity investment.
The Council payment responsibility
The Council does not pay Merseylink for any of the costs explained above (such as construction cost) but instead it is required to pay Merseylink an annual fee based on the new crossings being available to users.
The fee, called the unitary charge, is linked to Merseylink’s performance against the service requirements as set out in the contract. For example, Merseylink is required to operate the new crossing so that the average speed of users does not drop below an agreed level. If the average speed does drop below this minimum then the unitary charge could be reduced.
The unitary charge only becomes due when the new crossing opens and Merseylink has demonstrated that tolling systems are operating satisfactorily. The Council will pay this charge up until 2044, when the project is handed back (to the Council) in a good condition and with all the private finance repaid.
- From the start of the project until the award of contracts, there have been various published estimated figures regarding the construction and operating cost of the project. The cost estimate of £600 million that was widely used before contracts were awarded related purely to the cost of land and construction. The figure did not include the cost of operation, maintenance and finance of the Project over its 30 year period.
- The contract to build and operate the bridge is a complex commercial document. As such, there is information including the costs assumed by Merseylink, which is commercially sensitive and cannot be disclosed.
- The risks associated with the cost of construction, maintenance and operation and the delivery programme are placed with Merseylink and the Council is contracted to pay for the project through agreed unitary charge payments.
(1) The recent announcement by George Osborne confirmed that all residents of Halton will be able to use the bridges toll free* through the 100% discount scheme. The Government’s commitment to cover the additional costs associated with this will require them to revise their contribution to the project. This will be reflected in a revised Funding Letter which when received will be published.
*Residents of Halton will still need to register to use the bridges and there will a small charge for this.