Agenda - Oxera - Compelling Economics议程- Oxera引人注目的经济.pdfVIP

Agenda Advancing economics in business The Thames Tideway Tunnel: returns underwater? Ofwat, the economic regulator of the water industry in England and Wales, has awarded the project licence for the Thames Tideway Tunnel (TTT), a planned £4.2bn ‘super sewer’ in London. The project’s low headline weighted average cost of capital (WACC) figure of 2.497% has attracted attention from several quarters. But what lies behind this figure, and what lessons can be learned for other regulated sectors and projects? On 24 August 2015, Ofwat confirmed the award of the project First, in recent years the cost of debt has fallen significantly. licence for the TTT to Bazalgette Tunnel Limited (BTL). At PR14 Ofwat set a total cost of debt of 2.59%, comprising BTL is a special-purpose company formed by a consortium an embedded cost of debt of 2.65% and a new cost of debt 5 of funds comprising Allianz Infrastructure (34%), Dalmore of 2.00%. As the TTT does not have any embedded debt, Capital (34%), INPP (16%), DIF (11%) and Bazalgette its debt costs should more closely reflect the lower cost 1 Investments Limited (5%). Ofwat’s announcement marks that new debt is currently raised at. If water companies the formal end to an intense bidding process to appoint at PR14 had been funded only on the basis of Ofwat’s an infrastructure provider to deliver the 25km TTT, which assumption for the cost of new debt, the PR14 WACC would will reduce the number of sewage outflows into the River have been reduced by more than 30bp. Thames. Second, the TTT has a government support package. The bid WACC (BWACC) for this project that resulted from