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<p>The Government is providing Tideway, which has responsibility for financing and
delivering the Tunnel, with a contingent financial support package for some low-probability
but high-impact risks that might arise during construction. These are risks that the
private sector is unable or unwilling to cover at an acceptable cost to customers.</p><p>
</p><p>If called upon, the Government Support Package (GSP) may provide support in
five different scenarios. The statement made to the House by my right hon. Friend,
the member for North Shropshire (Owen Paterson) on 5 June 2014 (Official Record, Col.
11WS) gives fuller details of these scenarios. It is important to note that if these
risks do not materialise, there will be no cost to the taxpayer. As part of the project’s
regulatory and commercial arrangements, Tideway is strongly incentivised to deliver
the Tunnel on time and to budget.</p><p> </p><p>The project has an agreed threshold
(130% of the original budget) for cost overruns, whether from a delay or otherwise,
which is financed by Tideway. The upper end of the current estimated customer bill
impact range of £20-£25 per year during the construction phase reflects expenditure
at that threshold (if that is reached). If the project is late, the incentives regime
applies time-related regulatory adjustments that are borne by the investors.</p><p>
</p><p>If the cost threshold is reached then Tideway can apply to Ofwat for an increase
in approved expenditure (and therefore customer charges), which Ofwat will determine
(but may not necessarily agree) taking into account the estimated cost to complete
the project, appropriate incentives, and the cost of the required additional capital
based on market conditions at the time. Tideway may also make a call on the GSP for
Government equity financing to enable the project to be completed, at which time the
Government would become an investor in the project and would have increased rights
of oversight until completion of the Tunnel. This would ensure that taxpayers’ interests
continue to be protected.</p>
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