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M25 DBFO funding hitch

The government is coming under increasing pressure to step in to save the £5bn M25 DBFO after the Highways Agency chief executive admitted that there could be a delay in major works beginning in April.

Analysts believe a £400M shortfall exists, preventing financial close and work starting on the DBFO.

Highways Agency chief executive Graham Dalton said at NCE’s Roads Summit in London last week that the April start may be negotiable. "The widening [programme] is [based] on finishing by the time the 2012 Olympic Games begin. It might be that we do not need to have all our widening complete then, so there could be some wriggle-room," he said.

Dalton said the DBFO was not the only option on the table. "There is a plan B, but we are not intending to use it. Enabling works are already happening," he said, refusing to be drawn on what plan B was.

Last week the European Investment Bank (EIB) stepped in to rescue the £310M M80 PFI in Scotland, doubling its stake to £150M, taking the scheme to financial close. But the Connect Plus consortium of Balfour Beatty, Atkins, Skanska and Egis Projects must raise £2bn to reach financial close and begin work on the M25.

The EIB has already committed up to £500M of that, and a further £1.1bn has been secured from other sources. NCE understands no decision has been made on whether the EIB could extend its loan to plug some of the shortfall.

The relatively small size of the M80 scheme saved it according to transport analyst and transport PFI expert Robert Bain. "It is no surprise that financial close for the M25 is proving to be challenging," said Bain. "Its sheer scale requires syndicated lending at a time when many potential syndicate banks are seeking to reduce individual exposure or are fundamentally reviewing their lending policies. "Sure, you minimise some of the interface risks inherent in operating separate contracts, and you reduce starting up and running down costs, but [the M25] is a complex mega-project," he said.

The M80 PFI will widen the road to motorway standard over an 18km section between Stepps and Haggs. Fears for the future of the PFI are mounting after health secretary Alan Johnson admitted that privately funded hospital projects were struggling to raise finance and the government was forced to bail out the Olympic Village.

Click here for a chart demonstrating the number of PFI's approved between 1996-2009

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