MD2583 Crossrail funding update and further changes

1.1. The Crossrail project (the Project) is jointly sponsored by the Department for Transport (DfT) and Transport for London (TfL) (the Sponsors), with support from London’s business community. Once operational, it will be known as the Elizabeth line, connecting stations such as Paddington to Canary Wharf in only 17 minutes, transforming how Londoners and visitors move across the capital. The new railway will bring an extra 1.5 million people to within 45 minutes of central London and more than 200 million passengers are expected to use it every year.

1.2. The Mayor and TfL remain focused on supporting and monitoring Crossrail Limited (CRL) as the final infrastructure and testing is completed in order to get the Elizabeth line safely and reliably into passenger service at the earliest opportunity. CRL is the “nominated undertaker” for the purposes of the Crossrail Act 2008 and is a wholly owned subsidiary of TfL.

1.3. Under MD2398, the Mayor approved a long-term financing and funding solution for the completion of the Crossrail project (the Financing Package) that superseded the arrangements approved under MD2383. The long-term solution approved under MD2398 includes the payment of up to £1.4 billion by the GLA to TfL by means of capital grant under section 120 of the Greater London Authority Act 1999, funded largely by the GLA borrowing directly from the Government. Accordingly, in February 2019 the GLA entered into a £1.3 billion Facility Agreement with the Secretary of State for Transport as Lender (GLA Facility Agreement). The GLA has also provided £100m from its ring-fenced business rate supplement revenues which can only be used towards the Crossrail project to fund the balance of the £1.4 billion payment. Under the long-term solution, TfL also entered into a facility agreement of up to £750m with the Government. The long-term financing and funding solution and associated arrangements approved under MD2398 continue to apply, including a delegation to the Executive Director of Resources to have the authority to negotiate, execute and complete all documentation he considered necessary or expedient for the purposes of implementing the capital funding and financing solution set out in that MD for the completion of the Project.

1.4. CRL has made a number of announcements since 2019 concerning the opening of the railway and its capital costs. Most recently, in relation to opening, on 10 January 2020, CRL announced that they expect the central section to open in summer 2021. In November 2019, it was announced that the latest projections now show a central cost forecast (including risk contingency) of approximately £15,363m, which is £400m more than the funding committed under the Financing Package. Further modelling scenarios consider even higher levels of risk of £650m more than the funding committed under the Financing Package.

1.5. As discussed with the Assembly’s Budget and Performance committee on 6 January 2020, TfL’s latest Business Plan includes a prudent financial planning assumption that the revenue impact from the delayed opening of Crossrail will be in the order of £500m - £750m spread across four financial years, with most impact in 2021/22 and 2022/23. From a purely prudent financial planning perspective, these figures assume that the central section, Stage 3, would open in Autumn 2021; with Stage 4 in May 2022 and Stage 5 in December 2022.

Certifications and waiver

1.6. Under the agreed funding arrangements, every four weeks CRL must provide certifications which are required to enable continued availability of funds from DfT under the GLA Facility Agreement. If the certifications are not provided this causes a “draw stop” event under the terms of the Facility Agreement. This would mean that the GLA would be unable to continue to draw on the loan to pass to TfL as grant. TfL would then be unable to pass funds to CRL to continue with the Project.

1.7. On 11 October 2019, CRL provided a certification that the Project could be completed within the funds that the Sponsors have agreed to provide. However it was decided at the CRL Board on 7 November 2019 that CRL would be unable to provide the required certification (to the Sponsors under clause 5.3.3 of the Supplemental Agreement to the Crossrail Sponsors Agreement and the Crossrail Project Development Agreement) that the Project can be completed within available funds.

1.8. This in turn meant that condition 4.2(h) of the GLA Facility Agreement which requires that such a certification has been received by the GLA in advance of a drawdown, could not be complied with. The Department for Transport, as lender under the Facility Agreement, agreed in the short term to delayed certification by CRL and, subsequently, a waiver was given, as approved under MD 2527, avoiding an immediate “draw stop” event under the terms of the Facility Agreement.

1.9. That waiver expires on the day following the drawdown projected to be made by GLA on or around 29 January 2020. CRL continues to be unable to give the required certificates and, if revised arrangements are not made, the risk of a “draw stop” event arises again.

1.10. The waiver provides the GLA with an ability to continue to draw under the Facility Agreement, to ensure that the Project can continue whilst the plan to fund any shortfall is considered. The waiver comes with the following conditions:

• CRL identifying and presenting to the Sponsors the initial funding shortfall and in consultation with the Sponsors, developing a set of mitigation options to reduce the cost to complete the Project to within the £2.15bn funding envelope, clearly identifying a preferred mitigation option. CRL will also be required to produce an accompanying implementation plan in relation to the preferred mitigation option and provide updates to the Sponsors regarding the progress against the delivery of these matters. CRL will also need to identify any remaining funding shortfall if the preferred mitigation option is not capable of reducing the cost to complete the Project to within the £2.15bn funding envelope;

• the GLA and TfL developing a set of funding options for any funding shortfall (both before and after the preferred mitigation option has been taken into account), clearly identifying a preferred funding option;

• TfL, the DfT and the GLA within 15 Business Days of entering into the (original, November 2019) waiver seeking to agree whether any net increased amounts should be added to the funding shortfall to reflect any probability analysis conducted by CRL in relation to costs and the emerging outcomes of any relevant assurance work being conducted in relation to costs by the Sponsors’ Project Representative or KPMG;

• the GLA, in consultation with CRL and the Sponsors, identifying the final preferred course of action to address the funding shortfall, which may be the preferred mitigation option, the preferred funding option or a combination of both; and

• any necessary approvals for the final preferred course of action being in place during the Waiver Period.

1.11. There is positive progress on revisions to the Financing Package, in accordance with the terms of the waiver as described above. Agreement has not yet, however, been reached and is, in any event, subject to contract and approvals.

1.12. As described in MD 2527, the waiver described in this Decision Form is essential to ensure that CRL maintains sufficient liquidity to continue with the Project, whilst further required funding sources and/or scope reductions are identified, given that CRL was unable to provide a required certification in relation to the Facility Agreement. That position remains true and, given the progress that has been made towards agreeing revisions to the Financing Package, it is appropriate to consider extending the waiver.

1.13. The Mayor is asked, therefore, to delegate to the Executive Director of Resources (and in his absence to the Assistant Director Group Finance) authority to agree (after consultation with the Chief of Staff), the terms of an extended waiver from the Secretary of State for Transport and to authorise either of the Executive Director of Resources or the Assistant Director Group Finance to execute the waiver on behalf of the GLA.

2.1. The proposed decision and delegation will allow arrangements to be put in place enabling the continuity of drawdowns under the GLA Facility Agreement. This will enable the Crossrail project to continue.

3.1. Under Section 149 of the Equality Act 2010, as a public authority, the Mayor of London must have ‘due regard’ of the need to eliminate unlawful discrimination, harassment and victimisation as well as to advance equality of opportunity and foster good relations between people who have a protected characteristic and those who do not.

3.2. There are no direct public sector equality duty implications arising from this Decision.

4.1. None.

5.1. This Mayoral Decision allows the GLA to continue to draw down under the Facility Agreement with the DfT to help ensure the Project is completed. As at the time of writing this MD, there is £317m left to be drawdown of the £1.3bn facility. Drawdowns during the extended waiver period do not increase the GLA’s exposure beyond its existing agreed commitment to Crossrail, and the GLA has the capacity within its income from the Business Rate Supplement and from MCIL to service and repay them. Once agreement on the final preferred course of action to address any funding shortfall is finalised by the GLA (in consultation with CRL and the Sponsors), the financial implications to the GLA, if any, will be set out.

6.1. The GLA’s principal purposes, under section 30 of the Greater London Authority Act 1999 (GLA Act), are to promote economic development and wealth creation, promote social development, and the improvement of the environment, all in Greater London. The GLA has power to do anything which it considers will further any one or more of its principal purposes. Under section 34(1) the GLA may do anything it considers will facilitate or is conducive or incidental to the exercise of the section 30 principal purposes. Pursuant to the scheme of delegation under ‘Mayoral Decision-Making in the Greater London Authority,’ the Mayor can make the decision and delegate authority to Senior Members of Staff.