THURROCK COUNCIL has offered funding support for a key part of the Dubai group’s London Gateway port project, which aims to handle 3.5m containers a year and directly create 12,000 jobs.
The new port is seen as crucial to regenerating the Thames Corridor from its base in Stanford-le-Hope..
Thurrock has proposed that a key part of the development – a logistics and business park – be allowed to be included in a new funding mechanism being explored by the Government and expected to be reported on in Wednesday’s pre-Budget report.
Chancellor Alistair Darling said in the Budget earlier this year that a government study would explore the potential for piloting accelerated development zones (ADZ), using a financing concept championed in America known as Tax Increment Financing (TIF).
Broadly this allows authorities to help fund infrastructure projects on the basis that their development will generate higher future property tax revenues – such as via business rate increases. London Gateway’s logistics park could become an ADZ, though the sums involved are unclear.
Bob Coomber, Thurrock’s interim chief executive, wrote earlier this year to the Department for Communities and Local Government saying: “I believe this project will not be viable without suitable government intervention.”
A Thurrock council spokesmen said: “Thurrock Council has done all it can to support DP World in these difficult times. The council continues to work hard with DP World, the Government and partners, on these issues and we hope the project will proceed as speedily as possible.”
Council leader, Garry Hague said: “There is still a very strong business case for the building of the port and all its anciliary components. We, at Thurrock council have done and will continue to explore every avenue that can lead to jobs coming to Thurrock.”
A DP World told a reporter: “London Gateway remains under review including the financing options. We are exploring a variety of different funding options, one of which was the possibility of London Gateway Park taking part in the UK Government’s call for pilot TIF projects.”
The London Gateway project, Dubai’s most significant investment in the UK, “will not be viable without suitable government funding”, according to a local UK government funding application from July seen by FT Alphaville.
While DP World placed the ₤1.5bn container port project “under review” in March amid a painful downturn in global trade, the conclusions of the application will raise further questions over the company’s ability to complete the port scheme.
London Gateway has struggled to secure bank lending to pay for ₤400m of upfront infrastructure costs, according to the application for pilot funding under the government’s “tax incremental financing structure” scheme, first reported byRegeneration & Renewal.
Initial approaches to key UK banks by DP World were “disappointing”, the application letter says, citing conversations with the Dubai company.
Though London Gateway is viewed by the UK government as a valuable development project, any government funding seen to be bailing out DP World may well prove highly controversial.
The letter, sent from Thurrock council to the UK Department for Communities and Local Government, states: “Bank interest in London Gateway is either very limited, or on terms (pricing and tenor) which will severely impact DP World’s equity returns, making the project even more unattractive. ”
When contacted DP World said:
London Gateway remains under review including the financing options. We are exploring a variety of different funding options, one of which was to explore the possibility of London Gateway Park taking part in the UK Government’s open call for pilot Tax Incremental Funding projects, announced in summer 2009. Thurrock Council submitted an application in July to the Department of Communities and Local Government and we await the outcome of that process.
A Thurrock Council spokesman said the council had looked into the possibility of creating an accelerated development zone (ADZ), which was no longer feasible.
The council also cited a DCLG spokesman as saying the ADZ proposal “was always a feasibility study”.
Further evidence of financing problems for one of DP World’s flagship developments coincides with mounting concern over the ability of Dubai-owned businesses to service their debts. Last week the developer Nakheel, owned by DP World’s parent group Dubai World, stunned global markets by asking to delay payments on its debts.
DP World, viewed as one of Dubai’s crown jewels and one of the largest listed companies on the Dubai stock exchange, inherited London Gateway from P&O when it bought the British group for £3.9 billion in 2006.
The company, which owns port assets in locations ranging from Antwerp to Djibouti, has previously told the Financial Times it has no debt maturities due until 2012. Net debt stands at just under $5bn, but DP World holds $3bn in cash.