Signing-off £1.4bn deal to build carriages slips into autumn as talks with banks drag on
Signing off the £1.4bn Thameslink trains contract could slip into the autumn as German manufacturer Siemens attempts to finalise one of the most controversial government procurement deals of recent years.
Siemens was selected as preferred bidder to make 1,200 carriages for the London commuter route in 2011, pushing Bombardier’s plant in Derby into second place and putting a question mark over the future of Britain’s oldest train factory.
Steve Scrimshaw, the head of Siemens’ UK train division, had targeted closure by the summer but admitted the signing of commercial and financial contracts could now move beyond August.
“We are making good progress on Thameslink,” he said. “But there is a lot of contractual stuff that has to be sorted out. We have got a relatively strong banking group and we are quite confident of getting to financial closure. That will be end of summer, early autumn.”
Previously, Siemens expected to complete the deal in early 2012, before forecasting sign-off this summer. Last year it was reported that the Siemens-led consortium was struggling to reach a financing agreement with banks.
Scrimshaw said Siemens had started early construction work on the Desiro City trains, amid calls from trade unions and MPs for the government to promote Bombardier to preferred bidder. The Canadian engineering group has already cut more than 1,000 jobs in Derby and the hopes of the remaining 1,600 are pinned on a £1bn contract for trains on Crossrail in London.
“We are making good progress on the trains. We have started to do some preliminary engineering and manufacturing,” said Scrimshaw. Siemens was aiming to start vehicle trials on its test track in Germany in the autumn.
The Thameslink deal is a private finance initiative, with the Siemens consortium raising debt to finance construction of carriages at the Krefeld plant near Düsseldorf. The consortium has invested equity in the project, but most of the finance is from debt. The trains are leased to the Thameslink route operator, whose regular fee to the consortium in turn pays off the debt and equity.
A Department for Transport spokesman said: “We are making progress with Siemens and their consortium and expect to reach financial close by early autumn.” The DfT and Siemens dismissed rumours that the deal will default if Siemens does not sign off by August.
Siemens is close to completing the commercial contracts that underpin the order, which set performance obligations, compensation payments and grounds for termination. The project then moves to the financing contracts, which must be approved by individual banks’ finance committees.
Scrimshaw said: “It’s a complex process dealing with lots of stakeholders and many banks. It’s about getting everyone into the same position.”
He added that Siemens was not considering tapping a £40bn government scheme to underwrite financing for infrastructure projects that are struggling for funds. “If we’d had problems it is a route we would have considered but we are quite confident that we are going to get where we need to be with the banks that we have on board.”