MD1594 Barking Riverside Rail Extension TfL Agreements

1.1 The Barking Riverside Rail Extension (BRE) involves the extension of the existing London Overground network, which currently terminates at Barking Station, to Barking Riverside – a former power station site on brownfield land in East London, Barking with planning permission for 10,800 homes and a new district centre.

1.2 The intention is for the service to run on the existing Essex Thameside Tilbury line to a point at Renwick Road Bridge where a new spur (as raised viaduct) will be constructed over the existing track and freight infrastructure and extend south, towards the River Thames to the heart of the new Barking Riverside Masterplan area.

1.3 The total cost of delivering the extension, the scope of which will be detailed in the funding agreement is £263m which is being funded through contributions from: TfL currently budgeted at £91m; and Barking Riverside Limited (BRL) of £172m. In the event that BRL or TfL seek to initiate a change to that scope, the party seeking to initiate such change will bear the costs of such change. TfL has agreed to take on the responsibility for building the extension, including covering the cost risk and the rail service will be operated as part of the London Overground rail franchise. The cost of operations will be met through TfL with its train operator with no contribution from BRL.

1.4 The Barking Riverside project is an undertaking owned and managed by BRL, a joint venture between Bellway Homes and the GLAP (with 51%/49% share interests respectively). Bellway Homes has agreed terms to dispose of its interest in BRL to London & Quadrant Housing Trust (L&QHT), London’s largest charitable housing association, via L&QNH which is L&QHT’s non-charitable subsidiary company.

1.5 The background to this decision is set out in MD1565 which will, when approved, provide the GLA investment decision to support the delivery of the BRE through provision of the following:

1) A loan to BRL from GLAP of £48m as part contribution towards its provision of funding for the costs of BRE.
2) A commitment to invest shareholder loan stock in BRL equating to 49% of any future lending facility made to Barking Riverside Limited from either the Homes and Communities Agency’s Large Sites Infrastructure Fund or from L&QHT, BRL’s rail funding partner in a limited scenario.
3) Approval of the new BRL joint venture partner L&QNH who replace Bellway Homes.

2. Matters arising

2.1 As set out in MD1565 (a copy of which is appended to this decision form) the key objective for the Barking Riverside project is to provide the rail infrastructure necessary to unlock the planning permission for 10,800 homes. At present there is a Grampian condition on the planning permission that restricts development to 1,500 occupied homes, before a Transport and Works Act Order is made and that a total of not more than 4,000 units can be occupied until the BRE is operational.

2.2 On 5 October 2015 BRL signed funding heads of terms (HoTs) with TfL setting out the principal terms of the funding agreement that will govern the provision by BRL of £172m towards meeting TfL’s cost of delivering the BRE. L&QNH also signed a side letter indicating its agreement to those HoTs).

2.3 The L&QHT Board gave approval to the acquisition of the Bellway shares in BRL and to entering into the new Joint Venture with GLAP in July 2015. Officers are now working with TfL to finalise certain issues regarding the detailed terms of the funding agreement. Key issues include those covered by the proposed direction, that is that TfL proceed to enter into the funding agreement with BRL governing BRL’s provision of its contribution to TfL’s costs of delivering the BRE without a parent company guarantee from its private sector shareholder; and a land and works agreement required to facilitate the transfer of the land to TfL to enable the construction and operation of the BRE on the basis that TfL will bear the costs of earthworks required to achieve the headroom required by BRL beneath certain parts of the elevated sections of the BRE to enable site permeability and maintenance access.

Funding structure

2.4 The total BRL contribution to the rail construction is £172m. This is structured as set out below:

£55m Senior loan facility from L&QHT
£48m Junior loan facility from GLAP
£15m Junior loan facility from L&QNH
£9m BRL lending (from land receipts)
£45m Recycled Capital Grant Funding (GLA controlled)

Total = £172m

Lending facilities key principles

The lending is not proportionate to the shareholding percentages in BRL (which on completion will be 51% L&QNH and 49% GLAP) but the specific amounts have been negotiated on a commercial basis. The risks to TfL regarding ‘non GLA Group’ or ‘private sector’ cash can therefore be identified as those from L&QHT and L&QNH and to an extent a proportion of the BRL lending cash (from forecast land receipts) on the basis the shareholder split is 51% L&QNH/49% GLAP.

The loans are ranked as above in terms of the priority (top as highest priority in terms of repayment). The Recycled Capital Grant Funding (RCGF) is a grant available to housing associations but under the control of the GLA and is not therefore subject to repayment.

The heads of terms for the provision of the loan facilities from the list above have been agreed between GLA/L&QHT/L&QNH as lenders (not shareholders) to BRL. These loans are arms-length on commercial terms and are State Aid compliant.

3. Risks

3.1 It is not perceived that there are any additional risks to the GLA as a direct consequence of the Mayor directing TfL to proceed as planned. Whilst TfL’s implementation of the proposed direction may expose it to risks arising as a result of any failure by BRL to provide its funding contribution, GLA officers are satisfied that in this scenario, the GLA would be able to mitigate this risk to TfL through its interest in the BRL development and broader powers and controls in relation to funding.

4.1 The decision will progress BRE towards TWAO submission in March 2016. No adverse effects are foreseen on any persons with protected characteristics under the Equality Act 2010 as a result of this decision.

5.1 The proposed Direction of TfL to enter into the BRE funding agreement with BRL does not have any additional direct financial implications for the GLA beyond those previously approved in MD1565. The Direction to TfL would mean that the construction of the BRE would proceed in accordance with the HoTs agreed with any excess costs being borne by TfL.

6.1 Section 155(1) of the Greater London Authority Act 1999 (GLAA) provides that the Mayor may issue to TfL:
a) general directions as to the manner in which it is to exercise its functions, or
b) specific directions as to the exercise of its functions.

6.2 Section 155(3) of the GLAA also provides that directions which may be issued by the Mayor under subsection (1) may include in particular directions as to the manner in which TfL is to perform any of its duties.

6.3 Any directions issued under section 155(1) must be issued in writing and notified to the Commissioner.

6.4 The Barking Riverside development project falls within the GLA’s housing and regeneration functions contained in Part 7A of the GLAA, and the GLA’s powers in section 30 of the GLAA to do such things to promote economic development and wealth creation in Greater London which in this context are supportive of housing and development. The issue of the direction to TfL is therefore for proper purposes.

8.1 The outline programme is set out below:

* Planned dates may be subject to change

Direction to Transport for London