The analysis shows that it is possible to reduce the construction budget for the Fehmarnbelt Tunnel while simultaneously strengthening the reserves within the budget. The repayment period of the loans that finance the construction is reduced as well and the project is now better cushioned against future challenges, according to the company, Femern. The cost of the scheme has previously been put at some €6.2bn (£4.8bn).
In the coming weeks, the Danish politicians will evaluate the numbers and ultimately take a decision on how to handle the project in the light of the new calculations and assessments. The priced bids from September 2015 for the major tunnel contracts expire in mid-May this year.
Work on updating the financial analysis of the Fehmarnbelt project is complete following extensive dialogue with the consortia bidding for the major tunnel contracts as well as external quality assurances of the economics and traffic figures by Ernst & Young and Cowi, respectively. The estimated repayment period for the project has been reduced from 39 years to 36 years.
The analysis shows that it is possible to reduce the construction budget by DKK2.5bn (£259m) while simultaneously strengthening the reserves within the construction budget by over DKK3.5bn to DKK7.3bn. Furthermore, extra funds have been allocated for continued work on the Fehmarnbelt project in the event of delays in the German approval process.
Overall, the construction finances are boosted by over DKK6bn on the assumption that they are used in part for a reduction in the construction budget and for a significant strengthening of reserves. Femern said that this means that the project is able to withstand future challenges and financial risks resulting from the German approval process and the construction phase.
It is a requirement that the Fehmarnbelt link is paid for entirely by its users and not Danish tax payers. The new financial analysis shows that the loans for the construction of the Fehmarnbelt link can be repaid in under 40 years through user payment and EU support alone. In the financial analysis from February last year, the repayment period was calculated at 39 years. The new financial analysis calculates the repayment period to be 36 years. The reduction of three years is a fundamental indication that the project’s finances have become more resilient, said Femern, and that the project is now better cushioned against future challenges.
In December 2014, Femern A/S received the initial bids on the major tunnel contracts from the bidding consortia. These were significantly higher than anticipated and gave rise to an extended constructive dialogue with the contractors in the first half of 2015. As a basis for these negotiations, the assumed construction period for tunnel construction was extended from 6.5 to 8.5 years. The longer construction period has in itself contributed to the construction process of the tunnel being organised in a different and less expensive way.
The dialogue with the contractors resulted in Femern A/S receiving final and binding bids on the major tunnel contracts in September 2015. These represent some 75% to 80% per cent of the construction budget. The project’s new construction budget in the financial analysis is based on these bids from September 2015, which are significantly lower than those of December 2014. Overall, three quarters of the increased prices of December 2014 have been eliminated.
Femern is currently engaged in the final technical evaluation of the detailed bids.
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