Volatility forecasts an unpredictable 2019 03 Jan 2019

TunnelTalk Reporting

Brexit in Europe, government shutdown and party political standoffs in the United States, economic slowdown in China, sanctions continuing against Russia and Iran and stock markets around the world all down on fears of trade wars and uncertain futures are realities at the start of the new year that predict a volatile 2019. The knock on effect will impact global infrastructure plans and investments, particularly on projects yet to receive political approval and even those well into construction are not exempt from questions being asked about costs and viability under foreseeable financial uncertainty.

Projects threatened and cancelled

Kuala Lumpur Metro Circle Line cancelled and Line 2 costs reduced
Kuala Lumpur Metro Circle Line cancelled and Line 2 costs reduced

During the latter part of 2018, the signs were coming through with the future of several major projects threatened. Notably in Malaysia, the newly elected Government under Prime Minister Tun Dr Mahathir Mohamad cancelled investment in the design and planning of the KVMRT Line 3 circle line in Kuala Lumpur, put on hold progress towards construction of a long proposed and awaited high-speed railway line between Kuala Lumpur and Singapore, cancelled the previous government’s commitment to the East Coast Rail Line, and threatened termination and retender of the current underground section of the KVMRT Line 2 unless engaged contractor MMC-Gamuda could reduce costs. Negotiation of a 3.6 billion Ringgit (US$860,000) or 21.5% reduction to 13.11 billion Ringgit ($3.1 billion) on the original 16.71 billion Ringgit (US$3.99 billion) contract for the 11km of underground running tunnels and 11 underground stations resolved the situation but with finishing works for two underground stations postponed to an undecided future date.

In the UK, the hope is that several major public infrastructure projects will progress despite warnings of a significantly weakened economy after the official date for leaving the European Union on 29 March 2019. Lead among these is the HS2 high speed rail project to eventually link Glasgow and Edinburgh in Scotland with Manchester and Birmingham in the Midlands of England and to London in the south. The estimated £27.18 billion Phase 1 (at 2015 prices) for the approved 240km project from London to Birmingham includes more than 39km of twin tube TBM bored running tunnels and large scale station works including reconstruction of Euston Station in London to create an underground terminus for the train services.

In mid-2017 early contractor involvement (ECI) agreements were signed with preferred bidders for each of the major underground and tunnelling contracts but as acknowledged by industry leaders, these are far from confirmed construction contracts and could be cancelled by the project owner HS2 Ltd at any time. National and international contractors including Skanska, Costain, Strabag, Buoygues, VolkerFitzpatrick, McAlpine, Eiffage, Kier, Balfour Beatty, and Vinci are all involved in the stage one of the ECI agreements for design development and construction planning which leads to agreement of a target price and to the stage two period of detailed design and construction. The hope is that the project has advanced too far for it to be cancelled. In December 2018 the Government committed to pressing ahead with HS2 despite fears of rising costs and after Sir Terry Morgan, Chairman of both Crossrail and HS2 Ltd, resigned over cost overruns and delayed opening of the Crossrail project in London and allegations that costs for HS2 have been wildly underestimated. HS2 Chief Executive, Mark Thurston, is reported as saying: “I am not worried about overspending. I am confident we have got a budget we can stand by.”

Advanced too far to cancel

Early works for HS2 at London Euston Station
Early works for HS2 at London Euston Station

Another UK Government funded project in the balance is the Silvertown highway tunnel under the River Thames in London. The estimated £1 billion project was granted Government approval in May 2018 with two shortlisted bidders competing for the design, build, finance and maintain construction contract. The Cintra Global Ferrovial Group of Spain and a group lead by Hochtief PPP Solutions of Germany are hoping this project too is beyond the point of cancellation. A third group of Skanska, Strabag, Meridiam pulled out of the running for the Silvertown project when Strabag won the first of three major tunnelling projects for the Woodsmith potash mine development in the north east of the UK.

The new mine being developed by Sirius Minerals is another UK project that could be hit by global financial worries. The viability of the massive investment which includes the sinking of two 1,594m deep access shafts and excavation of a 37km long material transport system tunnel from the mine head to a processing plant and export shipping terminal on the coast, is dependent on the future sale of the high quality potash fertiliser deposit being exploited. There are concerns that Sirius Minerals will be unable to secure funding to support development of the US$2.9 billion scheme. In April 2018 the first indications of serious concerns about the project emerged when two early contractor involvement preferred bidder agreements were cancelled and new contracts signed with new contractors for the civil works developments. Out was mid-2016 agreement with the 50/50 Hochtief/Murphy JV partnership as the preferred bidder for the full length of the transport tunnel for award the first 13km long reach to Strabag. Out also was the preferred bidder agreement with the AMC Thyssen/Redpath JV, for construction of the deep access shafts, which were awarded in the aftermath to the DMC Mining Services subsidiary of KGHM of Poland. Work continues on construction of the two shafts at the mine head site but stakeholders and shareholders of the UK listed company Sirius Minerals will be keeping a close eye on developments through 2019.

Across the world in Australia and New Zealand concerns for funding streams and for controlling any sign of escalating costs will be a focus for politicians and the taxpayers for major underground investment projects.

A public inquiry by the State Government into the impact of the AUD$16 billion underground WestConnex highway project in Sydney criticised the project for lack of project governance transparency, failure to consider alternate options adequately at the start of the project and for deficiencies in the initial business case for the project. It rejected however calls from those opposing the project to stop the works stating that the project really had progressed too far for it to be cancelled.

On the other hand, the estimated AUD$6.7 billion West Gate highway tunnel project in Melbourne is at an earlier stage of its construction by the design-build PPP JV CPB/John Holland and could face funding concern ahead of two 15.6m diameter Herrenknecht TBMs arriving on site in early 2019 to begin their twin-tube, three-lane tunnel drives. Also at the start of construction phases are the Melbourne and Sydney Metro projects. Australia has a history of cancelling projects with changes of state governments and while Victoria voted to keep the incumbent state administration in recent elections in December, fiscal and financial pressures could force a change of political project support.

USA projects in start up mode in 2019

BART on long road to San Jose
BART on long road to San Jose

In New Zealand, two major tunnelling projects will require substantial political and ratepayers support. First is continuation of the estimated NZD$3.4 billion Auckland City Rail Link project which is programmed to open to public service in 2024. Two shortlisted tenderers for construction of the stations and tunnels Contract 3:

  • Downer New Zealand, Vinci Construction, Soletanche Bachy, with engineers AECOM, Tonkin & Taylor, WSP Opus and
  • CPB Contractors, UGL (NZ), and engineers Beca, McMillen Jacobs and Jacobs New Zealand

will submit bids in early February towards anticipated award of contract by end of March. Contract 3 follows on from substantial early works contracts that have been progressing since early 2016.

Secondly in New Zealand is the central interceptor wastewater tunnel project in Auckland. In November 2018 the Ghella-Abergeldie Harker JV was selected as preferred bidder for the 13km x 4.5m diameter sewer tunnel which is estimated by the owner Watercare as being part of NZD$5.8 billion to be spent on upgrading and expanding its water infrastructure.

In the USA, the four most significant underground construction projects to monitor through 2019 will be the California high-speed rail link, the Bay Delta WaterFix in California, the BART to San Jose light rail extension in Northern California and the Gateway rail tunnel under the Hudson River in New York. Each of the multi-billion dollar projects have had rollercoaster rides in their progressing their engineering development, finalising funding agreements and securing public and political support. Cancellation of the first Hudson River railway project connection, known then as Access to the Region’s Core, cost millions of dollars when awarded contracts were terminated and the project was cancelled in 2010. Revival of practically the exact same project, now as the Gateway project, will cost many billions more than the original US$8.7 billion in 2009.

The BART to San Jose extension project has an on-again off-again record since first discussed in the early 2000s and the California WaterFix project continues to pass through different funding agreements and face opposition from farmers and water users in the Central Valley. Discussions about the dedicated high speed rail service in California between Los Angeles and San Diego in the south and San Francisco and Sacramento in the north generally get a response that it will never happen. This is despite the fact that construction has already started on the project in the Central Valley sections, a reality that few know about or refuse to acknowledge.

Award winners in 2018

ITA Awards for best of the best in 2018
ITA Awards for best of the best in 2018

A project in California that should go ahead as it has no reliance on government funding is the effluent tunnel project for the Sanitation Districts of Los Angeles County. In a public bid opening result in November 2018, the lowest bid of US$630.5 million for the 7 mile long x 18ft i.d. (11.25km x 5.5m i.d.) TBM tunnel contract was submitted by the US division of Dragados of Spain.

No matter where in the world, the future of infrastructure investments are the first to be hit or fall victim to economic slowdowns. Gone are the days of governments spending their way out of recessions – as most successfully seen in the USA with projects such as the Hoover Dam on the Colorado River being progressed as one of many to bring the country out of the Great Depression of the 1920s. Instead the reaction is to cut spending and follow a policy of austerity to weather financial crises. 2019 could be a very volatile year and coming so soon after the global financial crash of 2008 when nothing but austerity could be followed in the aftermath. Cool heads and steady hands are needed but are in short supply among politicians and global leaders. A review of award winners from 2018 however provides the confirmation that civil engineers are the creators of the real world and its infrastructure of the future and that if projects are cancelled today for short term political gain, the need will bring them back in due course.

References

           

Add your comment

Thank you for taking the time to share your thoughts and comments. You share in the wider tunnelling community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language professional.
In case of an error submitting Feedback, copy and send the text to Feedback@TunnelTalk.com
Name :


Date :

Email :


Phone No :

   Security Image Refresh
Enter the security code :
No spaces, case-sensitive