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London Tideway: the light at the end of the tunnel

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In these times of unchangingly low interest rates, Allianz invests in new and profitable infrastructure projects for their customers – like London’s sewer expansion project.

To understand just how much sewage London produces, you have to go deep underground. Seventy-five meters, to be exact. A crane lowers construction site manager Andrew Sefton and PR Chief Geoff Loader down a concrete shaft in a small cage.

The little cage descends into the shaft right next to the pump station. It goes down several floors, the daylight disappearing along with the rain, until the construction elevator comes to a stop on the cold concrete. A cavern appears in the green neon light. The space would easily fit two or three double-decker busses, notes Loader.“The Lee Tunnel is the first part of the largest tunnel project that London has ever seen,” he explains cheerfully as he climbs out of the cage in his construction worker uniform.

Allianz helps to keep out the dirt

The Thames Tideway Project will save its beloved and famous Thames from collapse due to polluted water from the metropolis though a sophisticated tunnel system and ensure quality of life along the river. Above all, it will secure the infrastructure for the future in the European Union’s largest city. Without turning up one’s nose, it’s about removing the waste that over eight million Londoners produce every day from the Thames.

The volume of sewage flowing into the river every day roughly corresponds to the amount of water in eight billion toilet flushes.Until now, all of this has been flowing through the more than 150-year-old wastewater system from the Victorian era. Back then, London only had two million residents. These days, 39 million tons of sewage spill unfiltered into the Thames every year. In five years, it will be around 70 million tons – not a good outlook for the city.

The Thames Tideway Project was initiated for that reason. The estimated costs will run to around €5.9 billion – and Allianz is playing a key role. How? Allianz is part of a consortium working to build this tunnel system by the year 2022 and then operate it for the next 120 years. It is contributing funds, commissioning studies and bringing in employees like Christian Fingerle and their expertise.

Fingerle is responsible for the department at Allianz Capital Partners (ACP) that invests specifically in such infrastructure projects. He says, “With our investments, we look for stable, long-term returns that are relatively independent of general market developments and ideally offer protection from inflation.” They achieve this in particular through investments characterized by long-term contracts, stable regulatory conditions and high market entry barriers.

Infrastructure projects are interesting to Allianz for a number of reasons.

They enable attractive returns, help pension savers achieve higher yields in old age and also support cities and regions in solving environmental problems. But one thing at a time. Interest rates on fixed-interest securities – which Allianz invests a good deal of money into because they guarantee stable and secure growth for longer periods of time – are at one of their lowest points ever.

For that reason, Allianz is expanding its portfolio with infrastructure investments, for example. Since these are investments over the long term with relatively stable returns, they are excellently suited to the long-term commitments of a life insurance company. Moreover, infrastructure projects have an attractive risk-return ratio that matches Allianz’s safety requirements – if your investment criteria are as strict as the ACP’s. According to Fingerle, “The question that we always ask ourselves is: How certain is it that we will get our invested capital back?”

For Allianz, projects – which range from parking meters in Chicago and passenger trains in England to renewable energy and Tank & Rast highway rest areas – in addition to stable revenues, long-term development and function are also relevant. With a monopoly, like an airport, a gas pipeline or a tunnel, you don’t need to worry whether or not it will still be needed in the future.

The hard work pays off

“We worked for a year and a half to complete the planning for the Thames project,” explains Christoph Holzer. He was the ACP Project Manager for the investment in the sewage system and is also a member of the Supervisory Board of Bazalgette Tunnel Limited, the company building the Tideway Tunnel. First, Allianz conducted an intensive review of the regulatory and technical framework before deciding to join a consortium of bidders. Investments of 25 to 50 percent are the most appealing here.

Fingerle explains that the rights to have a say and control decline rapidly below a certain investment limit, while a majority investment leads to undesired consolidation effects. “We don’t want to be a passenger. We want to be heavily involved,” he says. Allianz is a very good partner for the Tideway Tunnel, comments Loader as he enters the tunnel from the shaft, which looks like a massive underground concrete cathedral.

The ACP performed very extensive due diligence and therefore reached an excellent understanding of the project. And, above all, Allianz – the consortium leader with one third of the holdings – is actually interested in the project and not just the investment, which is an excellent prerequisite for a partnership.“Let’s take a little walk through the Lee Tunnel,” suggests Construction Site Manager Sefton, “even if the landscape won’t change much for the next few kilometers.”

The 6.9-kilometer tunnel, which flows downstream to the Beckton sewage treatment plant, is a blueprint for the Tideway Tunnel that starting this year will lead from Hounslow in West London directly under the Thames. The Lee Tunnel was bored with a tunnel drill and constructed out of 4,072 cement elements that were assembled underground. 750 people participated in the project. 800 people will initially work on the Thames Tideway Tunnel, growing up to 2,500 in the future.

The tunnel should draw waste-water out of the Thames at approximately 30 different points, clean the river and, at the same time, create new connections between the city and its river at these locations. They can be used for culture, relaxation or even business purposes. Sefton will work on the Tideway Tunnel starting in 2016; Loader has been responsible for explaining the project to everyone it affects since January. The logistics will be particularly challenging since the tunnel means having a massive underground construction site in one of Europe’s most densely populated cities – ideally, residents will not notice much of it, ensures Loader. “We’re so deep underground, deeper than anything else in all of London.”

And indeed there is no alternative. The sewers overflow when it rains. With the new system, the Thames can be cleaned up while the tunnels and shafts that Sefton and Loader are walking through can be used as a reservoir when sewage treatment plants are overwhelmed. Normally, the tunnels might be half-full at the maximum – even if London’s population continues to grow as in previous years. That is also what makes the investment so interesting and calculable for Allianz. The comparatively high initial investment will be refinanced through annual municipal utilities levies on London’s citizens.

“At the same time, the contractual and regulatory framework conditions help us as well,” explains Holzer from Allianz Capital Partners. Because only legal security will guarantee stable returns in the future, which is another reason that ACP invests primarily in industrialized countries like the USA, England, Germany and France. And yet another good argument: Other investment forms like government bonds lose value in an inflationary environment, while revenues are linked to the inflation rate on many infrastructure investments.“Furthermore, the benefit to society plays a significant role in investment decisions with these projects,” says Fingerle. With the Thames Tideway Project, Allianz can help an important metropolis like London solve a gigantic environmental problem. Or as Loader says: “It’ll be brilliant. The fish will return to the river.”

Read more success storys in our Results for the Customer 2015.

(Alexander Runte)

Allianz - The London Tideway tunnel project - one of Allianz's infrastructure investments

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