Olympic 2012 village seeks £225m bailout from European Investment Bank

Published 11th Apr 2009

Olympic planners have been forced to seek public sector support to bail out a £1bn athletes' village project in east London, after a collapse in interest from private investors.

The European Investment Bank, set up as a development arm of the European Union, has approved a request for a £225m loan toward the scheme - which may yet require another £400m in direct government support unless financial conditions improve.

The government had hoped that the private sector would raise the bulk of the £1bn needed to build the Olympic Village, made up of about 3,000 athletes flats in Stratford. But funding has dried up in the wake of the credit crunch and collapse in property values. About half the flats will be converted into social housing after the games.

Hugh Robertson, shadow minister for sport and the Olympics, said: "The fact that the government has asked to take funding from the EIB shows a complete lack of private sector take-up, which is deeply worrying. This is the final nail in the coffin for any immediate private sector financing. The government is desperate to prevent this from becoming a wholly public-sector project."

The Australian firm Lend Lease, which is the lead contractor on the project, has been trying to raise hundreds of millions of pounds for months without success. The firm missed a deadline at the end of March but this has been extended until early summer.

A spokesman for the Olympic Delivery Authority (ODA), the government body set up to get the £9.3bn games off the ground, said that discussions were continuing with Lend Lease.

But John Armitt, chairman of the ODA, admitted earlier this year that it was possible that no private sector funding would be found for the Olympic Village, leaving taxpayers to foot the bill instead.

The government has not yet decided whether to accept the loan, which is likely to carry a higher interest rate than borrowing via the Treasury.

It is also possible the taxpayer-backed EIB would require the government to underwrite the loan, further straining its £2bn Olympic contingency fund and putting more taxpayers' money at risk if the rent the housing associations earn from the flats does not recoup the cost of building them.

This is the latest setback to hit the Olympic project in the wake of the credit crisis. In February, the government said it was drawing down £461m in total from its contingency fund to plug a growing financing gap. Of this, £326m has been earmarked to start building the 1,500 flats for athletes, which the government plans to sell to the private sector once the games are over. The ODA declined to comment on the terms of the EIB loans, saying they were commercially confidential.

In a statement released last night, it said: "As we have made clear in recent months, discussions on potential funding of the Olympic Village involve both affordable housing and private sector development.

"We have said that the European Investment Bank could be a funding source for the affordable housing. Alongside this, discussions are continuing with Lend Lease over the wider Olympic Village development. We expect talks to have concluded this summer."

The size of the Olympic Village has already been scaled back because of the financing concerns. It was supposed to comprise just under 4,000 flats. The smaller number means that athletes participating in the games will have to share with four, rather than three, others in each flat.

Source: ' Guardian '

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