HS2 Phase One: financial indemnity for Affinity Water
Contingent liability for Affinity Water Ltd agreed, protecting them from loss in case of HS2 construction damage in the Colne Valley.
I have today (22 March 2016) laid before Parliament a departmental minute from the Department for Transport describing the contingent liability arising from an indemnity that will be provided to Affinity Water Ltd, protecting them from financial loss as a result of any construction damage to at-risk water resources from the construction of the Phase One, London to West Midlands HS2 rail line.
HS2 construction in the Colne Valley has the potential to cause damage to the chalk aquifer from which Affinity Water sources its water supply. An appropriate mitigation strategy will be developed during detailed design of the construction works, using information from ground investigation surveys. With the mitigation strategy in place, it is considered that the risks to the aquifer will be low. However, the risk of potential damage will exist despite the mitigation measures which will be applied. Should the aquifer or the company’s abstraction points be damaged, Affinity Water is likely to face a consequential financial loss. There is no existing protection for Affinity Water in respect of this loss and they would be unlikely to make a successful claim under common law. Under standard compensation arrangements, the basis for compensation would link to the loss in value or damage to a claimant’s property, which for Affinity Water could include pipes or pumps. However, the water in an aquifer is not a property of Affinity Water and so they have no protection if the project causes damage to the resources on which they are dependent. Therefore, Affinity Water require the Department for Transport to carry the liability for any financial loss arising from any impact of the Phase One construction works on their abstraction points.
The worst case scenario with respect to the liability would include the cost of replacing 3 abstraction boreholes, each one is estimated to cost £20 million, and also the cost of providing temporary replacement water supplies during the period for which water abstraction is interrupted. The indemnity will not be limited, however, under the worst case scenario, the projected cost of the indemnity is expected to be approximately £77 million. The duration of the liability is scheduled to last for 4 years from 2017 to 2021, which represents the period of the construction works which might cause the potential damage. The worst-case scenario, in which HS2 must replace more than one borehole, is considered to be remote.
If the liability is called, provision for any payment will be managed through normal supply procedure. The department will be noting this contingent liability in its accounts.