Bil i Femern tunnel

Finance of the Fehmarnbelt link

The financial status of the Fehmarnbelt project is healthy and well-documented in a comprehensive financial analysis of the project.

The analysis was presented in 2016 after a thorough review of the project’s finances, risks and reserves by an external auditor. The review showed that loans for financing the fixed link can be repaid in 36 years. The total budget is DKK 52.6 billion. On the majority of the budget, fixed-price contracts have been signed and a high degree of budget certainty ensured. The total tunnel budget includes a reserve of DKK 7 billion, a figure determined after the thorough external review of the project’s overall finances and risks.

The financing model for the Fehmarnbelt Fixed Link entails that the project costs will be fully financed by government-guaranteed loans to be repaid through user charges for travellers who opt to use the road or railway link. Consequently, it is the future users of the Fehmarnbelt link who will pay for the tunnel project.

Femern A/S presented an analysis in February 2016 of the overall finances for the project, including construction costs, operation, maintenance and reinvestment overheads, EU funding, traffic revenues and interest charges. The analysis showed that the project finances are realistic, and that the loans can be repaid within 36 years. The financial analysis can be found here.

The analysis of the project finances is generally based on cautious assumptions, and independent experts performed external quality assurance on a number of the key parameters, including the traffic forecast, construction budget, volume of reserves and the German plan approval procedure.

The construction budget for the Fehmarnbelt tunnel is DKK 52.6 billion, including a reserve of DKK 7 billion. The size of the reserve was determined by the accounting and consultancy company EY, based on a thorough external review of the project’s finances and risks.

The main item in the construction budget consists of four large civil works contracts, which account for the majority of the tunnel construction. Intensive negotiations with the contractors successfully brought the first tender prices down by DKK 7 billion before the binding civil works contracts could be signed on 30 May 2016.

The contracts are conditional, so that the work will not be started before the project is finally approved in Germany. But the contracts – and not least their prices – are final. That means that there is a high degree of budget certainty for the majority of the project’s construction costs. For the other contracts budgets are quality assured through a series of external reviews.

Denmark owns the fixed link. That means that profits from the link will pay for the Danish landworks in the form of expansion and electrification of the railway between Ringsted and Rødby – a project priced at DKK 9.5 billion in total, including reserves of DKK 2 bil-lion – and for most of the subsequent operation and maintenance of the section. These are costs that would otherwise have been financed by Danish taxpayers.

Because the Fehmarnbelt project is long-term and financed via loans, interest rates are an important factor of its overall financing. Because the Danish government guarantees its finances, loans to finance the Fehmarnbelt Fixed Link can be raised at low interest rates. This model, known as the ‘state-guarantee model’ was also used successfully for financing the fixed links across the Great Belt and the Øresund.

The project finances are calculated based on a cautious assumption of a net interest rate of 3%. The reality is that if those loans were raised today, the interest rate would be close to zero. This has a significant effect on the repayment period. A real interest rate of 3 per cent means the loans will be repaid over 36 years. Borrowing at 2 per cent lowers the repayment period by nine years to 27 years.

A comprehensive forecast has been compiled for how traffic in the region will develop once the tunnel is open. The tunnel is built to last for at least 100 years, and the traffic forecast is therefore used to predict trends in traffic volumes and patterns over many years, rather than to provide an indication of precisely how much traffic there will be year on year. The traffic forecast was made by the German consultancies, Intraplan and BVU. Both are experts in the transport sector, and have produced forecasts for the German Ministry of Transport among others over the past 30 years.

The consultants worked independently throughout the preparation period, and this work is founded upon a high degree of professional expertise. All material and results are available for public inspection. The results are based upon the official Danish and German forecasts for, among other things, developments in the economy, population and transport habits. The traffic forecast was subsequently quality assured via an external review performed by consultant specialists COWI. Read the report on the Transport Ministry website here (only in Danish).

The consulting firm, Tetra Plan, has also produced forecasts for traffic across the Fehmarnbelt using the EU Commission’s transport model Trans-Tools. Researchers from Copenhagen Business School have also prepared research-based documentation for economic growth assumptions.

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