How London 2012 was credit crunched

How London 2012 was credit crunched This was always going to be a difficult year for the 2012 Olympic project and on Wednesday it became clear just how tough.  

By Paul Kelso, Chief Sports Reporter
Last Updated: 7:34AM GMT 22 Jan 2009

Gloomy outlook: the recessionary gloom has given the London Olympics organisers pause for thought as work on the site (foreground) continues Photo: AP

This was always going to be a difficult year for the 2012 Olympic project – and yesterday it became clear just how tough.

The government's announcement that it has approved a bail-out worth almost £500m is tangible evidence that delivering a Games won in the rosy economic climate of 2005 is going to be grim work.

Even allowing for the number-fatigue induced by multi-billion pound government interventions, £500m remains a lot of taxpayer cash.

Of the £461m released yesterday £326m will be spent on keeping the bulldozers rolling on the Olympic Village site, which is both the single most expensive and commercially most important part of the project.

A further £125m will be used to fund construction of the media and broadcast centre, which when added to the £220m already committed, means the taxpayer will meet all the costs.

Both projects were conceived when the government expected the private sector to make a major contribution and reap handsome profits as a result. That vision turned to dust as the credit markets dried up and the property market collapsed, leaving the taxpayer to pick up the pieces.

Of the two, the village, being built by developers Lend Lease, is the most concerning. Originally it was intended that the entire £1bn budget would be met from private funds, with Lend Lease providing a mixture of equity and bank lending and a consortium of social housing associations making up the difference.

Despite yesterday's injection of funds, there remains a £700m hole in the £1bn budget, and while the social landlords remain likely to find around £200m there is little sign that Lend Lease will meet their end of the deal.

Yesterday's raid on the contingency fund increases the pressure across the project as the ODA seek to remain within the overall £9.3bn budget.

Two pots of contingency funding have been set aside, £1bn of programme contingency that the ODA can draw down as they please, and a further £1bn of Funders' Group contingency, effectively rainy-day money that requires ministerial approval.

Some £394m of yesterday's allocation came from that pot, leaving only £600m to see the project through three and a half uncertain years. Originally conceived as back-up for security or unforeseen calamities, it is now being used for basic construction. The margins for error have dramatically reduced