3.13 It is difficult to predict only three years into the project whether MDL can successfully deliver against their objectives. Going forward the project will be subject to new uncertainties. Following initial delays to residential development a new phase of high activity is projected over a shorter period which could help to make up some of the reduction in expected returns caused by delay to developments. Part 2 of this report concluded that achieving this pace of residential development will be challenging for all of the parties involved.
3.14 MDL also faces greater financial risks from delayed development because it will take longer to achieve a return on the capital it has already invested in the scheme and because it is now shifting its strategy to greater direct development of land. While this strategy has potential to get progress back on track, it equally has potential to place a greater burden on MDL's resources and finances.
3.15 New risks to the project, discussed in Part 1, will also have an impact on the project and the returns to the parties. The estimated cost of rectifying the gasholder issue is around £12 to 15 million and while not significant given the overall size of the deal it is not clear who will bear this. There is also a deadline by which this issue has to be resolved - 2010 - so that the school can be opened on time. Without a timely resolution of this issue, there is a risk that the school could be built but not used, or that the funding for the school under Building Schools for the Future will be put back to the next phase of the programme. To support the longer term, a decision on the Silvertown crossing must be made because this also provides a large constraint on the development of housing.
3.16 The estimated return to EP from the MDL development is also based on assumptions surrounding future economic conditions. Over the course of a long term deal there will inevitably be both positive and negative variance on original predictions. The current values are based on an assumed scenario of residential value growth outstripping inflation in every year for almost twenty years. Any downturn in the housing market, which is likely in such a long term project, will not be compatible with maintaining the proposed accelerated pace of development on the Peninsula. This could further erode the value of EP's financial returns.