The long-awaited M25 Private Finance Initiative (PFI) scheme will finally be approved today but the total cost has risen by more than £1 billion.

The Highways Agency will agree to pay the Connect Plus consortium, comprising Atkins, Balfour Beatty, Egis Projects and Skanska, £6.2 billion in today’s prices over the next 30 years to maintain the London orbital motorway and add a fourth lane to some sections.

The price is well above the £5 billion estimate of the cost of the project when Connect Plus was made preferred bidder in July last year.

The Times has learnt that part of the increase is because of higher margins being demanded by the 17 banks involved in the deal. The cost has increased despite the project being cut back, with the Highways Agency abandoning plans to widen two congested sections of the motorway.

Connect Plus will commit today to building an extra lane in time for the Olympic Games in 2012, from junctions 16 to 23 and from 27 to 30, and to upgrading the Hatfield tunnel.

The agency has dropped its previous plan to widen from junctions 5 to 7 and from 23 to 27. Connect Plus will build gantries over these sections after the Olympics, instead, to allow the hard shoulder to be used as a running lane at peak times.

Connect Plus is contributing £1.31 billion to the deal, of which £200 million is equity from the four partners and the rest is debt. The European Investment Bank is lending £185 million and 16 commercial banks are lending £925 million.

Despite the increase in cost, the agency will claim that the deal is a success because reports that it would need to call on government funding to secure the finance have proved unfounded.

The credit crisis has made project financing much more difficult and this was the main reason for the delay in signing the M25 contract, which was due to start last year.

In March, the Government set up the Infrastructure Finance Unit to meet funding shortfalls for PFI projects and it had been thought that the M25 would be one of the first schemes to need a government-backed loan.

Connect Plus will be responsible for the road surface, barriers, bridges and other structures. It will be expected to ensure the smooth running of the country’s busiest motorway.

It will be under great pressure to complete the two sections of widening, totalling 36 miles, in time for the Olympics. There are likely to be heavy penalties for any overruns and infrastructure failures that result in lane closures.

Hard shoulder running costs about £10 million a mile, compared with about £40 million a mile for widening.

Using the hard shoulder as an extra lane has proved successful on a ten-mile section of the M42 near Birmingham and the agency is planning to extend the idea to 500 miles of motorway over the next few years.

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