Row over $1.8b debt threatens work on Olympics

LONDON - The London Olympics is heading for a fresh cash crisis as a government row rages over £800 million ($1.8 billion) of debt racked up by the London Development Agency (LDA) buying land in east London for the 2012 games.

The huge debt threatens to delay or even derail work to sell land and find tenants for facilities at the park.

The row centres on the £1.3 billion spent by the LDA acquiring land in east London. Having sold off some of the land assets, the LDA is left with £800 million on its books.

With the LDA about to hand over control of the park to the new Olympic Park Legacy Company (OPLC), the LDA wants to transfer that debt at the same time.

But the chairman of the OPLC, Baroness Margaret Ford, is adamant the new organisation must not be encumbered with debt from its inception believing it will deter investors.

Ford appears to have persuaded senior government officials to transfer the £800 million to the Department for Communities and Local Government (CLG). But if the Government were to do that, the debt would breach stringent departmental expenditure limits laid down by the Treasury.

The row now threatens the work of the OPLC. Olympic officials hope the issue is resolved by the time Chancellor Alistair Darling issues his pre-Budget report this northern autumn.

Senior LDA insiders say they are not prepared to keep the debt on its books as it will mean Londoners will have to pay back the money, which could force a rise in local taxes.

It is thought the LDA, which is the economic and business unit of the London mayor, Boris Johnson, has taken legal advice over the issue and is confident it is within its rights to refuse to retain the £800 million. The situation could force the Government to issue fresh legislation to force the LDA to keep the debt.

"We are currently in discussions with Olympic partners about the financial set-up of the OPLC," said an LDA spokesman. "While it is essential that the company has the best start, the LDA is committed to ensuring it protects its core programmes as well as safeguarding the public purse."

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