Funding for the Northern Line extension - announced last week as one of the government’s 40 priority projects - was in doubt this week after banks moved to take control of Battersea Power Station.
When Wandsworth Council approved the power station redevelopment scheme in November 2010, the planning permission included £200 million of section 106 contributions from the developer.
The majority of these funds were earmarked for the extension of the Northern Line to Nine Elms and Battersea.
But last week, Lloyds and Ireland’s National Management Asset Agency told property firm Real Estate Opportunities they had started the administration process for two subsidiary firms that own the site in a bid to claw back £324m of debt. Oriental Property Limited is also chasing £178m.
The total cost of new infrastructure needed for the project is estimated at £1 billion, with the Northern Line extension accounting for some £560m.
The power station site would become the focus for a new town centre with 66,000 sq m of retail, restaurant and cafe space.
The Battersea and Northern Line projects are closely tied. Any developer can build only 600 homes before the line is operational.
Richard Jones, head of residential, regeneration and growth at consultancy EC Harris, said: “It would seem that the government is pretty reliant on this money coming in to underpin the NLE.”
He said putting a site as big as Battersea into administration is bad enough, but it was “made even worse by the fact that the developer contributes a large lump of money to something as important in infrastructure as the NLE”.
One source close to the regeneration scheme said the banks moved in once Chancellor George Osborne gave his backing to the NLE, increasing the value of the site. The source said he now expects the site to be sold on the open market.
He said without contributions from the Battersea Power Station developers, government funding would not be released for the extension.
But administration could benefit the project “if the banks and the lenders on that site are willing to take a pragmatic view on what the value is”.
A spokesman for Wandsworth Council said: “We recognise the challenges of the current funding position but the power station site remains a hugely attractive proposition.”