Jan. 8 (Bloomberg) -- The Lower Lea Valley belies its bucolic-sounding name. A derelict area of weed-choked marshes and junkyards, the London neighborhood less than six miles from Big Ben is hardly the stuff of glossy tourist brochures -- yet.

Sixty-six months from now, the east London wasteland will host the 2012 Summer Olympics, an event Tony Blair's government is using to drag London out of decades of underinvestment. That dream is shadowed by the capital's record of completing big projects such as the Millennium Dome late or over budget, and threatens its largest transformation since the Victorian Age.

Even locals say the crime-ridden area needs a facelift. ``It still looks like a bomb site,'' says Alan Killington, 38. ``You used to be able to keep your door open. Now if you open your mouth they'd steal the fillings from your teeth.''

While London's West End has been familiar to visitors since the 19th Century as the site of theaters and famous shops, the city's eastern area has a history of poverty and crime dating back to Jack the Ripper in the 1880s. The Olympics will be the largest urban renewal project in east London since the development of the Canary Wharf business district in the mid- 1980s.

Economists say the games will be the spur for a citywide renaissance that will shape 21st-century London the way subway and sewer systems built in the 1860s solidified its status as a world-class city. In addition to the 500-acre Olympic Park, London will gain a dozen new skyscrapers and a fifth terminal at Heathrow Airport as part of a 20-year, 100 billion pound ($196 billion) investment program that includes 15 billion pounds to improve public transport for the games.

Moving East

``The Olympics are an effort, almost in one go, to tilt the economic axis of London from the west to the east,'' says Tony Travers, head of the Greater London Group research unit at the London School of Economics. ``It's akin to making a planet revolve the other way around the sun.''

Early signs are worrisome for the Olympic project, which will include the 80,000-seat main stadium, an aquatic center designed by architect Zaha Hadid, and facilities for athletes that will later be sold as homes to the public.

The political infighting hampering the project came to light when Jack Lemley, the U.S.-based engineer hired to oversee construction, resigned in October.

``I went there to build things, not to sit and talk about it,'' Lemley, a veteran of construction projects including the Channel Tunnel between Britain and France, told the Idaho Statesman, his hometown newspaper. Lemley, 72, didn't return phone calls from Bloomberg News seeking comment.

Budget Jump

``I do not agree with him,'' Culture Minister Tessa Jowell told a parliamentary committee on Nov. 21, adding that Lemley raised ``none of these concerns'' at Olympic board meetings.

Following Lemley's departure, the Olympic construction price tag jumped to 3.3 billion pounds from an initial 2.38 billion pounds, due partly to a rise in steel prices, the government said in November. That bill will rise again after security costs are revised: London was awarded the games on July 6, 2005, a day before four suicide bombers killed 52 people on three subway trains and a bus.

Initial plans called for Britain's National Lottery to contribute 1.5 billion pounds to the Olympics and the London Development Authority adding 250 million pounds, with London taxpayers facing a local tax surcharge of 625 million pounds. The government will issue a revised budget early this year.

Dome Legacy

The controversy is drawing press comparisons to the Millennium Dome, the exhibition space designed by Richard Rogers. The Dome, located in Greenwich, southeast London, cost 628 million pounds for a yearlong exhibition that drew about half the 12 million visitors predicted by organizers.

The Dome, which has since been bought by AEG, the sports arena unit of Los Angeles-based Anschutz Co., will reopen this year as a multipurpose entertainment venue. It will host gymnastics and basketball events during the Olympics.

Area residents, who have lived in the shadow of the vacant Dome for years, are betting on cost overruns. ``It'll be just like the Dome, lots of money that could have been spent on schools and hospitals,'' says student Lisa Williams.

Even with those concerns, some locals are willing to make personal sacrifices to change the neighborhood for good. In the area around the Olympic Park, bird-filled wetlands coexist with industrial parks, with open fields attracting locals who illegally dump trash or sell goods out of the back of their cars.

``This is quite a deprived area and it will improve the economy and be good for local businesses,'' says Michael Ugboaja, a Nigerian-born Briton whose house on Clays Lane will be knocked down to make way for the games.

As the Olympic Park takes shape, some 40,000 new homes are planned for east London, along with expansion of the area's subway line to strengthen links with the traditional financial district, known as the City.

Thatcher's Boost

East London received an economic boost in the 1980s, when the government of Margaret Thatcher designated the Docklands area along the Thames River as an enterprise zone. The Canary Wharf development eventually lured companies such as HSBC Holdings Plc, Barclays Plc and Clifford Chance LLP. Some 80,000 people now work in the area, according to the Web site of Canary Wharf Group Plc.

Jowell has disputed reports of budget arguments, and has said that London's preparations at this stage are ahead of other Olympic cities, including Athens in 2004.

London's organization of the Olympics and other large projects is hampered by the city's weak central authority. A patchwork of villages such as Bloomsbury, once home to Charles Dickens, and Southwark, home to Shakespeare's Globe Theatre, London is historically dependent on the national government for money and direction.

`Red Ken'

It's up to Ken Livingstone, London's mayor, to pull off the reinvention. As self-described socialist, Livingstone was dubbed ``Red Ken'' when he clashed with then-Prime Minister Margaret Thatcher in the 1980s. He says the Olympics will regenerate transport links and inspire the construction of new homes, essentially expanding London as far as 10 miles eastward.

``If we deliver those things, I think that by the time the games open people will say the games have come to the leading world city,'' says Livingstone, 61.

Yet London, unlike its Olympic rival Paris, has a mixed record delivering what the French call ``grand projets'' that define a particular era.

Besides the Millennium Dome, the rebuilt Wembley national soccer stadium is a year behind schedule and didn't host the 2006 English soccer cup final as planned. Cost overruns in the 1990s plagued a new British Library and expansion of the Jubilee subway line. A new Scottish Parliament building opened in 2004 at a cost of 430 million pounds, 10 times its original price tag.

New Skyline

The Olympics are expected to generate an average of 5,000 construction jobs a year, peaking at 8,000 in 2010, according to the London Development Agency. As many as 50,000 jobs will also be created from the east London development, the agency says.

While the Olympic site is the showpiece of London's construction boom, new office towers will transform the city's skyline. Among projects being planned: Sellar Property Group's 1,000-foot London Bridge Tower, known as ``The Shard'' because it will resemble a chunk of broken glass at the top; Deutsche Immobilien Fonds AG's 945-foot Bishopsgate Tower; and British Land Plc's 736-foot Leadenhall Building.

The Olympic Games have the potential to harm the capital's commercial office market, says John Forrester, director of consulting firm DTZ Holdings Plc's central London office. As athletics facilities compete for construction workers against office tower projects, ``it will lift construction costs significantly,'' he says.

Heathrow, Eurostar

London's transport system has long been a source of misery for residents. Subway investment will increase by an average 10 percent per line by the 2012 Olympics, including a 30 percent boost for the Jubilee Line serving the games, Livingstone says.

Other transport projects include Terminal 5 at Heathrow, which will serve 30 million passengers when the 4.3 billion-pound facility opens next year, and a 5.8 billion-pound high-speed rail link between London and the Channel Tunnel, which will reduce London-to-Paris Eurostar train journeys by 20 minutes when it opens later this year.

As the projects pile up, London officials are keeping their eye on one date: July 27, 2012, the day of the opening ceremonies for the Games of the XXX Olympiad.

``The games will open on the right day, and will doubtless be judged a great success,'' Travers says. ``But in terms of cost overruns along the way we'll have to see where it ends up.''

To contact the reporter on this story: Charles Goldsmith in London at cgoldsmith3@bloomberg.net; Nick Allen in London at nallen14@bloomberg.net.

Last Updated: January 7, 2007 19:16 EST