Taxpayer continues to carry cost of PPP

Public Private Partnership ownerships change but taxpayer continues to carry burden of cost.

Metronet, responsible for maintenance and renewal of nine of the twelve lines on the London Underground network, has expressed its disappointment that most of the transport committee's commentary on the management of the Public Private Partnership was based on performance in its first year of operation.

During the second year, concluding at the end of March 2005, the company claims that Metronet's performance showed development of a clear and positive trend towards a more reliable service and other tangible benefits for customers.

Working in partnership with London Underground, its statement said, the two infracos controlled by the company will be upgrading, replacing and maintaining the Tube railway system with a spend of GBP 17 billion over the period of its 30-year contract.

Some GBP 7 billion of this will be spent during the first 7.5 years on new trains, track and signalling, and on refurbished and modernised stations.

One of the biggest engineering jobs so far has been a GBP 70 million upgrade on the Central Line which the company claims has improved reliability by 140 per cent.

Planning and development for the major Victoria Line upgrade is gathering pace.

On the District Line a newly refurbished train is due to re-enter service every 30 days when production reached its optimum cycle.

Refuting accusations that it has been generating engineering overruns, Metronet says there is no imperative within the company for anything of the kind.

The work they are doing typically falls into two categories: that which is planned such as track renewals, or considered important for safe operation following routine inspections.

In the second category is work of an urgent nature following night inspections and considered vital for immediate repair or mitigation prior to the resumption of passenger service.

"Metronet is continuing to work strenuously with its contracts and London Underground to minimise the potential for overruns." Real progress delivering upgrades.

Tube Lines did not put out a statement to coincide with publication of the transport committee's report, but in countering what it alleged was misrepresentation in the London evening press, it said that with four times the amount of work ongoing since work started two years ago on the Jubilee, Northern and Piccadilly Lines, they were making real progress in delivering the upgrades.

For example, 100 per cent delivery on track replacement last year; this year on target to deliver 97 per cent.

Escalators, 100 per cent delivered last year: at Green Park (Jubilee and Piccadilly Lines) refurbishment of an escalator was completed in just over nine weeks, beating the existing timetables of 26 weeks.

The company says it is ahead of its plans to deliver increased investment and is running to the agreed schedule.

As might be expected, the Parliamentary inquiry looked at the affairs of the three infracos from a quite different angle, that of ownership.

On that theme it says: "During our inquiry Jarvis sold its shares in Tube Lines".

"At the point when we took evidence, it was clear that Jarvis wished to make a sale, but no final deal had been reached".

"London Underground has the right to object to the transfer of shares in an infraco, although it does not have right of veto".

"The extent of London Underground's rights depends on the nature of the deal proposed.

It could in principle have objected to transfers of shares to 'undesirable' persons, and on the grounds that such a transfer would have affected Tube Lines' ability to perform its obligations under its contract".

"As the transfer was ultimately to Amey plc, who were already members of the consortium, there were no such objections".

"However, we were disturbed to hear that the companies involved at the time of our hearing had obviously spent some time and money trying to structure a deal that got round our power to do something about it".

"In fact, LUL was able to negotiate an enhancement of its contractual rights on subsequent disposal of the shares".

"As a result of the sale, Tube Lines is ultimately owned by the Spanish conglomerate Grupo Ferrovial S.A.

and Bechtel.

The two Metronet companies have a wider ownership, being held in equal shares by: Atkins Metro Limited (a wholly owned subsidiary of WS Atkins plc) Balfour Beatty Infrastructure Investments (a wholly owned subsidiary of Balfour Beatty plc Bombardier Transportation (Holdings) UK (an indirect wholly owned subsidiary of Bombardier Inc) SEEBOARD Metro (Holdings) UK (a subsidiary of London Electricity Group, which is itself a subsidiary of Electricite de France) Thames Water plc (a subsidiary of RWE AG).

A problem that might arise.

"A particular problem would arise if one of the consortia's member companies went into administration".

"We were told that a buyer would be sought and 'it is not possible suddenly to find buyers for equity that are unacceptable to London Underground' and that if an entire company was taken over, there would be a new owner for the shareholding in the consortium".

"But when we discussed the possible transfer of Jarvis's stake in Tube Lines with Mr O'Toole [LUL managing director] he was certainly concerned to ensure that the entire structure is not made more fragile as a result in the change of ownership".

"London Underground might well have less cope to ensure stability if the company being sold was in administration at the time".

"If a consortium as a whole went bust London Underground would gain its assets, but would also assume responsibility for a high proportion of its debt".

"The impact of either situation on London Underground and on the taxpaying passenger would be potentially extremely serious." The following passage from the report was printed in bold type: "The PPP was drawn up in the expectation that shareholders in the infracos might change during the 30 year life of the partnership".

"When it was in difficulties, Jarvis was able to use its share in Tube Lines as a source of funds".

"On this occasion, London Underground ".

"was able to ensure that the change was acceptable, but we agree with them that the PPP contract is susceptible to the changes in the commitment of the members of the consortia to the London Underground".

"Future transfers might not have such a satisfactory outcome".

"Members of the consortia can sell their share in the Underground relatively freely; the taxpayer is committed to continued funding of the PPP whatever changes in ownership occur.".

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