A decision by the PPP Arbiter in December may prove to be a fatal punch to private infrastructure company Tube Lines and the whole “Public-Private Partnership” set-up on London Underground.
The New Labour government imposed the PPP at the very end of 2002, despite widespread opposition. PPP organised the Underground’s infrastructure into three groups of lines, and transferred them to private consortia known as Infracos, two to now-defunct Metronet, one — the Jubilee, Northern and Piccadilly lines — to Tube Lines.
Metronet collapsed in 2007, and Tube Lines has now hit trouble, falling well behind schedule with its upgrade of the Jubilee line’s signalling, causing closures to the line which are trying passengers’ patience. PPP Arbiter Chris Bolt, an “independent” government appointee, has blamed this on Tube Lines itself, mainly for signing a contract for the work with another private company, Thales, before knowing the detail of the project.
The Arbiter had to decide what Tube Lines’ costs should be for the second 7?-year period of the 30-year PPP contract, due to begin on 1 July this year, and therefore how much London Underground will have to pay Tube Lines in fees. During this period, Tube Lines will have to continue to maintain the infrastructure of all three lines, upgrade the Northern and Piccadilly lines’ signalling systems, and refurbish 38 stations, far fewer than the 100 it was originally required to improve because it underpriced this work in its original bid.
Tube Lines reckoned that this work would cost it £5.75 billion, London Underground reckoned much less, £4 billion; the Arbiter calculated £4.4 billion. This leaves London Underground with a worrying funding gap of £400 million, but Tube Lines with a potentially devastating one approaching £1.5 billion. The Arbiter also ruled that Underground stations and lines should close to allow access to carry out improvement works for far less time than Tube Lines had demanded (15.5 million Lost Customer Hours for minor closures rather than 35.6 million), causing it further difficulties.
So who will pay? Even if Tube Lines paid, the public sector would reimburse it through higher charges, and London Underground and Tube Lines agree that “it would be better value for money for TfL [Transport for London] to raise additional finance than for Tube Lines to do so”. But the government argued the case for PPP on the basis that the private sector could raise the money needed to maintain and improve the Tube more easily than the public sector could! Intentionally or not, this view undermines the whole case for PPP.
Although the Arbiter’s report may speed the collapse of Tube Lines and the return of its work to the public sector, this does not mean that the Arbiter is a friend of workers and passengers. The Arbiter supports Tube Lines’ recent cuts to safety inspections of track and escalators. He also wants the workforce to be more “flexible” by working across all three lines rather than just one, and the response team to have fewer workers.
Tube Lines’ troubles come despite the very generous terms of the PPP contract. PPP guarantees a high rate of profit in the projected costs, and expects an Infraco to follow only Good, rather than Best, Industry Practice. It allows for not just inflation but “differential inflation” (real prices going up faster than official figures show) and even for the risk of differential inflation being higher than expected! PPP protects the Infracos from losses if their risks fail, but allows them to pocket the proceeds if their risks pay off.
Despite their failures to deliver quality improvements to schedule, the Infracos have benefited handsomely from PPP. The Arbiter has caught Tube Lines paying secondment fees to its own shareholding companies — Bechtel and Amey — way above the usual rate. When Metronet collapsed, its Chief Executive walked away with his pockets full while the public-sector Transport for London inherited 95% of the failed Infraco’s debt, setting the scene for the landslide of cuts that now threatens to engulf London’s transport.
The London Underground PPP is an indictment of New Labour, whose turn away from the working class in search of credibility with capital has been not only unprincipled but a spectacular failure.
But even if PPP collapses and the Underground’s infrastructure is fully re-integrated into the public sector, two big dangers remain: firstly, further attacks on workers and passengers due to the debt and the cross-party consensus on the need for public spending cuts; and secondly, that the Tories simply privatise the reintegrated London Underground. Then we may find out that that there is something worse than PPP.