Tube Lines’ end completes the failure of London Underground maintenance PPPs

On June 27, 2010, Transport for London (TfL) confirmed that Tube Lines had become a 100% subsidiary of the British capital transport authority, after TfL had bought the consortium dealing with the public private partnership responsible for the maintenance of three underground lines in London, London Underground (LU). This is the second failure of a PPP for the London underground, the body dealing with the maintenance of the other nine LU lines, Metronet, being taken over by TfL in December 2009. The lack of success of London underground maintenance PPPs is believed to be caused by the fact that every PPP participant had not observed the conditions previously assumed. However, the situation will affect Londoners to the greatest extent since many investments in the modernisation of the underground network expect government funds. The situation is even worse since there are only two years left until the Summer Olympic Games in London.

The latest transaction on the datakeover of Tube Lines by TfL was worth GBP 310 Million, an amount that could have been a lot higher and which made many people breath easily that the PPP will not swallow more money for nothing. Tube Lines is the company responsible for the maintenance of Jubilee Line, Northern Line and Piccadilly Line, a network with a total length of over 320 km, 100 stations and 255 underground trains. The Tube Lines consortium included the American company Bechtel and Amey, member of the Spanish Group Ferrovial. Of the total worth of Tube Lines’ shares, Amey will receive GBP 206 Million and Bechtel GBP 103 Million. Tube Lines has nearly 3,500 employees and has been led by the representatives of PPPs’ partners, Lee Jones from Ferrovial, Brian Sedar -Bechtel and Dean Finch, from the authorities and also the executive president of the consortium. The problems of the PPP appeared immediately after the first financial troubles which forced private partners to put pressure on the public partner to dump investments. Finally, this has proved to be fatal to the partnership since huge debts have been accumulated in the maintenance and repair of LU facilities.  A serios deadlock was the second phase of modernisation, when Tube Lines and London Underground have come up with completely different estimations, the consortium claiming as necessary GBP 5.75 Billion, while LU’s estimation has only reached GBP 4 Billion. Chris Bolt, arbiter for the London Underground public-private partnership, has decided that the correct figure was GBP 4.46 Billion, an amount that London Underground could not afford.
The failure completes the more and more intense debates on the viability of public-private partnerships for large infrastructure projects. Metronet had the same fate. Specialists say that the PPP system in Great Britain needs reform, its current form reaching a natural evolution limit.
The problem with public-private partnerships is the pressure generated by private investors to recover their investments before the end of the contract or concession or to match the dumping graphic at any price. Inherent fluctuations, mainly caused by price growth in construction materials, more expensive work force and monetary instability, determine private investors to require insurance that they will not lose their investments, from guaranteeing investments to subsidies and loans, also state-guaranteed. Sometimes, the public authority satisfies these requirements by getting loans of its own or funds coming from the budget reserves which accumulate into significant public debts.

The Mayor of London is the most fierceful opponent of the project

Boris Johnson, Mayor of London, has seriously criticised the Tube Lines partnership. He said the underground maintenance is “trapped in the Byzantine mechanism of the PPP called Tube Lines” and that “Tube Lines is looting London”. He criticised the Government even more for not having learned from the past, referring to Metronet’s failure. He said that the Tube Lines’ end was predictable since the state had not negotiated the terms assumed within the partnership hard enough.

by Alin Lupulescu

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