TUBE passengers and taxpayers remain exposed to an unacceptable level of financial risk and could face another ten-figure bill if the Tubelines consortium were to go out of business, London Underground’s biggest union warned on Monday.
Calling for the Tube to be re-nationalised, the RMT said in a statement: ‘The public has already been saddled with a £1.7 billion bill following Metronet’s collapse, and the union warns that 95 per cent of Tubelines’ debt is also underwritten by the government – meaning that the public faces another catastrophe if Tubelines goes bust.’
RMT general secretary Bob Crow said: ‘The idea that Tubelines is shouldering any financial risk from its PPP contracts is just as big a myth as the idea that Metronet did.
‘The hard reality is that the public is shouldering almost all of the risk, just as it did with Metronet, and if Tubelines goes belly-up it will leave us with another massive ten-figure tab to pick up while the shareholders once more creep quietly away.
‘The idea that Tubelines is a success is also a myth – they are just not doing as spectacularly badly as Metronet did – and the PPP is still costing the public a fortune even if Tubelines avoids going bust.
‘If Tubelines was delivering according to the script – which it is not – it would still be delivering at benchmarks set five per cent below the levels expected from publicly owned London Underground.
‘And the cost of that underperformance is staggering, because central government spending on the Tube increased more than 20-fold in the seven years up to 2005.
‘The £160 million pre-tax profit that Tubelines has already made, only four years into its 30-year contract, is not far short of the equity that its shareholders, Bechtel and Amey staked in the first place – and that equity is the limit of their risk.’
Crow concluded: ‘The best bet for Londoners and for taxpayers would be for the government to accept that the PPP is the problem and bring Tubelines back in-house before any more damage is done.’
Hayes and Harlington Labour MP John McDonnell has tabled the following Early Day Motion:
‘EDM 1130 – London Underground PPP’
It calls on ‘the government to do all within its power to ensure that the Metronet contracts are brought under the direct control of London Underground at the earliest possible time; and to safeguard the future interest of the taxpayer also calls on the Government to take steps to bring the Tube Lines contract under the control of London Underground.’
RMT noted: ‘Not surprisingly the Transport Committee has strongly criticised the Metronet contract and the PPP structure in general.’
In summary the Committee said:
‘The collapse of Metronet inclined the Committee to take the view that the PPP model was flawed and probably inferior to traditional public sector management and that proper public scrutiny and the opportunity of meaningful control is likely to provide superior value for money.
‘The Government should not enter into any further PPP agreements without a comprehensive and accurate assessment of the level of risk transfer to the private sector.
‘The Secretary of State should make a full assessment of the additional costs that have been incurred as a result of the failure of Metronet and then tell the House what proportion of these costs are to be met by central government and what proportion she expects residents of London and Tube passengers to pay.
‘The government should bear the Metronet debacle in mind if and when its parent companies next come to bid for publicly-funded work.’
The RMT stressed: ‘Defenders of the PPP say that the PPP model is not flawed because the other PPP consortium, Tubelines, is “delivering” for London Underground.
‘This is a fundamentally inaccurate assessment borne out of a need to justified a failed policy and an ideological obsession that the private sector is always more efficient than the public.
‘In fact as far back as 2000, an independent report by the Industrial Society (The London Underground Public Private Partnership, An Independent Review) found that the PPP was offering a guaranteed 15.3 per cent return on equity for 30 years with benchmarks for performance set five per cent below the levels expected of the publicly owned London Underground.
‘In 2005 the House of Commons Transport Select Committee published their Performance of the London Underground report.
‘This found that “disregarding the costs of the Jubilee Line extension, central government expenditure in constant terms has increased from £44.1million in 1997-98 to £1,048 million in the current financial year (2004-05); an increase of 2,276 per cent – over twentyfold.”
‘Therefore it would be astonishing if Tubelines was not “delivering” when the benchmark is five per cent below that expected of by the former London Underground while benefiting from a twentyfold increase in public funding.
‘As the 2005 Transport for London report explained, by 2004/05 it was possible to begin to make judgments on the performance of the PPP.
‘TfL does acknowledge some progress but explains that this “could hardly be otherwise” given the sums involved.
‘The verdict is put bluntly: “In short, performance is not good enough and is less than was promised”.
‘The report goes on to say: “The Infracos and their shareholders are earning significant sums through the PPP, but the volume of real work out on the railway is not consistent with the payments being made.”
‘But perhaps the greatest concern is that RMT fears the taxpayer and fare payer are also being exposed to massive financial risk from the Tube Lines contract.
‘That is to say, as with Metronet, the government has guaranteed 95 per cent of Tube Lines borrowings from the banks and Tube Lines risk is limited to the amount of equity invested, which RMT believes to be in the region of £180 million: a paltry amount, especially when we know that Tubelines pre-tax profits from the PPP are £158 million to date.
‘Therefore, as with Metronet, we fear the risk of things going wrong with the Tube Lines contract lies overwhelmingly with the taxpayer.
‘Furthermore whilst Tube Lines claim to have efficiencies and spending under control, this has in large part been helped by the design of the 30 year PPP arrangements which has frontloaded upgrades with less risk at the start of the contract, such as station refurbishment, whilst more complex higher risk work such as new trains and signalling is still to be delivered.
‘Following the Metronet fiasco and the huge bill faced by the taxpayer the government should review the Tube Lines contract with the view to bringing its work back into the public sector.
‘At the very least, it needs to explain exactly how much risk the taxpayer is exposed to by the Tube Lines contract and why it believes it is right that the taxpayer should pick up the bill if Tube Lines fails.
‘The alternative strategy of crossing their fingers and hoping that Tube Lines does not fail would be astonishingly complacent.’
