PPPs over for London Underground maintenance
May 2010
Patrick Reynolds, Freelance Reporter
- In a final blow that ends public-private partnerships (PPP) for maintenance and upgrade of the London Underground network, the public sector authority, Transport for London (TfL), has agreed to buy PPP company Tube Lines from its owners Amey and Bechtel.
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Metronet and now Tube Lines have failed to fulfil the PPP promise of cost effective maintenance and upgrade of London's Underground system
- The £310 million (US$450 million) transaction, conditional upon certain points including lenders' consents and operational matters, is expected to close by late June.
- As the two-thirds majority owner of Tube Lines (Holdings) Ltd, Amey would receive the bulk of the divestment proceeds - approximately £207 million (US$300 million), and Bechtel the balance. Aside from their ownership stakes in the special purpose company, the companies also worked to provide the services required for the maintenance and upgrade, and they are to continue to do so in some degree.
- Under its PPP contract, Tube Lines has been responsible for the maintenance and upgrade of the deep Underground lines in London - the Jubilee, Northern and Piccadilly Lines. The PPP contract runs in 7.5-year terms and have adjustments, if needed, as negotiated and guided by the PPP Arbiter.
- TfL and Tube Lines have had ongoing differences over estimated future costs as the first PPP term has come to a close and preparations were underway for the next contract period. The difficulties developed over the last year when Government in London, under Mayor Boris Johnson, was seeking greater improvement in public transport services and changes to the complicated PPP arrangements.
- The climate of change has also been informed by TfL previously having to take on a financial burden due to the difficulties faced by the other PPP contractor, Metronet, which handled the shallower lines of the Underground.
- With the next 7.5-year term due to start in July, the unresolved negotiations between TfL and Tube Lines had left a 'funding gap' over what the next package of work would cost. Faced with the need to cut back its upgrade programme or seek funding from the UK Government to make up the difference, an alternative solution was devised to end the PPP arrangement but keep the work going.
- Mayor Boris Johnson, said the improvement to the tube system would be delivered on time and on budget once it is "freed from the perverse pressures of the Byzantine PPP structure".
- Mike Brown, Managing Director of London Underground (LU), a subsidiary of TfL, said the revised arrangements would enable the upgrade work to continue with greater flexibility and be delivered more cost effectively.
- TfL said in a statement: "The agreement, when concluded, will involve no extra financial call on either the Government, London's fare payers or taxpayers in relation to the upgrade of the Tube.'
- Tube Lines is to become a wholly-owned subsidiary of TfL and will continue to receive management and maintenance services from Amey for the Jubilee, Northern and Piccadilly Lines. The work will be a continuation of services provided by Amey under its separate, independent contract with Tube Lines, and is expected to last into the next 7.5-year contract period.
- Bechtel, which is to receive about £103 million (US$150 million) for its equity stake, is to continue to undertake the capital improvements programme for an unspecified interim period to help ensure a transition of the workload to TfL.
- Amey, a part of Spain's giant Ferrovial group, and Bechtel of the United States, noted their achievements in delivering improvements under the previous arrangement, and LU recognised those successes, with Brown adding: "This new arrangement will enable us to work more directly and collaboratively with the management and staff of our private sector partners."
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