http://www.guardian.co.uk/business/2...tube-lines-ppp

- Tube Lines in £1.35m funding battle with Transport for London
- Tory mayor keen to finish off Labour's public-private partnership

Dan Milmo
guardian.co.uk, Monday 4 January 2010 17.39 GMT

If Boris Johnson wants to kick Gordon Brown when he is down in the
polls, then the London mayor has the perfect vehicle in the
public-private partnership to upgrade the London Underground.

It was the fulcrum of internal Labour party concerns over the political
direction of Tony Blair's government when it was imposed in 2003 and now
it has become the punchbag of a Conservative administration in the
capital. It was then the largest such scheme in the world but its
critics have looked increasingly prescient as the policy has crumbled.

The last surviving PPP contractor, Tube Lines, now faces serious
questions about its future and, according to one seasoned observer, it
is being pushed to the edge by Johnson.

"It lets Boris destroy one of Gordon's golden creations and say 'look
what I have done.' The politics behind this are naked. The Tories now
run transport in London and there is a Labour project out there that
they can fundamentally alter."

There appear to be two lines of attack: a row over Tube Lines' next
funding settlement, for 2010 to 2017; and an upgrade to the Jubilee Line
that is hugely over schedule and could lose Tube Lines a year's profits
if it is not resolved quickly.

Last month the Tube Lines chairman, David Begg, admitted that Johnson's
administration was attempting to shut down the last vestige of the PPP.
"This is an arranged marriage where one partner does not want to be in
it," he said.

The London Underground PPP has struggled for political legitimacy and
financial survival ever since it was introduced. The £30bn project
divided up responsibility for upgrading and maintaining the tube for the
next three decades among two companies: Metronet and Tube Lines. In
exchange for carrying out complex work on an ailing network that
transports three million people per day, the businesses would receive a
monthly payment that would increase or decrease depending on whether
they hit targets for measures such as train cleanliness and reliability
of services.

Metronet collapsed in 2007 after it failed to keep costs under control
and built up a projected overspend of £2bn. Now Tube Lines is locked in
a dispute with the mayor's transport authority, Transport for London
(TfL), about the cost of the next seven-and-a-half years' worth of work
on its lines — Jubilee, Northern and Piccadilly.

Tube Lines believes the work should cost £5.75bn while TfL is adamant
that it should pay the company no more than £4bn between 2010 and 2017.
Last month the PPP contract referee, Chris Bolt, came down on the side
of TfL in a draft ruling that said the work should cost £4.4bn – a
£1.35bn funding gap.

Dean Finch, the Tube Lines chief executive, has admitted that the ruling
could bankrupt the company. "I had a board meeting to consider that
question," says Finch.

If Tube Lines is told to do the work for no more than £4.4bn – the final
ruling is just months away – then it will have to hack away at its cost
base and restructure its way of doing business in order to eke out a
profit and get the backing of lenders. But he believes that Tube Lines
can pull it off.

"The board unanimously decided that the company is solvent ...Tube Lines
will need to do some radical stuff now in terms of improving
productivity and efficiency. I don't think Tube Lines is insolvent. I
think it can survive this but it is extremely challenging," he adds.

However, Finch also says Londoners will get a better deal than Tube
Lines' shareholders. The company is co-owned by Amey, a subsidiary of
Spanish conglomerate Ferrovial, and Bechtel, the US project management
specialist, widely thought to be unhappy with the state of the PPP.
"This is a fantastic deal for taxpayers but probably not a very good
deal for shareholders. They are going to have to work very hard to make
a return."

The Jubilee line overruns alone will cost Tube Lines about £50m. Finch
believes the project to put faster and more frequent trains on the route
will be completed in October – nearly a year late. He admits that the
company has made errors on the upgrade but says TfL has not sanctioned
enough weekend closures, adding millions of pounds to Tube Lines' costs.
Finch contrasts the treatment given to the Victoria line, which is now
maintained by TfL following Metronet's collapse, where weekend closures
have been frequent.

"We are finding a very uncomfortable disparity between what LU has given
itself with the Victoria line and what it has given us on the Jubilee
line."

Asked if there is a political dimension to the crisis, Finch declined to
comment. However, an appearance by Johnson at the transport select
committee last year still rankles. "I note that the mayor said it was
too early to say the last rites over Tube Lines. I don't find that a
very positive thing to say. I take scant comfort from those words,"
Finch says. "I don't understand how a mayor, and politically a
Conservative mayor, can take that view."

A spokesman for Boris Johnson denies that the dispute is politically
motivated. "There is no opportunity here for scoring cheap political
points." However, the relationship is at a point where the mayor's
office is openly stating that the PPP does not work for the taxpayer or
the commuter. "Gordon Brown must be the only politician in Britain who
still thinks the PPP as constructed is good for either the taxpayer or
customer," adds the spokesman.

Finch, who will leave Tube Lines in the spring to take the top post at
National Express, says TfL made an offer to buy Tube Lines last year, in
a further indication of the forces arraigned against the PPP.

But government sources say that bringing down Tube Lines could have
serious financial consequences for the mayor because TfL could be liable
for the company's debts of about £2bn, as well as having to raise the
extra £400m that it needs to meet Bolt's £4.4bn cost estimate.

A TfL spokesman said: "What's important to us is that the tube
improvements promised by the PPP are delivered on time and in a way that
is value for money for London's farepayers and taxpayers."

Tube Lines rejects claims that it is mismanaging the contract and points
to comparisons with upgrade and maintenance work carried out in-house by
TfL after it took over Metronet in 2007. TfL now executes Metronet's
responsibilities for three-quarters of the tube network and, according
to data seen by the Guardian, is by some measures a third more expensive
than Tube Lines.

Finch argues that the disappearance of Tube Lines into TfL would cost
the taxpayer billions of pounds. "Tube Lines is far, far more efficient
than Metronet currently is today or has been in its history. Those costs
have gone up substantially under London Underground's control. Tube
Lines is one third cheaper."
___________

Is it really true that Tube Lines is so much more efficient than the
now in-house run ex-Metronet contracts? Is this simply because it
takes a while to unwind Metronet's inefficiencies, or just that Bechtel
and Ferrovial are very tough, efficient project managers? If so, why
does David Begg think that the project should be £1.35bn cheaper than
Tube Lines reckons?