London tube line's public private partnership in the hole

Link to article here.

This is another example of how a so-called “public private partnership” (PPP) actually means PUBLIC money for PRIVATE profits rather than the “partnership” taxpayers were promised, one where the private entities put up the money and take all the risk. A legal ruling deemed that the private contractor, Ferrovial (parent company to Cintra, the Spain-based company involved in several PPPs in Texas), does not have to upgrade the system, taxpayers do. Even worse, this also demonstrates that once the government gives away control of our infrastructure to private corporations, it has little recourse to protect the public interest. The private entities write these iron clad contracts to protect their interests, leaving taxpayers holding the bag. We have yet to see one PPP deal that worked out well for the taxpayers in any country. PPPs are just one more scam to give private corporations free access to taxpayers’ wallets using government-sanctioned monopolies in the name of “free market.”

Boris Johnson told he must plug £460m tube funding gap
Arbiter of public-private partnership rules that London Underground contractor Tube Lines should not have to make up shortfall in budget
By Dan Milmo
Wednesday 10, March 2010Boris Johnson must make cuts to London‘s public transport network or postpone improvements to one of the capital’s busiest underground lines after he was told to plug a £460m funding gap in a controversial public-private partnership.

The London mayor said taxpayers were being asked to “write a blank cheque” to fund Tube Lines, the last surviving PPP contractor responsible for maintenance and upgrades on three tube routes: the Jubilee, Northern and Piccadilly lines.

In a final ruling today, the arbiter of the PPP contracts, Chris Bolt, said Tube Lines’s work programme over the next seven and a half years should cost £4.46bn. The publicly owned London Underground, which still runs the tube network on a day-to-day basis, must fund the work and has budgeted only £4bn for it – leaving a shortfall of £460m on its already stretched balance sheet.

Johnson, who ultimately controls LU and its parent Transport for London, said he would consider taking legal action against Bolt, who rejected demands that Tube Lines fund the difference by raising debt privately. Instead, Bolt said TfL should either cut back on an upgrade to the Piccadilly line – the only tube link to Heathrow airport – or find cost cuts elsewhere in its £9bn annual budget.

“Londoners will also be outraged that the tube upgrades promised to them are now threatened,” said Johnson. The mayor claimed that Tube Lines’s co-owners, Ferrovial, the Spanish owner of Heathrow airport, and Bechtel, the US project management specialist, would be paid £400m in management secondment fees by 2017.

“In other countries this would be called looting, here it is called the PPP,” he said.

But Bolt rejected the management fees argument, saying that Ferrovial and Bechtel managers were helping to keep down overall costs and, without them, the maintenance and upgrade work could cost more than £4.46bn.

Andrew Cleaves, Tube Lines’s acting chief executive, said delaying an upgrade to the Piccadilly line was one option for closing the funding gap. Bolt has already asked the Department for Transport whether funding set aside for purchasing new Piccadilly line trains, believed to be about £500m, could be used to plug the gap.

“There are many different variations around timing that we can work through with London Underground, including the timing of the fleet and the upgrade. That’s the sort of thing I want to sit down with London Underground about and discuss,” said Cleaves.

The Piccadilly upgrade is due to deliver faster and more frequent trains on the route by 2014 and failure to deliver it on time raises the threat of overcrowding on an already busy line.

The Tube Lines boss also denied that the ruling would threaten the company’s viability. Tube Lines had originally argued that the work should cost £5.75bn and faced an even greater funding shortfall than LU, which prompted Tube Lines directors to discuss whether the company is a going concern at a recent board meeting.

Johnson’s funding options are becoming increasingly limited after the DfT said it would not reopen a 2007 funding settlement that awarded TfL £40bn until 2017. Lord Adonis, the transport secretary, is adamant that TfL cannot increase its borrowing to fund the £460m gap.