Examination of Witnesses (Questions 320
- 339)
MONDAY 17 APRIL 2000
RT HON
JOHN PRESCOTT
MP, RT HON
LORD MACDONALD
OF TRADESTON,
MR MIKE
FUHR AND
MR PAUL
DAVIES
320. That is unusual for you because it is ducking
the question. Shall we take it again?
(Mr Prescott) Yes.
321. Let us put it in brutal terms. We have
been told that this PPP might be all right for doing the things
that you say but it has no room in it for extra capacity and there
is no indication of new lines. Frankly, you see, some of the things
Mr Davies has said, could only happen to people who do not know
about railways, if you specify it should go up 35 trains instead
of the 30 you are at present running. All of those are only dominated
by the infrastructure, they are dominated by the signalling, they
are dominated by a number of technical problems which have been
skated over, frankly, with such speed. We are giving a fantastic
performance here but where will we go when we need extra capacity
and new lines? Who will fund it?
(Mr Prescott) It is a very fair point and I do not
want to be trivial about it but it really will be the mayor making
a decision. Such scale of investment will require government in
one form or another, it will be foolish to suggest that it would
not really. For example, if you look at CrossRail when they talk
about 2½ billion, I think the estimates we are getting for
the East London Line are somewhere in the region of £100
million or something, we await the report. That is the scale of
the money. I think once you get into billions, you are into a
real difficulty of how you finance it. There have been people
arguing that in fact if London was to develop, it might be able
to develop its own bond system, it may get into those kinds of
arguments. We wait to see that happening. You will still require
the Treasury to agree such a proposal, it will still be under
public financing. Who knows, that may well be the future. The
point I am trying to make is the mayor will make that decision.
Extra capacity, which you rightly refer to, Chairman, is not new
lines, it can get a considerable amount of increase in capacity,
it may be in the region, I think it was Denis Tunnicliffe who
said about 15 per cent or something—
322. Of course, Mr Tunnicliffe is not going
to be with us, is he?
(Mr Prescott) No, I do not think he is just saying
that, he is delivering on his contract and he is moving on and
it is right he would move at this stage of his retirement anyway.
That is the work conducted by London Transport themselves, they
feel that they can get those capacities. The bigger question is
the big kind of funding for the investment for cross-London links
is the real major issue. I see that the City have made a number
of proposals themselves that they could fund a bond if they could
get to talk with the London authorities, I do not know. These
are interesting ideas, other authorities have used them—I
do not deny it—in other countries. They may well be able
to find an agreement, depending on just what the estimate of the
earning capacity and what the cost of the line is, that would
be where the big questions come.
Mr Bennett
323. Have you looked at the question of the
mayor and his term of office in relation to the fact that the
contracts are going to have to be renewed or renegotiated every
seven to eight years?
(Mr Prescott) Yes.
324. In any commitment to one of these big schemes
it would be very unwise to think the person who signed the deal
for it to be done would still be in office by the time they came
to ride on it.
(Mr Prescott) That is an interesting point. Some would
probably argue that they should be there. We have a timetable
problem in the same way. We have to make a decision on the investment
and the mayor will have some say, but he or she will not decide
it. If, then, they want to renegotiate the contract, for example
if they had the right to change this and go to what they call
their kind of bond issues, say the Liberal candidate, presumably
they would not be in office if they were not elected the next
time when the deal came to be done. We are not prepared to have
that delay but that is always the problem in the political timetable
and the time it takes to negotiate such contracts.
325. Just briefly, how much so far has the Department
and London Transport spent on consultants for the PPP?
(Lord Macdonald of Tradeston) I think in the last
report we gave to Parliament, Chairman, it was over £40 million.
We promised to report on a six monthly basis and the next report
will be in May, next month.
326. If the PPP was to be abandoned because
it was not good value for money, are you committed to paying the
consortium any compensation or not?
(Mr Prescott) What we have said—correct me if
I am wrong here—is we paid a £15 million pool to say
if we pulled it, if Government pulled it, because we decided all
of a sudden somebody convinced us this was entirely wrong, that
would be compensation for those who had made the bidding. We think
that is right to do and took out some of the risk that people
were involved in in making their bids.
Chairman
327. £15 million?
(Mr Prescott) £15 million.
328. What kind of odds is that? Quite a good
bet, is it not?
(Mr Prescott) What, in preparing the plans?
329. Yes?
(Mr Prescott) I think one of the problems they found
with PFIs under the previous administration was that the risk
was considerable sometimes and people were not prepared to take
the contract unless there was some guarantee that Government was
intent and serious about producing its PPP.
(Lord Macdonald of Tradeston) Can I just clarify one
thing. This would not be in the event of bids failing against
a public sector comparator. This would simply be if the Government
decided for political reasons that it was scrapping the competition.
Then there would be a £15 million per pool and there are
three pools.
Mr Bennett
330. If it fails on the basis of the comparator
they do not get any money?
(Lord Macdonald of Tradeston) No.
331. Last week we were told very firmly that
the risk of ground water and things like that was a risk that
London Transport preferred to carry themselves rather than pass
that on to the private system. Are you satisfied that the risk
of those matters are fairly balanced by the ones kept by London
Transport or taken on by the new system?
(Lord Macdonald of Tradeston) In the event of any
catastrophic risk then it would indeed be taken by the Government,
in the sense of that being the strongest entity around. We do
not believe it would be right to be paying public money to Lloyds
or wherever for the insurance risks that might be there were the
London flood barrier to fail and the whole system to be flooded,
for instance. In those very unlikely events, those catastrophic
risks, we believe that the Government should absorb. The other
more quotidian risks are borne by the private companies involved.
332. I understand that as a principle but the
trouble is that it is going to come down, is it not, from something
you can pick out and say, "That is absolutely catastrophic",
to something which you might argue it would be fairly arguable
whether it was catastrophic or not.
(Lord Macdonald of Tradeston) I believe that would
be part of the negotiations, that there will be discussions about
what the latent risk perhaps inherent in the system might be and
that is for the consortia to negotiate through.
333. Will both consortia have to meet the same
risks or will they be able to offer a different price, leaving
out some of the risks?
(Lord Macdonald of Tradeston ) This point of technicality
I think I would prefer to pass over to an official.
(Mr Fuhr) I think there is a long way to go in negotiating
these, it is a little too early to say.
Chairman
334. Mr Fuhr, forgive me, when the Limehouse
link was built it came as a great surprise to the contractors
to discover that the Thames was running alongside where they were
building their road. Halfway through the performance they asked
that the Government should pay them a very considerable amount
of extra money because they had discovered that the pressure from
the water made an indifference to their construction. It is not
surprising that we are concerned that those who seek to dig underground
tunnels may find themselves faced with water.
(Mr Fuhr) I entirely understand that.
335. Is it not sensible to consider that before
rather than after?
(Mr Prescott) This is what we are doing.
(Mr Fuhr) Issues like severe, serious bordering on
catastrophic inundation by the Thames—
336. Serious bordering on catastrophic.
(Mr Fuhr) I am trying to disaggregate different levels.
337. How many drownings is catastrophic as opposed
to severe?
(Mr Prescott) If the Thames Barrier goes—
338. If the Thames Barrier goes large parts
of London will go.
(Mr Prescott) You will not be in this Committee complaining
about it.
339. We will all be on the top floor of this
building for a start.
(Mr Fuhr) That risk is a risk which is sensibly carried
by the public sector because to try to get it priced in the private
sector would be exorbitant. There will be a very few limited risks
which are of that nature which will reside with the public sector.
The remainder will be passed to the private sector. Precisely
where the line will be drawn is going to be a matter of negotiation.
I have to say that the draft contracts on which the current deep
tube bids have been entered show pretty well where that dividing
line is and the bidders know what is expected of them in terms
of taking on risk.
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