Supplementary memorandum by the Department
of the Environment Transport and the Regions (FLU 12A)
FUNDING OF LONDON UNDERGROUND
Thank you for the letter of 18 April in which
asked some supplementary questions which are reproduced, with
the Department's response, below.
At what stage will the National Audit Office scrutinise
the public sector comparator and when will its opinion be published?
This is a matter for the NAO itself. They have
already made clear that they cannot get involved in the decision-making
process on the PPP; though the Department has asked for, and received,
guidance from them on the preparation of the comparator. It will
be up to the NAO to set a timetable for any study it wishes to
make into the PPP.
Will the results of the comparator tests decide
whether the PPP bids are accepted or will equal importance be
placed on the satisfaction of other criteria?
As we have indicated previously, the PPP will
only go ahead if the bids are shown to represent best value when
tested against the public sector comparator. It is nevertheless
conceivable that bids might not be accepted for another reason,
for instance, if we were not satisfied that a bidder was financially
sound, technically competent or that their proposals would make
an active contribution to improved safety.
What estimate has been made of the total amount
that will be spent by London Transport on consultants' advice
on the PPP? Will all of LT's contracts with its PPP advisers continue
to be on the basis that both it and the Department are advised
jointly?
It has never been the practice to answer questions
about future costs of advisers while a project is still under
way. The Government and LT are doing everything possible to ensure
that costs are kept within an appropriate figure. The Government
is committed to giving periodic updates of costs and will also
give the total costs of advisers working on the project once it
has been completed.
In seeking to obtain best value for money, London
Transport and the Government makes decisions on a case-by-case
basis about how external advisers should be employed. It seems
reasonable at this stage to assume that those advisers who currently
provide joint advice will continue to do so.
Is there a case for Government-backed bonds of
the type used to help pay for the Channel Tunnel Rail Link being
used to raise finance for the Underground?
Not a good case. The use of private-sector bonds
backed by the Government on CTRL was a solution tailored to the
circumstances of that transaction. In the case of the Underground
PPP, benefits will flow from transferring risk to the private
sector, which could not be achieved as effectively with Government
backed-bonds. These would consequently not represent best value,
and would also count as public spending.
It remains the case that we expect that the
private sector infrastrucure companies taking on the Underground
work will issue their own bonds to raise the finance for investment.
Please confirm whether or not it is intended that
proposals for the Croxley Link project and the proposed extension
of the East London Line (with the first stage to Dalston) will
be taken forward as part of the sub-suface lines PPP. If not,
please explain the reasons for an apparent change of policy as,
in his oral evidence to the Sub-committee on 15 December 1999,
LT's Chief Executive expected these proposals to be included in
the agreement.
The shadow Strategic Railway Authority (sSRA)
is advising the Government on the best way of implementing north-south
integration through the East London line and its proposed extensions.
Depending on the conclusions of the sSRA's work and the Government's
subsequent decision, bidders for the Sub-surface lines contract
may be required to price separately, against a detailed scope
of work for construction works to link the East London line to
the national rail network.
In the case of the Croxley link, it would be
for the Mayor to consider whether to build an extension and the
Major Enhancement Agreement (see below) provides a mechanism for
implementing such a decision.
After the PPP contracts have been let, would the
incumbent infrastructure companies not be in a strong bargaining
position in any negotiations about new lines and extensions which
might place the operating company at a disadvantage?
The PPP contractual arrangements will include
provisions for major schemes to increase capacity at stations
and provide for line extensions. The scope and timing of such
schemes will need to be worked out on a case-by-case basis and
they will often require TWA orders or other consents, which may
sometimes lead to design changes. London Underground therefore
intends to design such schemes jointly with the responsible infrastructure
company and to commission the company to deliver the work, provided
it can demonstrate value for money.
We would normally expect the company responsible
for the station or line in question to be best placed to offer
value for money in implementing major enhancement projects. But
London Underground can choose a different contractor if the infrastructure
Company's price is not competitive. In such circumstances, the
infrastructure company would still have to provide (and would
be paid for) any essential works which could not be provided by
a third party. These arrangements ensure that the London Underground
operating company can benefit from the efficiencies which an incumbent
infrastructure company could offer (for example by co-ordinating
work on a major enhancement with its routine maintenance and upgrading
work on the existing line) while not constraining London Underground's
freedom to look elsewhere if the price is uncompetitive.
8 May 2000
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