Supplementary memorandum by London Transport
(FLU 16)
LONDON UNDERGROUND
FUNDING
In response to the questions raised by Members
during the recent Sub-committee session, I am now in a position
to update my evidence on the Public Private Partnerships (PPP).
1. LIKELY BENEFITS
OF A
LONDON UNDERGROUND
PROPERTY PARTNERSHIP
LT Property currently provides a full property
service and is a self accounting profit centre which manages the
generation of income from LT/LU non-operational property. The
property business and non-operational property was excluded from
the main PPP as LT considered that greater income could be achieved
in the future through a specific property partnership with the
private sector.
The London Underground Property Partnership
(LUPP) contained three main elements:
The Sale of Assets
Involving the sale of 28 surplus non-operational
income producing properties.
A Property Development Contract
Providing the successful bidder with first option
to undertake all future commercial developments when planning
consent is received. The bidder must pay London Underground the
open market value of the non-operational site and in return will
share a profit from development. A private sector partner can
provide the level of investment, not currently available to London
Underground, to progress often complicated schemes.
A Property Service Contract
Continued provision of property consultancy
services to the main businesses and the management of revenue
generating non-operational premises with risk transfer on income
growth, operating costs and investment.
The contract for the development and property
services contract is for 20 years giving the bidder a sufficient
period for investment. The property consultancy service is for
a five year period with an option to extend for a further five
years only.
The benefits for London Underground are:
— higher financial returns at no greater
risk;
— lower management and development
costs;
— an accelerated development programme;
and
— more attractive proposals with station
improvements.
The financial benefits that may be generated
by the Property Partnership can only be assessed accurately once
bids have been received. Initial bids are due to be received in
July 2000 with sign-off in early 2001.
2. ADMINISTRATION
AND MONITORING
COSTS OF
PPP ONCE UP
AND RUNNING
To monitor and to ensure that the PPP consortia
deliver goods and services for which they are being paid, the
new London Underground is likely to incur an estimated £1.2
million per annum of ongoing administrative costs comprising approximately
an extra 21 staff and their associated costs. It is, however,
difficult to provide a more accurate breakdown of costs at this
stage.
Denis Tunnicliffe
Chief Executive
19 June 2000
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