Conclusions and recommendations
39. Since our last report on this subject, the need
to secure a high and consistent level of funding to improve the
Underground and tackle the investment backlog quickly and cost-effectively
has become even more pressing.
40. Ensuring that the Underground operates safely
must remain the top priority. The operating and infrastructure
companies and the Railway Inspectorate should continue to learn
from the experience of the privatisation of the national rail
network, and should ensure that the restructuring of the Underground
does not blur the lines of responsibility and reduce safety standards.
41. We have received widely differing estimates of
the cost of the PPP compared with bond financing and the size
of the probable gap between the costs of the PPP and the Underground's
revenue. It is difficult to reach firm conclusions about the respective
merits of the options until the PPP bids have been analysed and
the findings made public.
42. Whether the PPP or a revenue bond scheme is chosen,
it is unlikely that the Underground's revenue stream will be sufficient
to pay the full costs of financing the investment. The Government
must make an unequivocal commitment to bridging the 'affordability
gap' should it prove necessary. Failure to do so would undermine
the Government's objective of providing the Underground with the
high and stable funding with which to plan its investment programme.
43. It is essential that the process used to appraise
the financing options be approved by independent experts. We
support the use of the National Audit Office for evaluating the
public sector comparator, but we are concerned about the possible
timing of this appraisal. It is vital that the National Audit
Office examine the comparator at an early stage as it must complete
and report on its review before the PPP contracts have been signed.
We recommend, therefore, that the Government set a firm deadline
for the completion of this task and does not allow the timetable
to slip. We further recommend that the results of the comparator
tests should be published or, at the very least, be made available
to the National Audit Office before any contracts are let.
44. None of the proposed mechanisms of funding
were conclusively proven to be better than the others, but if
the PPP is to proceed then the Government should provide greater
clarification of its proposal. In particular, the Government should
provide firm evidence to support its claims about the efficiency
savings that can be expected under the PPP. The Government should
also demonstrate clearly why the benefits of the PPP could not
be secured by London Underground within the public sector, in
conjunction with a bond financing scheme. The public sector
comparator should be objectively carried out and the final decision
on proceeding with the PPP or an alternative funding option should
be based on this comparison and not pre-judged.
45. The Mayor should honour his commitment to
the Committee to take an objective view of the comparator and
abide by its findings.
46. If the Government does decide to proceed with
the PPP, it should address the following issues before implementation:
- The Government must frame the PPP contracts
in such a way as to ensure that all parties are held firmly to
their obligations. In particular, the infrastructure companies
should not be allowed to renegotiate the deals simply because
they are unable to honour their original commitments.
- With parts of the Underground already at capacity
at peak times, doubt has been cast on its ability to accommodate
the extra passengers that will be needed to generate the additional
revenue that will be required by the PPP. The Government should
re-examine the projections of future passenger use of the Underground
on which the PPP is based, to ensure that the projections are
realistic and would not involve passengers being subjected to
intolerable overcrowding and delays.
- We are concerned that the incumbent infrastructure
companies will be in a strong negotiating position to press for
more favourable terms when performance requirements are reviewed
at 7½ year intervals. The operating company and the arbiter
must be given sufficient powers to prevent the infrastructure
companies from exploiting their positions and to ensure that their
charges are fair and reasonable.
- The Mayor's ability to prepare a comprehensive
integrated transport strategy for the capital will be constrained
by not transferring responsibility for the Underground to him
until the PPP contracts are signed. It is essential that the
Government keep to its commitment to work closely with the Mayor
during the transitional period as accountability for London's
transport will ultimately lie with him. It is also essential
that the Mayor take a pragmatic rather than an ideological approach
to working with Government.
- Expenditure on consultancy fees, at more than
£60 million, has already been substantial. We recommend
that the Government set firm limits on the amounts to be spent
on consultants. It should publish regular updates in future on
the total amounts spent on consultancy fees.
- We are disappointed that little progress has
been made with plans for expanding the network since our last
report. We recommend that the Government ensure that comparatively
minor schemes, such as the East London line extensions and the
Croxley Link project, are implemented rapidly under the PPP.
1. Although not addressed by the PPP, the need for
new lines has become even more important. We strongly urge
the Government, in conjunction with the Mayor, to decide quickly
which schemes for new lines should be taken forward, how they
should be funded, and should provide such funding if necessary.
2. Should new lines be identified for construction
in the future, and if the Mayor should decide to use bond financing
rather than a PPP, we will expect him to justify his preference
in terms of cost, efficiency and safety in the same way as is
now required of the Government in respect of its proposals for
a PPP.
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