Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence

Supplementary memorandum by the Department for Transport, Local Government and the Regions (LU 12C)



  1.  The role of the Arbiter is to give guidance or directions to London Underground or the infrastructure companies in relation to the PPP Agreements. In doing so, the Arbiter is required to act in a way calculated to achieve the objectives in section 231 of the Greater London Authority Act 1999 (GLA Act). These include:

    —  ensuring London Underground has an opportunity to review and amend its requirements;

    —  promoting efficiency in the provision and maintenance of infrastructure;

    —  ensuring that any rate of return specified in the contract would be earned by an infrastructure company that performs economically and efficiently; and

    —  enabling the parties to plan with reasonable certainty.


  2.  The Arbiter is appointed by the Secretary of State in accordance with sections 225 and 226 of the GLA Act. The Act allows for the appointment to be permanent or for appointments to be made on an ad-hoc basis. Given the scope of directions and guidance that may be required of the Arbiter at any time (see paragraphs 9-12 below) it is currently envisaged that the appointment will be made on a permanent basis.


  3.  The identity and location of the Arbiter has yet to be determined. Section 228 of the GLA Act allows the PPP Arbiter and the Rail Regulator to be the same individual, but there is no requirement for that to be the case; and no decision has yet been taken.

  4.  The physical location of the Arbiter's office itself will be a decision for the Arbiter.


  5.  The level of resources that will be required by the Arbiter will be primarily a decision for the Arbiter. Section 227 of the GLA Act allows the Arbiter to appoint such staff as he may determine, subject to any restrictions contained in the terms of his appointment.

  6.  We would expect a small secretariat to be put in place to administer the office. Specialist technical, financial and legal would be provided by a combination of permanent staff and input from specialist advisers as required.


  7.  The PPP Arbiter's jurisdiction is limited to only making directions on those specific issues put to him by parties to a designated PPP Agreement. These are London Underground and the infrastructure companies. The Service Contract sets out the matters that may be referred to the Arbiter. These can be categorised into two types:

Referrals at a Periodic Review

  8.  This is the principal point for a referral to the Arbiter. The contract provides for three reviews within its 30 year length, at years 7.5, 15 and 22.5. At these points London Underground has the opportunity to re-specify the services it wants delivered and the infrastructure companies are required to price them. To the extent that the price cannot be agreed the matter is referred to the Arbiter to determine the economic and efficient price for delivering those services.

  9.  At a Periodic Review the Arbiter could be asked to determine not only the economic and efficient price for delivering specified services, but also whether and how London Underground's requirements are to be financed and whether the rate of return for any new equity required should be changed.

Interim Referrals

  10.  The contract allows both London Underground and any infrastructure company to refer matters to the Arbiter for interim guidance as to how he would consider an issue at the forthcoming review (for example whether a particular long term contract being entered into would be considered "economic and efficient" following "good industry practice").

  11.  In addition, interim determinations may be required on issues such as:

    —  the appropriate level of Infrastructure Service Charge payable by London Underground following the occurrence of material and unavoidable adverse effects; and

    —  whether, if an infrastructure company were to seek London Underground's approval to pay a dividend over the level provided for in the contract, adequate resources would remain within the infrastructure company to allow it to properly perform its activities under the contract.


  12.  The information that the Arbiter will use to enable decisions to be made about economic and efficient behaviour will be a matter for the Arbiter to determine. Section 233 of the GLA Act states that London Underground, the infrastructure companies and associates, and relevant third parties "shall, at the request of the PPP Arbiter, provide him with such information as the PPP Arbiter considers relevant to the proper discharge of the functions conferred or imposed on him by or under this Act and as may be specified or described in the request". The GLA Act also provides penalties for failure to provide information.

  13.  In practice the PPP Arbiter will have substantial information from which to draw his conclusions. In particular:

    —  information provided by London Underground and the infrastructure companies. For example, under the contract the infrastructure companies submit to London underground a range of information including annual asset management plans, and London Underground will have its own resources to provide information to the Arbiter on a regular basis;

    —  his powers to request information (section 233) and to carry out inspections or consult other bodies (section 232); and

    —  advice from his own specialist advisers.


December 2001

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