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

Examination of Witness (Questions 200 - 219)



Dr Pugh

  200. In the New York underground, during a similar timescale, say seven years, what did you actually achieve, and how does that differ from what is projected by the PPP?
  (Mr Kiley) Arguably, the New York City subway system was in even worse shape than the Underground is now.

Mr Donohoe

  201. Is that possible?
  (Mr Kiley) Believe me, it is possible. There, you had a situation where electrical fires on the trains, while in service, and main line during rush hours had become not quite commonplace, but occurrences that happened fairly frequently. We are not to that point here. God forbid that we get to this point. There were management problems that I consider, in retrospect, to have been more serious than management issues that are being faced here. But we took a year and a half in the case of New York to assess the physical condition of the entire plant. We suspended the capital programme that had just gotten under way before I arrived on the scene. My predecessor had done a wonderful job of procuring finance for it and the programme was just beginning, but we suspended it while we got a much better handle on the nature of the problems that we were going to face. Even so, we managed to replace the entire train fleet within seven and a half years; we had to replace almost all the track in the system during that first seven and a half years because it was in woeful shape; there were 500 speed restrictions. That reminds one of what happened after Hatfield and the National Rail system. Around the subway system: no more than five miles per hour; that is not much of a service. Most people could walk faster than that, and that is what they were doing. Ridership was way down. That had to be dealt with immediately, so there were not major line upgrades across the system during that first period of time, but a total renewal of the track. So you had new track and new trains by the end of the seven years that I served, and you had major line upgrades proceeding, and station work going on.

Dr Pugh

  202. Now you work for a democratic elected body, you have a transport strategy and you have to deliver it. Clearly the proposals of the PPP do not sit alongside that very easily. Is that a big problem for you?
  (Mr Kiley) I think you have been hearing me for a long time on this, and the answer to that question is yes, that is a big problem and will continue to be a big problem.

  203. Do you think that should have been taken on board during the assessment of PPP versus the public sector equivalent?
  (Mr Kiley) It has always struck me as being odd that neither GLA nor TFL has ever been a serious part of the actual procurement process itself. Yes, there have been stabs at negotiations with this. Yes, I served a lengthy term as Chair of LT, seven weeks, but in effect, we have never really been a vital part of this procurement process. And here we are now, we are getting down to the point where they are talking about finance and the spending review for the next three years. We have a spending review going on with DTLR, TFL, and now, apparently, the London Underground has a separate spending review going on with DTLR, even though it covers the period when we will be in charge. You would think we were at least at the point where they could make a small concession and say, "Why don't you get right into this discussion with us from square one". Instead, I suspect what we are going to be faced with is something of a fait accompli, and basically a repeat of this consultation process that we go through of being able to react after the horse has bolted.

  204. Finally, could I just play devil's advocate: at the start you said any cost overruns above £7 million, somebody, we know not who, will have to pick up on a per annum basis the extra additional cost. Obviously, one of the strong arguments against the public sector equivalent is that costs will run away from it. What assurances could you give or think of that would actually knock down that argument, dispose of that argument, counter that argument in any way?
  (Mr Kiley) One of the reasons why you will get into an overrun situation is if there is no long term financial commitment that can be relied on by the people who are actually renewing the system. In our case, it would actually be private contractors as well. If you have to manipulate contracts to take into account the absence of long range funding, we will be right back where we started from here in London, and I fear we are not out of those woods yet, and that it remains to be seen under PPP or under our scheme or any other scheme, whether that real long term commitment, a robust long term commitment will be there when we get to that point, and it is not clear, and I worry a lot that we are very late in this game. As you heard from the conversation today, no commitment has been given, and it is not even clear that a commitment has been asked.

  205. I have listened to you very carefully. You did not preclude the possibility of your alternative having a significant cost overrun?
  (Mr Kiley) No, we would manage these "hard to budget". One thing we would have which PPP does not is a capital plan that would be very detailed. We will do this needs assessment, we will have projects scoped. Each major project will have a budget, it will have a dedicated staff, and it will have a timeframe in which it is going to be completed. None of that is part of PPP. Now the Infracos can choose to do those things if they wish, but there is no requirement. We cannot force them to do it with these contracts. We will do it. We will do a contract with the Government. We will do it directly with the Treasury if it pleases them to deliver on these things. We have no problem doing that, I have already suggested that to them. There will be contract for service from us and they can hold us accountable and adjust their funding if they do not like what is going on.

Mrs Ellman

  206. Do you think that there is a serious threat to London Transport as a whole if the finances do not appear as anticipated, either through revenues or Treasury funding?
  (Mr Kiley) You mean what would the Underground do if there was a serious shortfall or an overrun?

  207. I did put this question to them—
  (Mr Kiley) You did, and I heard the exchange. What are the alternatives? One is the fare box. The Mayor has been committed to fare increases not to exceed the rate of inflation. The Mayor has the power under the GLA Act to set fares. London taxpayers, through the precept, we have already had an interesting discussion within GLA about that, the use of the precept, and there does not seem to be a lot of champions of that alternative at the moment, although maybe the Underground will be a different situation for Londoners. You have congestion charging, when we get to that point a year from now, which will yield revenues of at least £130 million, upwards of £180 million per annum, and then the cupboard is bare. We also have the Government's grant to TFL, and who is to say that the Government will not say at some future point, "Well, bite into your grant and use that for the Underground", which means something will have to go: the subsidy of buses, roadworks, who knows? This should not be left to chance after four years. We should not be here guessing and pleading that someone please give us information. This is bizarre. To me, a true value for money exercise would include those who were going to pay the piper in the end. Let us get the total money picture in our sights before final decisions are made.

  208. So you think these issues should have been taken into account in the value for money exercise?
  (Mr Kiley) Back in the Spring of last year when our team was negotiating with DTLR and a Treasury representative, we were very insistent before those discussions broke down of the Treasury being part of this, and our being able to see the colour of their resources before we got too far into the details of the contracts. At one point, it looked as if they were going to be obliging, but then the discussions fell apart, and that was the last that was seen of the Treasury representative.

  209. You have referred to the lack of information you have had and the difficulties you have had in getting essential facts. Do you think that underlying all this is a battle of wills between the Mayor and the Government?
  (Mr Kiley) When I first arrived here, many people felt there was such bad feeling between the Government and Ken Livingstone that there would be no hope in this endeavour to alter PPP or change it, but now I have had over a year of experience, and I see relationships that have been built up with various Government ministers in other areas that are working, and I have been in countless numbers of meetings now, especially in the last six to eight months, with ministers at the DTLR and officials that have been productive. We have a Crossrail corporation formed, moving, very ambitious schedule, where this may actually start to come to reality within the next year; same thing with the East London lines. There is a cooperative spirit, so I do not really believe that lying at the heart of this and motivating people is animus towards Ken Livingstone. He may not be uniformly admired in all Government circles, but I do not think this is a key factor in all this.

  210. What is the explanation then, for the lack of fact, lack of information given to you?
  (Mr Kiley) I think it is this reluctance. I think there was a feeling that the Underground does not manage large scale projects effectively, and the Jubilee Line Extension is frequently used as Exhibit A. I think there is probably some merit in that, and there will have to be some changes made in London Underground, believe me, but I am curious as to why, if you actually believe that, you would turn over the entire procurement to the same London Underground that you revile for not being able to manage large projects. What is PPP if not a large project? A large, loony project, I would add. So maybe some of the changes they would have liked to have seen in London Underground management should have been made four or five years ago.

  Chairman: Very briefly, Miss McIntosh, because we are going to let Mr Kiley, who has been very tolerant, go in a minute.

Miss McIntosh

  211. Thank you. I take it that reports of your resignation were premature?
  (Mr Kiley) Yes.

  212. You mention the revenue that would be raised by congestion charging. Are you comfortable with the fact that congestion charging is going to be introduced before the timetable for improvements which are envisaged under the PPP?
  (Mr Kiley) I do not think there is much promise in the PPP in the first seven and a half years, so that is not the promised land. And yes, it would be better if the two were in much better shape right now. There will never be a perfect time to try something like congestion charging. We are making dramatic improvements in the bus service. We are very focused on the twenty bus corridors that serve those whom we would like to change modes from the automobile going into central London. There was a 6 per cent increase, largest increase since World War II this past year. We are looking at another 6 per cent increase in the coming year. We believe that congestion charging will not fail because of the absence of public transport support. I do not think it will fail in any event, but it will not be because of the absence of public transport.

  213. Just to wrap up, when last you gave evidence to the Committee, you explained the cumbersome procedure, should one of the companies go bust under the contract. I just wanted to know if you stood by that, and when you referred earlier in your remarks today to this "comfort guarantee" from the Government, if the Government is prepared to give a comfort guarantee to the PPP, as is rumoured in the papers, why should the Government not be able to give a comfort guarantee on future public funding of a public sector solution?
  (Mr Kiley) One argument they would use is that the beauty of the PPP is the risk transfer, and the ability to keep this comfort provision off the Government balance sheet. I do not believe there is any serious risk transfer involved in PPP so that argument goes by the boards. Therefore, to be very honest with you, I do believe that this public sector borrowing requirement has been a little overworked and is now becoming a kind of reverse silver bullet where no long term investment and infastructure other than through PFI's is ever going to happen. There are plenty of PFI's out there where there has been no effective risk transfer and they do not appear on the Government's books. So what appears on the Government's books is the Government's decision. It is a "subjective" judgment, to use the word that has been much bandied about a lot today.

  Chairman: We have had quite a lot of subjective judgments today, Mr Kiley. Ms Jackson, very briefly and then Mr Bennett, very briefly.

Helen Jackson

  214. Your frustration shows through and your conclusion is tough and you say you will demand real negotiations, yet you are in the fourteenth day of consultation without having received documents. What are your options now, as Transport for London, do you feel? How are you going to put the pressure on?
  (Mr Kiley) I would say that we will have failed, we at TFL and the GLA will have failed in our duty if we do not do everything in our power as a minimum to ensure that there has been proper consultation with all the proper documents in front of us, and if we have to resort to the courts to reinforce our ability to perform our duty, we will do that.

  215. Have you approached lawyers?
  (Mr Kiley) We have been in constant contact with lawyers.

  216. Yes, I know, but have you approached lawyers on this issue after 14 days?
  (Mr Kiley) Yes, we have.

Andrew Bennett

  217. On this question of risk transfer, the risk transfer has changed, has it not, from the point at which the preferred bidders were selected?
  (Mr Kiley) Yes.

  218. If you were one of the unsuccessful bidders at that stage, would you not have a reasonable grouse that you had been excluded at that point, and then the rules of the game had been changed?
  (Mr Kiley) I think that is very much an open question, and it brings into play European rules which are very clear and robust on matters like what constitutes State aid and competitiveness, and we have insisted with the Government, with the Underground, that clearance be obtained from the EC before these contracts are finalised, certainly before a transfer to Transport for London, because then we would get all the potential liability for whatever might happen, including a disappointed bidder bringing a lawsuit.

  219. So you think that there was really unfair competition because the risk changed significantly during that period, and you think now, because of that, there might be questions about State aid, and falling foul of European rules?
  (Mr Kiley) Not only did the risk factor change very substantially but other provisions in the procurement and in the contracts changed very significantly, especially after the deep tube lines preferred bidder decisions were made. They were made in the Spring and a subsurface line preferred bidder decision was made in the fall, but it turns out that Metronet was involved in both the Spring decision and the fall decision, so, in effect, these decisions were made really almost a year ago. Far too early. You may remember at the time that I was very critical of rushing to preferred bidder status, because so many issues had not even been joined at that point, and so I think the question you are asking is a good one. We are worried about it. We have communicated with the Government since early last fall that they have got to get clearance. There are no signs that clearance has been obtained to this point. I do not know how long that will take.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2002
Prepared 24 October 2002