Draft letter of 4 February 2003 from R
R Kiley, Commissioner
LONDON UNDERGROUND NETWORK PPP CONTRACT (THE
"SERVICE CONTRACT")
In light of agreement having been reached with
Government on the provision of a comfort letter to TfL on the
future funding for London Underground Limited ("LUL")
once it is in TfL's ownership, the Mayor has withdrawn the application
which was made on Monday 27 January 2003 in the CFI and has given
an unqualified undertaking to the Secretary of State that he will
not pursue any further legal challenge whether in the European
or domestic courts or by way of complaint to the European Commission.
Accordingly, the Secretary of State and the Mayor have agreed
to work together to secure the earliest possible transfer of ownership
to TfL.
I am therefore writing to you to set out the
following explicit representations and commitments by TfL. These
representations and commitments are given explicitly in order
to deal with the concerns which have led you to seek changes to
section 412(3) and paragraph 2(3) of Schedule 12 to the Greater
London Authority Act 1999 (the "GLA Act"). Such primary
legislation will add significantly to the time required to enable
Transfer of LUL to TfL and both the Secretary of State and the
Mayor wish to avoid that. Therefore these explicit representations
and commitments are given to obtain your agreement that primary
legislation is not required to expedite the timing of transfer
of LUL to TfL.
We unreservedly accept that section 412(3) of
the GLA Act shall not apply (and we shall not seek to rely on
it in any event) so as to avoid the operation of any rights and
obligations under the Service Contract (and in particular Paragraph
33.5 of the Service Contract) or the guarantee with LRT (as Guarantor)
(which was initialled on 8 May 2002) (the Guarantee).
You are also concerned that TfL might use its
powers under Section 165 and paragraph 2(3) of Schedule 12 to
the GLA Act to transfer the Guarantee in an attempt to avoid the
contractual safeguards LRT negotiated with you. In this regard,
TfL unconditionally agrees to be bound by the terms of the Guarantee
as if it were executed by us as guarantor in place of LRT provided
that TfL shall only be bound by amendments to the Guarantee made
with our consent. TfL also hereby represents and warrants that
it will not attempt to escape the obligations under the Guarantee
through the exercise of its power under section 165, and that
if it were to do so in contravention of this express agreement
it agrees to remain liable under the terms of the Guarantee. TfL's
lawyers have confirmed that it is a fundamental principle of public
law that TfL, as a statutory corporation, must exercise its powers
reasonably, that statutory powers must be used for their proper
purpose and that a public authority such as TfL must not act in
bad faith. A transfer of the Guarantee under section 165 in order
to avoid its contractual obligations would not satisfy these requirements.
The execution and delivery of this letter has
been approved by the TfL Board. TfL recognises that you will rely
on the express representations and commitments contained herein
in your decision to waive the rights that you have been given
in the contract documentation in the event that the transfer of
LUL to TfL takes place in advance of the enactment of the Government's
proposed amendments to the GLA Act.
R R Kiley
Commissioner
Letter from the Director General, Railways
and Aviation, Department for Transport to Tube Lines (Holdings)
Limited, JNP Ventures 2 Limited, Jarvis JNP Limited, UIC Transport
(JNP) Limited, CIT Group Structured Finance (UK) Limited (as Mezzanine
Security Trustee) and Société Générale
(as Security Trustee and Intercreditor Agent)
LONDON UNDERGROUND LIMITED INFRACO JNP PUBLIC-PRIVATE
PARTNERSHIP
The Secretary of State is aware that Tube Lines
Group is the nominated preferred bidder for the above PPP and
has entered into or is shortly to enter into documentation relating
to the same, including acquiring ownership of Infraco JNP Limited
(with the exception of one "special share") which will
enter into an amended and restated Service Contract with London
Underground Limited ("LUL").
The PPP forms an integral part of the Government's
long-term plans for transport which were set out in the Department
for Transport's (then DETR) document "Transport 2010—The
10 Year Plan" published on 20 July 2000. Transport for London
("TfL"), a functional body created under the Greater
London Authority Act 1999 ("GLA Act"), or a wholly owned
subsidiary of TfL, will, after transfer of LUL in accordance with
Part XII of the GLA Act, own 100% of the share capital of LUL.
TfL will guarantee the obligations of LUL under the Service Contract.
Until such transfer of LUL, London Regional Transport ("LRT")
will guarantee the obligations of LUL under the Service Contract.
Under section 298 of the GLA Act, one of the transitional purposes
of LRT is to facilitate the securing and carrying into effect
of the PPP.
The Service Contract will contain provisions
that seek to protect the Tube Lines Group and its Providers of
Finance from adverse consequences arising as a result of a judicial
review application or state aid challenge being made in respect
of the PPP.
I am writing to confirm the Secretary of State's
intentions in relation to transfer of LUL and of LRT's guarantee
of LUL's obligations under the Service Contract from LRT to TfL
(or any subsidiary of TfL). The Secretary of State cannot and
must not fetter his discretion. This letter is therefore not intended
to do that and does not create binding obligations.
The Secretary of State notes that officers of
TfL have been given authority to institute proceedings challenging
the decision of the European Commission in relation to state aid.
It is also possible that they may make a further challenge to
the PPP by way of judicial review proceedings. The Secretary of
State does not consider that the transfer of LUL to TfL, or the
transfer of any related obligations of LRT to TfL, could, or should,
take place against the background of such threats nor while any
such legal proceedings were in progress. As a result the Secretary
of State does not propose to make any transfer scheme under section
409 of the Greater London Authority Act 1999 for the transfer
of LUL, or its obligations, or any of LRT's obligations, to TfL
until such time as all such legal challenges have been finally
determined, or in his opinion the time periods for commencing
such actions have expired.
The Secretary of State is also aware that sections
165, 412 and Schedule 12 of the GLA Act, may operate in such a
way as to restrict the operation of certain provisions of the
Service Contract or the LRT Guarantee in relation to the provision
of additional security for the performance of LUL's obligations,
or the obligations of its guarantor, which provisions are required
by the Providers of Finance in order to proceed to financial close
of this transaction.
The Secretary of State intends to bring forward
legislation to amend the GLA Act ("the relevant legislation")
in the current session of Parliament to address this problem so
as to permit the operation of such provisions. In the absence
of other measures which would address the Providers of Finance's
concerns the Secretary of State does not consider that the transfer
of LUL to TfL should take place while this uncertainty exists.
As a result he has no intention to make any transfer of LUL, or
its obligations or any obligations of LRT, under section 409 of
the Greater London Authority Act 1999 until the relevant legislation
has been enacted, is in force, and any necessary steps have been
taken such that the provisions of the Service Contract can be
relied upon unless the issues are otherwise resolved to address
the Providers of Finance's concerns.
Nor does he propose to make the necessary Order
for the dissolution of London Regional Transport until he is satisfied
that the scheme transferring LUL and London Regional Transport's
guarantee of LUL's obligations to Transport for London has been
properly put in place such that the relevant obligations of LRT
have been effectively transferred.
David Rowlands
30 December 2002
| 
