Memorandum from the National Union of
Rail, Maritime and Transport Workers (RMT) (PPP 09)
1. The National Union of Rail, Maritime
and Transport Workers (RMT) welcomes the opportunity to contribute
to the Transport Select Committee inquiry in the Public Private
Partnership (PPP) and the London Underground. With over 10,000
members employed across both operational and engineering functions
on the London Underground, RMT is the largest of the Tube trade
unions.
Risk transfer
2. Before the transfer of engineering functions
to Metronet and Tube Lines a series of organisations including
the rail unions, the Transport, Local Government and Regions Select
Committee, the Mayor of London, Transport for London, the Industrial
Society and the Capital Transport Campaign all issued warnings,
on a series of grounds including safety, value for money and contractual
complexity, against proceeding with the Public Private Partnership.
Regrettably, all of these warnings were completely ignored by
Government.
3. In June 2004 the National Audit Office
published their London Underground PPP: Were they good deals?
report which indicated that in the event of termination or administration,
95% of the money loaned by banks and other institutions to the
Infracos would be reimbursed by the public purse. Indeed, the
NAO noted that whilst negotiating the PPP contracts the Department
for Transport and London Underground conceded to the lenders demand
that a 90% payback in the event of termination was too low a figure
given the market perceptions of the political risks associated
with the scheme. The pay-back figure was therefore increased to
95%.
4. That the public purse is still responsible
for the 95% of Metronet's debt was confirmed in the following
exchange at City Hall during Mayor's Question Time on 18 July
2007. The Mayor was accompanied on 18 July by Transport Commissioner
Peter Hendy, TfL Managing Director Tim O'Toole and TfL Managing
Director of Finance Steve Allen.
Bob Neil (AM): There was also a piece in The
Guardian, I think, yesterday suggesting that there might be
some potential liability on either TfL of LUL as its subsidiary,
for a considerable chunk of Metronet's debts. It was based on
the Standard and Poor's report. Is there anything in that?
Tim O'Toole (Managing Director, London Underground
Ltd): The Metronet debt is guaranteed by us.
Bob Neil (AM): I think The Guardian was
suggesting that in 2004 Standard and Poor's had suggested that
TfL or the subsidiary could be liable for up to 95% of the debt.
That is correct is it?
Steve Allen (Managing Director of Finance, Transport
for London): That is correct. That is a feature of the PPP
contracts.
5. RMT's view is that the decision taken
by the Department for Transport and the then management of London
Underground to allow clauses to be written into the PPP contracts
which allows for 95% of Infraco debt, now standing at £1.6
billion,[47]
to be guaranteed by the public purse represents, in our view,
a dereliction of public duty. It also confirms the long held RMT
view that the privatisation of both the national rail network
and the London Underground has led to a wholly inadequate level
of risk being held by the private sector. It is simply unacceptable
that private sector interests are routinely issued letters of
comfort or guarantees in the event of project failure. RMT believes
that if lenders and/or operators are willing to make profits out
of essential public services they should also be prepared to bear
the financial risk.
Private sector failure
6. The collapse of Metronet comes as no
real surprise to the RMT. From transfer in 2003 to administration
in 2007 our representatives and activists employed by BCV and
SSL were reporting to us poor project management, chaotic financial
control and the de-skilling of their work. Two thirds of the PPP
scheme—Metronet BCV and Metronet SSL—is now financially
and operationally in ruins and essential upgrades are in jeopardy.
In the run-up to the 2012 Olympic and Paralympic Games, London
cannot afford another failure on this scale.
7. Since the collapse of Metronet, several
claims have been made that the performance of Tube Lines demonstrates
that it is simply the performance of Metronet and not the PPP
itself which has proved to be a failure. RMT fully accepts that
the performance of the project and engineering managers at Tube
Lines has been better than that at Metronet; it could hardly have
failed to be so.
8. However, the financial environment created
by the PPP, and enjoyed by Tube Lines brings into serious question
whether the scheme can be considered in any respect to be value
for money.
9. Your Committee explained in the March
2005 report: "The performance of London Underground"
"improvements in facilities and performance are not in proportion
to the huge sums of money flowing through the PPP". The report
further highlighted that "disregarding the costs of the Jubilee
Line extension, central government expenditure in constant terms
has increased from £44.1m in 1997-98 to £1,048 in the
current financial year (2004-05): an increase of 2,276%".
10. In addition to serious value for money
concerns, successive Transport for London reports about the performance
of London Underground and the PPP brings into some question the
claims about the success of Tube Lines.
11. The July 2005-06 TfL report London Underground
and the PPP indicates that in relation to lost customer hours,
Tube Lines performance on the Northern Line was 28% worse than
benchmark and 35% worse than bid.[48]
The report further reported that Tube Lines had been issued with
a Corrective Action Notice due to persistent poor availability
performance on the Northern Line.
12. The press release launching the 2005-06
report acknowledged that some progress had been made by Tube Lines,
particularly in relation to renewals. However, TfL Managing Director
Tim O'Toole said "Tube Lines have failed to maintain the
Northern Line to the standards we and the PPP contracts demand".
13. The Committee will also remember that
1.8 million customer hours were lost on the Northern Line in October
2005 due to repeated tripcock failures. Efforts to resolve the
problem were compromised by the multiple interfaces which existed
between Alstom, who hold the 25 year PFI contract to maintain
the Northern Line rolling stock, Tube Lines and Transport for
London.
Administration and beyond
14. Metronet entered administration on 18
July 2007. RMT's view on what should happen for the future is
clear and has been repeatedly put to both this Committee and Government
since the PPP was first mooted. All engineering functions that
were transferred to Metronet BCV and Metronet SSL in April 2003
should be returned to public ownership under London Underground.
15. RMT is squarely against any attempt
to re-let the contracts to the private sector and believe that
the PPP Arbiter's initial findings that Metronet could recover
up to £1.07 billion are an attempt to make the company a
more attractive proposition for potential private sector bidders.
On the contrary we support TfL's bid to take over the Metronet
contracts and trust that the administrator is able to process
the transfer of contracts back to the public sector as soon as
is possible. Support for public sector control is overwhelming.
An ICM poll of published on 4 September found that 76% of those
asked wanted London Underground to carry out the maintenance of
trains, track, signals and stations. Only 13% of those asked favoured
maintenance being undertaken by a private sector company.[49]
16. Returning contracts to LUL would deliver
an integrated and accountable management structure. When, in October
2003, Network Rail made their decision to bring maintenance functions
on the national network in-house, they identified that benefits
would include the consistent application of high standards of
rail maintenance across the network, significant efficiency savings
and improvements to track-side safety standards. Therefore, in
order to deliver similar benefits on the London Underground, reduce
fragmentation and deal with unnecessary operational and safety
interfaces RMT would also want to see Tube Lines contracts returned
to public control. This would also help to deliver savings associated
with economies of scale and enable LUL to roll out a network wide
procurement programme.
17. Finally, returning contracts to the
public sector will also deliver security to the Tube Lines and
Metronet work-forces, transferred against their will to the private
sector in 2002 and 2003. The work-force has seen their final salary
pension schemes closed to new entrants and has in addition staved
off repeated attempts to transfer fleet engineers and depot managers
to Bombardier.
18. In terms of funding, there is little
doubt that the previous "feast and famine" nature of
funding which LUL had to endure led some industry insiders to
look to the PPP as a guarantee of funding over a protracted period
of time. Key to the transfer of engineering functions back to
public ownership will be securing stable, long-term investment
from Government. The precise nature of the framework is a matter
for discussion between the DfT and TfL. However, RMT would expect
funding arrangements to deliver an investment stream that would
enable LUL to effectively plan the urgently required major upgrade
and renewal of the London Underground, which the PPP has self-evidently
failed to deliver.
Industrial Action
19. The Committee will be aware that RMT
members employed by Metronet took lawful industrial action on
3 September 2007 to secure unequivocal guarantees on job security,
transfers and pensions. The action followed a strike ballot which
saw a 51% turnout and a 93% yes vote.
20. The strike action was suspended late
on 4 September after the RMT received assurances from the employer
that met our concerns, these were as follows.
21. On pensions the original proposal on
fund rescue was withdrawn and assurances received that a full
scheme rescue was to be placed before the TfL pension trustees'
board on 5 September. Following the scheme rescue being put in
place, the pension entitlements for the Metronet members of the
TfL pension fund will operate entirely as normal as if the administration
had not taken place.
22. On streamlining, confirmation that there
would be no streamlining or transfer of employees from Metronet
during administration. A written commitment that if, in the post
administration period, any subsequent streamlining proposals were
raised, the Code of Practice will be applied and a new consultation
process will commence. Any issues of concern regarding the application
of the Code of Practice to be resolved through the existing machinery
of negotiation.
23. On Bombardier transfers, confirmation
that no transfers would happen during the period of administration.
Assurances that the Code of Practice will be applied for the implementation
of any transfers post administration and that a new consultation
process will commence.
Conclusion
24. RMT welcomes the opportunity to contribute
to the Transport Committee's inquiry into the Public Private Partnership
and the London Underground. Our key contributions to your inquiry
are;
— The PPP has proved to be an unpopular
and expensive failure
— The transfer of risk to the private
sector has been wholly inadequate and replicates the experience
on the national rail network
— The administrator should move quickly
to return maintenance functions to the public sector under a responsible
and accountable management structure
— Returning the contracts to public
ownership will provide the current workforce the security and
stability required to deliver the upgrade of the London Underground
— Support for public ownership is overwhelming
— A funding framework should be established
the delivers sustained investment levels necessary for the urgently
needed upgrade of the Underground
October 2007
47 GLA press release 11 September 2007. Back
48
Figures do not include the 1.8 million lost customer hours caused
by the tripcock failures. Back
49
ICM poll, commissioned by RMT. 1,028 Londoners were questioned
between 1 and 26 August 2007. Back
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