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Lord Clement-Jones moved Amendment No. 280YA:

After Clause 167, insert the following new clause--


(" . The Authority shall review the operation of any PPP agreement and the performance of the PPP company under it three years after it has been entered into.")

The noble Lord said: As has been made clear, once the PPP arrangements are up and running there will be a series of periodic reviews under the contracts--say three, which means that they will be at approximately seven-year intervals. The details of the reviews and the way in which they will be carried out are given in London Underground's March 1999 progress report on the PPP.

That is all very well and fine, but the PPP arrangements are untried and will be for some years to come. Many of us believe that they are unworkable. It will be important for the authority to take an overview of the performance of the PPP companies under the contracts, so that Transport for London can take early corrective action well before the first review by the arbiter. That is not so much to negotiate on infrastructure service charges or bid rates of return, which are properly matters for the contractual review at seven-year intervals, but to reassure Londoners in a transparent way that the PPP structure is performing as it should. That review should be the responsibility of the authority as a whole, rather than Transport for London, because the political dimension will be important. I beg to move.

Lord Whitty: The noble Lord is correct that there will be explicit provision in the PPP contracts for periodic reviews every seven to eight years. That will provide a fundamental opportunity to review the underground services, requirements, investment priorities and the future of the contractual obligations and to amend those obligations and the performance criteria to reflect the performance up to that point.

In addition, the performance of the PPP companies will be kept under constant review by London Underground. London Underground's performance resulting from those contracts will, as the noble Lord is seeking, be kept under constant review by the mayor through TfL. The fact that we shall have fundamental detailed periodic reviews built into the contract only every seven or eight years does not mean that there will

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not be regular reviews at the executive political level, as well as by the management interfacing with the PPP company. I hope that that reassures the noble Lord and that he will see fit to withdraw his amendment.

I am informed that during the debate on the previous amendment concerned with directives I said that the PPP contracts would be outside Part B. I meant that they would be inside Part B and therefore outside the requirement to go through the full European tendering process.

Lord Clement-Jones: I certainly took the Minister to mean what he has just said by way of clarification. I thank the noble Lord for his response. At this stage of the evening I do not quibble about the nature of the reviews. We on these Benches believe that something rather more formal should appear in primary legislation to allow a real marker to be put down after a three-year period so that the public can see clearly how these contracts are performing. That is separate from the contractual review itself. We shall consider the matter further in the light of the Minister's comments. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Clement-Jones moved Amendment No. 280ZA:

After Clause 167, insert the following new clause--


(" .--(1) If PPP agreements have not been entered into in respect of the whole railway network by 1st July 2000, the Authority shall be permitted to establish a public interest company as defined by subsection (2) below to operate the relevant part of the railway network.
(2) In this section, "public interest company" means a company--
(a) a majority of whose issued shares are held by or on behalf of any of the bodies or persons falling within paragraphs (i) to (iv) below--
(i) any Minister of the Crown, Government department or other emanation of the Crown;
(ii) any local authority;
(iii) any metropolitan county passenger transport authority; and
(iv) any body corporate whose members are appointed by a Minister of the Crown, a Government department, a local authority or a metropolitan county passenger transport authority or a body corporate whose members are so appointed;
(b) in which the majority of the voting rights are held by or on behalf of any of the bodies or persons in paragraph (a) above;
(c) a majority of whose board of directors can be appointed or removed by any of the bodies or persons in paragraph (a) above;
(d) in which the majority of the voting rights are controlled by any of the bodies or persons in paragraph (a) above, pursuant to an agreement with other persons; or
(e) a subsidiary of a company falling within paragraph (a) to (d) above.
(3) The public interest company may borrow money for investing in transport in Greater London.")

The noble Lord said: It is a matter of some regret that we reach this amendment, which in many ways forms the centrepiece of our opposition to this part of the Bill,

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at this late hour. I hope that the Committee will forgive me if I deal in detail with the nature of the public interest company proposed as part of this amendment.

As the LSE report by Stephen Glaister, Rosemary Scanlon and Tony Travers stated back in March when the Bill was passing through the other place, the Government's plan for a PPP for the Underground is flawed in principle and impractical. That is even clearer now than when those words were written. The PPP for London Underground is a scheme that will have consequences for a long time--at least 30 years. Yet, as the authors said:

    "The PPP threatens to impose burdensome long-term pressures on Underground operating revenues, including the prospect of continually rising fares, in order to pay back upfront investment by private contractors". What is more, we are being asked to buy the PPP as a solution without even being given the information on which to evaluate it. Members of neither House have been given access to the information on which government projections are based. Government assumptions about fare levels appear to be very fluid. I have made reference to some of the statements in the other place by the Minister for Transport in London. I have also mentioned the estimates made by Chantrey Vellacott, the veracity of whose report we could debate.

The PPP itself is a strange sandwich comprising the asset owner--Transport for London--in the public sector, the three infrastructure companies in the private sector and the operating company in the public sector. This is a recipe for confusion. The reason for the separation of infrastructure from operation in the case of the privatisation of the railways was to encourage competition, yet in the case of the Underground there are no proposals for competition over the tracks. Therefore, the economic case for separation makes no sense at all. All we know is that the costs of separation will be higher than the status quo. As outlined on many occasions by both my honourable colleagues in the other place and the distinguished authors of the LSE paper, there are far more preferable alternatives on hand.

The origins of the PPP solution seem to lie with the Treasury's insistence on treating borrowing by Transport for London for capital investment in the Underground as part of the PSBR. However, as I mentioned earlier in Committee, for the Channel Tunnel Rail Link's revised financing structure the Government agreed to the issue of guaranteed bonds. That did not count against the PSBR because the Deputy Prime Minister said that the chances of a call being made on the guarantee were less than 20 per cent.

The Treasury has also agreed that borrowing by several of the regional airports will not count towards the PSBR. If the Treasury cannot relax its rules, however, the alternative consistently supported by Liberal Democrats, both in another place and on these Benches, is that of a public interest company. That has been described by the LSE as the "fourth way" approach. Clearly, that alternative is a preferable approach for long-term financing of the Underground. It includes the following components: the issue of long-term bonds secured by dedicated revenues, such as congestion charges and fees; an agreed level of

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government grant, such as the one agreed for the train-operating companies; and a realistic and agreed level of operating profit.

Earlier in Committee the Minister admitted that a separate company structure for the regional airports had advantages. We agree. Instead of the clear logic and cost effectiveness of these proposals, we have the sight of the Deputy Prime Minister desperately trying to make the unworkable work. The price of this will be too high for the London Underground traveller and the taxpayer. We will be bearing the consequences of it for the next 30 years. The way in which the New York Metropolitan Transportation Authority (MTA) was financially restructured in the early 1980s, when the MTA was able to issue its own bonds directly to the capital markets, offers an example of possible success for London in this way.

Furthermore, the way that these arrangements are being set up is deliberately designed to minimise any influence of the incoming mayor over the creation of the scheme, the identity of the PPP companies, the assumptions which underlie the economics involved in their operation, or the performance targets to be set. Yet the mayor will carry the ultimate responsibility for the success or failure of Transport for London as a whole.

The proposed PPP will actually make a mockery of the new mayor's position. For the first year or more of the GLA's existence, TfL will be responsible for almost all London's transport services except the London Underground, the most important element in the capital's transport system, the one most in need of improvement, and the one for which the mayor will receive more brickbats than anything else. If I was more cynical, I would think that the Government had deliberately planned this as a way of discrediting the new mayor as soon as he or she takes up office.

Two of the three major aims in the Government's White Paper were to deliver an integrated and sustainable transport strategy in London and to unify the presently fragmented responsibility for transport in London by creating a body that can tackle issues at London-wide level. PPP will certainly not fulfil these objectives for Transport for London. In the words of the LSE authors,

    "At present there is a risk that the attempt to make the PPP work at any price will be both costly to the farepayer and the taxpayer and damaging to the new GLA".

The current amendment does not attempt to eliminate the PPP. It states that, if by July of next year the contracts are not let, this procedure will take place and a public interest company will take over the remaining parts of the network. We are, therefore, giving it a sporting chance, but we are also extremely pessimistic about the prospect of success. I beg to move.

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