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Debate Tube funding

The collapse of Railtrack has reopened the debate over private funding of public services.

This week we ask: in the wake of events at Railtrack, should the government continue with its plans for public private partnership (PPP) on the Tube?


London Underground has nearly finished negotiating contracts with the Tube PPP bidders. At the turn of the year it will carry out the final value for money assessment and put the finishing touches to the safety case for the HSE to consider.

So now is a good time to take stock of what the PPP will achieve if it passes these hurdles.

Private companies will be able to apply their ideas and skill to manage the infrastructure better. The per - formance standards will require The private finance initiative and PPPs have consistently shown they can deliver the same outputs as the public sector at lower costs.

improvements in reliability and asset condition. And the PPP will deliver firm commitments to the highest level of investment the Tube has ever seen.

Could this be done just as well in the public sector? I do not think the industry - or the management of London Underground - believes so.

Bringing in new expertise to work with the management and staff under clear incentives should make a real difference. The structure focuses people on what needs to change - and secures the resources to change it.

Private finance plays an impor - tant part in this. It may appear that the cost of private capital is 1%-2% higher than in the public sector. But private debt and equity brings new discipline. Would the work on per - formance standards and asset condition have been completed without the pressure of funders' due diligence? Probably not. And the potential net benefit - after financing costs - is clear. The pri - vate finance initiative and PPPs have consistently shown they can deliver the same outputs as the public sector at lower costs.

So the choice is between implementing the PPP to get these benefits or continuing the old system of trying to manage long term infrastructure with short term priorities.

Providing the bids pass the criteria which have been set, it is a pretty clear option which passengers, industry and taxpayers will prefer.


Sooner or later the govern - ment will have to accept that the PPP cannot be completed at a prudent price. Safety approvals are outstanding, bankers will renegotiate and value for money tests are likely to fail if conducted free from influence, as they must be.

Five years will have been wasted. The 1997 government lost a year while consul - tants (who often appear in public in the roles of officials or ministers) concocted an The public can see no logic in continuing now railways policy has moved in the opposite direction.

over-optimistic fudge that only a handful of gurus under - stand. No detail is available for taxpayer scrutiny.

Thirty year contracts are unmanageable and ultimately unenforceable. London's transport commissioner, Bob Kiley, has proposed a superior procurement regime that will secure equivalent private efficiencies. And why raise capital through the PPP at over 15%? A revenue bond would cost about 6.5% without government guarantee.

Giving Transport for London the powers to borrow would match the new proposals for Railtrack.

PPP 'arbitration' is a crucial public safeguard, yet the way it would work is obscure.

The contracts do not bind the private sector to deliver anything specific. The payments regime alone is presumed to provide the right incentives.

The railways experience illustrates the foolishness of this approach.

The public can see no logic in continuing now railways policy has moved in the opposite direction. A U-turn would be popular and avoid the deeply undemocratic imposition of the PPP.

The Underground policy so far has failed dismally: invest - ment and service quality are both down; operating surplus has collapsed even though patronage and fares have risen. Management is unreformed - chairman and chief executive are both part timers, spending over £1M a day of public money.

The PPP is impractical and against the public interest. To continue to dismiss the alter - natives is to prevaricate and discredit the whole private finance policy.

The facts

Two consortia have been chosen as preferred bidders for the three tube upgrade contracts.

Metronet, comprising WS Atkins, Thames Water, Seeboard, Adtranz and Balfour Beatty, has been selected for the Bakerloo, Central and Victoria lines contract, as well as the Metropolitan, District and Circle lines.

Tubelines, comprising Bechtel, Amey, Halcrow, Hyder and Jarvis, is preferred bidder for the Jubilee, Northern and Piccadilly lines contract.

Railtrack was put in to administration following the refusal by transport secretary Stephen Byers to allocate further funds to the company.

Metronet has said it will spend £490M on trains and signalling, £324M on track and £660M on stations in the first seven years of the contracts.

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