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Wrangles threaten to upstage future of Tube

Comment

This week has seen the latest round in the agonising plan to upgrade London's Underground with private finance.

While the project lumbers from one missed deadline to the next, with still no deal in sight, speculation mounts over the financial strength - or otherwise - of members of the Tubelines and Metronet consortiums which will do the work - assuming, of course, that the deals do eventually reach financial close.

At the same time, the government is engaged in a behind the scenes struggle with London mayor Ken Livingstone over how the project should be financed and managed.

Livingstone is understood to be threatening a legal challenge to the European Commission's decision to allow the project to go ahead. He wants the government to underwrite some of the costs he believes will otherwise fall to London council tax payers in exchange for dropping his opposition.

But the deal has dragged on for so long that the drain on the preferred bidders' finances is starting to take its toll. Amey is the highest profile sufferer so far. It is a 33% shareholder in the Tubelines consortium, preferred bidder for the Jubilee, Northern and Piccadilly lines, and is expected to plough £60M of its own money into the project.

Amey came under intense scrutiny earlier this year after admitting that its failure to account for bid costs for the Tube and other privately financed infrastructure projects had turned previously announced profits into a loss last year. Last week's announcement that it had cancelled its interim dividend, citing 'insufficient distributable reserves' compounded speculation about the company's finances.

Problems encountered by Amey stem to a large extent from the size of the Tube deal and the time taken to get it completed. The longer this takes, the more money it and fellow members of Tubelines have to spend keeping teams together ahead of that elusive start date.

With so much at stake financially and politically, the £16bn plan to upgrade the Tube is one of Britain's most complex private infrastructure projects.

The technical challenges of coordinating privately run upgrade work within a publicly run railway system over 30 years are daunting enough. But the long-standing political wrangles between the government and Livingstone are threatening to slowly kill the project off even before it starts.

The stand off was brewing before preferred bidders were chosen, so it is a wonder that anyone agreed to bid for the Tube in the first place, given the potential for disruption during the bidding and negotiation process. Not surprisingly some of the bigger contractors steered well clear.

Amey's tribulations have also raised questions about the wisdom of contractors committing investment cash to such large, risky projects. Investing is not their core business and nowadays there is no shortage of this type of money available from professional investors like Innisfree and Laing Investments - assuming they would accept the risks. Putting money into such schemes may bring big financial rewards in the long run, but as the highly political Tube project has shown, the accompanying risks are not always easy to manage.

Andrew Bolton is NCE's news editor

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