UK: Tube funding gap could see upgrades cut

[John Ashworth]

Tube funding gap of £400m could see upgrades hit the buffers

Boris Johnson faces delaying improvements to London Underground, raising fares or cutting transport services

* Dan Milmo, transport correspondent
* guardian.co.uk, Monday 1 March 2010 21.24 GMT

Boris Johnson faces having to postpone improvements to the London Underground, raise fares or cut transport services as a row over a £400m tube funding gap comes to a head next week.

Plans to put faster and more frequent trains on the Piccadilly line could be pushed back, while the capital's bus network could face cuts, having expanded significantly under Johnson's predecessor as London mayor, Ken Livingstone.

The crunch has come because of a dispute between the public private partnership contractor carrying out the work, Tube Lines, and the mayor's transport body, Transport for London (TfL), over the cost of its works programme for the next seven-and-a-half years.

The arbiter of the PPP scheme, Chris Bolt, has estimated the cost at £4.4bn. TfL has only budgeted for £4bn and, despite hopes that Bolt might reduce his estimate, the Guardian understands that he will insist on his original costing, leaving TfL with a funding gap of £400m.

It is understood that Bolt is preparing to leave open a window of opportunity for TfL to cut back on upgrades due to be carried out by Tube Lines, which include putting faster and more frequent trains on the Northern and Piccadilly lines.

If TfL cannot find the cash, then delaying upgrades or making cuts elsewhere in its £9.2bn budget are the most likely options amid clear signs from the Department for Transport that the state of the public finances will not allow a bailout.

TfL is also alarmed by Bolt's initial suggestion that a £400m funding gap should be plugged by debt raised by TfL, rather than Tube Lines, even though the PPP structure was imposed on London under the principle that it would transfer risk from the taxpayer to the private sector.

A TfL spokesman said Tube Lines's expenses had been inflated by an estimated £400m in management secondment fees paid to the company's co-owners: Amey, a subsidiary of Ferrovial, the Spanish majority shareholder in airport group BAA; and Bechtel, the US project management specialist.

Johnson is adamant passengers should not have to bear the burden of the funding shortfall and has lobbied Tube Lines shareholders to do the work more cheaply.

"Londoners will be outraged if they are asked to consider any reduction in the scope of vital tube upgrades and improvements," said the spokesman. However, Bolt believes that the fees are acceptable for a PPP arrangement and Tube Lines's costs could rise significantly if the company was denied access to senior Amey and Bechtel staff.

It is thought that TfL will need to consider legal action over the debt issue if Bolt does not change his mind.

The TfL spokesman added: "Should a funding gap arise, it is essential that Tube Lines and its shareholders are asked to raise all the necessary finance, as the PPP contracts originally demanded."

A lobbying group for businesses, London First, said other parts of TfL's transport network – which includes a bus network that carries more than 2 billion passengers a year – might have to be cut. Baroness Jo Valentine, London First chief executive, said: "It might mean some prioritising, and by that I mean tough choices about cuts elsewhere."

A TfL spokesman denied bus services could be under threat. "We are not contemplating any reduction in our front line services or capital investment to fund any potential PPP funding gap," he said.

Boris Johnson increases pressure on Ferrovial boss Rafael del Pino

Transport for London's pointed reference to Ferrovial and Bechtel in its statements could be a change of tactics by Boris Johnson. The London mayor has so far avoided targeting Ferrovial by name but he appears determined to increase the pressure on Tube Lines's largest shareholder. Ferrovial and Bechtel are both aware that TfL is interested in discussing a takeover, even if the funding of such a move – the equity could cost about £300m – is unclear.

Ferrovial, a multibillion-pound business with interests all over the world is keen to maintain a strong British presence. The chairman of Ferrovial, Rafael del Pino, met Johnson last month to discuss the public private partnership and Tube Lines's much-criticised upgrade of the Jubilee line.

Del Pino, who inherited the title of chairman from his father, is renowned as a sophisticated operator. People familiar with his management style believe he would have listened to any criticism from the mayor but would have held his ground. If today's statements are anything to go by, his resolve faces further tests as the tube funding dispute grinds to a conclusion.