Troubled Tube maintenance company Metronet faces administration after failing to secure an increase in the money paid to it by London Underground.
Last month shareholders in the company Metronet wrote off more than 220 million pounds as banks refuse to lend the company any more cash pending the outcome of a disagreement with London Underground over cost overruns.
Chris Bolt, the statutory Arbiter for the London Underground Public Private Partnership (PPP) Agreements, today published his draft directions on Metronet BCV’s request for increased stage payments (“Interim ISC”) for the next 12 months.
Mr Bolt has decided that the ISC will increase by just £121 million over the next 12 months. The company had originally sought an increase of up to £400 million which it later revised to £551 million. Transport for London which pays the ISC, had suggested no increase.
This draft direction reflects an assessment that efficient costs over the next 12 months are £243 million in excess of the current baseline, compared with £332 million claimed by Metronet BCV. But the Arbiter has also reached the view that if Metronet BCV had delivered in an efficient and economic way, its costs would have been lower than the baseline in the first four years of the contract.
“After careful analysis of the evidence, in the limited time available, I have concluded that this increased ISC is at the appropriate level for an efficient and economic company performing in line with Good Industry Practice.” said Mr Bolt.
Under a Treasury led initiative responsibility for maintaining the Underground network was passed to private companies under 30 year contracts.
Three contracts were let, two of which were awarded to Metronet – Metronet BCV has responsibility for the Bakerloo, Central, Victoria and Waterloo & City lines and Metronet SSL gained control of the Metropolitan, Circle, Hammersmith & City, District and East London lines.
Mayor of London Ken Livingstone who opposed the PPP scheme took the Government to court in an unsuccessful bid to stop the scheme. Full control of the Tube network was withheld from the Mayor until the Government had completed the contracting out process.
In March 2005 a report by the House of Commons Public Accounts Committee report claimed the part-privatisation of the Tube has cost taxpayers almost £1bn. It also found that maintaining and upgrading the tube will cost £450m more under the scheme than if the work was finance by the government.
Just ten days ago the company was forced to apologise for a derailment which saw a Central Line train came off the rails in a tunnel on the west-bound track between Mile End and Bethnal Green.
In a short statement issued this morning the company said it would “respond more fully to the Arbiter’s draft Interim Directions shortly, as soon as it has assessed the full impact on its business.”
London Underground Managing Director, Tim O’Toole said LU had “consistently made clear that Metronet has failed to deliver in an efficient and economic way and that is why it has accumulated such a significant cost overrun over the four years of its contract to date. We believe the Arbiter’s draft determination supports that view.”
Mr O’Toole said LU continued to oppose any increase in the cost to the taxpayer stating “it remains our belief, and is our submission to the PPP Arbiter, that Metronet’s total projected cost overruns should be borne largely by the company and its shareholders.”
“We shall now continue to make our case to the PPP Arbiter ahead of his final Interim Determination, which is due in two weeks time. I am determined to make the case that the public should not be forced to pay a penny for Metronet’s inefficiencies.”