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1999-12-08 DET-001
Department of the Environment, Transport and the Regions

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PPP is the best option for London's Underground


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public-private partnerships



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Department of the Environment, Transport and the Regions

PPP is the best option for London's Underground
_______________________________________________________________


date
8 December 1999
source Department of the Environment, Transport and the Regions
type Press release



PPP means Publicly-owned, Publicly-run, Properly-financed

London Underground is on track to deliver real and lasting improvements for passengers, Deputy Prime Minister John Prescott confirmed today.

Mr Prescott said that under the London Underground PPP, the Underground will continue to be publicly-owned and publicly-run - the only difference will be that it will be properly-financed with £7 billion of new investment.

New figures issued today comparing the cost of a public sector bond with the PPP show how efficiency savings under PPP would more than outweigh the higher cost of borrowing - and could save the public sector up to £4.5 billion. Full figures are attached.

Mr Prescott also welcomed the announcement today of a new rail service, running across North London, between East Anglia and Hampshire, and with three Underground interchanges.

He said:

"There's no big mystery about the PPP. The Underground will continue to be publicly-owned and publicly-run - the big difference is that unlike under the previous administration it will be properly-financed.

"London Underground will still be in charge of running trains, signalling and stations, and the safety regime. The difference here is that the PPP partners will be responsible for maintaining and upgrading the infrastructure.

"Most PPP construction work will be done between 1am and 5am in the morning. Passengers will only know it's happening when they see the real improvements.

"Mixing the best of the public and private sector is nothing new. LU has already signed five public-private contracts bringing in over £1 billion of investment. These are modernising ticketing systems, improving communications, providing new British Transport Police facilities, renewing the power distribution network and delivering new rolling stock to the Northern Line. Passengers are already seeing the benefits.

"PPP is the best way of delivering the improved Underground system London needs. We are committed to reversing the legacy of under-investment that we inherited. It will take time - but we intend to deliver an Underground system that is safe, efficient, and properly-financed."

Mr Prescott welcomed the announcement today by the Shadow Strategic Rail Authority that a new Crosslink service across London is one of the first successful bids under the Government's Rail Passenger Partnership scheme, due open in May 2000.

He said:

"This new integrated service will run between East Anglia and Hampshire across North London and provide three new Underground interchanges and a link to Thameslink services. It will give travellers even more choice about how they travel and mean passengers can get right across London without having to change trains."

Notes for Editors

The development of partnerships is central to the Government's approach to policy delivery. Public Private Partnerships are playing an increasingly important role in delivering improvements to public services and infrastructure - by combining public and private sector skills and expertise.

Under the Underground PPP proposals, infrastructure renewals will be let as three transactions based on groups of lines - two deep-tube groups and one sub-surface group.

Five consortia have been invited to tender for the deep tube infrastructure contracts. Bids are due back in March.

The Government, Railtrack and London Transport have agreed not to proceed further with discussions on the sub-surface lines (DETR PN 1154 of 30 November). Details of a competition for the sub-surface lines will be announced shortly.

The Government believes that the PPP is the best means of securing long-lasting, long-term improvements for the London Underground, while ensuring best value. It will deliver:


elimination of the £1.2 bn investment backlog
more reliable services
more capacity
faster journeys
better stations
higher safety standards
cleaner trains and stations
better value for money
more secure investment

PPP:



is not a privatisation or even a part-privatisation - at the end of the contracts the assets will return to the public sector in a much-improved condition. The only thing being privatised is the risk of an overspend.


is a genuine partnership, focusing private involvement where it can do most good - planning, financing and delivering a major investment programme - whilst maintaining the Tube as a publicly-run public service. LU will continue to run the trains, the signalling, safety and stations.


is the best way of bringing new investment into the Tube, offering long-term, stable funding and delivering £7bn worth of investment in the first 15 years, achieving best value for the tax payer, and improved safety.


With long contracts, the private sector will be able to plan long-term to replace worn out assets, and upgrade lines – far more efficient than planning year-to-year.

London Transport has already signed private finance initiatives which will deliver more than £1 billion extra investment for the Underground. As well as providing additional investment, they transfer risk to the private sector - allowing London Underground to concentrate on providing Tube services to the public.

The Crosslink service, proposed by Anglia Railways, would run from East Anglia and Hampshire across North London, providing a link from Heathrow via Feltham Gateway and to the Millennium Dome via Stratford, as well as three underground interchanges and a link to Thameslink services.

London Underground: bond fiinancing versus the PPP

Comparing the cost of a public sector bond with the PPP shows how efficiency savings under PPP would more than outweigh the higher cost of borrowing - and could save the public sector up to £4.5 billion.

The following figures show how. These have been prepared by PricewaterhouseCoopers and assume that the PPP investment and maintenance programme over the next fifteen years would cost £16.5 billion, if undertaken by London Underground as presently structured and financed.


(figures in brackets = savings) Public sector bond Public/private Partnership
Assumed investment requirement £16.5 bn £16.5 bn
Efficiencies from: long-term, stable funding (£1 bn) (£1 bn)
Efficiencies from: private sector innovations and incentives nil (£3 bn)
Investment requirement after efficiency savings (A) £15.5 bn £12.5 bn
Net fare income available for investment (B) (£10 bn) (£10 bn)
Finance gap (A-B) £5.5 bn £2.5 bn
Cost of financing finance gap (C)
Public sector bond @ 5.75% £3.5 bn nil
Private sector debt and equity @ assumed average of 10% (nominal) nil £2 bn
Net Total Cost to the Public Sector = A+C £19 bn £14.5 bn


Notes:

The above calculation uses rounded, illustrative figures for the first fifteen years only, in order not to reveal projections that would compromise London Underground in its negotiations with bidders.

The same calculation could be performed for a 30 year period with similar results.

All figures are shown in real terms using 1999 prices.



--------------------------------------------------------------------------------
Press Enquiries: 0171 890 3045
Out of Hours: 0171 890 5925/5945
Public Enquiries Unit: 0171 890 3000
E-mail: press@dtlr.gov.uk
DETR Press Notices: http://www.press.dtlr.gov.uk/


Railhub Archive ::: 1999-12-08 DET-001





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