As negotiations over the Private Public Partnership for the Tube, lasting over four years, approach conclusion, the obvious question is whether the whole debacle of the national railway will be repeated.
The PPP contracts are in their final stage of consultation with the two successful bidders – Tube Lines and Metronet – eager to sign them on June 22. However, there are still a lot of possible pitfalls on the way, not least the fact that last-minute doubts remain in the corridors of Whitehall.
I am writing my next book on the PPP, with the hope that it will be published in the autumn (but this is slightly dependent on events). Therefore I have been talking to all the various sides in this lengthy saga – the Underground, the Government department and ministers, bidders, ex-London Transport staff, and even people in the corridors of Whitehall. Despite my longestablished doubts about privatisation and the way the railways were restructured, I went into the project with an open mind thinking that there must be some clear rationale for what has happened, especially given the enormous controversy that the issue has generated.
This is work in progress and I don’t want to précis an 80,000 word book in a much shorter column. But I am going to raise the issue in terms of questions that the PPP supporters have to answer before they can convince me – and indeed anyone else – that this is the best option for the future of London Underground.
Just to refresh readers’ minds on the structure of the PPP it goes something like this: the Tube is being broken into four parts, three Infrastructure companies (always known as Infracos, a ghastly word that is clearly going to have to be included in the next edition of Oxford English Dictionary) which are to be run by private consortia and the operations, which remain a public company. The Infracos are raising enormous sums to pay for upgrading the system and will also receive, particularly in the early years, huge wads of subsidy, something like £1bn per year according to figures given by Stephen Byers in Parliament.
There are three driving forces behind the scheme. First, London Underground’s desperation to get away from annuality, the system that means the money available for investment varies dramatically and unpredictably from year-to-year because it is at the whim of the Treasury. Secondly, the widely-held belief within government circles among civil servants and ministers that the public sector in general, and London Transport in particular, could not manage the proverbial binge in a brewery, let alone procurement programmes for massive infrastructure schemes. And thirdly, the recognition, belated perhaps, that London, and indeed the whole nation, desperately needs a Tube system that does not cripple transport in the capital and that this cannot be done without lots of money.
The PPP is controversial because of its size, complexity, uniqueness and cost. First, the most awesome part of the deal is its uniqueness. Nothing like this has ever been undertaken before. Or indeed, will probably ever be considered again. Public Finance Initiative schemes are complex enough already, but, as one Transport for London insider put it to me, this is in a league of its own in terms of complexity and size. At one point, the Tube PPP was bigger than all the other PFI schemes put together, though as the latter have proliferated, this is no longer the case.
The PPP’s core idea is that outputs of the massive refurbishment needed for the system will not be measured in conventional terms, such as refurbished stations, new track, new trains or other discernible bits of hardware. Instead, the main measure will be lost customer hours – in other words, delays caused to the service. This will be based on multiplying delays to trains by the expected number of passengers at a rate of £6 per hour. Thus the cost of a five minute delay at, say, Euston will be much greater than at Cockfosters.
There are other three other main outputs: capability which, in LU’s words, is ‘a measure of the potential performance of the line’ and is intended to ensure the Infracos invest in improvements in order to qualify for the payments. It is measured through a fiercely complex formula including everything from the time it takes to open and close doors to the acceleration of trains. Then, less important, there is ‘ambience’, calculated through mystery shopper surveys of the state of cleanliness and lighting in the system. And finally service points: these are accrued by Infracos for failure to provide facilities on the basis that if they exceed their allowance, their payments will be reduced (‘abated’ in the jargon).
None of this has ever been tried before. The amount of money is not only bigger than in any other PFI deal, but it is structured completely differently because conventional PFIs generally involve provision of a new asset and then its maintenance over 25-30 years. In the PPP – a term which is difficult to define but is largely synonymous with PFI – the asset is being improved the whole time and, indeed, much of the main investment will not take place until well into the contract.
One of the problems for defenders of the scheme is the way that the original concept has changed. Originally, the whole thing was to have been funded by the private sector. Now, the subsidy is to be £1bn per year, much more than LU has ever received. Secondly, the contractors appear to have been given all kinds of commitments which reduces their risk – their rate of return is largely guaranteed, there is a cap on cost overruns, the cost of running the contracts has soared and so on. Meanwhile, London Transport’s punctuality and reliability has deteriorated since shadow running of the scheme started in September 1999 and yet, London Underground insists that the performance of the Infracos has been improving over that time.
Opposition to the scheme has become almost universal, ranging from virtually all transport academics to all the opposition parties and even swathes of Labour MPs. Yet, because of the way that the PPP was included in the London Government Act 1999, it is, bizzarely, Stephen Byers, the MP for North Tyneside who will sign the contracts before handing them over to London’s elected mayor. In many ways, you could not make it up, and the question which no-one with whom I have talked can answer is why the Government is so beholden to such a controversial project.
The most fundamental question, the government must ask itself is this: is unacceptable risk being introduced into the system in the same way that it was at Hatfield. I was talking to a couple of LT fellows, the other day, people with no particular axe to grind, and they raised issues of real concern such as: Will managers be called upon to make decisions on safety which are influenced by commercial considerations – for example be under pressure to lift Temporary Speed Restrictions or reopen the railway too quickly after an incident? Who is managing all the interfaces – for example, one problem is that there is no direct relationship between the Infracos and existing PFI contractors (eg Alstom which supplies the Northern Line trains through a PFI deal)? How far will the contractors self-assess their safety and therefore be tempted to cut corners? Or, in sum, as one of them put it, “Will our new masters have an ethical approach to running the business?”
Remember that Hatfield happened because of the lack of clarity about interfaces. Of course the Infracos say that safety is their prime consideration and that the interface is different than on the national railway in that the Infracos are responsible for both train and track maintenance. But the regime is still governed by contractual considerations and it is a system that has never been used before to run a Metro. Indeed, one could argue that the national railway was a testing ground for this kind of idea and that Hatfield and the collapse of Railtrack showed it failed miserably.
As I stress, I have come to no definite conclusions, though it is clear from the tone of this column that several aspects of the PPP trouble me deeply. It will take a lot to convince me that this scheme is the best for London and for the taxpayer. I would consequently be delighted to hear from any insiders, both current and ex, who may wish to comment. My e-mail address is below and, as usual, confidentiality is guaranteed.
And trouble continues on national rail
The continuing difficulties created by rail privatisation are highlighted by a report written by the three of the regional committees of the Rail Passengers Council and published just after Easter. Entitled What’s Happening to Brunel’s railway, it examines why the performance on that brilliant piece of Victorian kit has deteriorated so badly in the past five years.
The figures are, indeed, striking. Last June and July, First Great Western ran just 56.3% of its trains less than ten minutes late. This compares with BR’s achievement, in the run up to privatisation of exceeding its 88% target. The pamphlet sets out a whole catalogue of other ways in which service has deteriorated, ranging from the cuts in staff, the failure of new trains to be delivered on time, the deterioration of track quality and so on. In response, many business travellers are returning to the M4, belying FGW’s promise of trying to empty that overcrowded motorway.
The authors recognise FGW has begun to address the problems. For example, staff numbers increased by 20% last year and are beginning to get back to preprivatisation levels. However, they argue that without substantial investment, the Great Western is likely to be Britain’s Cinderella line at least for the next half a generation. Yet, electrification, which would greatly enhance the service, is not even on the agenda.
It may well be that had BR survived, the GWML would, by now, be earmarked for improvement as the West Coast would probably have been finished by now. Instead, the East Coast seems to have jumped ahead in the schedule. I have always thought that the Great Western deserves higher priority because it serves not only the booming area of the Silicon Valley out to Bristol, but also one of Britain’s areas which is least well served by transport infrastructure, Cornwall. Now, instead, Ryanair has started flying to Newquay. It is a sad testimony of the failure of past governments to think strategically about railways. Will this one have the nerve, despite the soaring costs of rail infrastructure?