A small part of the transport network is quietly being renationalised with very little media attention. Transport for London is taking over Croydon Tramlink from a Private Finance Initiative consortium for £98m in order to ensure that the service can be upgraded in response to the ever growing demand.
The Tramlink was built by a consortium of five companies including a subsidiary of FirstGroup, the Royal Bank of Scotland and, in partnership, Sir Robert McAlpine and Amey. It was one of the early PFI deals, with central government funding £125m of the overall cost of around £200m, and the consortium was given a 99 year concession to recoup their investment.
From the start, it was an ill-thought out deal. Building companies like McAlpine have, understandably, no long term interest in running a railway and sought to exit as soon as possible. More importantly, Tramlink fitted in uncomfortably with the rest of London’s transport. When the Mayor and Transport for London took over, there was a dispute over the amount of compensation due to the consortium for a new range of tickets and passes developed by TfL for tram users. When the consortium, which was seeking £6m per year, lost in court last year, its days were numbered and it will be grateful to have got out of a deal that was more trouble than it is worth.
There are several lessons to be learnt from this saga. First, imposing PFI deals on transport schemes like Tramlink can lead to all sorts of unexpected consequences. TfL, for example, wanted to put on extra trams but for the consortium this represented a cost with little benefit. The conflict between private profit and public service was all too apparent. Tramlink was very successful in attracting customers but despite that it made little money for the consortium. In other words, it was providing an excellent public service, which was not necessarily profitable.
Secondly, the PFI deal has ultimately cost the taxpayer far more than a conventional procurement arrangement. TfL was paying £4m per year for the concession and is now having to fork out nearly £100m, bringing up total public cost to £250m. On the plus side, however, the consortium did take on some building risks on which it lost money because of the difficulties in dealing with the utilities in central Croydon.
The worst aspect of this story is that Tramlink’s problems have had a knock on effect around the country. Private companies are reluctant to get involved in light rail schemes because of the risks which the Croydon scheme has exposed. Unfortunately, far from learning from this experience, the Department for Transport is still intent on creating fantastically complex PFI deals for any transport scheme that survives the Marsham Street bureaucracy. That’s one reason why there are so few of them.