Delivery of Tube modernisation

13  As signed, the eventual PPPs are broadly in line with the Government's objectives to bring in private sector expertise to manage the Tube infrastructure on the basis of stable long-term funding, while the train operations remain a public sector responsibility. Although, as noted above, there is only limited assurance that the price of the deals is reasonable, the deals do provide safeguard mechanisms (including the provision for an Arbiter) aiming to link payments to the private sector to actual delivery of services at prices in line with those an economic and efficient supplier would charge.

14  The private sector companies are firmly committed for the first 7½ years, and are incentivised to stay in the deals for the full 30 year period. After the first period they are committed to provide services at a price agreed between the parties, or an economic and efficient price determined by the Arbiter if the parties are unable to agree. If the Infraco requires additional funding for the next period, which is likely, the existing lenders do not have to provide it. A number of options are available, including a reduction in the deal scope, LUL providing equity or new forms of financing. LUL is committed to pay for the services delivered and has limited contract rights to terminate the deals for non-performance or non-compliance with safety requirements. LUL has no formal right to terminate the deals voluntarily, subject to paying compensation, although this is a common arrangement in PFI deals.2 The Department told us that London Underground gave up this right to discourage lenders from increasing their price because of political uncertainty.

15  Following the signing of the deals, work to improve the Tube started in 2003, two years later than planned, and following recognition that more work was needed some investment has been deferred to keep within subsidy limits that central Government was willing to permit. This increased the period over which the Tube would be brought up to a steady state, at which it would then be maintained, from 15 years to 22 years.

16  In our companion report, also published today, we examine:

■  the potential to deliver improvements to passengers;

■  whether key success factors are in place for building a partnership approach to managing the contracts; and

■  how the issues that have been left open will be tackled and how the wider context affects the Tube.

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2  Standard PFI contract terms proposed by the Treasury do provide for voluntary termination by the public sector authority on payment of prescribed compensation.