Q1 Mr Williams: We are here today to have a hearing on the NAO Report on the London Underground Public Private Partnerships. I welcome as witnesses Mr David Rowlands, Permanent Secretary and Mr Paul Davies of PricewaterhouseCoopers. Is this your first visit?
Mr Davies: To the PAC, yes.
Q2 Mr Williams: I am sure you will enjoy it.
Mr Davies: Thank you.
Q3 Mr Williams: Also, we have Mr Tim O'Toole and Mr Martin Callaghan from London Underground. Welcome, gentlemen. May I also welcome this afternoon the Speaker and the Secretary of the Legislative Assembly of Gujarat. Welcome. May I put on record, before I start asking questions, that at one time in the past I was a sponsored member of the TSSA and it still sponsors my constituency party. I am a paid up but non participating member of that union. If I can start off with the questioning to you, Mr Rowlands. This project is starting two years later than originally planned. The maintenance backlog was meant to be 15 years and it is now 22 years. The 30 year programme looks as if it will run until 2033. The Mayor of London has promised Londoners ten years of misery; what is your estimate?
Mr Rowlands: I think you are looking at a project that needs to recover some several billion pounds, it is difficult to estimate it, of degraded assets. I think inevitably we are looking to a period, certainly through to the end of the decade, when there will be some considerable disruption in the sense of heavy station modernisation programme and probably no weekend in any of the coming years when there is not a part of the Underground closed for remedial works. It is a measure of the scale of the work that needs to be done.
Q4 Mr Williams: It has been suggested that it may be about impact 15 years before the substantial work is completed and from then on it should be less intrusive, is that familiar to your calculations?
Mr Rowlands: I think Mr O'Toole may have a better view in operational terms than I do. The position is, as I think the Committee knows and can see from the Report, the infrastructure companies are not required to get the assets to optimum state and eliminate all the backlog until the end of the third review, which is actually 22 years, although most of that will be done before then. Yes, you may well be looking, certainly through to the end of this decade and beyond, but Mr O'Toole may have a view.
Mr O'Toole: I would not quarrel with that description. The important date for me is when we finally get upgrades on the subsurface railway. It is going to be somewhere around 2015 when you would see a dramatically different railway across the piece. The upgrades for, say, the Bakerloo Line are even later, that is 2020, but I think it puts a fairly good service forward right now. For me the change is when we finally get to the subsurface railway.
Q5 Mr Williams: I understand from the Report that the price, the scope and the funding of the project is to be reviewed every seven and a half years. That means there will be three reviews during its lifetime. Is the taxpayer being taken on a financial mystery tour? Do we have any idea how this will shape up?
Mr Rowlands: I do not think we are being taken on a financial mystery tour. We were trying to deal through the PPP contracts with the inevitable uncertainty in a huge programme of remedial work where the state of many of the assets was unknown. We could have sought, and the Report I think acknowledges it, greater price certainty and in that sense reduced the mystery tour for the taxpayer but it would inevitably have been at the expense of higher contingencies put into the bids by the private sector and the higher cost that way to the taxpayer. There is a trade-off between cost and risk, I am afraid.
Q6 Mr Williams: If after the seven and a half years there is a review and you do not agree, what happens?
Mr Rowlands: If London Underground and the three infrastructure companies at the end of the first review cannot agree a price for the restated scope of works that the Underground wants pursued then the matter goes to the arbiter for him to price on the basis of an economic and efficient Infraco supplying whatever it is that the Underground has restated as its need.
Q7 Mr Williams: Is his conclusion binding contractually?
Mr Rowlands: It is binding. The arbiter's decision, I believe, is binding.1
Q8 Mr Williams: Binding but not contractually?
Mr Rowlands: The contracts provide for the arbiter, in fact the arbiter is provided for in the Greater London Act 1999. Through that mechanism his conclusions are binding.
Q9 Mr Williams: I may have misunderstood the meaning. Is it not a fact that even if the arbiter makes a decision which is binding the suppliers do not have to fund extra money?
Mr Rowlands: The lenders are not obliged to provide new money for new requirements and, therefore, the suppliers would have to find a new source of finance in those circumstances.
Q10 Mr Williams: What if they say they cannot find the funds?
Mr Rowlands: Then I imagine in those circumstances the Underground with the Department would look for another route through. This is a hypothetical set of circumstances.
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