Q121 Mr Curry: Right. There is a reference to the beloved Mayor on page 29. Of course he has now been reunited with his happy party, and I do not wish to comment upon that. It says "In particular, the Mayor's opposition proved to be more deep-seated than the Department anticipated and had a more serious impact on completing the deals". Is that impact one which is quantifiable in financial terms? It is not major politics to say that the Mayor favoured one financial mechanism and the Chancellor of the Exchequer was damn well determined to get another. Between these two how much did it cost us to sort this out?
Mr Davies: I cannot give you a definitive figure, I can give you some indications.
Q122 Mr Curry: Give me some indications.
Mr Davies: Obviously there was the whole issue of whether or not this delayed the transaction which in my view it certainly did; not only the judicial reviews but we did have a period where we were negotiating changes that were asked and requested by TfL. That took time, and some of the transaction cost which have been discussed earlier today were directly as a result of that. The second thing, which may not be financial costs but had elements within the transaction, was we were negotiating on certain terms which were as a result of the opposition of the Mayor to the deal. There was a period of negotiation on those additional terms which were as a result of concerns by lenders in particular to the political environment.
Mr Curry: I have been given a red light, I will come back, if I may.
Q123 Mr Jenkins: I would like to reinforce or reiterate the comments made by several Members about the lateness of the Report. As a Member of Parliament of course we were sitting here on Monday afternoon, reading a Report on Monday, I had other things to do yesterday so it was difficult to get into this rather complicated matter. Take it as a given that Members realise we have to have some time to read these Reports or we have to have an adjournment and call you back. Mr Rowlands, when you read this Report and signed it off were you pleased by the Report or saddened by the Report or just took it as a given?
Mr Rowlands: I do not think I was either pleased or saddened by it. I think it underlined quite rightly the complexity and it is a very complex set of contracts to deal with a difficult problem. I think it flagged up-this may be an own goal on my part-one or two lessons that the Department can learn and perhaps other Government Departments can learn from this. In one sense, and it is part of the difficulty I have with the Committee, it is spot on in the way it said it was difficult to have other than limited assurance about value for money because of the nature of the contract because you only know the prices for the first seven and a half years.
Q124 Mr Jenkins: This shortened structure at the end was no-one's first choice so why do you think we should believe this is the best option?
Mr Rowlands: Because other first choices, and the Mayor and Mr Kiley, for example, would have had a municipal bond issue to pay for remediating the London Underground, that was a policy choice that was not open to Transport for London. No local authority in this country issues its own municipal bonds, it was not available as an option even though it was the Mayor and Mr Kiley's choice, for example.
Q125 Mr Jenkins: If I look at page three, figure one-simple question because most of the difficult ones have been asked already so I will ask the simple questions-am I right in looking at this and thinking that the Department of Transport is putting something like £1.1 billion a year into the system and fare payers are paying about a billion pound a year?
Mr Rowlands: Yes.
Q126 Mr Jenkins: When I buy my £2 ticket on the Underground for Zone 1, effectively it is costing me £4 because I am putting £2 in as a taxpayer, am I not, is that right?
Mr Rowlands: Yes, in the sense that the fare box covers about half the annual cost of running the London Underground.
Q127 Mr Jenkins: So it has a 100% subsidy?
Mr Rowlands: It is 50% subsidy.
Q128MrJenkins: 50% and matching it. Soto be self-financing, you have to double the fares?
Mr Rowlands: That is assuming you do not drive the passengers off.
Q129 Mr Jenkins: They have got nowhere else to go very often in London.
Mr Rowlands: Yes.
Q130 Mr Jenkins: What did London Underground do to maintain their own assets? Did they draw that from revenue or were they subsidised through the amount they could spend on maintenance?
Mr Rowlands: It is slightly complicated. Prior to the PPP effectively London Underground received capital grant from the Government in respect of the big enhancement projects so the Jubilee Line extension was paid for by grant from the Department, there was no borrowing by anybody other than the Government through gilts in the first place. It sought to cover its operating costs and at one stage the way it was accounted for, they were making a surplus on operating accounts, although that surplus has now disappeared I think.10
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