Q131 Mr Jenkins: In the last few minutes I looked through and on page five, paragraph 11there is "The costs of the PPP". One of the things that Members have mentioned is the total of £275 million of bidders' costs which are reimbursed. I looked down what the bidders' costs amounted to, how they are made up. I thought this should be simple enough. I can understand what we have got here is, for instance, the costs included success payment payable to the sponsors-which is quite nice-the costs for lost opportunity of utilising this capital to make other business investment returns, which I can live with, I think, just about and then any risk of non recovery of costs during the three year bid process. Can you explain that to me please?
Mr Rowlands: This was, as I understand it, Tube Lines putting an element into their bid costs as in effect a reward for the risk that they might actually not be able to recover any costs at the end of the bid process. I think I said there were certainly some lessons in this Report for the Department and perhaps for other Government Departments and I think there is a lesson in relation to bid costs in this case. Certainly in a project of this magnitude with these sums of money I think, looking backwards, the Department and London Transport ought to have established from the outset what was going to be a legitimate element in a bid cost and in relation to this particular element, although it was allowed as part of the bid costs, because it all surfaced at a relatively late stage I think there is possibly quite a strong argument that faced with such a proposition again you might want to disallow it. I think that is a lesson for us.
Q132 Mr Jenkins: It is a lesson we have learnt that when the private companies out there get their hands in the public pocket they think it is Christmas. I could have told you that before this process started.
Mr Rowlands: What happens normally is you do not know what a winning bidders bid costs are because they simply recover them through whatever their winning bid is. In this particular project they were driven out publicly.
Q133 Mr Jenkins: Would you say that the compilation of their costs was transparent and easily accountable to you?
Mr Rowlands: It was audited by London Transport and should have been transparent to them.
Q134 Mr Jenkins: Who paid it?
Mr Rowlands: It is ultimately recovered through the monthly infrastructure charge over 15 years and therefore is paid out of the grant that is paid by the Department to TfL.
Q135 Mr Jenkins: We pay it, the taxpayer pays it, do we not? If you look at page five-I am on refinancing-paragraph ten, section c, it relates to the fact that we will get some money back, as I read it-
Mr Rowlands: Yes.
Q136 Mr Jenkins: --- on the refinancing of the debt. Is this across all parts of this package? Do we get money back if any part of the package is refinanced?
Mr Rowlands: That is ultimately now a matter for TfL and the Infracos. My understanding is, I think I am right, that in the event of refinancing on the other Infracos, TfL will also share in refinancing.
Q137 Mr Jenkins: Asset maintenance, we have drawn a lot, and I was as much surprised as Mr Bacon we had only spent £6 million establishing the state of assets with engineering. You refer to the fact that we could not undertake certain works because they were hidden, et cetera, I understand that. If I look on page 19 at figure nine, there is this big uncertainty of the asset base which caused us so much concern in the packaging and the financing of this deal. Am I reading this right because on figure nine does it not say there that rolling stock and signalling capital expenditure is reasonably high, averaging just over 20%; asset maintenance cost is probably less than 20% of the total financing package? Am I right there?
Mr Rowlands: Yes.
Q138 Mr Jenkins: Down the bottom it says track capital expenditure. I am not sure what track capital expenditure is if it is not asset maintenance but I presume it is for replacing the track?
Mr Rowlands: Yes.
Q139 Mr Jenkins: This 20% is approximately, roughly, what £200 million a year on the actual maintenance of the asset, refurbishment of the asset, yes?
Mr Rowlands: Yes.
Q140 Mr Jenkins: It is 20% of the total package and yet a lot of play has been made of the fact that we had to increase the cost, the final figure put in, because we were uncertain of the state of the asset.
Mr Rowlands: Yes.