Q171 Jon Trickett: Why did the bidding process not ask them to put a price in for the post tender so-called bidding, which is not really bidding at all, is it, but the post tender preparatory work?
Mr Rowlands: They did.
Q172 Jon Trickett: Can we have a note on it?
Mr Rowlands: Yes.15
Q173 Jon Trickett: There are tens, possibly hundreds of millions of pounds here.
Mr Rowlands: We will do that.
Q174 Mr Jenkins: I want to get something clear in my mind, I want to revisit the financing deals. I am not sure I have got this perfectly clear. The example we have got here on page five is one of Tube Lines. They refinanced and they disclosed a gain of £84 million and so 60% was the share to the public sector which will rise to 70%. Now that 70%, where does it come from?
Mr Rowlands: This refinancing happened after the transfer to TfL was negotiated by TfL with, in this case, Tube Lines. If I can help you. What was generated was cash, up front, of which TfL, through their 60% share, got 60% of£84 million, about £42 million from memory. That is cash that has gone to TfL.
Q175 Mr Jenkins: Since the taxpayer is funding this package they must have been in on the contract, the arrangement would be to pay TfL rather than pay it back to the Treasury, yes?
Mr Rowlands: The arrangement in the contract provided for TfL and the Infracos to share any refinancing gains, though this particular split was negotiated by TfL after transfer, 60:40 split.
Q176 Mr Jenkins: Since we are well aware-and this Committee has highlighted the refinancing arrangements in this area-and since we have spent so much time and very, very heavy costs on lawyers knitting these views together, why was it left to somebody else after we handed it over? Surely we should have handed over a complete package which included any refinancing gains coming back to the Treasury?
Mr Rowlands: I cannot speak for TfL but they might have been reluctant to accept such a package. What it means, certainly, is that if TfL do not get any share of the gain you have removed one part of the contract's interest in what is going on. I am not clear, you will be at the mercy of the Infraco to conclude whatever arrangements it wanted if you were not careful on refinancing. This was policed by TfL.
Q177 Mr Jenkins: The private sector, when they are going to refinance a deal, refinance the deal because they make quite a heavy profit, a windfall gain. They are not loath to passing some back if we negotiate in the contract they must pass back 50/60/70%.
Mr Rowlands: Yes.
Q178 Mr Jenkins: I understood this deal was all sewn up, all knitted together before it was handed over?
Mr Rowlands: The refinancing was done after the event and it was not worked up before transfer.
Mr Jenkins: That is appalling.
Q179 Mr Williams: Hold on. To the Treasury: you gave us an indication that some guidelines had been agreed some months ago on the minimum share that should come to the public sector in the case of refinancing. Would that have been relevant at the time of this?
Mr Glicksman: Yes. The guidance was 50:50. TfL negotiated a better deal than that, they negotiated 60:40, 60% to the public sector, so they did better than the Treasury guidance.
Mr Rowlands: They negotiated-I may have this wrong-in effect 70% over time because some gains come later. If all the gains from a refinancing were to go to the Treasury, why would the infrastructure company bother to refinance because it gets no benefit from it, it simply goes to the Treasury?
Mr Callaghan: If I may help, Mr Jenkins, I think you asked two questions. One was were there refinancing provisions in the contract? The answer to that is yes. In general the Treasury follow the Treasury guidance and in relation to this specific refinancing, which was in contemplation when the contracts were finalised, it was 60:40. In the negotiations that happened subsequent to the contract, TfL and LUL did a better deal than that. The answer to your second question, which is why is it TfL and not the Treasury, is that the contract is between London Underground and the private sector so the money went to London Underground and ultimately to whoever owned London Underground at the time it was done, which is why it was TfL.
Q180 Mr Jenkins: I understand that, but what I am concerned about is the fact that this cost a lot of money to knit together, when we handed it over the arrangements were in place and although I expect that they will gain some money, I also expect the return to come back to the taxpayer. What you are telling me now is not only will they get one billion pounds, they will also get the windfall gains of refinancing deals by the public private sector, is that right?
Mr Callaghan: They being TfL. London Underground get it, London Underground's owners get it and, therefore, TfL get it.
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