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Archive for April 18th, 2007

Metronet under strain as costs overrun |

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| Guardian Unlimited Business

Yet another complex P3 arrangement going wrong. Once again forced through by doctrinaire politicians against common sense and opposition from the people trying to run the system. I have no sympathy at all for the members of the consortium who took a risk, and stand to lose a lot of money. I am concerned that as usual the tax payer is on the hook, and that the people who actually use the Underground will continue to experience delays. And possibly see their safety compromised as happened with the privatisation of main line railways.

But I also do not expect that this lesson will be learned here, and that the process will continue to steam roller common sense in favour of commercial interests

UPDATE  Tuesday April 24

Ken Livingstone now admits that the Metronet consortium may go bust.

One of the great myths of privatisation is that it transfers risk from the public purse to the private sector. This is supposed to justify the extraordinary levels of profits the private sector expects to extract from each and every deal. And is why, to most objective observers, the cost of the P3 is usually more than the public sector comparator. But the way governments work these days, the evaluation is just as much the subject of spin doctoring as the justification for the project in the first place.

One of the main reasons for the cost overspend is delays in completing the station renewal programme, which involves major refurbishment work on 150 stations.

Two of Metronet’s five shareholders, construction group Balfour Beatty and engineering consultancy WS Atkins, broke ranks last week to warn of financial difficulties at Metronet.

Balfour said Metronet’s finances were “under increasing pressure” because of “the high level of unanticipated costs” and called for an extraordinary review of the PPP deal to determine whether investors must cover the £750m overspend.

This story will be familiar to every householder who has ever had any work done on their property by a professional. The original estimate is always well below the final bill and the costs are always unanticipated. And just as in this case, the risk falls squarely on the poor sap who asked for the job to be done. And if you don’t pay up, the contractor simply vanishes, and the work is left uncompleted.

Written by Stephen Rees

April 18, 2007 at 8:24 am

Posted in privatisation