Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

£2bn of public money goes down the Tube as Gordon Brown counts cost of failed deal

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The Times

This one of the privatization stories that you can bet Wendell Cox will not be writing about.

Taxpayers will have to pay £2 billion to rescue the failed privatisation of London Underground, the Government admitted yesterday.

Ruth Kelly, the Transport Secretary, had to raid the Government’s contingencies fund to settle the debts of Metronet, which ran nine of the twelve underground lines but went bust in July.

The scale of the public liability for Metronet’s failure will be a severe embarrassment to Gordon Brown, who forced through the controversial Public Private Partnership of the Tube when he was Chancellor.

It was supposed to transfer risk. It didn’t. It was supposed to improve the system. It didn’t. It was supposed to be more efficient than public ownership. It wasn’t and now has been taken back under public control.

Just who benefits from P3s you may ask. It isn’t the customer and it isn’t the taxpayer. But a heck of a lot of public money seems to be finding its way into somebody’s pocket with very little to show for it.

UPDATE There is also a useful summary in the Economist

Chief among the criticisms—most recently stated in a report from Parliament’s transport committee last month—was that the PPP contracts failed to transfer risk to the private sector. Metronet’s five constituent firms—WS Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water—put in £70m each. In return for their minimal exposure, Metronet’s shareholders expected to earn returns on the equity portion of their contribution of around 20% a year—justified at the time on the grounds that the huge PPP deal was a unique and untried proposition. But the firms’ exposure was slight. “There simply wasn’t enough equity at risk to give incentives for Metronet to perform,” says Stephen Glaister, an economist at Imperial College, London, and a member of TfL‘s board.

The transfer of risk is supposed to be one of the main selling points of P3s – but too often it isn’t. And there are of course, a growing number of local examples with similar failings.

UPDATE Feb 9 Useful commentary in the Guardian too

Written by Stephen Rees

February 7, 2008 at 5:51 pm

Posted in privatisation, transit

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