Commentary by Tony Travers

IT'S NICE work if you can get it. The fabulous sums to be made by the PPP companies are proof of just how far the Government has been prepared to go to get its own way over the modernisation of the Underground.

No matter how much evidence has stacked up to the contrary, Chancellor Gordon Brown and his advisers have insisted that PPP is the only game in town. Small wonder, then, that the companies bidding to rebuild the Tube have taken every possible opportunity to move towards a risk-free, multi-digit return on their modest investments.

Knowing that the Government was 100per cent committed to PPP, the firms put in original bids that were vastly more expensive than Whitehall had envisaged. The Treasury then demanded lower bids. The companies responded by delaying all the more expensive investments until the later part of the 30-year contracts. As the preferred bidders have moved towards signing the final contracts, they have demanded that virtually all risk be transferred back to the state.

What now remains is, in essence, three extremely expensive maintenance contracts.

The "incentive payments" that are supposed to secure improved reliability take the current dire Tube performance as their starting point.

The PPP companies are not stupid. Nor are they bad at their jobs. They will have calculated they can easily do better than the existing Underground management. Their real exposure to risk is negligible.

Normally PPP-type deals involve the public sector receiving a new asset immediately, then paying for them over 30 or more years. The mad, sad Tube PPP works the opposite way.

The Government has agreed to pay pounds 1 billion a year to the bidders from Day One even though there will be few significant improvements for passengers until 2014 or after. The firms concerned will be able to bank extraordinary sums in the years ahead.

Nor should the firms be blamed. It is hardly their fault the Government has given them a copper-bottomed opportunity to earn such huge guaranteed profits for shareholders.

The scale of the profits is yet more evidence of how little government understands business.

Buy shares while you can.

Tony Travers is Director of the Greater London Group at the London School of Economics.

Copyright 2002
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