Government to underwrite PPP risks

A new row erupted today over plans to part-privatise the Tube, after it was revealed that the Government is prepared to bail out the companies set to run the network if they get into difficulties.

Ministers will underwrite virtually all the money being borrowed by the private-sector companies in the first seven and a half years.

Critics of the public-private partnership (PPP) say it undermines government claims that the private sector would be taking all the financial risk - the main reason put forward in favour of PPP.

The guarantees being provided for the two private-sector consortia, Metronet and Tube Lines, are contained in a letter from governmentowned London Underground, which will continue to run trains under the control of Ken Livingstone's Transport for London (TfL).

Under the deal both consortia have a letter which guarantees to cover up to £3.7 billion of the £4.6 billion private-sector finance they are raising in the first seven and a half years.

Theresa May, Tory shadow transport spokeswoman, said: "This calls into question the issue of whether the PPP is value for money."

A government official said a large proportion of TfL's income was grant money and ministers needed to make clear that if one of the private sector companies were to have financial difficulties, then it would increase the grant to cover this amount. The guarantee is similar to that given to the lenders to Railtrack, the privatised company running the mainline infrastructure but which was forced into administration by Transport Secretary Stephen Byers last October.

However, ministers are worried that should the consortia hit serious financial problems then the operation of the Tube, used by three million people a day, could collapse.

A senior Whitehall official involved in the highly controversial scheme summed up the uncertainty: "There is no absolute guarantee that it (the PPP) will work for real until is is working for real."

A senior source at TfL said: "It means that if the private sector cannot provide then the taxpayer will be left to pick up the bill. Despite what has been said, the private sector is in a win-win situation with the PPP. If they make a profit it goes into their pockets, if not the taxpayer has to fork out."

However, the PPP is by no means certain to proceed. Mayor Ken Livingstone is considering a further legal challenge to the scheme.

? The companies could make up to £200million profit a year. Mr Byers is expected to announce annual returns on investment of up to 20per cent when he unveils full details of the contracts for the first time today. The Metronet consortia, for example, is investing £7 billion over the first seven and a half years - allowing potential profits of £200 million per annum.

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Comment: Common sense at last