Government to underwrite Tube risks

A NEW row erupted 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 provided for the two private-sector consortia, Metronet and Tube Lines, are contained in a letter from Government owned London Underground, which will run trains under the control of Mayor Ken Livingstone's Transport for London (TfL).

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

Theresa May, Tory transport spokeswoman, said: 'This calls into question the issue of whether the PPP is value for money and was a good deal for Government in relation to public-sector investment.'

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 had financial difficulties, it would increase the grant to cover this amount. The guarantee is similar to that given to lenders to Railtrack, the privatised company running the mainline infrastructure, forced into administration by Transport Secretary Stephen Byers last October.

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. The Government has already confirmed that taxpayers will foot the bill if the private companies are faced with major engineering or construction problems which would cost hundreds of millions of pounds to put right - such as a tunnel collapse or because of London's rising water table.

A senior source at TfL said: 'The private sector is in a win-win situation. If they make a profit it goes into their pockets. If not, the taxpayer has to fork out.'

The companies could make £200m a year. Byers is expected to announce annual returns on investment of up to 20% when he unveils full details of the contracts. The Metronet consortia, for example, is investing £7bn over the first seven years, allowing potential profits of £200m per annum.