No Minister, PPP won't save the Tube

I know you have only been in your job for a month, but have you had a chance to look at the contracts for the Public Private Partnership for the London Underground?

If not, I suggest you spend the next few days doing so, before you give the final sanction for the scheme to go ahead. Having spent much of the past six months researching the book I am writing about the Tube and PPP, I feel I must warn you against taking the simple option of rubber-stamping what your predecessors have agreed.

When I started researching the book, I was determined to keep an open mind about the merits and problems of PPP. I set out to listen to all sides, even though support seemed to be confined to a few Government acolytes and consultancy firms, while opposition appeared almost universal among everyone else. Listen, I did, to lengthy explanations from London Underground executives and various Whitehall insiders eager to try to keep me on-side as well.

Being a Labour-leaning kind of fellow and, like most Londoners, a regular Tube user, I desperately wanted to discover that all the opposition was a load of hooey and that PPP was the best thing since the first Metropolitan train ran from Paddington to Farringdon in January 1863.

Siding with the underdog and challenging conventional wisdom are my stocks in trade but, alas, in this case the noisy majority is right in casting doubts about a scheme that risks becoming a millstone round your neck.

I have been here before. I wrote about the poll tax in the 1980s and rail privatisation in the 1990s. Both were pushed through by a few ministers in the face of scepticism from their own benches and widespread public hostility. History is being repeated.

The first hurdle to overcome before you sanction PPP is whether the very concept is flawed. The idea, as you know, involves splitting the Underground into four parts - three infrastructure units each encompassing three or four lines which are being handed over to the private sector on 30-year contracts and an operator who remains in the public sector. Then the performance of the contractors will be measured principally through their ability to reduce "lost customer hours", ie, delays to passengers.

One key point above all should cause you to pause. This is a unique system of running a major underground network. It has not been tried anywhere else and yet is being imposed on one of the biggest and busiest metro systems in the world.

In September 1997, a report argued strongly against splitting up the London Underground. It said: "The Underground is too important to experiment with. It is essential that the Underground is not driven down the path of difficult and uncertain change simply by a failure to challenge a series of conventions and assumptions." The author? It was London Underground, which was subsequently bullied into accepting

PPP because the Treasury presented it as the only way funding would be made available.

Secondly, there are the specifics of the contracts which seem to be getting more and more favourable to the private infrastructure companies (infracos) every day. We now know the two successful bidders, Metronet and Tube Lines, will be getting £500 million in success fees before they have even done anything.

Moreover, they are taking on virtually risk-free contracts. Between them, the contractors are being provided with £1 billion worth of contingencies to cover unforeseen costs during the first seven-andahalf years of the contracts.

Normally, according to contract lawyers, the client would keep most or all of this contingency. However, uniquely, under PPP, the infracos will keep all the contingency money if it is not spent.

Only once the companies have used up that enormous contingency will they face losing £50 million of their own money, which they have been required to put up as part of the deal; a trifling amount given the size of these contracts.

London Underground executives will tell you that PPP is the best way forward. But scratch below the surface and talk to the managers who run the system and who face the day-to-day consequences of breaking up the Underground, and they will give you a completely different story.

They are convinced that the infracos will try to screw as much money as possible out of the Underground and, therefore, ultimately, London taxpayers.

Here is the root of the argument. London Underground says that this is a partnership and the infracos will be incentivised to ensure Londoners get the Tube they need. But you only have to look at that other unique experiment, the privatisation of the railways, to see that the promises of the private sector have not materialised. At the end of the day, the infracos will act in the best interests of their shareholders, as is their legal duty.

Of course, stopping the schemes would take great political courage. It requires a U-turn of heroic proportions and will greatly anger Gordon Brown, though it might quietly please Tony Blair. Brown claims the scheme is nothing to do with him and yet, in private, fulminates against anyone who suggests it is fundamentally flawed. And, most galling, you and Brown would have to admit that Ken Livingstone has been right all along.

When Brown initially pushed through the scheme in 1998, PPP was thought to be self-financing with the investment all coming from the private sector. Now we know that it will cost £1 billion per year of taxpayers' money.

Why not, Alistair, just give that subsidy to Transport for London and tell them to get on with renewing the Tube? Politically you can't lose, once the embarrassment of the Uturn is forgotten. If Londoners get a renewed Tube, they will praise the Government for providing the money; if Ken Livingstone messes it up, then you can blame him.

Instead, pushing on with PPP is a lose-lose situation. If it works, Livingstone will claim credit for having salvaged something out of the mess. If, as is more likely, it proves to be an expensive failure, then ministers will take the blame.

So, Alistair, be brave and follow your instincts: use the impending legal challenge by Transport for London as an excuse to review PPP and then ditch it.

? Christian Wolmar's book on PPP, Down the Tube, will be published by Aurum Press later this year