Down the Tube:London Undergroundand the Public-PrivatePartnershipRachael FinnArthur HuangKatie RothAdam ThieleOctober 3, 2007CE 5212/PA 5232AgendaDiscussionCurrent IssuesIntroduction to the PPPThe London Tube CasePros and ConsTube History• First line opened 1863• 1863–1933: Privately run lines• 1933–1948: London PassengerTransport Board• 1948: NationalizationDecline under nationalization• Lack of investment• Competition for funding• Shifting attitudestoward rail• Restructuring…London Transport Board1963–1970• Restructuring…Greater London Council1970–1984• Restructuring…!London Regional Transport1984–2000King’s Cross FirePublic-private partnerships• Partnership between public and private bodies todeliver public services• Derived from Public Finance Initiative (PFI)AgendaDiscussionCurrent IssuesIntroduction to the PPPPros and ConsThe London Tube CaseGovernment hopes & expectations• Key objective: value for money! Stable funding! Little or no grants! Better value than publicly run investment programGovernment hopes & expectations• Key objective: private sector investment andexpertise! Transfer risk to private investors! Private sector expertise! Price competition within the PPPGovernment hopes & expectations• Key objective: safeguarding public interest! A unified structure for passenger safety, ticketingand marketingThe Deal’s High Costs£455 million• London Underground’s costs! £180 million• London Underground’s reimbursed costs! £275 million• Unsuccessful bidders - £25 million• Tube Lines - £134 million• Metronet - £116 millionLondon Underground& Transport for London• Responsible for operations! Safety, ticketing & marketing! Pays monthly Infrastructure Service Charges tothe Infracos (Tube Lines and Metronet)Infracos• Tube Lines! Responsible for renewal and maintenance of Jubilee,Northern and Piccadilly lines• Metronet! Responsible for 4 BCV (tube) lines and 5 SSL (sub-surface) linesAgendaDiscussionCurrent IssuesIntroduction to the PPPThe London Tube CasePros and ConsPros• Government! Private firms are an important financial source! Transfer risks to the private firms! Fully use the management and technical expertiseof the private firms• Private firms! Huge potential profit return! In the London Tube Case, average margins wereestimated to be 5%(Average industry norm: 3-4%)Cons• Labor union concerns for public servants(The representative: Unison)! Concerns about their job loss because ofprivatization• Uncertainties from the public! Can a for-profit organization provide the same safeand efficient level of public transportation service?! Problems in the coordination of different sectors,firms! The government’s public accountability is lostThe crux of the PPP debateDo they work?Outcomes of the LU• Lots of derailments:! Two derailments in 48 hours in October 2003! One derailment at the White City in May 2004! Three carriages derailed on its Westbound Centralline in July 2007• Project overruns:! 278 engineering overruns reported up January 2005Lots of DerailmentsProject OverrunsOutcomes of the LU! Transaction cost: £455 million! Metronet is struggling to offset a projected £750mcost overspend! Collapse may cost £1 billion! Who will finally bear the cost? — taxpayersHigh cost of the PPPThe collapse of MetronetAgendaDiscussionPros and ConsIntroduction to the PPPThe London Tube CaseCurrent IssuesCurrent issues• A main criticism of Metronet: it divided work amongshare holders rather than tender contractscompetitively• TFL loaned Metronet £897 million in an emergencypayment to sustain it• Londoners: have we dumped money into a projectthat will have to be restarted?Current issues• Three options for Metronet contracts: - The government takes it over - Form a new PPP - Transfer the work to Tube Lines• Whether to revamp the agreement or scrap itentirely?AgendaCurrent IssuesThe London Tube CaseIntroduction to the PPPPros and ConsDiscussionQuestions for discussion• In light of the example presented by the London Underground,why would a government choose PPP?• What should happen to the LU PPP now? Should it be revised?Scrapped?• Is the PPP a necessary evil? Is it a government’s only option inthe face of financial deficiencies?• What problems are presented by separating daily operationsfrom track management and maintenance?• In a PPP, what kind of corporations should be selected aspartners to ensure an efficient process?Thank you.
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