RMT: July 17 2007
TAKING Metronet’s PPP contracts back in-house and keeping them there is the only option for London Underground if it wants to avoid the risk of catastrophic network failures, the Tube’s biggest union says today.
RMT today urged TfL and ministers to 'take back the track', as a leaked LUL document revealed that the cost of running the Tube, overcoming the investment backlog and putting the network in good repair by 2025 will be £45 billion between 2010 and 2020.
Almost 60 per cent of those costs relate to "long term contract commitments", principally the PPP, while 30 per cent relate to the cost of running the network.
With revenues projected at £22 billion, LUL said it would be looking for £2.3 billion more each year, even without the £2 billion in cost overruns incurred by Metronet.
"The document we have seen paints a stark picture of delays, overcrowding, catastrophic failures, line closures, declining safety and massive knock-on costs if LUL's minimum upgrade programme is not delivered," RMT general sectary Bob Crow said today.
"There is already talk of 're-shaping' the works programme, but whatever you call it, cutting back on Tube improvements is unthinkable, and we simply cannot run the risk of re-letting Metronet's contracts to the private sector.
"The PPP was supposed to be about the privateers taking the risk and saving public money, but Metronet's hugely profitable owners are pulling the plug because they failed to mug the public of £2 billion over and above the £3 billion they have already had.
"Network rail has already shown what can be achieved by bringing track maintenance work back in-house.
"By any measure it would be cheaper and more efficient to hand the PPP contracts back to LUL, but letting them back out to the private sector courts disaster," Bob Crow said.
ends
Notes to editors: an extract from a Draft Stakehoder Briefing from LU Stakeholder Communications' Draft Spending Review 2007 Engagement Plan, dated March 2007, and RMT's study, The PPP four years on, are appended below
Since the start of the PPP Metronet has received more than £3 billion in direct public funding.
Metronet BCV and SSL made a combined pretax profit of £127.3 million in the first three years of the PPP, while over the same period Tube Lines made £158.7 million - a combined total of £286 million in three years.
Draft Stakeholder Briefing, extracted from LUL Stakeholder Communications' Draft Spending Review 2007 Engagement Plan, March 2007
Investment in transport is key to ensuring that London can thrive and prosper in the future and that it can benefit from growth. Without sustained transport investment, the limitations of the current network will increasingly become a constraint on London's economic development and the contribution that it makes to the UK economy.
Londonis currently benefiting from the historic 5 year funding framework TfL agreed with Government in 2004. This has provided London with the financial certainty to support the long term planning required to deliver significant improvements to the Capital's transport system.
The investment programme enabled by the PPP and the five-year funding settlement will ultimately overcome the legacy of under-investment and deliver improved reliability and capacity. Such a transformation requires a programme sustained over a long period of time, but it is already delivering achievements. These include the 17% capacity increase on the Jubilee line from train lengthening; completion of congestion relief and step free works at Wembley Park; opening of the new Western ticket hall at Kings Cross St Pancras; step free access at Earls Court and Brixton; the first station modernisation projects; and increases in service volumes on a number of lines. These recent improvements represent a step change, but there's more to be done.
LU's 'baseline plan'
In addition to the investment backlog, the growth of London also presents challenges that include: the projected 25% increase in demand over the next decade resulting from and contributing to jobs and population growth in London; the needs of those who face physical or other barriers to travel; and the implications of long term environmental trends and the Mayor's target for 2050 of a 60% reduction in London's CO2 emissions (against 1990 levels).
LU has developed a baseline plan (a 'do minimum' plan) that responds to these major challenges for London through the following deliverables:
· Asset renewal to achieve a state of good repair by 2025
· Line upgrades to replace old assets, deliver around 28.5% extra peak capacity into central London, and avoid loss of capacity from asset degradation
· Essential power system improvements and other critical projects to support the upgrades (e.g. air cooling on the sub-surface fleet)
· Congestion relief works at critical stations that constrain our ability to exploit the upgrade benefits
· Cooling works to address the long-term increase in heat on the Tube
· Enhancement of stations, delivering CCTV and audio and visual information to comply with current standards including safety and fire regulations
· Providing a foundation network of 33% step free stations by 2013 including delivery of stations critical to the 2012 Games
Against an estimated cost of around £45 billion over the 10 years from 2010-2020, revenues, predominantly from fares, are expected to generate £22 billion. Almost 60% of the total cost relates to long-term contract commitments, particularly the PPP. Major enhancements including power upgrades and station congestion relief account for around 10%. The remaining 30% relates to the operating costs of trains and stations, staff, police, head office support, and electricity costs. The indicative net funding requirement to deliver the baseline plan over the 10 years to 2020 is therefore around £2.3 billion per annum. This is essentially the cost of overcoming the investment backlog and delivering a network that is fit for purpose. This investment is crucial for London's future growth.
The consequences of doing nothing
Asset renewal to achieve a state of good repair is the most important aspect of the baseline plan.
Performance improvement, particularly new capacity can be delivered on the back of asset renewal. Today, many assets are coming to the end of their useful lives: the Metropolitan line trains are over 45 years old, the control systems for the District and Piccadilly lines date from the 1950s, signalling on the Northern line is almost the same vintage, escalators constructed in the 1920s still carry thousands of people a day, and there is a whole class of assets requiring extraordinary measures to keep in service or whose condition is not even known.
The result in terms of the service is asset failure, delays and customer frustration on a daily basis, and worse, unpredictable catastrophic failures requiring withdrawal of a whole fleet of assets, such as the LHDM escalators in 1999, which closed parts of the Northern line and stations in central London. With time and increased usage the assets will degrade further, impacting performance and ultimately safety, leading to significant temporary closures and permanent loss of capacity.
Without the upgrade programme the average age of the entire LU fleet will be greater than 45 years by 2025, compared to a design life of 40 years. Other assets would be even older and further beyond their design lives. Overall it is estimated that lines not upgraded by 2025 would lose 30% in effective capacity and run 10% slower as a consequence of asset failures and speed restrictions.
In addition to increases in journey time and unpredictable failures, an increased volume of people (even with reduced capacity) would lead to significantly worse levels of crowding. Severe train crowding, worse than the most crowded conditions
experienced today, would be evident across most of the central area. Congestion would also be a significant problem for many stations. Even today Victoria station regularly closes in the morning peak to avoid unsafe overcrowding; by 2025, Victoria and other critical stations (Bank, Tottenham Court Road, Bond Street, Paddington) may have to be restricted to exit only, or closed altogether during the peaks. Meanwhile at the personal level, degrading stations with inadequate lighting, CCTV, or accessibility features may present insurmountable barriers to travel for individual customers.
The cost of this scenario goes far beyond the exceptional maintenance required to run some sort of service, and the billions of wasted costs that would be incurred through cancellation of contracts. The social disbenefit from the degraded train service is estimated at around £1 billion a year by 2025, while the social disbenefits from doing nothing at Victoria station alone are estimated at £75-100 million.
All of this of course impacts on revenues, but in addition there may be a wider economic cost to London. A hypothetical closure Underground scenario developed
by the Centre for Economic and Business Research Ltd (CEBR) concluded that not only would the capital and operating cost savings of closing the Underground be
entirely offset by increased costs for bus, rail and private transport, but that this would result in social and macroeconomic disbenefits worth £4.9 billion a year (1996 prices). Rerunning this research today would deliver an even higher result given the
level of growth in demand and the London economy generally over the last decade. Even one day's loss of service is significant for the London economy - at least £45 million in lost benefit to London according to independent estimates by the Corporation of London and Tenon Business Consultants.
The do nothing scenario would be a disaster for London. The baseline plan is a response that seeks to deliver the necessary level of asset renewal and bring
the network up to a state of good repair. The renewals will use modern equivalent technology, with superior capabilities, and therefore the marginal cost of providing capacity and higher performance is low. The baseline plan is realistic, deliverable and offers a strong business case.
Summary - what would the baseline plan deliver?
· Journey time savings of around 15%
· Elimination of delays from overcrowding at critical stations such as Victoria and Bank
· 28.5% increase in peak capacity into Central London
· Customer and social benefits estimated at £12+ billion
· Economic benefits estimated at £26+ billion to 2025
· Accessibility: 92 (33% of the network) step-free stations by 2013
· Re-furbished and safer trains and stations with investment in CCTV and other improvements such as better information
Extract ends
RMT study - The PPP, four years on
December 2006
On 31 December 2002 Tube Lines assumed responsibility for the engineering functions on the Jubilee, Northern and Piccadilly Lines. Engineering functions on the remaining London Underground lines were passed to the Metronet BCV (Bakerloo, Central, Victoria) and Metronet SSL (all other LU lines) consortia on 4 April 2003. The companies that make up the private consortia are;
* Metronet - Atkins, Balfour Beatty, Bombardier Transportation, EDF Energy, RWE Thames Water
* Tube Lines - Amey and Bechtel
Opposition to the PPP pre-transfer
Before the PPP was introduced politicians, trade union leaders, transport users and transport specialists were convinced that the scheme would not work.
In September 2000 the Industrial Society report The London Underground Public Private Partnership, An Independent Review explained that the PPP was offering a guaranteed 15.3% return on equity for 30 years with benchmarks for performance set 5% below the levels expected of the publicly owned London Underground. The report concluded "that the PPP should not proceed unless it passes the re-specified Public Sector Comparator we have outlined. In other words the PPP should go forward only if it meets much more vigorous safety and value-for-money criteria, and if it is substantially amended to protect against the risk that the contracts are incomplete and overgenerous. If it fails to meet these criteria, then the bidding companies should instead bid for turnkey projects funded and financed by LUL within the public sector. In the interim, this should be undertaken through orthodox Treasury financing, while the preparation begins for London to undertake its own bond issues."
In February 2002 the House of Commons Transport, Local Government and the Regions Select Committee report, London Underground concluded "that it is inevitable that the PPP will lead to significant and expensive disputes over the contracts and between staff and employers". The report went on to explain that "The initial forecasts that the PPP would provide a saving of £4.5 billion over public sector management were inadequate and flawed".
In a series of hard hitting memoranda to the Committee, Transport for London maintained that Government should not sign the PPP because the scheme was not value for money, it was unsafe and unmanageable and the proposed contract terms did not properly protect the public interest.
The Capital Transport Campaign pointed out that "Underground passengers and taxpayers have been kept in the dark about the precise nature of the PPP contracts; they will foot the bill one way or another if there are subsequent problems such as costs being higher than originally anticipated. The prevailing secrecy means that they are effectively being asked to sign a blank cheque while blindfolded".
Also in February 2002 a press release issued by the Mayor of London explained "The PPP will saddle the travelling public and council tax payers of London with huge and unquantified liabilities while replicating the key mistakes of rail privatisation on the Underground"
In March 2002 the House of Commons Transport, Local Government and the Regions Select Committee report, London Underground - The Public Private Partnership: Follow Up, concluded "£100 million has been invested in developing and assessing the PPP contracts. After an exhausting four year process there are considerable vested interests in seeing the deal completed. However, the evidence we have taken to date shows that the basis on which the decision has been taken is flawed. The shifting sands of the rationale for, and the assessment of, the PPP have lead to a process that has lost all credibility in the eyes of the public and professionals in the field. Parliament must now have the opportunity to have an unfettered debate on the decision to proceed with the PPP. It is essential that the Government allows Members a debate and vote in the House of Commons on a substantive motion on the future of the London Underground and the PPP".
Finally between 2000 and 2003 the London Underground trades unions - RMT, TSSA & ASLEF - organised a concerted campaign against the PPP that involved public meetings/rallies, leafleting passengers, lobbying MPs and borough councillors and industrial action.
Government chose to ignore the warnings and imposed the PPP against the wishes of the vast majority of Londoners. The results have been in line with the fears and concerns raised pre-transfer by the opponents of the scheme.
By July 2006 Metronet and Tube Lines had been paid £3.3billion in performance adjusted Infrastructure Service Charge. Given this huge taxpayers' subsidy it is little surprise that the Infracos have generated huge profits for their shareholders. Between 2003/04 and 2005/06 Metronet BCV, Metronet SSL and Tube Lines made pre-tax profits of £286million (see Appendix A for complete figures). Regrettably performance has not matched profit margins. A catalogue of no less than eight reports have cast serious doubt on the PPP's ability to deliver the upgrade of the London Underground in an economic and efficient manner.
Transport for London reports
2003/04
In June 2004 TfL published London Underground and the PPP - the first year. The report identified that during 2003/04 "the Underground's assets continued to provide dramatic demonstrations of their inadequacy". Despite acknowledging some achievements the report went on to explain "...the first year also gives significant cause for concern. The area of greatest concern is in planning and programme/project management, which drives the effectiveness of the maintenance programmes as well as major capital programmes. High-level asset management strategies have been haltingly produced and suffer from inadequate engineering input, while detailed work plans have sometimes been either non-existent, incomplete or inconsistent rather than competent or professional. The planning capability demonstrated this past year will not be adequate to manage the volume of work once the renewals programme accelerates".
2004/05
The 2005 TfL report explained that in 2003/04 it was too early to judge the performance of the PPP. However at the end of 2004/05 it was possible to begin to make judgements. TfL does acknowledge some progress but explains that this "could hardly be otherwise" given the sums involved. The verdict is put bluntly "In short, performance is not good enough and is less than was promised". The report goes on to say "The Infracos and their shareholders are earning significant sums through the PPP, but the volume of real work out on the railway is not consistent with the payments being made." The report also explained that engineering overruns had increased by some 35% on the first year and were averaging more than one a week. The overruns were often caused by poor project planning and execution.
2005/06
The 2005/06 report explained that London Underground had issued a Corrective Action Notice (CAN) to Tube Lines due to "persistent poor performance" on the Northern Line which "was manifest in repeated track, signal and rolling stock failures". In relation to Metronet the late delivery of only 14 of the 35 station upgrades and the incorrect preparation of District Line tracks for summer temperatures and disruptive incidents on the Victoria and Central Lines "undermine the progress Metronet is making and our confidence in the capability of Metronet's management." The report goes on to say that the upgrade of the Waterloo and City Line "is an acid-test of Metronet's capability to manage major projects". In the event the Waterloo and City Line re-opened over a week late on 11 September 2006 exposing Metronet to fines for the late completion of works. The Line has since been closed twice due to dust and dirt caused by on-going engineering works causing visibility problems for train operators.
National Audit Office report
In June 2004 the NAO published two reports into the PPP. The London Underground PPP: Were they good deals? detailed the PPP's huge start up costs including £109 million spent by London Underground (LU) on external advisors and £275million paid by LU to reimburse private sector bidder costs.
The report went on to say that final PPP costs remain uncertain. Not known for their radical language the NAO state "there is only limited assurance that the price that would be paid to the private sector is reasonable".
GLA Transport Committee report
June 2005 saw the publication of the GLA Transport Committee's report The PPP: Two Years In. Whilst recognising strong performance on the Piccadilly and Central Lines the Chair's foreword found "…poor performance on the Northern Line has led to Tube Lines' proposals to close sections so that work can be carried out to repair track and signalling. On some lines the programme for track and station renewal is running behind schedule".
Transport Select Committee report
In March 2005 the House of Commons Transport Select Committee published their Performance of the London Underground report. RMT provided written and verbal evidence to the Committee as did our sister rail union the TSSA. Oral witnesses also included representatives of Metronet, Tube Lines and London Underground Ltd.
The report found that "disregarding the costs of the Jubilee Line extension, central government expenditure in constant terms has increased form £44.1m in 1997-98 to £1,048m in the current financial year (2004-05); a increase of 2.276% - over twentyfold". Even taking into account the increase in maintenance funds following the completion of Jubilee Line extension funding from central government more than tripled since 2000-01. RMT believes that in this financial context it is a matter of huge concern that "improvements" have been so poorly delivered.
In relation to performance the report found "Availability is the most important factor for Tube travellers. All the Infracos needed to do to meet their availability benchmarks was to perform only a little worse than in the past. On most lines, they did not even manage that. We hope that they will be able to meet the ore demanding targets for availability expected in the future; we have no confidence that will be the case" (emphasis added).
The report also raised some concerns in relation to the consortia membership noting that Jarvis had sold its shares in Tube Lines during the course of the Committee's inquiry.
PPP Arbiter report
On 16 November 2006 the Office of the PPP arbiter published the first review of Metronet performance. The Arbiter found that between April 2003 to March 2006 Metronet BCV and Metronet SSL had not performed its activities in an overall efficient and economic manner and in accordance with Good Industry Practice. The arbiter found that Metronet's station programme across BCV and SSL was behind schedule with only 14 of the 35 station upgrades completed. Only 12.7km of the expected 30km track renewals on the Sub-Surface Lines had been carried out.
Despite being behind with key infrastructure upgrades, unit costs have proved to be more expensive than expected in the bids submitted by the Metronet Infracos. The Arbiter report explains "In summary, Metronet has delivered significantly less than was expected in its bid, at higher unit costs and has earned less performance revenue than expected" (emphasis added).
The result is that the consortium is on line to overspend by some £750million by 2010. It is not yet clear if Metronet shareholders will have to pay for this shortfall or whether the burden will fall on the tax-payer through additional payments or the scaling back of the renewals programme.
Derailments
As noted in the Transport for London annual reports on the PPP there have been a number of high profile derailments on the London Underground post-transfer.
* Chancery Lane - 25 January 2003
* Hammersmith - 17 October 2003
* CamdenTown- 19 October 2003
* WhiteCity- 11 May 2004
Thankfully none of these incidents resulted in passenger or employee fatalities. However the official reports into the incidents raised some serious questions as to the Infracos ability to learn and apply the lessons resulting from the derailments.
The report into the Chancery Lane derailment revealed that information contained in a vital safety alert issued by Infraco BCV following the September 2002 Loughton derailment, had been inadequately disseminated to both London Underground and infrastructure operational staff. The Loughton derailment occurred in the three years of shadow running; a period during which the Infracos were charged with learning and applying the lessons of operating the network before full asset transfer in 2003.
However the investigation into the White City derailment found that these lessons were in fact not being learnt. Metronet managers had not been fully conversant with the terms of the Chief Engineers Regulatory Notice (CERN) issued following the Camden Town derailment. In consequence measures required to avoid serious incident hade not been adequately relayed to track operatives.
Conclusion
Since 1 April 2006 (the period after the Arbiters assessment) there have been a number of high profile problems on the London Underground notably the late re-opening of the Waterloo & City Line and the massive disruption to whole sections of the network in November caused by infrastructure failure and late running engineering works.
It is now four years since the beginning of the PPP. The RMT believes that the PPP structure remains so fundamentally flawed that it is incapable of delivering the required improvements to London Underground's performance in order to provide an economic and efficient service to the travelling public and put in place the world class transport system required for the 2012 Olympics and Paralympics. We contend that the PPP's separation of wheel and steel and the fragmentation of the Tube maintenance has in many instances resulted in deterioration in service and value for money for the tax and fare payer.
We believe that performance can only be sufficiently improved through a wholesale re-negotiation of the PPP which leads to London Underground assuming direct control of the tube's infrastructure.
Appendix A Pre-tax profits
Tube Lines
Period Pre-tax profits in £m
2003/04 £41.5m
2004/05 £54m
2005/06 £63.2m
Total £158.7m
Metronet BCV
Period Pre-tax profits in £m
2003/04 £24.1m
2004/05 £20.3m
2005/06 £16.1m
Total £60.5m
Metronet SSL
Period Pre-tax profits in £m
2003/04 £26.4m
2004/05 £27m
2005/06 £13.4m
Total 66.8m
Combined pre-tax profits since 2003/04 - £286m
