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Down the Tube:London Undergroundand the Public-Private Partnership
Down the Tube:London Undergroundand the Public-Private Partnership
Rachael FinnArthur Huang
Katie RothAdam Thiele
October 3, 2007
CE 5212/PA 5232
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AgendaAgenda
Discussion
Current Issues
Introduction to the PPP
The London Tube Case
Pros and Cons
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Tube HistoryTube History
• First line opened 1863
• 1863–1933: Privately run lines
• 1933–1948: London Passenger
Transport Board
• 1948: Nationalization
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Decline under nationalizationDecline under nationalization• Lack of investment• Competition for funding• Shifting attitudes
toward rail• Restructuring…
London Transport Board1963–1970
• Restructuring…Greater London Council1970–1984
• Restructuring…!London Regional Transport1984–2000
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King’s Cross FireKing’s Cross Fire
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Public-private partnershipsPublic-private partnerships
• Partnership between public and private bodies to deliver public services
• Derived from Public Finance Initiative (PFI)
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AgendaAgenda
Discussion
Current Issues
Introduction to the PPP
Pros and Cons
The London Tube Case
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Government hopes & expectationsGovernment hopes & expectations• Key objective: value for money
A̵Stable funding
A̵Little or no grants
A̵Better value than publicly run investment program
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Government hopes & expectationsGovernment hopes & expectations• Key objective: private sector investment and
expertise
A̵Transfer risk to private investors
A̵Private sector expertise
A̵Price competition within the PPP
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Government hopes & expectationsGovernment hopes & expectations• Key objective: safeguarding public interest
A̵A unified structure for passenger safety, ticketing and marketing
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The Deal’s High Costs£455 million The Deal’s High Costs£455 million
• London Underground’s costsA̵£180 million
• London Underground’s reimbursed costsA̵£275 million
• Unsuccessful bidders - £25 million • Tube Lines - £134 million • Metronet - £116 million
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London Underground
& Transport for London
London Underground
& Transport for London
• Responsible for operationsA̵Safety, ticketing & marketing
A̵Pays monthly Infrastructure Service Charges to the Infracos (Tube Lines and Metronet)
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InfracosInfracos
• Tube LinesA̵Responsible for renewal and maintenance of Jubilee, Northern and Piccadilly lines
• MetronetA̵Responsible for 4 BCV (tube) lines and 5 SSL (sub-surface) lines
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AgendaAgenda
Discussion
Current Issues
Introduction to the PPP
The London Tube Case
Pros and Cons
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ProsPros• Government
A̵Private firms are an important financial sourceA̵Transfer risks to the private firmsA̵Fully use the management and technical expertise of the private firms
• Private firmsA̵Huge potential profit returnA̵In the London Tube Case, average margins were estimated to be 5%(Average industry norm: 3-4%)
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ConsCons• Labor union concerns for public servants
(The representative: Unison)A̵Concerns about their job loss because of privatization
• Uncertainties from the publicA̵Can a for-profit organization provide the same safe and efficient level of public transportation service?A̵Problems in the coordination of different sectors, firmsA̵The government’s public accountability is lost
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The crux of the PPP debateThe crux of the PPP debate
Do they work?
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Outcomes of the LUOutcomes of the LU
• Lots of derailments:
A̵Two derailments in 48 hours in October 2003 A̵One derailment at the White City in May 2004A̵Three carriages derailed on its Westbound Central line in July 2007
• Project overruns:
A̵278 engineering overruns reported up January 2005
Lots of Derailments
Project Overruns
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Outcomes of the LUOutcomes of the LU
A̵Transaction cost: £455 million
A̵Metronet is struggling to offset a projected £750m cost overspend A̵Collapse may cost £1 billion A̵Who will finally bear the cost? — taxpayers
High cost of the PPP
The collapse of Metronet
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AgendaAgenda
Discussion
Pros and Cons
Introduction to the PPP
The London Tube Case
Current Issues
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Current issuesCurrent issues
• A main criticism of Metronet: it divided work among share holders rather than tender contracts competitively
• TFL loaned Metronet £897 million in an emergency payment to sustain it
• Londoners: have we dumped money into a project that will have to be restarted?
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Current issuesCurrent 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 it entirely?
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AgendaAgenda
Current Issues
The London Tube Case
Introduction to the PPP
Pros and Cons
Discussion
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Questions for discussionQuestions 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 in the face of financial deficiencies?
• What problems are presented by separating daily operations from track management and maintenance?
• In a PPP, what kind of corporations should be selected as partners to ensure an efficient process?
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Thank you.