Taxpayers will get a better deal if the entire £30bn programme to overhaul the tube network is carried out in-house instead of being awarded to a public-private partnership, the head of London Underground (LU) has claimed.
Tim O'Toole, who leaves his post at the end of the month, also warned that the troubled PPP project could be abandoned entirely if its last remaining contractor, Tube Lines, fails to plug a £2bn funding gap. His comments drew an angry response from Tube Lines, which accused LU of repeating "old arguments".
O'Toole's claim comes at a crucial period in negotiations between the publicly owned LU and Tube Lines, which are attempting to thrash out terms for a seven-year work programme that includes expensive projects such as an upgrade of the Piccadilly Line. The departing tube boss challenged the rationale behind the PPP by making a case for transferring the work to the public sector.
Referring to the profit-making imperative behind private sector involvement in PPP projects, he told the Guardian: "I think we can deliver it at a lower cost because I don't have to pay a premium in the form of equity returns and other excesses."
O'Toole added that Tube Lines believed it could deliver the work more cheaply, and quicker, than his organisation but he warned that the government could decide to scrap the PPP project altogether if a row over the cost of the work programme up to 2017 is not resolved.
"It brings into question whether or not the remaining part of the PPP is viable," O'Toole said.
The PPP programme is one of the most controversial legacies of Gordon Brown's 10-year reign as chancellor. Introduced despite the stern opposition of Ken Livingstone, the former London mayor, it handed out 30-year contracts to the private sector to maintain and upgrade the tube. However, the contractor awarded two-thirds of the programme, Metronet, collapsed two years ago and was effectively nationalised by LU with Brown's tacit blessing.
Tube Lines, the only vestige of the PPP left, is embroiled in a row with LU over its 2010 to 2017 programme, which it claims will cost £7.2bn but is priced at between £5.1bn and £5.5bn, according to an independent estimate, leaving a funding gap of up to £2.1bn. The gap is wider still if based on figures from LU, which pays Tube Lines for the work. It claims that the programme will cost £4.1bn.
Terry Morgan, the Tube Lines chief executive, said there was "no evidence" that LU had saved taxpayers money by taking over Metronet. "The PPP brought huge transparency to how much it cost to do a project. I have seen no evidence to date that Metronet is more efficient now." Morgan added that Tube Lines "inherited a track record of non-performance" when it took over LU's maintenance work in 2003.
He said: "I am disappointed that these old arguments keep being used. My concern is that by having these arguments, people with other investment programmes get a higher priority from the government."
Tube Lines is co-owned by Bechtel, the project management specialist, and the support services group Amey, whose parent is Ferrovial, the majority shareholder in the airport group BAA.
Transport for London (TfL), LU's parent, has warned ministers that a recent £40bn funding settlement is not enough to pay for the construction of the £16bn trans-London Crossrail project and the tube upgrade. However, the Department for Transport is adamant that no more money is available.
TfL's funding problems, highlighted by the Tube Lines dispute, have been exacerbated by the recession, which led to a year-on-year decline in tube passengers in January. TfL has slashed tube revenue forecasts for the 2009-10 financial year to £1.7bn, which means that turnover must rise by 9% in order to meet the 2010-11 target of £1.84bn.
The revenue gap has stoked speculation that the mayor, Boris Johnson, might have to implement huge fare rises. However, O'Toole said the politically unpalatable price hikes could be avoided by "moving around" TfL's multibillion-pound capital expenditure programme.
"You just cannot assume that there will have to be extraordinary fare increases."
