A British government inquiry into a P3 to upgrade London’s subway system concludes the scheme was a “spectacular failure”.
In a report released late last month, the House of Commons Transport Committee said the private consortium’s “pathetic underdelivery” should be a warning against future P3 contracts.
The tube firm Metronet went into administration last July, just four years into a £17 billion (CDN $33 billion) contract to modernize two thirds of the London Underground.
It ran out of money after overspending by ₤2 billion (nearly CDN$4 billion) through a P3 where it awarded its own shareholders overpriced contracts. Metronet also failed to carry out work on time or on budget.
The committee’s report into Metronet’s collapse warns “circumstances surrounding Metronet’s failure showed the private sector would not take on substantial risk without ensuring it was proportionately, if not generously rewarded. Ultimately the taxpayer pays the price.”
Committee chair Gwyneth Dunwoody said future upgrading and maintenance work on the subway system was at risk and the public would end up footing the bill – both as taxpayers and passengers - for the private sector’s “inefficiency and failure”.
The report found Metronet had only delivered 40 per cent of the upgrades it was contracted to do in the first three years. Committee members also pointed out the public was liable for 95 per cent of the company’s debt.
Earlier this month, British taxpayers, through the government’s department of transport paid off Metronet’s ₤2 billion debt. Local tube authority Transport for London (TfL) was liable for Metronet’s borrowing, and was facing maintenance cutbacks in order to foot the bill.
In announcing the payment, Transport Secretary Ruth Kelly told Parliament Metronet’s final cost to taxpayers is still not known.
The collapse is an embarrassment for Prime Minister Gordon Brown, who pushed through the P3 as Britain’s finance minister in 2001. London Mayor Ken Livingston had pushed to fund the work through municipal bonds and do the upgrades in-house, but lost a court challenge to cancel the privatization.
Brown’s government tried to camouflage the bailout as part of “long-term funding” for London’s tube authority. “They wanted to bury the bad news about a huge sum of public money going down the drain,” public policy expert Tony Travers told the media.
In a strongly-worded editorial, the Guardian newspaper concluded the fiasco “exposes the worst aspects of new Labour’s starry-eyed trust in the private sector.”
It’s not the first time the deal has come under scrutiny. In 2004, Britain’s National Audit Office questioned whether the massive privatization deal was good value for money.
The unfolding boondoggle is a warning against similar plans for Canadian transportation systems. Toronto’s subway system is reportedly under pressure to consider a P3.