London agency continues to exit PPP deals

Transport for London has bought two companies responsible for the maintenance of stretches of its overground system so it can restructure their debt and achieve some £250m in savings. Semperian and RBS were the sellers.

Transport for London (TfL), the capital’s transport agency, has acquired two companies that held the Private Finance Initiative (PFI) contracts for the maintenance of two branches of the Docklands Light Rail overground network.

Semperian PPP Investment Partners and Royal Bank of Scotland (RBS) were the sellers of the companies responsible for maintaining the London City Airport and Woolwich Aresenal branches of the DLR, although the sale price was not disclosed.

TfL bought the two PFI contracts with the aim of saving up to £250 million (€291 million; $392 million) by restructuring their debt. The transport agency is relying on its public status to secure cheaper financing. Howard Smith, TfL’s chief executive, explained the logic behind the buyouts:

“We have reassessed the effectiveness of the financing arrangements that sit in the companies behind the projects [and] we have found that we will be able to make ongoing savings by replacing private sector financing costs of these companies with public sector borrowing.”

This is not the first time TfL has deemed project finance arrangements too expensive. In May 2010, the transport agency bought Tube Lines – a consortium formed by Ferrovial-owned Amey and San Francisco’s Bechtel – putting an end to a contentious public-private partnership (PPP) arrangement to upgrade the London underground. TfL paid £310 million to acquire Tube Lines.

At the time, London Mayor Boris Johnson, an outspoken critic of the PPP, said the deal was “excellent news for London”, adding that works should proceed in a more timely fashion now that the transport authority is “freed from the perverse pressures of the Byzantine PPP structure”.

TfL’s Smith was more measured this time around, thanking “the shareholders, Semperian PPP Investment Partners and RBS, who have worked with us to maximise the benefits and the savings we hope to secure”.