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London tube contractor told to cut costs by over £1bn

The regulator has sided with London authorities and told Ferrovial-owned Tube Lines to cut its seven-year capital expenditure programme by 30%.

UK PPP arbiter Chris Bolt has told Tube Lines, the contractor that operates the London Underground, that its capital expenditure programme for the next seven years is £1.35 billion (€1.5 billion; $2.19 billion) too expensive.
Tube Lines, which is owned by Spanish infrastructure group Ferrovial and San-Francisco’s Bechtel Corporation, was demanding £5.75 billion from the public transport agency that owns London Underground. This money was to be spent over seven years to renovate the Northern, Jubilee and Piccadilly lines. But Bolt told Tube Lines that it would only be paid £4.4 billion. London Underground had wanted to part with the even smaller sum of £4.0 billion.
Bolt admitted there was a funding shortage for the project of between £460 million and £1.35 billion, but said London Underground or Tube Lines must raise the extra cash or reduce the scale of works. London mayor Boris Johnson welcomed the decision not to overload fare payers and tax payers.
But outgoing chief executive Dean Finch, who he is leaving Tube Lines to join coach operator National Express as its chief executive, said the decision did not reflect the reality of the work required and said the contractor would appeal the decision.
The 30-year public-private partnership contract to improve the world’s oldest underground rail was shepherded by Prime Minister Gordon Brown in 2003, when he was Chancellor of the Exchequer. But the contract has had its share of problems, with one of the original PPP contractors, Metronet, going bankrupt in 2007, forcing the City of London to take it over.