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London underground upgrades to cost £4.5bn

UK PPP arbiter Chris Bolt has set the final cost for the upgrade of London’s underground rail at £4.46bn over the next seven-and-a-half years - £460m more than the London authorities are willing to pay. Mayor Boris Johnson threatens legal action against the arbiter.

Chris Bolt, the UK’s PPP arbiter, has written a defining chapter in the saga revolving around the public-private partnership (PPP) contract to upgrade London’s underground rail system by announcing today the final upgrade costs to the underground.

In his final determination, Bolt has instructed that concessionaire Tube Lines – owned by Ferrovial and San Francisco’s Bechtel – should be paid £4.46 billion (€4.89 billion; $6.66 billion) in public funds to upgrade the London underground over the next seven-and-a-half years. That figure is £65 million more expensive than the one published in the arbiter’s draft costs in December last year.

Bolt’s final decision is about £1.3 billion less than contractor Tube Lines had requested in its latest £5.75 billion bid but is £460 million above what London Underground (LU) – the public operator of the underground network – was willing to pay Tube Lines. The arbiter also suggested that LU should borrow to fund the gap, since it has access to cheaper funding than Tube Lines.

LU and London’s Mayor, Boris Johnson, are not pleased with the decision: “We are being asked to write a blank cheque in order to prop up an ailing and failing Tube Lines, and to guarantee massive and secretive payments of £400 million to its shareholders, Ferrovial and Bechtel. In other countries this would be called looting, here it is called the PPP,” Johnson commented.

The Mayor also said LU is examining all possible options at this stage including taking legal action against the PPP arbiter, whom he believes “has gone beyond his powers”. If LU decides not to borrow the extra £460 million, it will be forced to cancel some works to the network.

Tube Lines was pleased with the arbiter’s determination that public funding was the cheapest way to raise additional funds but said a “sea-change [is] required in how LU and Tube Lines work together to ensure future success”.

Tube Lines signed a 30-year contract with the government to upgrade the world’s largest underground system. But its performance has been criticised as delays keep mounting, a point Bolt has reiterated in his decision, stating that Tube Lines should have been able to deliver its upgrades on time and on budget. He had previously instructed Tube Lines to pay for cost increases from its own budget, denying its right to claim those increases from LU.