HC Deb 03 July 2002 vol 388 cc358-9W
Mr. Austin Mitchell

To ask the Secretary of State for Transport (1) for what reason a 95 per cent. public sector guarantee was given to the London Underground PPP; who will finance this guarantee, if invoked; and whether the guarantee constitutes a form of state aid to the PPP; [65487]

(2) what risk transfer to the public sector has occurred over the period of negotiations on the London Underground PPP; and for what proportion of responsibility for debt (a) the public sector and (b) the contractors are liable. [65483]

Mr. Jamieson

Negotiation of the contracts is a matter for London Underground. However, in general, it is common for the terms of a contract to change as a result of negotiation. Office of Government Commerce guidance states that the principle governing risk transfer is not to transfer all possible risks, but rather to allocate risk to whomever from the public or private sector is able to manage it at least cost. London Transport has sought to act in line with this guidance in the course of its negotiations with bidders for the London Underground PPPs.

I understand the contracts provide that, in certain circumstances where a private sector infrastructure company persistently breaches the contract and no alternative contractor can be found, London Underground can take control of the infrastructure company at a price that allows for 95 per cent. of approved third-party bank and bond debt to be repaid. None of the finance provided by the shareholders would be repaid. London Transport considers these contract provisions to be in line with its aim of optimising value for money overall, balancing the cost of raising finance against the need to provide the private sector with a strong incentive to meet contractual obligations to improve performance. London Underground's obligations under the PPP contracts will initially be backed by a guarantee from London Regional Transport. It is the Government's intention to transfer London Underground to Transport for London in line with the provisions of the GLA Act 1999, and London Regional Transport's guarantee will be transferred to Transport for London at the same time.

The Secretary of State also intends to issue a letter of comfort in relation to the London Underground PPPs. This is intended to clarify his role in relation to the Greater London Authority and Transport for London, including his intentions towards providing funding in respect of London Underground. This letter of comfort was reported to Parliament using the Minute procedure on 20 March 2002.

Whether these arrangements constitute state aid is a matter for the European Commission in the context of the Government's notification to the Commission on 12 April.

Mr. Austin Mitchell

To ask the Secretary of State for Transport (1) what estimate he has made of the public subsidy which will be necessary each year to fund the improvements made to the London Underground under the PPP; [65495]

(2) what estimate he has made of the shortfall over the first seven and-a-half years of the London Underground PPP contract; and how this funding gap is to be met. [65481]

Mr. Jamieson

The Government will ensure that London Underground has sustained and secured funding to meet its contractual obligations to the infrastructure companies for delivering the massive increase in investment expected under the tube modernisation plans. I refer the hon. Member to the proposed letter of comfort that was reported to Parliament using the Minute procedure on 20 March 2002.