Supplementary memorandum by the Department
for Transport, Local Government and the Regions (LU 12C)
THE ROLE OF THE PPP ARBITER:
1. The role of the Arbiter is to give guidance
or directions to London Underground or the infrastructure companies
in relation to the PPP Agreements. In doing so, the Arbiter is
required to act in a way calculated to achieve the objectives
in section 231 of the Greater London Authority Act 1999 (GLA Act).
ensuring London Underground has an
opportunity to review and amend its requirements;
promoting efficiency in the provision
and maintenance of infrastructure;
ensuring that any rate of return
specified in the contract would be earned by an infrastructure
company that performs economically and efficiently; and
enabling the parties to plan with
2. The Arbiter is appointed by the Secretary
of State in accordance with sections 225 and 226 of the GLA Act.
The Act allows for the appointment to be permanent or for appointments
to be made on an ad-hoc basis. Given the scope of directions and
guidance that may be required of the Arbiter at any time (see
paragraphs 9-12 below) it is currently envisaged that the appointment
will be made on a permanent basis.
3. The identity and location of the Arbiter
has yet to be determined. Section 228 of the GLA Act allows the
PPP Arbiter and the Rail Regulator to be the same individual,
but there is no requirement for that to be the case; and no decision
has yet been taken.
4. The physical location of the Arbiter's
office itself will be a decision for the Arbiter.
5. The level of resources that will be required
by the Arbiter will be primarily a decision for the Arbiter. Section
227 of the GLA Act allows the Arbiter to appoint such staff as
he may determine, subject to any restrictions contained in the
terms of his appointment.
6. We would expect a small secretariat to
be put in place to administer the office. Specialist technical,
financial and legal would be provided by a combination of permanent
staff and input from specialist advisers as required.
7. The PPP Arbiter's jurisdiction is limited
to only making directions on those specific issues put to him
by parties to a designated PPP Agreement. These are London Underground
and the infrastructure companies. The Service Contract sets out
the matters that may be referred to the Arbiter. These can be
categorised into two types:
Referrals at a Periodic Review
8. This is the principal point for a referral
to the Arbiter. The contract provides for three reviews within
its 30 year length, at years 7.5, 15 and 22.5. At these points
London Underground has the opportunity to re-specify the services
it wants delivered and the infrastructure companies are required
to price them. To the extent that the price cannot be agreed the
matter is referred to the Arbiter to determine the economic and
efficient price for delivering those services.
9. At a Periodic Review the Arbiter could
be asked to determine not only the economic and efficient price
for delivering specified services, but also whether and how London
Underground's requirements are to be financed and whether the
rate of return for any new equity required should be changed.
10. The contract allows both London Underground
and any infrastructure company to refer matters to the Arbiter
for interim guidance as to how he would consider an issue at the
forthcoming review (for example whether a particular long term
contract being entered into would be considered "economic
and efficient" following "good industry practice").
11. In addition, interim determinations
may be required on issues such as:
the appropriate level of Infrastructure
Service Charge payable by London Underground following the occurrence
of material and unavoidable adverse effects; and
whether, if an infrastructure company
were to seek London Underground's approval to pay a dividend over
the level provided for in the contract, adequate resources would
remain within the infrastructure company to allow it to properly
perform its activities under the contract.
12. The information that the Arbiter will
use to enable decisions to be made about economic and efficient
behaviour will be a matter for the Arbiter to determine. Section
233 of the GLA Act states that London Underground, the infrastructure
companies and associates, and relevant third parties "shall,
at the request of the PPP Arbiter, provide him with such information
as the PPP Arbiter considers relevant to the proper discharge
of the functions conferred or imposed on him by or under this
Act and as may be specified or described in the request".
The GLA Act also provides penalties for failure to provide information.
13. In practice the PPP Arbiter will have
substantial information from which to draw his conclusions. In
information provided by London Underground
and the infrastructure companies. For example, under the contract
the infrastructure companies submit to London underground a range
of information including annual asset management plans, and London
Underground will have its own resources to provide information
to the Arbiter on a regular basis;
his powers to request information
(section 233) and to carry out inspections or consult other bodies
(section 232); and
advice from his own specialist advisers.