Examination of Witnesses (Questions 88
WEDNESDAY 27 FEBRUARY 2002
88. Good afternoon, gentlemen, I am sorry to
have kept you waiting. Would you like to identify yourselves for
(Mr Appleton) Thank you Chairman. May I first present
the apologies of my Chairman, Sir Malcolm Bates, he is abroad
on business. I am the Deputy Chairman of London Transport; I have
been a member of that Board for over six years. To my immediate
left is Martin Callaghan, who is the Director of the PPP project.
To his left, Mr Tony Poulter, who is a partner at PricewaterhouseCooper,
who has been our Financial Advisor since the inception of this
scheme. On my right is Mr Paul Godier, who is the Managing Director
of the London Underground.
89. Thank you very much. Did you want to make
any opening remarks, Mr Appleton?
(Mr Appleton) Thank you, Chairman. All I want to do
is update the Committee since London Underground last appeared
before you in November 2001. On 7th February, the London Transport
Board unanimously decided that it would proceed with the PPP.
That was after an extremely rigorous assessment, and, as you would
expect, two particular concerns that we had and paid great attention
to was safety and value for money. What is happening now is that
we are formally consulting the Mayor and Transport for London,
and we are expecting their submissions quite shortly, and we will
give them full and detailed consideration. In parallel, the Health
& Safety Executive is reaching the close of its very exhaustive
review of PPP, and we are working with them. The final thing to
say is the LT Board's commitment to delivering a PPP for the tube
is unanimous. In our view, it remains the most effective solution
to London Underground's long term investment problems. We are
delighted to have the opportunity to respond to your questions.
90. Mr Appleton, you and your peers told the
Committee in November, "The private sector companies would
be more efficient than the public sector to the provision of a
steady flow of investment". Is that correct?
(Mr Appleton) Yes, it is, Chairman.
91. Would it be fair to say the reason you have
been seen to perform badly over the last decades is because money
from the Treasury has been insufficient and inconsistent?
(Mr Appleton) That is one of the key reasons. We have
not been able to forecast forward, even just a few years, how
much money we will have available to spend to improve the tube.
92. So, when you tell the Committee it was a
lack of commitment to funding public infastructure that led to
a new way forward being sought, you were actually only reflecting,
not your inefficiency, but your inability to raise the cash that
you needed for the services that you provided?
(Mr Appleton) We started this process because we recognised
that we would never fix the tube on the method of it being run
for maybe four decades. We opened the debate with Government,
and our opening was welcomed by Government who said, "Yes,
indeed, we too would like to find a better way forward".
93. You started it, and you brought it to the
attention of Government: I rather thought, from some of the evidence
taken by this Committee from the previous Chairman, that that
was not necessarily the case?
(Mr Appleton) Well, my memory may be at fault, Chairman,
I thought we flagged it up, and it was welcomed particularly by
Chairman: I have no doubt it was welcomed by
the Treasury. That was not quite the question we were asking you.
94. Could I ask what assessment have you made
of the announcement that the Government plans to guarantee the
borrowings that will be made by the contracting companies?
(Mr Appleton) I think my colleague, Mr Callaghan,
is best able to answer that.
(Mr Callaghan) I am not aware there has been such
an announcement. Our understanding is that the Government are
not guaranteeing the money that is being raised by the private
sector. As a technical matter, what the Government has done, or
says it intends to do, is to issue what is described as a "letter
of comfort". The Government cannot, as a technical matter,
guarantee these loans because the money to be made available to
the GLA and Transport for London is obviously a matter for the
Government and ministers at the time. The guarantee would amount
to a commitment which would override the minister's discretion.
So it is not a guarantee at all, it is is a statement about how
the Government thinks that future Secretaries of State would view
the funding requirement of TFL and the circumstances that the
money needed to be repaid.
95. If the newspaper reports are correct, and
if, at some future stage, that was to happen, would it not remove
the whole basis of the PPP, where the risk is meant to transfer
from the public sector to the private sector?
(Mr Callaghan) The different parts of the private
sector take different risks. The principal risk in any structure
of this kind is being taken by the owners of the private sector
entity, in this case, the infastructure companies who are putting
their investment money in. And like any other private sector company
that raises money from banks, it is not the bank's money that
is at risk, it is the investors' money.
96. To London Underground, could I ask, in Section
5 of your final report, you list the Mayor's policies for the
underground and you note that the Mayor and Transport for London
believe that the PPP sets the role priorities and takes too long
to deliver improvements in services. Is meeting the objectives
of the Mayor of London not of fundamental importance as to whether
this is a good way to spend taxpayers' money?
(Mr Appleton) Of course we have taken all account
of what the Mayor and his team have said. We disagree with the
Mayor; we think this is an excellent way forward for London and
the tube. If I may quote, I think the phrase "fatally flawed"
is referred to repeatedly; I think "finally fixed" is
a better description.
97. Finally, if congestion charging is introduced
as of next year, are you confident that there will be room on
the Underground for any more passengers than are currently being
(Mr Appleton) Mr Godier is the Managing Director of
the Underground, he will deal with the problem.
(Mr Godier) Yes, of course. We ourselves have looked
carefully at the likely transfer of road traffic to the underground
in the event of congestion charges being introduced, and the percentage
diversion that we predict is less than 1 per cent. Bearing in
mind, of course, the sort of radial journeys that the tube is
there for, the market share of rail and bus is already extremely
high; therefore, the potential diversion from cars is already
very, very small. So we are not expecting anything significant.
98. Did you look at the reports that were done
after the imposition of charges on something like the Severn Bridge?
(Mr Godier) We did not, but we have looked at the
forecast that had been done by independent consultants.
99. Even more independent consultants. And you
are still sticking by your 1 per cent?
(Mr Godier) Yes.