Examination of Witness (Questions 200
WEDNESDAY 27 FEBRUARY 2002
200. In the New York underground, during a similar
timescale, say seven years, what did you actually achieve, and
how does that differ from what is projected by the PPP?
(Mr Kiley) Arguably, the New York City subway system
was in even worse shape than the Underground is now.
201. Is that possible?
(Mr Kiley) Believe me, it is possible. There, you
had a situation where electrical fires on the trains, while in
service, and main line during rush hours had become not quite
commonplace, but occurrences that happened fairly frequently.
We are not to that point here. God forbid that we get to this
point. There were management problems that I consider, in retrospect,
to have been more serious than management issues that are being
faced here. But we took a year and a half in the case of New York
to assess the physical condition of the entire plant. We suspended
the capital programme that had just gotten under way before I
arrived on the scene. My predecessor had done a wonderful job
of procuring finance for it and the programme was just beginning,
but we suspended it while we got a much better handle on the nature
of the problems that we were going to face. Even so, we managed
to replace the entire train fleet within seven and a half years;
we had to replace almost all the track in the system during that
first seven and a half years because it was in woeful shape; there
were 500 speed restrictions. That reminds one of what happened
after Hatfield and the National Rail system. Around the subway
system: no more than five miles per hour; that is not much of
a service. Most people could walk faster than that, and that is
what they were doing. Ridership was way down. That had to be dealt
with immediately, so there were not major line upgrades across
the system during that first period of time, but a total renewal
of the track. So you had new track and new trains by the end of
the seven years that I served, and you had major line upgrades
proceeding, and station work going on.
202. Now you work for a democratic elected body,
you have a transport strategy and you have to deliver it. Clearly
the proposals of the PPP do not sit alongside that very easily.
Is that a big problem for you?
(Mr Kiley) I think you have been hearing me for a
long time on this, and the answer to that question is yes, that
is a big problem and will continue to be a big problem.
203. Do you think that should have been taken
on board during the assessment of PPP versus the public sector
(Mr Kiley) It has always struck me as being odd that
neither GLA nor TFL has ever been a serious part of the actual
procurement process itself. Yes, there have been stabs at negotiations
with this. Yes, I served a lengthy term as Chair of LT, seven
weeks, but in effect, we have never really been a vital part of
this procurement process. And here we are now, we are getting
down to the point where they are talking about finance and the
spending review for the next three years. We have a spending review
going on with DTLR, TFL, and now, apparently, the London Underground
has a separate spending review going on with DTLR, even though
it covers the period when we will be in charge. You would think
we were at least at the point where they could make a small concession
and say, "Why don't you get right into this discussion with
us from square one". Instead, I suspect what we are going
to be faced with is something of a fait accompli, and basically
a repeat of this consultation process that we go through of being
able to react after the horse has bolted.
204. Finally, could I just play devil's advocate:
at the start you said any cost overruns above £7 million,
somebody, we know not who, will have to pick up on a per annum
basis the extra additional cost. Obviously, one of the strong
arguments against the public sector equivalent is that costs will
run away from it. What assurances could you give or think of that
would actually knock down that argument, dispose of that argument,
counter that argument in any way?
(Mr Kiley) One of the reasons why you will get into
an overrun situation is if there is no long term financial commitment
that can be relied on by the people who are actually renewing
the system. In our case, it would actually be private contractors
as well. If you have to manipulate contracts to take into account
the absence of long range funding, we will be right back where
we started from here in London, and I fear we are not out of those
woods yet, and that it remains to be seen under PPP or under our
scheme or any other scheme, whether that real long term commitment,
a robust long term commitment will be there when we get to that
point, and it is not clear, and I worry a lot that we are very
late in this game. As you heard from the conversation today, no
commitment has been given, and it is not even clear that a commitment
has been asked.
205. I have listened to you very carefully.
You did not preclude the possibility of your alternative having
a significant cost overrun?
(Mr Kiley) No, we would manage these "hard to
budget". One thing we would have which PPP does not is a
capital plan that would be very detailed. We will do this needs
assessment, we will have projects scoped. Each major project will
have a budget, it will have a dedicated staff, and it will have
a timeframe in which it is going to be completed. None of that
is part of PPP. Now the Infracos can choose to do those things
if they wish, but there is no requirement. We cannot force them
to do it with these contracts. We will do it. We will do a contract
with the Government. We will do it directly with the Treasury
if it pleases them to deliver on these things. We have no problem
doing that, I have already suggested that to them. There will
be contract for service from us and they can hold us accountable
and adjust their funding if they do not like what is going on.
206. Do you think that there is a serious threat
to London Transport as a whole if the finances do not appear as
anticipated, either through revenues or Treasury funding?
(Mr Kiley) You mean what would the Underground do
if there was a serious shortfall or an overrun?
207. I did put this question to them
(Mr Kiley) You did, and I heard the exchange. What
are the alternatives? One is the fare box. The Mayor has been
committed to fare increases not to exceed the rate of inflation.
The Mayor has the power under the GLA Act to set fares. London
taxpayers, through the precept, we have already had an interesting
discussion within GLA about that, the use of the precept, and
there does not seem to be a lot of champions of that alternative
at the moment, although maybe the Underground will be a different
situation for Londoners. You have congestion charging, when we
get to that point a year from now, which will yield revenues of
at least £130 million, upwards of £180 million per annum,
and then the cupboard is bare. We also have the Government's grant
to TFL, and who is to say that the Government will not say at
some future point, "Well, bite into your grant and use that
for the Underground", which means something will have to
go: the subsidy of buses, roadworks, who knows? This should not
be left to chance after four years. We should not be here guessing
and pleading that someone please give us information. This is
bizarre. To me, a true value for money exercise would include
those who were going to pay the piper in the end. Let us get the
total money picture in our sights before final decisions are made.
208. So you think these issues should have been
taken into account in the value for money exercise?
(Mr Kiley) Back in the Spring of last year when our
team was negotiating with DTLR and a Treasury representative,
we were very insistent before those discussions broke down of
the Treasury being part of this, and our being able to see the
colour of their resources before we got too far into the details
of the contracts. At one point, it looked as if they were going
to be obliging, but then the discussions fell apart, and that
was the last that was seen of the Treasury representative.
209. You have referred to the lack of information
you have had and the difficulties you have had in getting essential
facts. Do you think that underlying all this is a battle of wills
between the Mayor and the Government?
(Mr Kiley) When I first arrived here, many people
felt there was such bad feeling between the Government and Ken
Livingstone that there would be no hope in this endeavour to alter
PPP or change it, but now I have had over a year of experience,
and I see relationships that have been built up with various Government
ministers in other areas that are working, and I have been in
countless numbers of meetings now, especially in the last six
to eight months, with ministers at the DTLR and officials that
have been productive. We have a Crossrail corporation formed,
moving, very ambitious schedule, where this may actually start
to come to reality within the next year; same thing with the East
London lines. There is a cooperative spirit, so I do not really
believe that lying at the heart of this and motivating people
is animus towards Ken Livingstone. He may not be uniformly admired
in all Government circles, but I do not think this is a key factor
in all this.
210. What is the explanation then, for the lack
of fact, lack of information given to you?
(Mr Kiley) I think it is this reluctance. I think
there was a feeling that the Underground does not manage large
scale projects effectively, and the Jubilee Line Extension is
frequently used as Exhibit A. I think there is probably some merit
in that, and there will have to be some changes made in London
Underground, believe me, but I am curious as to why, if you actually
believe that, you would turn over the entire procurement to the
same London Underground that you revile for not being able to
manage large projects. What is PPP if not a large project? A large,
loony project, I would add. So maybe some of the changes they
would have liked to have seen in London Underground management
should have been made four or five years ago.
Chairman: Very briefly, Miss McIntosh, because
we are going to let Mr Kiley, who has been very tolerant, go in
211. Thank you. I take it that reports of your
resignation were premature?
(Mr Kiley) Yes.
212. You mention the revenue that would be raised
by congestion charging. Are you comfortable with the fact that
congestion charging is going to be introduced before the timetable
for improvements which are envisaged under the PPP?
(Mr Kiley) I do not think there is much promise in
the PPP in the first seven and a half years, so that is not the
promised land. And yes, it would be better if the two were in
much better shape right now. There will never be a perfect time
to try something like congestion charging. We are making dramatic
improvements in the bus service. We are very focused on the twenty
bus corridors that serve those whom we would like to change modes
from the automobile going into central London. There was a 6 per
cent increase, largest increase since World War II this past year.
We are looking at another 6 per cent increase in the coming year.
We believe that congestion charging will not fail because of the
absence of public transport support. I do not think it will fail
in any event, but it will not be because of the absence of public
213. Just to wrap up, when last you gave evidence
to the Committee, you explained the cumbersome procedure, should
one of the companies go bust under the contract. I just wanted
to know if you stood by that, and when you referred earlier in
your remarks today to this "comfort guarantee" from
the Government, if the Government is prepared to give a comfort
guarantee to the PPP, as is rumoured in the papers, why should
the Government not be able to give a comfort guarantee on future
public funding of a public sector solution?
(Mr Kiley) One argument they would use is that the
beauty of the PPP is the risk transfer, and the ability to keep
this comfort provision off the Government balance sheet. I do
not believe there is any serious risk transfer involved in PPP
so that argument goes by the boards. Therefore, to be very honest
with you, I do believe that this public sector borrowing requirement
has been a little overworked and is now becoming a kind of reverse
silver bullet where no long term investment and infastructure
other than through PFI's is ever going to happen. There are plenty
of PFI's out there where there has been no effective risk transfer
and they do not appear on the Government's books. So what appears
on the Government's books is the Government's decision. It is
a "subjective" judgment, to use the word that has been
much bandied about a lot today.
Chairman: We have had quite a lot of subjective
judgments today, Mr Kiley. Ms Jackson, very briefly and then Mr
Bennett, very briefly.
214. Your frustration shows through and your
conclusion is tough and you say you will demand real negotiations,
yet you are in the fourteenth day of consultation without having
received documents. What are your options now, as Transport for
London, do you feel? How are you going to put the pressure on?
(Mr Kiley) I would say that we will have failed, we
at TFL and the GLA will have failed in our duty if we do not do
everything in our power as a minimum to ensure that there has
been proper consultation with all the proper documents in front
of us, and if we have to resort to the courts to reinforce our
ability to perform our duty, we will do that.
215. Have you approached lawyers?
(Mr Kiley) We have been in constant contact with lawyers.
216. Yes, I know, but have you approached lawyers
on this issue after 14 days?
(Mr Kiley) Yes, we have.
217. On this question of risk transfer, the
risk transfer has changed, has it not, from the point at which
the preferred bidders were selected?
(Mr Kiley) Yes.
218. If you were one of the unsuccessful bidders
at that stage, would you not have a reasonable grouse that you
had been excluded at that point, and then the rules of the game
had been changed?
(Mr Kiley) I think that is very much an open question,
and it brings into play European rules which are very clear and
robust on matters like what constitutes State aid and competitiveness,
and we have insisted with the Government, with the Underground,
that clearance be obtained from the EC before these contracts
are finalised, certainly before a transfer to Transport for
London, because then we would get all the potential liability
for whatever might happen, including a disappointed bidder bringing
219. So you think that there was really unfair
competition because the risk changed significantly during that
period, and you think now, because of that, there might be questions
about State aid, and falling foul of European rules?
(Mr Kiley) Not only did the risk factor change very
substantially but other provisions in the procurement and in the
contracts changed very significantly, especially after the deep
tube lines preferred bidder decisions were made. They were made
in the Spring and a subsurface line preferred bidder decision
was made in the fall, but it turns out that Metronet was involved
in both the Spring decision and the fall decision, so, in effect,
these decisions were made really almost a year ago. Far too early.
You may remember at the time that I was very critical of rushing
to preferred bidder status, because so many issues had not even
been joined at that point, and so I think the question you are
asking is a good one. We are worried about it. We have communicated
with the Government since early last fall that they have got to
get clearance. There are no signs that clearance has been obtained
to this point. I do not know how long that will take.