Taxpayers threatened with huge bill after Tube consortium warns of £750m overrun

Metronet, one of the two private sector consortia put in charge of the London Underground, said yesterday it expected the taxpayer to pick up a "substantial part" of an estimated £750m over-spend on the Tube system despite its operations being slated as "inefficient and uneconomic".

Under the terms of the public-private partnership, the tube maintenance company - that makes profits of £1m a week - is required to pay only £100m of the sum. It can claim back the rest from the taxpayer if the overspend is judged to have occurred despite "efficient and economic management".

Unfortunately for Metronet, Chris Bolt, the public-private partnership arbiter, issued a damning report yesterday which said many of the company's operations had been anything but.

Mr Bolt castigated the company for stations "where Metronet is significantly behind schedule in delivering its obligations" and for track "where there have been insufficient resources to deliver required volumes of work and poor delivery of maintenance and renewals".

Finally, he hit out at the companies' asset management and risk management and said changes in costs had been "inadequately challenged". In an interview with The Independent, he said the problems had been caused by a combination of badly drafted contracts between Metronet and some of its sub-contractors - who are also its shareholders - and mismanagement.

His Annual Metronet Report, published yesterday, only has the status of guidance but Mr Bolt could yet be called on to adjudicate between Metronet and the taxpayer, in the form of London Underground, over how much each will have to pay towards the massive overspend.

But despite the mauling his company has taken, Metronet chief executive Andrew Lezala insisted: "We still provide a good deal for the taxpayer. We recognise that performance has been short of expectations, particularly in terms of station refurbishment.

"But we have taken steps to improve things and if you read the report, the arbiter says that in respect of our day-to-day operations, we are generally performing at or better than benchmark."

A good deal for the taxpayer? Has Mr Lezala taken leave of his senses, or might he have a point?

The PPP was dreamed up by the Chancellor, Gordon Brown - in the teeth of furious opposition from London mayor Ken Livingstone - as a way of financing the vast cost of upgrading a system derided by many of London's long suffering commuters as the worst in the world - and the most expensive.

Metronet, whose shareholders include WS Atkins, Balfour Beatty, EDF Energy and Thames Water, won two of the maintenance contracts up for grabs and set up two companies.

Metronet BCV has responsibility for the Bakerloo, Central, Victoria and Waterloo & City lines. Metronet SSL looks after the Metropolitan, Circle, Hammersmith & City, District & East London lines. The Jubilee, Northern and Piccadilly lines are handled by a rival company, Tubelines.

Under Metronet's contract, the Government will pay the company £17bn, with £7.5bn of that in the first seven years when the maintenance work will be at its most intensive. However, Metronet itself is borrowing far more than that to finance the work, much of which is intended to be carried out in the contract's early years. The company will reap the rewards later on.

The deal enables the Government to meet the vast cost of the work over a lengthy period of time, without the need to borrow heavily to finance it.

But critics argue that the contracts were badly structured and bound to create problems like those revealed by Mr Bolt's strongly worded report.

Mr Livingstone was delighting in finger-wagging yesterday. He said: "The PPP Arbiter's report confirms that, despite the massive investment in renewing the underground, Metronet is failing to deliver the quality and efficiency for which it is being very generously paid under the PPP.

"Metronet has failed to deliver the programme of station refurbishment and its over-runs on maintenance work have repeatedly delayed services for passengers. I disagreed with the PPP, and particularly its enormous cost, but we are doing all we can to make it work in the interests of Londoners. In the case of Metronet, this simply is not happening."

Transport for London and London Underground also laid into Metronet yesterday, and that bodes ill for the company's hopes of reaching agreement on the overspend without the need to call on Mr Bolt.

LU managing director Tim O'Toole said: "These proceedings are a mystery to the travelling public, but the quality of service is not. We have seen improvements to the London Underground network but not to the level we would expect.

"Only by Metronet being more efficient will we see the improvements promised, delivered on time and on budget. Any delay in work delivered leads to the spectre of a future financial claim on the public purse."

He added: "Should the arbiter be called upon to consider such claims, it is vital he ensures that London does not bear the cost for Metronet's failures to manage its work programme economically and efficiently or its failure to properly plan for the future."

A TFL spokesman said it did not accept Metronet's £750m figure and pointed out that there appeared to be no such problem with Tubelines. This is a point also made by Mr Bolt.

The Tube is by no means the first PPP to run into difficulties but Mr Bolt argues that the problems are case specific and do not show that the PPP concept is fundamentally flawed.

He says: "There is no PPP like this one in terms of size and complexity. If we were drafting the agreement today, I'm sure we would have done it slightly differently. But it isn't the PPP itself that is the problem."

Like TFL, he points out that while Tubelines has not been without problems, it has delivered on programmes such as station refurbishment where Metronet has not.

Mr Lezala maintains that the £750m is an estimate, possibly a worst case scenario. He is also adamant that Metronet should not be held liable for the entire cost over-run.

The issue Mr Livingstone does not address is whether the public sector would have done it any better had it been in charge of carrying out the work. Would TFL for example, have negotiated contracts of sufficient flexibility to deal with the track maintenance problems Metronet faced? Would it have managed the work "economically and efficiently"?

TFL's spokesman insists it would. "We have a good record of delivering projects on time and on budget," he maintains.

But the fact remains that even a government that did not treat the capital with neglect and actively wanted to spruce up its desperate infrastructure would be reluctant to have the sums required to pep up the Tube loaded on to its books.

The PPP is a mess, but at least work is getting done, albeit rather more slowly than London's commuters would like. A good deal for taxpayers? That will probably only become clear in 30 years, by which time those responsible for drafting it, including Mr Brown, will be either retired or dead.