Press Notice 02/08 9 September 2008 Arbiter publishes his initial view of future costs for Tube Lines Chris Bolt, the statutory Arbiter for the London Underground Public-Private Partnership (PPP) Agreements, today published his assessment of the costs that Tube Lines could incur in the second 7½ years of its PPP Agreement with London Underground. This followed the request for guidance from London Underground made in April 2008. Chris Bolt said: “My assessment is that costs are likely to be in the range £5.1 – 5.5 billion for the second 7½ years of the contract. I have reached this view on the basis of a detailed review of the figures put forward by Tube Lines and London Underground, and other evidence including benchmarking with other metros. Chris Bolt added: ”One of the objectives of this reference was to make it more likely that the Periodic Review would be successfully concluded by 30 June 2010. It is vital, therefore, that lessons are learned from the work that has been undertaken. I intend to continue work with Tube Lines and London Underground over the next few months to try to reduce uncertainties further, and to clarify the procedures for the remainder of the Periodic Review.” ENDS For queries, contact: Anthony Silverman Maitland 020 7379 5151/07818 036579 One Kemble Street London WC2B 4AN Tel: 020 7282 2170 Fax: 020 7282 2180 Email: firstname.lastname@example.org www.ppparbiter.org.uk Doc 30273 v2 Notes to editors: 1. The PPP Agreements contain provisions for a Periodic Review to take place every 71/2 years. By 31 December 2008, London Underground must restate contract terms for Tube Lines and set its Affordability Constraints; Tube Lines then responds to this by 30 June 2009 with updated pricing. The contract allows time for a period of negotiation or for a reference to the Arbiter for directions on future pricing, prior to the start of the second 7½ year review period on 1 July 2010. 2. The current reference sought guidance on: (i) “the Arbiter’s best estimate of certain of the cash flows of Infraco set out in paragraph 7.2 of Schedule 1.9 of the PPP contract calculated as if the Reference for Guidance were a reference for Directions on these matters at Periodic Review: • For the second Review Period only • For the JNP PPP Contract only • Based on existing Infraco Obligations • Assuming compliance by Infraco with its first Review Period obligations and an absence of claims • Making allowance for such costs of access as the Arbiter judges necessary to achieve stated performance levels. (ii) “the Arbiter’s assumptions as to the level of performance in respect of Capability, Availability, Ambience and Service Points of a Notional Infraco during the second Review Period, based on what might reasonably be expected to be achieved given current Tube Lines’ performance levels and trends.” (iii) “the appropriate treatment of performance revenues of a Notional Infraco in light of paragraph 7.3 of Schedule 1.9 of the PPP Contract.” 3. As indicated above, the Arbiter’s range of costs for the second 71/2 year Review Period is £5.1- £5.5bn. In their original submissions, Tube Lines projected a total cost of £7.2bn and LUL projected £4.1bn. The LUL projections excluded differential inflation which Tube Lines set at £1.2bn and which the Arbiter considers will be around half a billion pounds over the course of the next Review Period. 4. In determining its Affordability Constraints, London Underground will need to take account of the costs of existing finance, as specified in the PPP Agreements, performance revenues (also covered by this reference) and the scope for meeting some costs through additional financing by Tube Lines. 5. The reference has been handled in accordance with the Arbiter's Procedural Framework for Use in the Giving of Directions and Guidance and his Procedural Approach to the receipt of an unanticipated request for Guidance, both of which are published on the Arbiter’s website. 6. The role of the PPP Arbiter was established by the Greater London Authority Act 1999 (GLA Act). The remit of the PPP Arbiter is set out in the GLA Act and is supplemented by contractual provisions included within the PPP Agreements. Under the terms of the GLA Act, the Arbiter can be asked by a PPP Party to give directions on matters specified in the PPP Agreements or guidance on any matter relating to a PPP Agreement. Where only one party makes a reference for guidance, as in this case, the Arbiter has discretion about whether to give guidance or not.
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