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A report today by the National Audit Office has found that the failure of Metronet – a private infrastructure company responsible for the maintenance and upgrade of sections of the London Underground – has led to an estimated direct loss to the taxpayer of between £170 million and £410 million. There has also been an impact on passengers who have not seen all the improvements that were promised in the original timescales, though £4.2 billion of maintenance and upgrades were nevertheless delivered by Metronet under the public private partnership contracts.

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Metronet went into administration in July 2007, predominantly because its poor corporate governance and leadership meant that it could not manage its shareholder-dominated supply chain. Transport for London (TfL) guaranteed 95 per cent of Metronet’s borrowing, with the Secretary of State for Transport assuring Metronet’s lenders that the Department for Transport (DfT) would not just stand by should London Underground or TfL be unable to honour this guarantee. When Metronet failed, the DfT made a £1.7 billion payment to meet the guarantee so that the running of the Underground would not be compromised.

It was London Underground’s responsibility to manage the Metronet contract to deliver the long overdue improvements to the Underground but DfT had a responsibility to protect the taxpayer from any financial liability. The PPP contracts nevertheless gave the DfT few formal levers to protect the taxpayer, leaving the DfT to rely upon other parties, including London Underground, TfL and Metronet’s shareholders and lenders.

When these parties did not resolve Metronet’s problems, and Metronet failed, the taxpayer was left exposed. This exposure crystallized in the early repayment of £1.7 billion to Metronet’s lenders, and a loss to the taxpayer equivalent to between 4 per cent and 10 per cent of the work delivered. DfT needs to consider how to reduce future risks to the taxpayer and, with the Mayor of London, how best to ensure effective and efficient delivery of improvements and maintenance of the Underground.

The DfT sees TfL’s ownership of Metronet as an interim solution and, as part of a Joint Steering Committee, made recommendations on a long-term solution to the Secretary of State for Transport and the Mayor of London. They are now preparing to take a joint decision.

"The Metronet PPP contracts to upgrade the Tube left the DfT without effective means of protecting the taxpayer. Metronet’s failure led to a direct loss to the taxpayer of between £170 million and £410 million. The DfT’s work with the Mayor of London, TfL and London Underground on a long term solution will need to improve governance and risk management in the new arrangements they are intending to put in place to protect the taxpayer."

The Comptroller and Auditor General

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