Banks face choice over Jubilee: Project in danger of collapse if 'drop dead' clause is not deleted

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The Independent Online
THE GOVERNMENT yesterday put the onus on a consortium of banks led by Lloyds to agree to delete a controversial 'drop dead' clause in the Jubilee Line financing agreement or see the project collapse.

The clause obliges the Government to repay money invested by commercial banks and the European Investment Bank if the line is cancelled or not completed by the year 2000, which is more than two years after the projected completion date.

If the Jubilee Line financing falls apart because of the row it would also wreck a pounds 300m bank refinancing of the Canary Wharf office development in docklands, which it is hoped will enable the project to come out of administration. The line will have a station at Canary Wharf.

A Department of Transport spokeswoman denied claims by bankers that the Government told the banks to drop the clause only last Wednesday, five weeks after it was agreed with London Regional Transport.

She said: 'We have made it consistently clear that the drop dead clause could cause insuperable difficulty to government. We have made our position clear for some time.'

The department reiterated its backing for the project, saying: 'The Government and the Prime Minister are committed to the Jubilee Line going ahead.'

Banks believe the Government's objections to the clause have been pulled out of the hat as part of a last- minute Treasury attempt to derail the Jubilee Line, and they also see the row as a symptom of infighting between the Treasury and the Transport Department.

A report on the Prime Minister's desk from Michael Portillo, Chief Secretary to the Treasury, is highly critical of the economics of the line and says other projects are better value for money.

The bank consortium is to discuss the tough Government line in the next few days. A banker involved said that whatever the two British banks, Lloyds and Barclays, decided about the clause they had to sell the Jubilee Line financing to a bank consortium in which the other nine members were foreign.

The EIB also approved its pounds 98m Jubilee Line loan on the basis that the clause would be in. A Treasury official was present at the key meeting.

The consortium insists the clause is an essential protection for its money if something goes wrong. Negotiations for its inclusion started last November. The Government believes the clause undermines the private sector nature of the financing.