Jeremy Warner's Outlook: Disaster of Metronet vindicates Tube PPP

One of the legacies that Gordon Brown's 10 years at the Treasury has bequeathed on a grateful nation is the public private partnership deal for modernising the London Underground. The publicity surrounding this contract has been unrelentingly bad, with delays, breakdowns and service failure a seemingly daily occurrence. Commuters struggle to understand what they are getting for their money.

Now Metronet, the company responsible for about two-thirds of the modernisation programme, has admitted to a likely cost overrun on the first phase of one half of its contract of £992m. The other half is likely to incur a similar order of overspend, so in total that's a nice round £2bn.

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• Metronet wants £2bn as Tube costs overrun

Actually, the true scope of the red ink is even worse, for under the terms of the contract, Metronet is obliged to meet the first £110m of any overrun. It also admits to a likely £240m that can definitely be attributed to its own efficiencies and which it will therefore meet out of its own pocket.

So who pays? It is up to Chris Bolt, PPP arbiter, to decide. If it is not Metronet, it will either be the passenger, through the farebox, or in the unlikely event that the new Chancellor feels so minded, the taxpayer through a state-funded bailout. Mr Bolt's job is to establish how much of this overrun is down to Metronet's own mismanagement and inefficiency, and how much to factors outside the contractor's control.

As far as Transport for London, which runs the London Tube, is concerned, there is no doubt about the answer. It's all down to Metronet's own incompetence. For Metronet, it is all down to the extra demands that Transport for London has made which lie outside the scope of the contract. One example of this is £70m Metronet was obliged to spend putting the Central Line fleet right after a derailing at Chancery Lane.

For Metronet, the initial verdict is not encouraging. The other one-third of the Underground modernisation being run by a rival consortium, Tube Lines, seems so far to be proceeding perfectly competently without significant mishap.

In the round, says Tube Lines, there is no significant overrun to report so far. This would suggest that either Tube Lines got a much better contract, or it is just better managed.

What's more, in an initial judgement last autumn, Mr Bolt found significant evidence of inefficiencies at Metronet, though he did concede that things were on an improving trend. Do these traumas vindicate the London Mayor's consistently argued opposition to the PPP on the Tube?

In The Independent's "You ask the questions" feature with Gordon Brown last Wednesday, the new Prime Minister was unrepentant. However the huge programme of modernisation faced by the Tube is paid for, he pointed out, it would always have been the private sector that did the work. With the PPP, at least there is a sharing of the risk of cost overrun, with an independent arbitor determining who should pay. In the past, the taxpayer would have footed the entire bill.

He might have added that without the PPP, there is a high chance that the necessary investment would not have been made at all. There are limits to what governments can spend, and Mr Brown was already banging right up against his. The PPP has enabled infrastructure spending which otherwise would have had to give way to other public spending priorities.

Unfortunately for Mr Brown, this is not how the PPP is generally perceived by the public. By highlighting persistent problems with service on Metronet's lines, the London Mayor, Ken Livingstone, has been much better at getting his message across than the Government. The contractors, their backers and advisers, are roundly accused of profiteering at the public's expense. The irony is that they now looked destined to lose their shirts.

King's not the man for IMF reform

Mervyn King, the Governor of the Bank of England, has unambiguously ruled himself out of the running to succeed Rodrigo Rato as managing director of the International Monetary Fund. Not now, not ever, he seemed to be saying in his statement yesterday, and anyway, he doesn't fancy living outside London.

This will come as a relief to the new Prime Minister, and indeed to financial markets. Post the retirement of Alan Greenspan, there is no other central bank governor as much respected and admired. He is a cornerstone of Britain's new economic stability and it is hard to think of a successor who would command the same authority.

Yet Britain's gain is the IMF's loss, for Mr King has been particularly articulate in identifying what is wrong with today's IMF and fleshing out a reform agenda for the future. He might have had an opportunity to put his ideas into practice. Whatever the outcome, it could not have been worse than the present, near paralysis in the IMF's purpose.

Anyone who follows these matters will be familiar with the problem. The IMF gives the illusion of activity - lots of meetings, lots of press releases, lots of worthy reports and still worthier communiques - but nobody takes any notice. And with good reason: much of it is irrelevant to the modern world.

Even the IMF's core function of bailing out nations in distress is proving increasingly redundant; it has not had to be activated for quite a number of years now. The last bailouts were shambolic. The South-east Asian and Argentinian packages were widely and rightly condemned for the austerity of the conditions they imposed on already economically distressed societies, while much of the money lent to Russia was stolen.

If the IMF is a discredited organisation, it is not entirely surprising. It was designed for a post-war world that no longer exists. It is not just that the shared experience of the Great Depression and two world wars out of which it was born has faded.

As Mr King pointed out in a speech last year, the majority of nations around today didn't even exist at the time of the IMF's creation. In 1946, there were fewer than 80 countries in the world, with the Communist bloc and much of Asia in any case deemed to be outside the global economic system over which the IMF was meant to preside.

Today there are 192 countries represented at the United Nations. Most of them see no reason why they should abide by governance arrangements they played no part in establishing. Whether or not the IMF is a tool of American foreign policy, that is how it is seen in some parts of the world. Not that the IMF has been entirely frozen in time as the world has changed around it. Mr Rato's resignation comes mid way through a programme of reform which addresses some of Mr King's concerns. Already there is agreement for a radical overhaul of the surveillance mandate. There also seems to be some progress in reforming the structure of shareholdings, so as to give developing areas of the world a greater say.

All these initiatives need to be accelerated and built upon by whoever is chosen to succeed Mr Rato. There is much wrong with the IMF, but it remains the best hope we've got of an international organisation capable of becoming a ruling body for today's super charged, global economy. To scrap it and start again would be both wasteful and unnecessary. Rather, it needs sensible reform which acknowledges its limitations and produces a more authorative consensus.

Yet it is no surprise that Mr King should find the post a temptation he can refuse. During one of his set tos with Tony Blair, Gordon Brown was similarly cast as a shoo-in for the IMF job should he want it. In the end, he chose the cut and thrust of domestic politics to the paralysis of the world stage. However global the world economy becomes, policy - even on matters such as trade and the environment best determined collectively between nations - is always likely to be determined more locally than internationally.

j.warner@independent.co.uk