Livingstone kills Tube's £2bn sell-off

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The Independent Online

Ken Livingstone is close to killing off a £2bn project to sell off London Underground's surplus property in a deal that would have raised funds to improve the creaking network.

The Independent on Sunday has learned that the mayor is finalising a deal with London Underground (LU) executives where the property and 70-strong management team are transferred to his control.

A spokesman for Transport for London (TFL) said: "London Underground has agreed with us that the property deal is not going ahead. Instead the staff will be retained under the TFL umbrella and the sites developed on a piecemeal basis."

The revelation will be a huge blow to shortlisted property companies Land Securities and Chelsfield, which had been working on the project for over two years.

LU's board met last October to select the winner for the project, London Underground Property Partnership (LUPP). However, the decision was delayed at the eleventh hour.

Officially, LU maintains the deal is still on. But an insider said that behind the scenes Mr Livingstone's transport commissioner, Bob Kiley, thrashed out the bones of the new deal late last year with LU's head of property, Colin Smith. Under the original LUPP proposal, nearly 50 properties were to be transferred to the winning bidder and then redeveloped, creating a portfolio worth £2bn. The profits from the redevelopment would be shared between LU and its partner. It is estimated that LU would receive £1bn over the 20 years of the project.

Now, under Mr Livingstone's control, the properties will be released on a site-by-site basis and development partners selected through competitive tender.

One senior source close to the bidding process said: "We never got alongside Kiley to put forward our argument. The property deal was the sub show to the Public Private Partnership row. All along the way Kiley's attitude to LUPP was 'not over my dead body', as he assumed that if he gave up the property then he released control of the Tube."

LU now faces the possibility of paying out millions for aborting the deal. Sources close to Land Securities said it had already spent over £3m putting together its bid, through the appointment of lawyers, surveyors and public relations advisers. It also used20 in-house professionals. While the company declined to comment, it is understood that when devising its plans, Land Securities raised the possibility of billing LU for the work should the project be aborted.

Chelsfield also refused to comment, but its bid is thought to have cost less than £1m. Both companies may not want to sour their relationship with LU as they could become development partners as the sites are released. The likely collapse of the property project comes as the final bids for the Public Private Partnership (PPP) were delivered to LU.

The bids for the three contracts are now unlikely to be considered by the Tube board until early February, and sources close to the bidding have dismissed speculation that at least one of the contracts has been rejected.

Tubelines' bid for the Jubilee, Northern and Piccadilly Lines is considered the most vulnerable. However, the consortium has commitments for £1.6bn of bank finance and £400m of equity investment to back its bid.

The Metronet consortium, which is bidding for the rest of the network, has secured commitment for £2bn of debt finance – £1.2bn from a consortium of banks and the other £800m through a bond issue to be launched once it takes control of the lines.

The Government has said it hopes to complete the PPP deals by April.