Tube bidders set to undercut Livingstone by £6bn

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The Independent Online

London Underground may be able to save more than £6bn through the partial privatisation of the Tube network as compared to the bond financing plans favoured by Ken Livingstone, the Independent on Sunday has learned.

On Friday five different consortia either made bids or said they would make bids for one of the three 30-year contracts being offered to run the Tube lines under a Public-Private Partnership (PPP).

Three bidders - Linc, Metronet and Tuberail - are all making offers for the BCV deal, covering the Bakerloo, Central and Victoria lines. These three plus another consortium, Tubelines, are bidding for the JNP - Jubilee, Northern and Piccadilly - contract. Three consortia have now prequalified for the remaining contract, the sub-surface PPP - Linc and Metronet plus an unnamed group including Bechtel, Amey and Jarvis.

The bids have come in despite opposition to the PPP from Mr Livingstone, who most expect to become the first elected Mayor of London.

Mr Livingstone is proposing an alternative scheme, which would finance the £14bn worth of work for the Tube via a bond.

However, his plans have come under fire from Lord Currie, a professor at the London Business School, who studied the proposals and said the PPP option would save an estimated £3.3bn in the first 15 years of its life when compared with the bond plan.

Lord Currie argued that the extra efficiencies a private sector group could bring would lead to savings of 20 per cent. Allowing for the higher costs private sector firms have in raising finance as compared to the government, this would mean an overall saving of £3.3bn.

However, the Independent on Sunday has learned this could be an underestimate. London Underground has been told by PricewaterhouseCoopers, its financial advisers, that the record of the Private Finance Initiative - where private companies have been given contracts to build and run roads, hospitals and prisons - has shown savings of between 10 per cent and 40 per cent when compared with public sector management.

If the consortia bidding for the PPP can achieve the 40 per cent savings, the PPP will cost at least £5bn less than Mr Livingstone's bond option.

Senior officials believe the PPP will prove its worth. "We have chosen to compare its value not only with the public sector but also the bond option, and publish those findings, because we are confident the PPP will win hands down," said one.