Metronet, the London Underground contractor, has announced that it will go into administration after overspending by a staggering £2BN; it has asked Mayor of London (Ken Livingstone) to appoint the administrator.
Alan Bloom, an insolvency specialist at Ernst & Young and the former administrator of Railtrack, is expected to be appointed to run Metronet.
Metronet said that its two Public Private Partnership contracts to renovate and maintain London's tube system were unsustainable. Its Metronet BCV programme, for the Bakerloo, Central and Victoria lines, had an unpluggable funding gap of just under £1BN. Metronet's creditors and shareholders – Balfour Beatty, WS Atkins, Bombardier, EdF and Thames Water – had refused to provide more funding.
"Metronet Rail BCV requires additional funding to enable it to carry out its contractual obligations during the period of the Extraordinary Review.
This company has now established that it has no access to such further funds."
The second contract, Metronet SSL, for London's sub-surface tube lines, has an an overspend of £1BN. Metronet said blamed the PPP regulator for not providing emergency funds for Metronet BCV.
"Applying the logic of the PPP Arbiter's draft direction to the circumstances of Metronet Rail SSL, the Board of this infrastructure company has come to the conclusion that any application for Extraordinary Review... would come to a similar position."
The collapse of Metronet is a kick in the groin to the then chancellor, Gordon Brown, and his PPP policy. Brown bulldozed the tube PPP through despite strident objections from those who knew it would be a disaster.
Hardly surprising that he was so keen to become PM, thus avoiding the mess that he created.
The head of London Underground, Tim O'Toole, has assured Londoners that the service on the lines that Metronet is responsible– nine of the capital's 12 – will continue as normal.
Hardly much of a reassurance, given that the service is a shambles anyway.
We can expect this to be a shambles, not just for the current tube passengers but also for the Olympics 2012.