What could be more stupid than the government's plans for the tube?
Most of the press in Britain seem to have a problem recognising any resemblance between what went on at Enron and anything that big business and government ever get up to over here. Except for the 'Financial Times', that is, which noticed uncanny similarities: 'Kenneth Lay and Andrew Fastow may be yesterday's men after the financial edifice they engineered at Enron collapsed,' they wrote, 'but on the other side of the Atlantic, Gordon Brown and Stephen Byers have picked up their mantle with their scheme for financing the modernisation of the tube, London's creaking underground rail network.'
The particular aspect which the 'Public-Private Partnership' proposals for the tube have in common with the Raptor and LJM2 schemes which torpedoed Enron is that they were both set up, to use the actuarial jargon, as 'off balance sheet vehicles'. Nothing wrong with that, says the 'Financial Times', so long as everything is above board. But the main problem with the tube proposals is that they 'fit right into the Enron mould'. And the reason for this is that this 'off-balance sheet vehicle' is specifically designed 'to camouflage the full extent of the government's real, continuing liabilities'.
Treasury guidelines on the tendering process for new contracts have been systematically biased in favour of private sector funding--the (utterly cynical) theory being that repayments are so structured that the full extent of rebound on the taxpayer will not become apparent until many years hence.
Meanwhile, after a genuine panic over the collapse of Railtrack, the investment banks and private sector consortia are already back with their snouts buried deep in the trough. They have even had the nerve to demand that a last minute clause be inserted into PPP contracts for the tube, allowing private firms to pull out with 30 years worth of estimated profits if, for example, Ken Livingstone was to make their life too difficult. When he heard about it, Livingstone's transport aide, Bob Kiley, said that 'polite words cannot be found to describe this bizarre and risky new clause'.
Even more staggering is the fact that the government has now agreed to underwrite 95 percent of the money being borrowed by the private companies, making a complete mockery of any idea that PPP involves a commitment from the private sector to long term financial risk, let alone Byers's preposterous claim that PPP is the best option because it will turn out cheaper than public funding! In the not altogether fanciful event that one of the new private sector 'providers' does go belly-up (just like Enron or Railtrack) the taxpayer will indeed be the one to pick up the tab--and bigtime.
Possibly the most puzzling aspect of all this is why they don't go along with the 83 percent who have had enough and simply drop the whole idea, if only for their own good. And a large part of the answer to this is that, although the government has been forced on a number of occasions to back off because of widespread hostility to its plans, it has become quite incapable of breaking loose, partly because of the amount of political capital invested in the whole idea, and partly because the ties to big business have become so all-embracing. The very embodiment of this predicament is that the treasury's top negotiator on the PPP scheme for the tube is a Ms Shriti Vadera, a former executive at UBS Warburg, the biggest investment bank in continental Europe. Last February she was quoted as having told Bob Kiley that she 'could not sanction public control of the tube under any circumstances'.
And she's not the only one. Over the past few years the government has assembled what amounts to an entire private sector wrecking crew whose sole purpose is to drive through its plans at all costs. Bob Crow has called them 'the zealots in Whitehall'. Since the 1997 general election the management consultancy Ernst & Young has 'donated' staff to the Treasury to work on developing PFI policy. By an extraordinary coincidence, Ernst & Young is also the one which has just recommended the go-ahead for the tube PPP.
At the same time, the man in overall charge of negotiations for London Transport is Sir Malcolm Bates, a man who not only has close ties to both BICC (AKA Balfour Beatty) and GEC Alstom--two of the companies involved in consortiums bidding for work on the tube. He also headed up the first government review of progress on PFI schemes in 1997. The main point of this 'first Bates review' was to come up with recommendations for how to get rid of barriers hindering the PFI process.
All lined up with their beady eyes on Bates are the combined ranks of some seriously heavyweight firms who stand to lose some of the biggest contracts they are ever likely to get if all this falls through--firms like Amey, Bechtel, Jarvis, Hyder, Alcatel and Bombardier. Many of them, and many of the individuals involved, have been through this already with Eurotunnel and with the Jubilee Line extension (both of which, contrary to New Labour spin, were late to complete, came in hugely overbudget and ended up being bailed out by the public sector). And most of them are just as keen to make sure that the salvage operation currently being carried out on Railtrack works to their advantage. Railtrack, after all, owns all of the major stations in London that the tube travels through. Once again, the government is being advised on this by Ernst & Young. And over the past couple of months it has been beefing up the management team at the 'company limited by guarantee' with some familiar faces. One is John Armitt, a man who played a key role in planning the Channel Tunnel rail link (cost to the taxpayer £8.8 billion). He is from the construction firm Costain.
Another one worth keeping an eye on is the new deputy chairman, Adrian Montague, from the Societe Generale. Montague knows a bit about the railways already, having been intimately involved in most of the disasters to have befallen the industry in the past decade. He was one of those who helped draw up the privatisation plans for John Major. Later he was credited with having 'rescued' the collapsing Channel Tunnel rail link, before turning up as adviser to John Prescott. Societe Generale, by the way, is the largest shareholder of Alcatel, one of the largest firms involved in the bidding to privatise the tube. The Treasury has also recently appointed a Mr Geoffrey Spence, managing director of the Deutsche Bank in London, 'to develop private finance policy'. According to the 'Financial Times', Spence will play a central role, but also noted, rather cryptically, that he 'will play no part in work on the London Underground given his past involvement with bidders for the contracts'.