London Underground Public Private Partnership

The Issue

The public private partnership to manage and develop the infrastructure of the London Underground is the largest and most high-profile deal of its kind anywhere in the world. PwC has been involved in the project since its inception in 1997.

Our Approach

London Underground Limited (“LUL”) is the public sector body responsible for operating and maintaining the metro system in London. In 1997, PwC led a review of the options available for the future funding, development and management of the system. Our proposals for a PPP were adopted and LUL was separated into one operating company and 3 infrastructure companies, each responsible for three lines. The PPP involves £37.7bn of investment over 30 years and £4.6bn of private funding (the remainder funded from the annual payments to the infrastructure company). The first contract reached financial close on 31 December 2002. It involved the transfer of the assets of the Jubilee, Northern and Piccadilly lines to Tube Lines Holdings, a company co-owned by Bechtel, Jarvis and Amey. The rest of the PPP involves the transfer of the other two line groupings (Bakerloo, Central and Victoria; and the Sub-Surface Lines of District, Central and Metropolitan) to Metronet. Both these contracts reached financial close in April 2003.

The Outcome

The deal uses an innovative commercial structure. The output specification for the contracts requires the infrastructure companies to maintain and enhance the performance of the underground network, in respect to:

  • Availability of systems (avoidance of delays)
  • Capability (average passenger journey time)
  • Ambience (condition and cleanliness)
Given the high-profile nature of the service involved, arrangements are included to ensure the protection of the public sector interest. The contract will be re-priced every 7.5 years through a process of “periodic review”, with any disputes settled by a “statutory arbiter” a post created by new legislation – thus the deal includes aspects borrowed from the regulation of privatised utilities. In addition to the commercial structures, the financial instruments used are also 'firsts' for a PPP transaction. The Tube Lines deal is the first example of bank debt underwritten (“wrapped”) by a monoline credit insurer being used in a PPP transaction.