Metronet overspend on Tube may run to £2bn

Metronet Rail's cost overruns on its two privately financed Tube contracts have rocketed to nearly £2bn, CJ can reveal. The new figures show a rise of £1.25bn on original estimates.

The revelation follows Metronet's decision last week to call for an Extraordinary Review of its cost overruns on both its London Underground PPP contracts.

The review, to be conducted by Chris Bolt, the independent PPP Arbiter, will begin by looking at Metronet's BCV Infraco, which covers the Bakerloo, Central, Victoria and Waterloo & City lines. Later this year, Metronet will request a second Extraordinary Review of costs on Metronet Rail SSL, which covers the Circle, District, Metropolitan, Hammersmith & City and East London lines. Both reviews are expected to take a year and cost Metronet a total of £10m.

Insiders told CJ this week that cost overruns on Metronet's BCV and SSL Infracos are running at around £2bn. The source said: "The cost overruns are about £1bn on BCV", adding that the overuns on Metronet's SSL infraco were a similar figure. Metronet Rail refused to comment.

This latest estimate of Metronet's cost overruns on its London Underground PPP contracts dwarfs the original figure of £750m. It also calls into question the consortium's ability to pay for the cost overruns, should the PPP Arbiter Chris Bolt find in favour of London Underground.

The consortium is currently in negotiations with its banks in a bid to regain access to a £1.6bn construction loan. The five shareholders - Balfour Beatty, Thames Water, Atkins, Bombardier and EDF - are offering the banks a guarantee on 5% of the loan. The other 95% is underwritten by London Underground as part of the PPP deal. Metronet has been denied access to the loan because of the banks' concerns at the size of the cost overruns on the project, which pushed Metronet past cost thresholds in the loan agreements.

The deal will take the form of a letter of comfort to the banks or the inclusion of a contingent liability into the accounts of the parent companies' consortium.

A Metronet spokeswoman said: "The principle of such a commitment has been agreed by our shareholders and discussions with the banks are ongoing."