Metronet crisis: calls in administrators for London Underground PPP contracts

Metronet, the company responsible for maintaining and upgrading two-thirds of the London Underground network, has called in the administrators.

Four partners and directors at accountancy firm Ernst & Young; Alan Bloom, Maggie Mills, Roy Bailey and Stephen Harris, will take over the running of Metronet BCV (Bakerloo, Central, Victoria and Waterloo & City lines) and Metronet SSL, (Circle, District, Metropolitan, Hammersmith & City and East London lines).

The move follows a financial crisis at Metronet caused by cost overruns, which are forecast to reach £2bn by 2010. The shareholders in Metronet; Atkins, Balfour Beatty, Bombardier, EDF Energy and Thames Water, have said they will not put up further money themselves, while the consortium's lenders have refused to extend its overdraft facilities. 

The crisis, which has been brewing for some time, was finally triggered when the independent PPP Arbiter Chris Bolt ruled that Metronet should only receive £121m of the £551m emergency cash injection it was seeking to cover preliminary cost overruns.

A Metronet statement said: "Metronet Rail requires additional funding to enable it to carry out its contractual obligations. The company has now established that it has no access to such further funds."

Metronet attributes the cost overruns to higher than forecast costs on capital programmes, especially the station upgrade work.

Balfour Beatty had already announced an exceptional charge of approximately £100m in its half-year accounts, but warned today that "the exceptional charge may be higher".

Atkins said: "This news, while not unexpected, is clearly disappointing...This announcement will have no balance sheet impace on Atkins as the Group had already written down the carrying value of its investment in Metronet.Rail BCV and Metronet Rail SSL to £nil and included an exceptional loss of £30m in relation to its supply chain contracts in its results for the year ended 31 March 2007."

Canadian firm Bombardier has also already written down US $164m relating to its stake.

London Underground managing director Tim O'Toole said: "We will be working with the Mayor, government and the PPP adminsitrator to ensure that the renewal of the Tube is delayed by a little as possible."

The RMT union has called on the government to bring Metronet's contracts back into the public sector permanently.