WRITTEN QUESTION P-2362/02

by Charles Tannock (PPE-DE) to the Commission

(24 July 2002)

Subject: Consistency of the British government's proposals for the London Underground system with EC rules on public procurement and state aids

It is the stated policy of the UK Government to proceed to an extensive programme of modernisation of the London Underground via a Public Private Partnership involving a tender process initiated in April 2000 by London Transport (LT) through its commercial vehicle London Underground Limited (LUL). Under this project, the physical assets and infrastructure, including rolling stock, are due to be leased to two private consortia for a period of 30 years, whilst the operator would remain in the public sector under the new body Transport for London (TfL) which is under the political control of the elected body of the Greater London Authority. The undertaking is estimated to be worth in the order of EUR 45 billion in 2001 prices over 30 years, making it one of the largest public procurements ever carried out in Europe. London Underground assets were incorporated into three Infraco (infrastructure) companies and transferred to two preferred consortia bidders Tubelines and Metronet on 8 May 2002, subject to UK safety regulatory approval and clearance by the European Commission merger and state aid rules. Merger clearance under EU competition rules was obtained on 24 June 2002 (ref. Case Comp/M 2694).

TfL will guarantee the obligations of LUL under the PPP contracts and oversee their implementation. TfL, however, allege in a complaint filed with the Commission a breach of both EC public procurement and state aid rules. They allege that the PPP contracts do not constitute a concession as cash payments will be made by LUL to the Infracos and, therefore, fall under Directive 93/38/EEC(1) (Utilities Directive) and that after selection of the preferred bidders further negotiations significantly enhanced the contract value and decreased the inherent risks by more than 10 % of the bid value (estimated to be of the order of EUR 3 billion to Metronet consortium-para 69 of ref. Case Comp/M 2694), which should have triggered as required under Article 4 of the Utilities Directive a mandatory re-tendering by all the initial bidders.

Tfl also alleges breaches of Article 34 of the same Directive in LUL's failure to employ correct methodology in the evaluation of the most economically advantageous bid. The process is complicated by alleged breaches of State Aid rules which will favour only those winning bidders and disadvantage the competition even if the aid element is permissible after due notification having been given by the UK Government.

Given Commissioner Bolkestein's declaration against any abuse of competition in public procurement where preferred bidders or winning tenders are permitted to change fundamental aspects of their bids and so jeopardise the principle of equality of treatment and the need to ensure value for money in public tenders, will the Commission undertake an urgent investigation of these allegations of breaches of EU law?

(1) OJ L 199, 9.8.1993, p. 84.

Answer given by Mr Bolkestein on behalf of the Commission

(4 September 2002)

The Commission is presently working to examine the submission made by the United Kingdom government, together with the complaints the Commission has received relating to state aid and public procurement aspects of the London Underground PPP case.

The Commission will conclude its examination once it has received all the information necessary to assess this case

The Commission will inform the Honourable Member in due course of the results of its examination.