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London Underground ditches PFI deal

London Underground has announced it will terminate a 30-year PFI power network contract with a Powerlink consortium which includes Balfour Beatty.

LU has activated a 15-year break clause within the 30-year deal for operation and maintenance of its high-voltage electrical power network with Powerlink, which is 80 per cent owned by UK Power Networks, 10 per cent Balfour Beatty and 10 per cent international power and automation technologies provider ABB.

The consortium is expected to receive around £160 million in termination payments, but LU expects to save a total of around £220m over the lifetime of the contract.

The consortium has worked on schemes including the upgrading of power supplies for the Northern and Victoria Lines in the first 14 years of the PFI deal.

LU said it would give them “increased operational flexibility, and mean we can invest the savings made in further transport improvements for our customers”.

A spokesman said that the final figure for repayment will be determined at the end of the month, and that LU will work with Powerlink to determine its course of action regarding future contracts and whether they will be delivered in-house or procured externally.

LU formally served notice on Powerlink that the contract will come to an end in August next year, 15 years before the scheduled expiry date. The initial contract was worth more than £1bn when first announced in 1998.

Balfour Beatty said it expects to incur a one-off £75m restructuring cost yesterday.

LU commercial director Sarah Atkins said: ‘We’ve taken a good hard look at every aspect of how we operate the railway and found that we can make significant savings by terminating this arrangement early, avoiding expensive financing costs that would have come with continuing the contract to its end.

“Although the contract has been performing well, the move to restructure the PFI arrangement will give us increased operational flexibility, and mean we can invest the savings made in further transport improvements for our customers.”

A UK Power Networks Powerlink spokesman said: “This decision has been taken by London Underground purely on a commercial basis under the Power Service Contract option to end the contract on either the 15th, 20th or 25th year from the 1998 start date and in no way reflects an unsatisfactory performance.

“Since the start of the contract, Powerlink has successfully delivered a significant number of infrastructure projects, such as the upgrading of the power supplies for the Northern and Victoria Lines as well as the decommissioning of the Lots Road power station.

“The focus for Powerlink remains to continue to provide an excellent service to our customer, London Underground, and to its customers, the travelling public.”