Overview: down the tubes
Prospects: the mayor puts his faith in Alan Bloom to save Metronet
London Underground contractor Metronet was given the responsibility of
delivering a high profile PPP programme. The deal required the rail maintenance
company to spend £17bn over 30 years in return for annual payments from the city
of £850m according to Transport for London.
But its operations were severely affected after a cash crisis spiralled out
of control, leading to a massive overspend. London Underground’s main private
contractor was left with no choice but to go cap in hand to seek out a generous
benefactor but failed to find anyone to foot the bill. The man who be tasked
with tidying up the wreckage is Ernst & Young’s Alan Bloom.
What happened
In an attempt to keep its head above water, Metronet asked the PPP
powers-that-be for an initial £551m of extra funds out of a total of £992m but
only received £121m.
This week, Ken Livingstone’s court application to put the company into
administration was approved and a team from E&Y called in. The group will be
spearheaded by business recovery veteran Bloom, who will be backed up by Maggie
Mills, Roy Bailey and Stephen Harris.
What’s going to happen
Bloom’s primary objective will be to rescue the company as a going concern,
but he will face intense public scrutiny as he tries to engineer a turnaround.
Luckily the E&Y man is no stranger to pressure as he also handled the
Railtrack administration, which earned E&Y a £20m payday for its advisory
work. The firm is in line for another windfall in return for its efforts with
Metronet.
Bloom and his team’s skills lie in running businesses, often at short notice,
pending the resolution of financial difficulty via sales, assets disposals and a
range of other solutions designed to preserve companies.
But Metronet is something of an administrations’ special case because
slightly different rules apply. These rules ensure that the essential services
which it provides continue to operate in the public interest. Transport for
London told the Greater London Assembly members that it will loan Bloom’s team
as much as £30m a week to run the failed company.
If a solution cannot be found, Metronet’s debts and operational
responsibilities will be shunted on to Transport for London, which is in the
middle of trying to deliver a £10bn investment programme of its own. A testing
few months lie ahead for Bloom.