| Company | BALFOUR BEATTY PLC ORD 50P |  |
| TIDM | BBY | |
| Headline | Metronet says commercial settlement with London Underground 'unlikely' UPDATE | |
| Released | 17:45 22-May-07 | |
| Number | 174505.22052007 |
| AFX UK Focus Story | ||||||||||||
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(Adds comment from TfL, report from Standard & Poor's, background)
LONDON (Thomson Financial) - London Underground contractor Metronet revealed Tuesday that hopes of a deal with Tube bosses to fund reported cost overruns of up to 1.2 bln stg are fading.
Metronet said a commercial settlement with London Underground to cover the extra costs of its 30-year contract to maintain two thirds of the Tube network is 'looking unlikely'.
The contractor said it is assembling information to support a claim for the cost overruns, which it claims have resulted from extra demands imposed on it by London Underground. Newspaper reports today said the company could try to claim back up to 750 mln stg of any deficit, although it declined to confirm that.
If Metronet and LU are unable to reach a deal, the company will have to ask Public Private Partnership arbiter Chris Bolt to carry out an extraordinary review to determine who is responsible for the cost overruns.
A Metronet spokeswoman said talks between its management and Underground bosses are continuing, but added: 'A commercial settlement does not look likely so far.'
The spokeswoman said the talks with LU particularly relate to ways in which the ballooning costs of the station upgrades can be reined back.
Transport for London (TfL) today said Metronet has only finished 28 out of the 56 upgrades it was due to have completed so far.
A spokesman for TfL said it completely rejects any allegations that LU is responsible for the cost overruns.
'It's Metronet's poor performance that has left them in the poor financial situation they find themselves in,' he said.
In a separate report today, Standard & Poor's Ratings Services placed Metronet Rail BCV Finance PLC and Metronet Rail SSL Finance PLC's 'BBB-' long-term debt rating on negative watch, citing continued weakening of their financial profiles.
S&P said the move reflects concerns about Metronet's credit quality which could be impacted if negotiations over the next few weeks fail to shape a credible future plan for the company.
The ratings agency noted the 'significant difficulties' Metronet faces in executing its capital works program on time and within budget, which had led to significant cost overruns.
Metronet is responsible for maintaining and upgrading track, trains and stations on all the Underground's lines apart from the Piccadilly, Northern and Jubilee. The consortium is owned by WS Atkins, Balfour Beatty PLC, Bombardier Inc, EDF and Thames Water.
It has faced fierce criticism from London Underground, London Mayor Ken Livingstone and Bolt himself, particularly over delays to the station modernisation programme.
Bolt said in a report in November that the two Metronet subsidiaries, dubbed BCV and SSL, had failed to perform 'in an overall efficient and economic manner and in accordance with good industry practice' between April 2003 and March 2006.
philip.waller@thomson.com
paw/lam
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