View from City Road: A compromise to get Jubilee back on track

The banks, the Treasury and the Department of Transport have spent a lot of time in negotiating rooms over the last six months without actually listening to each other. As a result, the Jubilee Line project is back to the brink only weeks after it appeared to be sewn up with a promise of pounds 98m cash from the European Investment Bank.

The danger is genuine, and not entirely brinkmanship, though there is a large element of that as well. Because the construction of the Jubilee Line extension is a precondition to the banks' refinancing of Canary Wharf, the whole pack of cards could be brought down.

The row is one of those Whitehall classics that runs on several levels at once, so conspiracy theorists see two hidden agendas. Is this a last minute ploy by the Treasury to delay the line, because of its well known belief that other infrastructure projects are better value for money? Or are banks trying to weasel into the contracts a hidden public sector guarantee for a project the Government has said from the beginning must have a genuine private sector component?

Under the agreement, 11 banks and the European Investment Bank will join with the Government in financing the line. One clause obliges the Department of Transport to repay the banks' money if construction is not complete by the year 2000, 31 months after the projected completion date. Ministers and the banks agree this clause has been discussed for some time. But there unanimity ends.

Banks say that through months of negotiations, Whitehall has bickered about the details - mainly the date at which the clause would operate - but not about the principle of the clause. This objection was only made clear last week, say the banks, which are outraged.

Lloyds, Barclays and the foreign banks involved see the clause as an incentive to the public sector to put its full weight behind construction. They also think of it as a preventive measure to stop the Government cancelling or delaying the line in a year or two, under pressure from a pounds 50bn borrowing requirement.

The Department of Transport and the Treasury, on the other hand, say they have emphasised from the beginning that there is an issue of principle at stake. They are not prepared to agree a clause that could cost the public purse a lot of money in circumstances that would be outside the control of the Government, for example if there were disastrous construction overruns.

Furthermore, the pounds 1.6bn project could be hit by changes in transport demand in London, so the Government does not want to give up the flexibility to review the project every year, a Treasury source said. Remember Thorp, the nuclear fuel reprocessing plant nobody could stop and nobody wants?

The implication is that the controversial clause could make it more costly for the Government to stop than go on if circumstances change. The banks are therefore right to be suspicious of the Government's long term commitment to a line regarded in the City as essential to making Canary Wharf viable.

Where banks may be pushing too hard is making it a blanket clause with no allowance for difficulties with the project itself. If there is to be a compromise it should perhaps be a condition that nails down the Government to repayment if the line is delayed or abandoned for any reason linked to public spending pressures - or in other words that hidden agenda the Treasury is suspected of having.