£2bn shortfall in cash needed to upgrade Tube

The gap has opened up between the total amount the private sector consortium estimates it will have to spend by 2017 and the amount the independent regulator believes is needed.

PPP arbiter Chris Bolt said today that costs for the programme - which covers the Northern, Jubilee and Piccadilly lines - should be no more than £5.1billion to £5.5billion. But Tube Lines puts the figure it needs to spend at £7.2 billion. There will now be negotiations between Mr Bolt, Tube Lines and London Underground to agree final costs.

The black hole echoes the £2 billion gulf which led to the collapse of Metronet. But Tube Lines said today there was no prospect of a similar collapse. It does not have the cash-flow problems which led to the end of the Metronet consortium. The problem emerged in an official report from Mr Bolt giving his "initial view" of spending on the project from 2010 until 2017, a total period of seven and a half years.

Under the programme miles of track will be replaced and stations rebuilt.

Mr Bolt said his report was based on the costs of construction and repair programmes on other urban railway systems around the world.

He said: "Costs are likely to be in the range of £5.1 to £5.5billion for the second seven and a half years of the contract. I have reached this view on the basis of a detailed review of the figures put forward by Tube Lines and LU and other evidence including benchmarking with other metros.

"To deliver the expected contracts is costing more than when the contracts were originally placed. It is no surprise that construction costs are rising - the big question for Transport for London is can they afford all this?"

Under the PPP system, the Tube Lines consortium proposes a cost for its plans, while London Underground does the same. After negotiations, Mr Bolt decides exactly how much is allowed to be spent and gives a final verdict on costs by 30 June 2010.

Tube Lines has put forward a £7.2 billion figure, while London Underground suggests the programme of works it wants cost £4.6 billion.

During negotiations Tube Lines will have to detail which aspects of the investment plans will be cut back as they provide an updated "pricing list" - but London Underground may also be told to come up with extra money to fund Tube Lines.

Today's £2 billion gap raises the prospect of dramatic cuts in the programme for the three lines.

Mr Bolt said it was "vital" that "lessons are learned from the work that has been undertaken".

A Tube Lines spokesman said: "This is not a Metronet situation - nothing like it. We now need to work out what needs to be done and what can be afforded. That is up for negotiation."

Transport for London made clear that since the Government "imposed" the PPP on London it was up to ministers to find the additional funding that may now be required.