John Prescott has a tough fight with the Treasury

The government is expected to announce controversial plans to partially privatise London Underground later this week under a public-private partnership (PPP).

Railtrack is bidding to run the sub-surface section of the system, the lines that run partly above ground or in shallow Underground tunnels, including the District, Metropolitan and Circle Lines.

It plans to link them with existing surface tracks through new tunnels, adding direct links to airports and speeding journey times.

A spokesman for the Department of the Environment, Transport and the Regions confirmed their interest.

"Railtrack have submitted proposals for integrating the sub-surface lines with their network but have not submitted a formal bid," he said.

Other potential bidders, including construction companies Amec, Balfour Beatty, and Tarmac, fear that Railtrack may have stitched up control of the whole project.

Cabinet battle

Deputy Secretary John Prescott has been battling with Cabinet colleagues on his plan to inject private investment in the Tube system while maintaining a degree of state control.

He is believed to have won the argument that the system should be split into three parts, with two other companies running the deep Tube lines. The Jubilee, Northern and Piccadilly Lines would form one group, while the remaining lines, including the Central, Bakerloo and Victoria, would be in the other.

Companies could bid for 30 year leases, while the train operations would remain in the hands of London Underground.

But Mr Prescott has not yet succeeded in securing transitional funding to pay for urgent Tube modernisation in advance of the private sale - which will not be completed until 2001 at the earliest.

London Underground says it needs £1.2bn for immediate repairs, as well as a longer term investment of some £5bn. The cost over-run on the Jubilee Line Extension, which runs to the Millennium Dome, has made the Treasury reluctant to come up with even more money.

Railtrack under pressure

Mr Prescott would like to use the prospect of running the Underground as a bargaining counter to force stricter regulation on Railtrack.

He has been frustrated by the lack of progress on eliminating train delays, despite the £1bn in government subsidy to the rail system.

He has threatened to change the current system, in which the subsidy is paid indirectly through the train operators, into one in which Railtrack receives the money directly - which would give the government much more power over their investment plans.

But Chancellor Gordon Brown is reported to be worried that the plan would hamper Railtrack's ability to borrow funds privately for investment, a view shared by Gerald Corbett, Railtrack's chief executive.

Railtrack's shares have fallen from £16 in February to £13 currently, despite posting £428m in profits, on fears of tighter regulation.