Examination of witness (Questions 40 -
59)
WEDNESDAY 15 DECEMBER 1999
MR DENIS
TUNNICLIFFE
Mr Forsythe
40. What risk will remain in the public sector
once the PPP agreements are agreed?
(Mr Tunnicliffe) We did send you this document, and
I think there is a section in there that sets it out. They will
not carry on any revenue risks because our revenue is very much
driven by the state of the London economy. There will be certain
change of law risks that they will not carry. What we are trying
to do with the contract is to try and not have a very clever contract
as most PFIs used to start, where you try to beat down the supplier
and you have a long war. We are trying to have it more proportional
than that, and we have left the door open for bidders to talk
about risks they may not want to take. The obvious ones are highly
catastrophic risks where the potential is extremely small, and
we know the risk because we have known the business for a long
time, and we might end up taking that risk if the bidders put
to us that it is more value for money for you to take that risk
than for us to take that risk.
41. Are the rail unions correct then when they
say that the private sector will be assuming less risk than originally
anticipated?
(Mr Tunnicliffe) I think we have always said from
the beginning that the risk transfer would be appropriate. You
cannot push more risk on the private sector than it can manage
and fund and sustain. That is the experience of all the PFIs and
the risks you want the private sector to bear are not the—well,
we will have that debate with them, but it is the risk of things
going wrong not exactly on the day to day level but at equipment
level of stuff they manage and control, problems of how the thing
is fixed, how quickly the railway is handed back and so on. You
want them managing the risk that they understand and they can
manage and you want them very clearly incentivised to do that.
That is why we have not shut our minds to debating with the private
sector catastrophic risk because catastrophic risk is very big
and is also something on which they may be able to bring very
little to the party.
42. It sounds a bit like the PPP will give poor
value for money. Have you made any estimate of the continuing
requirement for subsidy in the future?
(Mr Tunnicliffe) We are in the middle of doing some
sums on that and we have not come to any conclusions yet. I think
it would be fair to say that the most probably outcome is that
there will be some requirement. I would like to be more specific
than that but I will gently use the word "modest" if
I may.
Mr Bennett
43. You talk about catastrophic risk. Is it
not really something much more grave than that? If you took something
like the levels of water in the ground under the system, that
can be partly global warming, it can be fairly minor rises in
the water table. Is it not extremely difficult to separate out
that risk from being something that you would say was major to
something that was relatively minor?
(Mr Tunnicliffe) We do not believe so. We have not
started this debate but we do not believe so. If we look at our
own insurance profile, for instance, there are big gaps between
the catastrophes and we think we will get the risk lying where
it should be.
44. So your insurance covers you for global
warming?
(Mr Tunnicliffe) No.
Chairman
45. Can I just be clear before you move on because
we have a number of people wanting to question you: are you really
saying that nay private company coming in would be able to say
to you, "We will undertake the normal responsibility of day
to day running, but if anything serious happens the taxpayer has
to underwrite it"?
(Mr Tunnicliffe) I think it is more accurate to say
that bidders will come back to us and talk about the risk they
can afford to take on, and there may be some very large risks
which are very unlikely—
46. Which the taxpayer will have to take?
(Mr Tunnicliffe) Which are very unlikely.
47. No, no. Mr Tunnicliffe, let us not bandy
words here. What you are saying is that they are prepared to come
in when they can make a profit on the day to day running, but
they are also going to ask that the taxpayer underwrite the possibility
of any major problem?
(Mr Tunnicliffe) The taxpayer, you have got to remember,
is owning this asset long term. The asset is not going out of
the ownership of the taxpayer.
48. So the division in your mind is not between
a private company coming in to perform a service and making a
profit. It is between the ownership of the assets and the employment
of a service company, and you will decide at which level that
risk is divided? Is that what you are telling us?
(Mr Tunnicliffe) I realise that the moment I say yes
you are going to leap on it.
49. I never leap on you, Mr Tunnicliffe. I might
like to, but I do not. I could get myself such a reputation that
way.
(Mr Tunnicliffe) Certainly we look upon it, as I think
the Deputy Prime Minister has explained many times, as not the
transfer of the asset long term. It is the transfer of the asset
to be maintained and presented for use for the eventual return
to the public sector.
50. You and I are in agreement.
(Mr Tunnicliffe) We look to the maximum sensible transfer
of risk to the companies who are going to look after and maintain
those assets.
51. So I ask you again: the service companies
are going to put to you a deal whereby they will take over the
risk for the ordinary running day to day and the taxpayer will
underwrite serious risks over and above very minimum ones?
(Mr Tunnicliffe) No, I see it very much the other
way round. I see the companies taking on the vast majority of
the real risk that is there and the taxpayer only coming in in
the exceptionally unlikely areas.
Mr Donohoe
52. How much do you estimate has been spent
so far on consultancy fees looking at the PPP?
(Mr Tunnicliffe) I would be very grateful if you did
not press me on that and that is for a reason of the courtesies
of this establishment. Ministers I understand have given assurances
that they will regularly answer that question. I understand they
intend to answer that question very shortly and I understand they
would be grateful if you would allow that question to be answered
through that medium.
53. With great respect to you, it is you who
is here as a witness and the Sub-Committee has previously guesstimated
the figure and it was at the rate of some £65 million. Are
we far away from that as a figure now? Have we gone beyond that?
(Mr Tunnicliffe) As I say, I believe that you will
get a clear answer—
Chairman
54. No, Mr Tunnicliffe. Let us get the rules
of engagement clear. You are giving evidence to us. Ministers
are also answerable to Parliament and they will in due course
have to answer our own questions that we put to them and the report
that this Committee produces, so I am afraid we are asking you.
(Mr Tunnicliffe) I would prefer to send you a written
response privately.
55. Very well; we will accept that, but you
will understand that you are going to have to discuss whether
or not it is published.
(Mr Tunnicliffe) Yes. I know Ministers are very concerned
that you do have the information.
Chairman: I know Ministers want to keep us informed.
We do want to be informed. that is why we are asking the person
who is likely to be responsible.
Mr Donohoe
56. If you cannot answer that, can you answer
this? To what extent has the planning for the PPP by management
diverted away resources from the day to day operating?
(Mr Tunnicliffe) I think the change we have been through
has diverted some management effort. It is difficult to quantify
it but we have done two things at once. We have re-shaped the
company. We have re-shaped the company in a way that our previous
work was suggesting was sensible anyway. The biggest diversion
was in that change, in other words we had an organisation which
was managed on a line basis with maintenance and operations in
the same line business unit. For the PPP and as a result of work
we had previously done, we have changed that into a station based
operation, a train based operation, a marketing based operation
and so on.
57. So because of that you will be able to tell
us, will you, the revenue loss that has been accrued since the
opening of the Heathrow Express?
(Mr Tunnicliffe) if you wanted that figure we could
certainly give you an estimate of the revenue loss since the opening
of the Heathrow Express.
58. I would have thought that that would be
something that you, as the Managing Director/Chief Executive,
would have concentrated on because it is a fairly major factor.
It is a new project which must be filtering off quite a substantial
amount of revenue. I wondered whether or not you would also know
what the estimated revenue would be for the new Jubilee Line link-up
to the Dome.
(Mr Tunnicliffe) I could certainly give you both those
figures. I do not have them at hand. Could I say something that
I think shows the difference that we have in the public sector
compared with an equivalent private sector company, and that is
that to us we are a complement to the Heathrow Express, not a
competitor. The Heathrow Express has relieved some traffic from
ourselves into London but that relief has allowed people who use
the Piccadilly Line downstream of Heathrow, who really had a quite
difficult journey before the opening of the Heathrow Express,
to build up capacity. Our general remit is to improve public transport
and if that means a competitor comes in and takes pressure off
us and allows us then to offer a better service to the rest of
our customer base, that for us is a good thing against our remit
generally to improve public transport in London.
59. Why is the GLE project being completed late
and over budget?
(Mr Tunnicliffe) That is a very big question.
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