Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of Witnesses (Questions 40 - 59)



  40. That is why you picked up such a very large bonus.
  (Mr Middleton) The performance regime was always set up to incentivise Railtrack to perform and if Railtrack performed it was going to earn a big bonus.

  41. But you were not incentivised enough just on the basis of earning a lot of money?
  (Mr Middleton) The architecture of privatisation was not designed for a growing network.

  42. Where did it say that in the contracts that were signed by Railtrack?
  (Mr Corbett) It did not say that in the contracts. There are three big problems. One is our access charges are fixed, so there is no incentive to grow and—

  43. Mr Corbett, we are not going off on to this again, we will come back to this. What I am saying to you is we are talking about the code of conduct and you are saying "the problem was we did not really know who did what and it was all very difficult, we have therefore decided we are going to suggest to people they have a code of conduct and they are all going to agree it because then it will be much clearer to them than it was under their existing contractual obligations". Firstly, I think it is interesting that the code of conduct is clearer than a contractual obligation, but let us put that aside. Are you telling us that the train operating companies are prepared to enter into a code of conduct with you on the basis of being clearer about what it is that you will do and what they will do?
  (Mr Corbett) What we are saying is that at privatisation, which was done in a hurry, there were things that were not appropriate for aligning us with our customers. One was investment incentives, another was growth incentives and another, I guess, was also the way the different parties behaved upon privatisation when the industry was divorced from each other. As part of an attempt to address some of those issues, the subject of the code of practice is now being addressed by the parties. What is really going to make it better is just basically people working with each other in the way that they always used to and there has been a lot of progress in the last year on that.

  44. That is nice. How many years has that taken? When were you privatised?
  (Mr Corbett) 1996.

  Chairman: It is nice to know there is a rapid sense of response.

Miss McIntosh

  45. You state that you spent £2 billion more than allowed in the current track access charges in your memorandum and you also state that to carry on with the investment, to maintain the serviceability of the existing network with higher expected traffic volumes and delivering improved outputs you will require a substantial increase in track access charges. Has that been agreed?
  (Mr Corbett) No, that has not yet been agreed. When we were set up the Regulator made an assessment of how much we would need to spend on renewing the network. Because of the growth in the network we have, in fact, spent £2 billion more than that assessment. The Regulator is in the process of setting the track access charges for the next five years. We hope that he will take into account the actual costs that we have incurred in the last five years in renewing the network and then, of course, he will take into account the further increase in renewals that there will have to be as the network continues to grow. The bottom line of all of that does mean that there will have to be a substantial increase.

  46. Can we conclude from that that if there is no substantial increase you cannot carry on investing to the same extent that you have been?
  (Mr Corbett) That is correct, and I am afraid the way the numbers work is if there is no increase in the access charges and we continue with the investment programme at the current level then we will be in breach of our banking covenants by next April.

  Miss McIntosh: Chairman, as you know I have a particular interest in the East Coast rail route.

  Chairman: Especially the refreshment department.

Miss McIntosh

  47. Free coffees, yes. I should declare an interest in free coffees on the journey en route. Could I just ask what the total expenditure over the next year to 18 months is currently?
  (Mr Corbett) On the East Coast?

  48. On the East Coast.
  (Mr Corbett) Leeds is 170 and then there is all the preliminary work on the rest of it. About £200 million this year.

  49. In your view is that going to be enough to overcome the capacity problem if both more passengers trains and more freight trains are going to operate on that route, particularly on the bottleneck north of Newcastle?
  (Mr Middleton) No, the East Coast project is a major upgrade of route. We are currently discussing with SRA as to the total investment needed to provide all the capacity going forward for the next ten to 20 years. That is investment which is currently estimated to be between £1.8 and £2 billion.

  50. Can I ask what bearing it is going to have on the renewal of the franchises for competing carriers on that route?
  (Mr Middleton) The SRA will obviously have to deal with the question of the franchises. We have worked with the SRA to look at what sort of project you need to have on the East Coast Main Line to provide the sort of capacity we think needs to be provided, that is to provide more Intercity trains, more suburban trains serving King's Cross up to Peterborough, and more freight, and we have come to a view that is going to cost between £1.8 and £2 billion. The franchise bidders are looking at what they need to put into their bids to get the franchise and that is a slightly different question than we have done on the upgrade.

  51. With respect, I would like to know for sure because presumably if new technology as part of the one franchise has been looked and the state of the track would have enormous implications for whichever franchise was going to be chosen.
  (Mr Middleton) The two companies who are bidding have got quite different approaches as to how they see the East Coast Main Line delivering the growth in the longer term. It really is for the SRA to make the decision as to how they think those two bids should be handled. The work we have done looks at the core capacity requirement on the East Coast corridor as it is built and the infrastructure enhancements needed on that to cater for growth.

Mr Donohoe

  52. Why was it necessary for the Regulator to become involved in the whole question of the programme around the West Coast Main Line?
  (Mr Corbett) That is a question, I guess, to put to the Regulator. From our perspective when we realised in 1998 that we had potentially a big problem if we pressed ahead with the moving block signalling—

  53. 1998?
  (Mr Corbett) Yes. We became unhappy with the rate of progress on delivery of the project and we changed the management and instigated a review of the whole thing and the alternatives and I think the Regulator was getting pressurised by some of the operators of the route to ensure that our plans were made public so that they could plan and that is why he came up with his enforcement order. His enforcement order is about the provision of information and by the 24 July (this was confirmed in our board meeting this morning) all the information that he has asked for will be provided.

Mr Donohoe

  54. You are pretty confident, are you, that the deadlines you have set and which have been set for you of May 2002 and 2005 for completing the first and second stages will be honoured by you?
  (Mr Corbett) Yes. We have let £1.2 billion of contracts for phase one which is on track. Those of you who have been on the West Coast Main Line in the last couple of weeks will know that three-quarters of it is currently being dug up. There is a huge £150 million investment at Euston Throat at the moment, which is causing some delay problems I am afraid. All the work on phase one is on track. Two key deadlines are the new tilting trains which arrive on track next May and the 125-mile-an-hour running and reduced journey times for the summer of 2002. On the one hand we have been concentrating on getting ahead and delivering that whilst re-configuring phase two and coming off the moving block system which we thought was too risky.


  55. What was that? You always thought it was too risky?
  (Mr Corbett) We concluded that it was too risky.

  Chairman: But only in 1998? I shall give myself the pleasure, Mr Corbett, of going back over the evidence which has been given by Railtrack to this Committee on the whole question of moving block technology because I do not quite remember it in the same way you have presented it this afternoon. Mr Donohoe?

Mr Donohoe

  56. Is that the main reason that the actual investment costs of this project have risen from £2.3 to £5.85 billion?
  (Mr Corbett) That is the main reason because the moving block is the computer in the train and one control centre, whereas more conventional signalling is thousands of line side signals which will have got to be renewed.

  57. Who is going to bear the costs of this change?
  (Mr Corbett) 80 per cent of the West Coast upgrade is renewals and under our current structure renewals are considered every five years as part of the regulatory review. The Regulator has considered renewals planned for the West Coast going forward and he is also considering the renewals plans for the rest of the network.

  58. On a different subject, how much would you estimate it costs Railtrack to deal with vandalism?
  (Mr Corbett) It is difficult to put a precise number on it. We have a huge trespass and vandalism programme. This year we are spending more than £20 million on fencing. We have a series of videos. We have a liaison with Charlton Football Club, a whole series of local programmes in place. In the North East they have a special play which they take out round the schools, a whole host of activities. Perhaps you would like a note presented to the Committee on the programme in detail.

  59. What evaluation has been made of the de-manning of your railway stations? What cost factor has that led to?
  (Mr Corbett) As Mr Middleton said earlier, we operate 14 of the stations. The other 2,450 are run by the train operators.

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