Examination of Witness (Questions 300
WEDNESDAY 12 JULY 2000
MR T WINSOR
300. I hope I am right.
(Mr Winsor) I work out what things cost and the Strategic
Rail Authority makes the decisions as to how to use public money.
I do not decide how public money will be spent, that is a matter
for them because it is their money.
301. Forgive me, that is not what I said. I
am seeking your patience here. It is not how much public money,
because clearly that is a judgement for other people, but given
that you accept there will be public money, do you take that factor
into account when you are reaching your decisions on access charges
because access charges are another important element in the whole
(Mr Winsor) Yes, I have to take it into account because
I have to take a view of the overall finances of the railway and
I have to work out how much money Railtrack needs in order to
finance its programme.
302. Do you in your considerations, because
this is public money we are talking about, give any attention
at all to how the public interest is to be protected? For example,
do you take into account the essential need that this public money
just does not find its way into shareholders' dividends and profits?
(Mr Winsor) Yes. My only criteria, set out in section
4 of the Railways Act, to be amended by the Transport Bill, are
all public interest criteria.
303. Do you agree or otherwise or have some
comment to make on evidence given to us by Mr Corbett on 5 July,
question 46, when he was asked, ". . . if there is no substantial
increase you cannot carry on investing to the same extent".
He said, "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". Do
you accept that, or do you reject it? Do you have any comment
on it at all?
(Mr Winsor) I do accept that access charges are likely
to go up because the level of activity on the network, the outputs,
the additional capacity, the traffic which is being run on the
network, is increasing and we hope increasing substantially. People
want to buy this product. If activity levels go up, then the amount
of money going in by way of access charges will go up, but that
does not mean to say that they go up to whatever Railtrack want
them to be, because I also have to take a view as to the efficiency
of Railtrack and I must make decisions on year-on-year efficiency,
what the figure ought to be. In December 1999 I announced provisional
conclusions that Railtrack should be subject to an annual efficiency
target year-on-year of between 3 and 5 per cent. That is what
I announced in December. I shall be announcing in two or three
weeks' time what figure I have decided upon. It is wrong to confuse
increased access charges with efficiency. We are going to make
Railtrack be an efficient company, a more efficient company than
they are at the moment, but of course they must have enough money
in order to finance the programme. Nobody seriously disputes that.
304. There is also a difference between receipt
of access charges and the level of access charges, is there not?
(Mr Winsor) The decisions I need to make are about
the structure of access charges, what incentives will be built
into the system, and the levels of access charging.
305. Are you going to gauge this efficiency
because Railtrack have not been all that efficient, have they?
They have not made any great efficiency trends apparent.
(Mr Winsor) Yes, I am going to decide how efficient
Railtrack can reasonably be expected to be and I shall announce
that at the end of July. The events in this morning's paper about
the West Coast upgrade and the possible action by Virgin against
Railtrack showed that it is perfectly possible to be quite inefficient
in managing possessions. The Chairman was subjected to some pretty
unpleasant experiences and being thrown off the train at Watford
some time ago because of Railtrack.
306. They try it every week. Do not imagine
it is only once. They really have it in for me.
(Mr Winsor) My information is that on four successive
weekends Railtrack has made very serious errors in the management
of the possessions at Euston with the result that Virgin's performance
to its passengers has been very seriously damaged. Virgin gets
all the blame, even though Virgin is not to blame, because Virgin
is the guy who sold you the ticket. That is poor. The steps which
Virgin announced today show that the company is prepared to stand
up for its rights. They talk about difficulties caused by Railtrack's
contractors severing signal cablesthat takes six hours
out of the trains altogether; shortage of key components; overrunning
of work; equipment failures at key bottlenecks. That is not an
efficient organisation. Railtrack have offered a 30 point action
plan in order to remedy that within 28 days and Virgin have accepted
307. You have just said that the efficiency
should lead to a situation between 2 and 3 per cent, if I have
got it right.
(Mr Winsor) Three to 5 per cent I said.
308. Surely it should be higher than that.
(Mr Winsor) That is every year.
309. Surely it should be higher than that given
the intercontinental trends there are. In the railway industry
in America for instance, it is growing at a fairly substantially
higher rate than that.
(Mr Winsor) The efficiency targets which I shall set
for Railtrack are not connected to how much activity is taking
place: in relation to the increased amount of activity, how should
Railtrack's charges move for that higher level of activity over
time to take into account the efficiency with which they carry
out that higher level of activity? So the amount of activity may
be going up and therefore the amount of money going into the industry
may be going up, but the efficiency must improve as well, so it
pulls in the other direction.
310. What international benchmarking do you
involve yourself in in terms of looking at this? You just do not
operate in isolation, you must look at what is going on in Germany,
Italy, Spain, France.
(Mr Winsor) There are limited lessons to be learned
from other railways because of course there are very different
circumstances at that time. We do look at international best practice.
We look at America, we look at European railways, we look in other
places. We also look at the other privatised utilities and what
efficiency gains they were able to make in the years after privatisation.
Remember this is Railtrack's first periodic review after privatisation.
We have looked at the electricity companies, we have looked at
the water companies, we looked at telecommunications, we looked
at gas. We looked at all the other privatised utilities and we
make judgements about all of them.
311. That is fine, but it cannot be done in
real terms because you are not comparing like with like because
the only maintained monopoly is within the railways.
(Mr Winsor) There is only one Railtrack and that does
give me a considerable difficulty. The water regulator has the
advantage of 12 companies to look at, the electricity regulator
has the advantage of 14 companies to look at. I only have one
company to look at and that makes my job harder, but I must do
312. Surely that is when it becomes even more
important, does it not, for you to look more closely at what is
going on across the globe?
(Mr Winsor) We are looking closely at them. I did
not mean to imply we were not. We are looking very closely at
what is happening in other countries but we also must temper that
examination with an acknowledgement of the different circumstances.
In other words, we have to get rid of the diverting factors and
try to compare like with like as much as we possibly can. We are
doing that and we have done it.
313. In their evidence to us Railtrack were
whingeing a little bit that they think you are putting disproportionate
emphasis on enforcement action. Is that fair on their part?
(Mr Winsor) No. I wrote it down as well, because I
found that pretty remarkable as well. What they said was ".
. . a disproportionate emphasis on enforcement action" and
"No other regulated utility has had an enforcement order".
That is quite wrong. There is not an enforcement culture except
if you compare my record with the record of my predecessors who
never issued a single enforcement order against Railtrack. That
was their decision not mine. I have issued two enforcement orders
in 12 months. That is hardly a ticker tape parade of enforcement
orders. I am also putting significant regulatory pressure on Railtrack
in terms of track quality, network stewardship, broken rails and
many other things, vehicle and route acceptance rolling stock
approvals. You may wish to discuss those things. I am taking steps
to incentivise Railtrack and to move to incentive regulation with
clarity and stability. It was wrong for Mr Corbett to say last
week that no other privatised utility has ever had an enforcement
order: the telecommunications regulator has issued 16 enforcement
orders, almost all of them against BT, and the gas regulator has
issued five. At the hearing we held with Railtrack on 28 June
2000 in relation to the periodic review Mr Corbett said, and I
quote him exactly, "Regulatory pressure has got out of us
investment and performance which was not expected 18 months ago".
I welcome his endorsement of my action.
Mr Bennett: I do not think I need to ask any
more questions on that.
314. That is fun. There are advantages to having
people listen to our evidence sessions, do you not think, Mr Winsor?
(Mr Winsor) I found it an enormously useful session.
315. I want to ask you about the problems with
the delays in the introduction of new trains. What is the most
significant cause? People say there are various ones. Is it the
new rolling stock acceptance or is it Railtrack's limited knowledge
of the gauge of its railway?
(Mr Winsor) The most significant single factor is
the lack of information about the railway. This is information
which Railtrack should have. It is actually information Railtrack
does have; it just does not have it in a very accessible form.
That is one of the reasons why the asset register which I am going
to get them to establish is going to establish the gauge of the
railway, the electro-magnetic compatibility of the railway, one
asset with another and many other things, things which rolling
stock manufacturers, train operators and others desperately need
to know in order to design new rolling stock. It goes further
than that because Railtrack must improve the efficiency and sufficiency
of its procedures for rolling stock acceptance. They must be consistent.
The same guys must turn up to the meetings or must at least read
the notes of the last meeting, things of that kind. There have
been many alleged shortcomings by Railtrack in this area since
June 1996 when they obtained a report from Imperial College in
relation to the sufficiency of their procedures. That said that
they were poor and they promised to mend their ways.
316. What date was that?
(Mr Winsor) June 1996; four years ago.
317. You do not want to push them too hard.
(Mr Winsor) I am pushing them hard but I only took
over 12 months ago, as you know. In March 1997 they trotted out
a new procedure which was fundamentally flawed in a number of
respects. They took it off the table before it came into force.
In late 1997 they offered a new procedure which was again inadequate
and so the saga went on. There has been insufficient progressI
do not say no progress, there has been somein relation
to vehicle and route acceptance since then. The industry has lost
its patience. In October last year I received a formal complaint
from Adtranz and Alstom in relation to the sufficiency and efficiency
of Railtrack's procedures for vehicle and route acceptance. We
put the matter to Railtrack. Railtrack replied in February. We
held a hearing on 11 May 2000 and I shall shortly be announcing
my conclusions. The allegation by the two rolling stock manufacturers
was that Railtrack was in breach of Condition 3 of its network
licence because it failed to have efficient and sufficient procedures.
I shall not announce my conclusions now, but they will be coming
pretty soon. When we announce those conclusions, I shall then
go out to industry-wide consultation in relation to reform of
the system for vehicle and route acceptance. It is telling, however,
that Virgin, facing the introduction of £1.2 billion of new
trains, decided that the existing procedures for vehicle and route
acceptance were inadequate. They also made a decision that the
stance of the previous Regulator in meeting their pleas for assistance
was not going to be enough to bank, on and they did need to raise
a lot of money in order to finance these new trains. So they devised
a contract called the vehicle and route acceptance contract between
themselves and Railtrack, requiring Railtrack to provide very
substantial information, everything they needed to know about
the network in order to design the trains and how they would behave
with the network, how they would behave with other trains on the
network, stationary, moving, etceterarequiring Railtrack
to follow the necessary procedures in accordance with best practice,
with a degree of skill, diligence, prudence and foresight which
should be exercised by a competent and experienced infrastructure
operator and many other things, to give them advice, assistance
and so on. Those contracts were signed on 1 May 1998, one for
Cross-Country Trains and one for West Coast Trains, both Virgin
subsidiary companies. My information is that those contracts have
worked extremely well in getting those trainsand they are
not through the process yetin getting Railtrack to run
the process correctly. The question must be asked: if Railtrack
can do it for the Virgin trains, why can they not do it for everybody
else's trains? I have done presentations to several parts of the
industry in relation to these contracts and not one has chosen
to pick up this contract. You have to ask yourself why, because
if Railtrack will not give them the contract then I have the powers
under section 17 of the Railways Act to require Railtrack to sign
up to these contracts.
318. Are you telling us that the train operating
companies are not looking for these contracts?
(Mr Winsor) The train operating companies were quite
excited about these new contracts once they were established by
Virgin, because, because they are track access contracts, because
they deal with test paths, they are regulated contracts, therefore
the Regulator can force Railtrack to sign them up. The other feature
is that under section 72 of the Railways Act they therefore had
to be published. They are on my public register, in fact I am
going to put them on my website because I get asked so often for
them. What 16 of the train operating companies did, was they took
the Virgin vehicle and route acceptance contracts and refashioned
them into a multilateral code which could be retrofitted into
the central commercial code for the railway industry called the
Track Access Conditions. All they needed to do was vote that through;
six votes out of eight was all that was needed. All the train
operators needed to stick together and vote this through, Railtrack
would use its two votes probably to vote against it, but as long
as they got six votes out of eight they got it.
(Mr Winsor) They took fright. They did not put it
to the vote because the train operators were not sufficiently
together. Those sponsoring the proposal realised that they would
not get six votes out of eight. Railtrack only had to have one
company side with them or even abstain and the vote would be lost,
so there was no vote. You may say it is pretty breathtaking. I
do too. Nevertheless that is what happened. There was great disappointment
in the rail industry that they came so close and then snatched
defeat from the jaws of victory. Nevertheless, after I have dealt
with the Alstom/Adtranz complaint I shall be going out to industry-wide
and public consultation on whether or not this regime, the Virgin
regime, is fit for purpose for the industry, whether there are
improvements to that, whether that is the right solution for the
whole industry or whether adjustments are needed. Then when we
have had the decisions or the representations from interested
parties, I shall make a decision. If it is that Railtrack should
have these rules retrofitted into the central commercial code
for the railway industry, then I expect the railway industry will
retrofit it by vote. If they do not do it by vote, then I shall