Examination of Witnesses (Questions 660
WEDNESDAY 22 NOVEMBER 2000
660. Could I ask, just on that, who should be
able to see it; all your contractors?
(Mr Middleton) Because of the nature of the information,
it will not be made public, but I think it would be available
if someone wanted to come in and look at it to take a view on
design of rolling-stock, size of wagons running on the network;
we would make that information available to them.
661. Are there going to be any problems because
of the Regulator's decision to defer payment?
(Mr Marshall) With respect to financing, Madam Chair?
662. Yes; you said that the Regulator's requirement
that the company reduces its costs would be extremely challenging,
and you are also concerned about the income being reduced?
(Mr Marshall) Yes; if I may comment. The regulatory
review has come an awful long way, huge progress has been made.
The principal issue that Railtrack faces now is how much it has
got to finance over the next five-year period. I have already
indicated that we need to borrow a great deal more on top of the
allowance that comes out of the regulatory review; that is the
key issue for us, really. The Regulator recognised the need for
an additional £700 million of investment, in his most recent
determination, indeed, in his final determination, of October.
The issue for us is that, of that £700 million, 500 of it
does not actually come in cash, it is deferred and we simply earn
interest, if you will, on it from 2006 onwards.
663. You said that this would cause financing
(Mr Marshall) Yes. What it would mean, it does not
threaten the viability of Railtrack as it is, it is all about
how much extra investment we can put in the network, and what
we are observing is that if we have not got that cash available
to us over the next five years it does have an effect on how much
extra we can borrow. It is pure cash flow, it is not about asking
for more for Railtrack shareholders, or more value, it is how
much we can borrow against.
664. Yes, well, of course, if you have put up
the amount that you pay the shareholders, even when you have got
problems with the shares, I can see that you would not want to
reverse any of the previous decisions, would you?
(Mr Marshall) With respect, Madam Chair, I think that
is a slightly different point. The dividend policy is about retaining
the support of our shareholders, because we need that, amongst
other things, to create the additional investment that leverages
the public/private investment that we have all been talking about.
665. Can you reduce your costs by 17 per cent
over the next five years without affecting the safety and performance
of the network?
(Mr Marshall) It is not a matter of safety. We do
not accept, I do not accept, that there is a trade-off between
safety and efficiency. However, in direct response to your question,
it is a very demanding target, it does mean we have got to take
17 per cent out of our total cost base, and at the very beginning
of this next five-year period, given that Hatfield has happened
and we have to recover from that, year one of that five years
will be very tough for us to get efficiencies.
666. So are you going to have to make extra
changes; are you going to have to reorganise the structure, on
(Mr Marshall) We will look very hard at all areas
of our cost base and our structure over time. But the current
priority, it was the very first question, I think, that I was
asked today, is for us to stabilise the network, to invest in
engineering and all of the other things we need to do to move
ourselves forward. Inevitably, that means, over the next 12 months,
it will be quite difficult for us also to achieve efficiencies
at the same time. But it is not an issue of safety.
667. Have you addressed this idea of mini-Railtracks,
created on a regional basis, and what do you think of that idea,
with responsibility for other matters, such as signalling?
(Mr Marshall) We have heard discussion of that idea,
Madam Chair; we certainly would not entertain it for long ourselves.
We think that there is a huge benefit of having a national infrastructure
operator. We have enough problems at the moment with our seven
zones, which is the way we break the country up, who still, by
and large, do many things differently; that is one of the reasons
we are strengthening the engineering resource, to work out one
way of doing things and to do them one way across the country.
If the network were to fragment into seven or any other number
of pieces, where would the standardisation of the infrastructure
668. So you would not accept this idea that
you could take certain things right out of the system, that you
could run them separately and that you would still be able to
get a better result within a region that was differently organised?
(Mr Marshall) No; it is one system. It works best
run as one system, and if we were to get into fragmentation, by
asset category, or by regional geography, the same problems would
669. Do you agree that safety should be taken
right away from Railtrack and put into an independent authority?
(Mr Marshall) Certainly, we support investigations,
accident investigations, and so on, being totally outside and
independent. The biggest debate, I think, in the industry, has
been about the status of Railway Safety Limited, and does that
stay within Railtrack as an independent subsidiary or does it
come back in, or go out.
670. What was the response of the Board to that?
(Mr Marshall) Our view is that, the preferred option,
actually, is for that standard-setting role to stay within Railtrack,
on behalf of the industry, as the network operator.
671. You do not think that the passengers, as
opposed to the customers, might have more confidence in you if
it were seen to be a totally free-standing organisation?
(Mr Marshall) Our judgement is based on what we think
is best for the industry, and basically to keep the accountability
for safety and the setting of standards close to the industry.
We do recognise an alternative argument that says just take it
away completely and then there is never any accusation of conflict;
that is not our preferred option. The most important thing is
that there is clarity and no duplication either way. Where we
are at the moment is not necessarily the best position, which
is an independent subsidiary but still within Railtrack.
672. Are you being delayed by the absence of
the shadow Strategic Rail Authority's shadow strategic plan?
(Mr Marshall) No, Madam Chair. We are investing £2.5
billion this year, over £1 billion of which is pure, outright,
enhancement, including Channel Tunnel Rail Link; so investment
is going on apace. The important thing, I think, for the industry,
is that, as we get two to three years out, enough refranchising
has happened to enable new enhancements to be worked up that we
can commit to. But there is pace picking up in the refranchising
programme, and no reason to think that the SRA's strategic plan
will not accommodate that.
673. Do you think there is sufficient clarity
in what the sSRA are doing, in relation to refranchising?
(Mr Marshall) Could I ask you to expand on "clarity",
in what context you meant?
674. Are you quite convinced that the future
demand for capacity and the investment that is needed to support
it are being dealt with adequately, given the refranchising programme
and given the way that you are going to have to respond?
(Mr Marshall) I see no reason why that should not
be the case, but I would also ask Mr Middleton to comment.
(Mr Middleton) In my previous role, I was working
very closely with the SRA in developing the enhancement programme
for the whole network. We have a view, which we have expressed
before, that deciding on the strategy for a particular route and
then looking at franchising options for the route would be a better
way of proceeding than throwing open the franchising to bids before
we have decided on what the route strategy is. But, nonetheless,
as the SRA have appointed preferred bidders, we are finding it
possible to work with them, to develop those route strategies
and come up with enhancement programmes for delivering improvements
to passengers over the future years.
675. And do you think Railtrack has got the
balance right now between freight and passenger operators, in
terms of investment?
(Mr Middleton) We always take account of the needs
of freight operators when talking to the franchise bidders.
676. Well, of course you do, because they are
your customers, Mr Middleton, and I do not expect you to ignore
your customers. It was not what I asked you. I said have you got
the balance right, because the freight industry thinks it is being
dealt with differently from the passenger industry; now do you
think you have got the balance right?
(Mr Middleton) I think there is more work to be done
to get the balance right to deliver the 80 per cent growth on
the network. I think the role of the SRA, in relation to freight,
and their Freight Director's role, is very important in clarifying
for the industry exactly what the priorities for freight are.
We are working closely with them on some schemes on the network,
Felixstowe-Nuneaton, for one, where we are looking at the enhancement
of the cross-country route. But, for the longer term, I think
there needs to be a more proactive stance by the SRA to be clear
on what the priorities for freight are, because much of the funding
for developing the network for freight will come via that route.
677. Now then, Mr Marshall, finally, what do
you think is going to be the attitude of the passengers, quite
apart from your customers, the passengers, if they spend this
Christmas unable to receive their Christmas cards and their Christmas
presents because there are problems with carrying post on the
rail, and they also find themselves faced with temporary timetables,
which are changing day to day, and sometimes seem to bear not
a great deal of relationship to what actually happens when people
finally get on a train?
(Mr Marshall) We can only recognise that people will
find this process very frustrating.
678. And over and above frustration, because
they have been frustrated for some months now?
(Mr Marshall) I repeat, we do fully recognise that,
but we are committed to getting the recovery plan in place. It
is very clear what we need to do to get it done; we are co-operating
with train operators in getting the special timetables out, and
over 55 per cent of the industry at this stage will have special
timetables out. Mr Middleton is whispering to me.
679. Mr Middleton, whisper to us?
(Mr Marshall) He was reminding me to come back, which
I was going to attempt to anyway, on the issue of the mail; and,
since he is working me like a glove-puppet, perhaps you would
like to say what you want me to say, Mr Middleton.