Examination of Witnesses (Questions 120-139)
MONDAY 9 APRIL 2001
SIR RICHARD MOTTRAM, KCB, MR ROBERT HOLDEN, MR STEVEN MARSHALL, and MS LOUISE HART
120. Before we move on, you did not answer the question Mr Leigh was asking about when the breakthrough to viability might come about. You told me that your models showed you were going to get payback and so on. Yet when asked all we seem to get is "Well, it will have happened by 2030". By that time you will be 84 and I look forward to having you back at that stage.
(Sir Richard Mottram) I would be delighted, Mr Williams.
121. It makes a nonsense of accountability, does it not, when you are saying our models are proving that viability will be achievable in timescales which you cannot even begin to predict but which in so far as you do venture on to a figure are so far ahead as to be meaningless.
(Sir Richard Mottram) I agree with you that we are talking about very long range numbers and we are talking about forecasts about very long range numbers so obviously what you say is right. We have attempted in analysing this project to quantify all the benefits and the costs and to produce discounted numbers for all the benefits and the costs which we have shared with the NAO and reflected throughout this report. We have not sought to claim substantial benefits from the forward dividend stream. All we have built in here is the rental that will be paid for the land, heavily discounted because it rises after 2030, I think, speaking from memory. We think this is a standard way of appraising a project of this kind. Of course, Mr Williams, you are right in the sense that this is a project which given its nature and given the way that passenger numbers have developed is going to have a very long payback so it is a judgment. Now the previous Government had all this information and took a view about it. The present Government has had all this information and has taken a view about it both in 1998 and in 2001 and has concluded, for both the reasons set out in this report and for the wider but unquantified policy benefits which Mr Leigh was asking me about, that the project should proceed.
122. Either you have models or you do not have models.
(Sir Richard Mottram) We do have models.
123. Either your models have produced forecasts or they have not produced forecasts.
(Sir Richard Mottram) They have produced forecasts and we can give them to you.
124. We would like to have them and we would like to have the premises on which you arrive at these forecasts.
(Sir Richard Mottram) Absolutely, Mr Williams.
125. In that case if you had the figures why did you not give them to Mr Leigh?
(Sir Richard Mottram) I do not have all the figures here. Let me go away and look at the point about when we might expect to get dividends.
126. Surely you should have expected to be asked when it was going to breakeven and if you have any figures which show it will breakeven. One would have expected you of all people to be well equipped for that.
(Sir Richard Mottram) I am sorry, Mr Williams. I came not proposing to claim anything other than what is in this report. I have not claimed anything other than what is in this report.
Mr Gardiner: You have disowned half of it.
127. You have disowned a major part of the report. You have not produced a single figure to justify your optimism.
(Sir Richard Mottram) I have not disowned half of the report. I have disowned one conclusion.
128. Where are the figures to justify your optimism? Why are you not able to present them to us now? You must have known you were going to be asked about this.
(Sir Richard Mottram) We think the answer is around 2030, Mr Williams.
129. Around 2030?
(Sir Richard Mottram) Yes, around 2030.
130. It could be the other side of 2030?
(Sir Richard Mottram) It could be the other side of 2030.
131. That is way beyond what the projections have been so far.
(Sir Richard Mottram) I am not claiming any credit for this, Mr Williams. What I am saying is that on the numbers in this paperand we can certainly go through and give you our current view about, for example, passenger growth and so onwe have calculated the amount of public money that will go into this project and also we have a view about how much money we will have to pay in relation to the access charges loan. We are then reasonably confident about getting money back on the land rental but it is a very long way away and therefore when you have discounted it, it is quite a small sum as in this paper.
Mr Williams: I think I can promise you, Sir Richard, that this report will be one you remember. It will certainly be one you remember far better than you seem to remember the basic facts the Committee have a right to expect. Mr Steinberg.
132. I must say it is probably one of the most strange and confusing meetings that I have attended over the last two years. It is a contradictory report as well. I am not surprised you have been on the defensive most of the time. I actually commented I thought perhaps you had got out of bed the wrong side this morning.
(Sir Richard Mottram) I do not think so. Perhaps I was not trying to be my usual jolly self.
133. That is probably it. It is a shame.
(Sir Richard Mottram) I am told it irritates the Committee so I have restrained myself.
134. It certainly does not irritate the Committee.
(Sir Richard Mottram) Shall I cheer up then?
135. Yes, I think you should.
(Sir Richard Mottram) Okay. Can I just make a very quick point. If I am looking a bit glum it is because I do not like to get the wrong side of the Committee. The argument that we are having is really a very small argument about one small part of this report, that is the point I am trying to make.
136. In paragraphs 1.17 and 1.18 we were informed that with the original deal the Department in fact felt there was no reason to monitor the scheme so closely. In paragraphs 1.41 and 1.42 it appears you are doing so. You told us, or I may have picked it up wronglyI may have doneyou seemed to infer that you did not want to rock the boat and that was why you did not request the financial information. That seems very strange, you did not want to rock the boat.
(Sir Richard Mottram) No. What paragraphs 1.17 to 1.20 bring out quite clearly is that if we had sought to monitor the project in a certain way involving written reports which were required to go to the banks then that could have led the project to have been called in to question by the banks. What I am saying to you quite openly is I accept the Department chose a way of monitoring the project which did not lead to that result. When we restructured the project in 1998 we introduced different monitoring arrangements.
137. Do you think if you had monitored more effectively then it would not have been such a failure?
(Sir Richard Mottram) No, because the two reasons why it ran into difficulty were that the passenger and revenue forecasts were over-estimated, so I think there was a question there did we think sufficiently about those, and secondly there was the Channel Tunnel fire which we could not have foreseen.
138. Again you gave an excuse or a reason, perhaps not so much an excuse, that we have heard so many times before on this Committee that the targets were optimistic, that in fact the research had not been done properly in the first place. We have heard this in so many PFI deals, private partnerships, over the last year that it is just now a matter of course.
(Sir Richard Mottram) Well, with the benefit of hindsight
139. I have got that written down, you will come back and say "With the benefit of hindsight".
(Sir Richard Mottram) Oh dear, I am even going to be predictable now. Glum and predictable, it is a pretty sad thing. I will withdraw "with the benefit of hindsight". What the report quite clearly brings out are two sets of things. LCR made a set of assumptions which were not very different from the assumptions that British Rail had been making about the growth in this service. The Department was therefore inclined to believe that these assumptions were in line with its own assumptions, right. Then, with the help of our advisers, we did some sensitivity analysis on these assumptions and the sensitivity analysis looked at two sets of things. It looked at the construction risk and was that being properly assessed, was it going to overshoot, and it looked at the revenue risk so was it over-optimistic. The sensitivity analysis in relation to the revenue risk was I think, subject to correction, a case of 15 per cent so we looked at the case which was 15 per cent worse. We can all quite see that this was wrong, that the sensitivity analysis should have been much harsher about the likely prospects for this project. Why was it not? There was not a lot of experience to go on as we discussed at the beginning with Mr Williams. Should we have been more ruthless? Well, quite clearly now the answer is we should have been.
3 Note: See Evidence, Appendix 2, page 30 (PAC 00-01/164). Back