Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 160-179)



  160. For which they would pay money for that service to be provided?
  (Mr Holden) I would think so.

  161. Do you think they have a right to ask for their money back?
  (Mr Holden) I would think a lot has changed since those estimates were undertaken.

  162. We glossed over the point earlier because Mr Steinberg introduced the now infamous examples of the Leeds Armouries and the Dome and said "let us not talk about that with the benefit of hindsight". I think one of the common themes running through the hearings, particularly lately, is the apparent total inability of people who are paid often huge amounts of money to come up with figures which bear any resemblance to reality.
  (Mr Holden) Some of the earlier estimates which LCR relied upon were undertaken by British Rail as a public body. We had no reason to believe at the time that those estimates were improper.

  163. With the benefit of hindsight now we realise they were. Sir Richard, I was going to ask you—I think you have already answered the point—what the Department did to verify passenger estimates.
  (Sir Richard Mottram) Yes.

  164. Can I get this absolutely right. We have heard about LCR and the various people involved in that in trying to get the numbers somewhere right. We have heard about the British Rail figures.
  (Sir Richard Mottram) Yes.

  165. Did the Department undertake its own study on this specific point?
  (Sir Richard Mottram) It did look at this aspect, yes.

  166. Let me get this absolutely right. It commissioned its own study on its particular point?
  (Sir Richard Mottram) It has had advice from its advisers which covered the revenue and construction risks.

  167. What about passenger numbers?
  (Sir Richard Mottram) That was part of the revenue risk.

  168. Mr Holden, you were asked earlier whether the bidding process encouraged over-optimism and you gave the answer that it did not. That is not what the report says. Paragraph 1.2 says ". . . there was an in-built incentive . . ." for over-optimism.
  (Mr Holden) I think there was a theoretical argument that there can be an in-built incentive. That is true, I would agree that is possible. I think in respect of my earlier answer I answered it in terms of the situation which LCR addressed at the time.

  169. You are confident that it was not over-optimistic.
  (Mr Holden) No. Based on the fact that other parties independent of LCR came up with passenger numbers which were in the same region there is no evidence that there was over-optimism at the time.

  170. Those estimates were proved not to be correct. Let us move from forecasts to reality. Sir Richard, 60 million worth of private equity in the original deal, which was a drop in the ocean really.
  (Sir Richard Mottram) Yes, it was.

  171. Is this not a warning sign?
  (Sir Richard Mottram) I think for a project of this kind we would probably have a small amount of equity relative to the total amount of money being put in because the equity obviously is more expensive. It was a trade off. When it was being addressed at the time, when we got down to two competing groups, the second group had a smaller equity so it was not a choice between one proposition which had very large equity and one which had small. I think 60 million is quite small for a project of this kind, yes, but the alternative was smaller.

  172. I think I am less concerned perhaps about the absolute figure as the feel of this.
  (Sir Richard Mottram) Yes.

  173. This is quite an important element. This is about people wanting to get on board with this, is it not?
  (Sir Richard Mottram) Yes.

  174. Is this not a cause for concern that we are talking about a fairly small commitment to, if you like, test the water?
  (Sir Richard Mottram) I think you would have also to say that the people who were concerned were highly reputable groups who I would have thought would be concerned about the reputational risk that they were engaging in. If you go through the shareholders in the report, these were serious groups who were putting at risk equity but also putting at risk their reputation.

  175. On the basis of that, according to the report Eurostar UK was transferred to the private sector before the finance was secured.
  (Sir Richard Mottram) It was, yes.

  176. Is that something we should be concerned about?
  (Sir Richard Mottram) I think it is certainly something which involves risks, yes.

  177. Why was that decision taken?
  (Sir Richard Mottram) Because the then Government was keen to inject private sector management as quickly as possible.

  178. As quickly as possible?
  (Sir Richard Mottram) I think as quickly as possible is an over statement actually. As quickly as they thought reasonable. You could misinterpret what I said.

  179. I think that is a point I want to come back to in a moment. We have been around the next question a few times, I just want clarification here. It is about why the Department did not ask for the financial information to which it was entitled? You were careful to explain the nature of that information if it was presented in written form.
  (Sir Richard Mottram) That was the only issue, I think, why did we not take it in writing. We were in dialogue with the company about their performance. We were not getting the detailed monitoring that we now get.


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Prepared 30 July 2001