Examination of Witnesses (Questions 240-259)
MONDAY 9 APRIL 2001
SIR RICHARD MOTTRAM, KCB, MR ROBERT HOLDEN, MR STEVEN MARSHALL, and MS LOUISE HART
240. Similarly with Brussels where you have a smaller percentage of the market.
(Mr Holden) That is an area which we can expand and I think we will expand. We have seen some recent improvements there and I expect to see further improvements later in the year as we are able to change the timetabling and get particularly businessmen into Brussels much earlier than has been the case at the moment, also civil servants and MPs for the Brussels Parliament.
241. Just tell mebecause I know with the Brussels route the significant upgrade of the Belgian part of that has been completedare there any figures on the increase in the use of Eurostar because of the upgrade in the Belgian part of the rail network?
(Mr Holden) There was some increase when the rail work was commissioned but unfortunately that was not maximised because we have not been, up until now, able to get trains into Brussels sufficiently early in the morning to benefit as much as is possible.
242. You would be confident, based on the increase you have seen and the improvements in the Belgian network, a similar increase will happen when the British network is improved?
(Mr Holden) I expect we will have much greater improvements when the British network is commissioned. Equally I see we will gain much more from the Belgian network when we get the timetable more correct in association with our partners SNCB.
243. Can I finally ask you on this matter, you said the market had doubled in size since the advent of Eurostar?
(Mr Holden) Yes.
244. What projections are you making for the market in the next ten years? Are you suggesting a doubling again over the next ten years?
(Mr Holden) I do not know whether it is over the next ten years but the market will continue to grow. That has been the history of the transport and traffic.
245. Can I go on to an entirely different matter. The report tell us, belatedly, about the night rolling stock that was sold. Can we be assured that the price we got for that was value for money? I think I am back to Sir Richard.
(Sir Richard Mottram) The position is that essentially a deal was done where we swapped £14 million that would otherwise be payable and then proceeded with the sale. The final details of the sale have yet to be made available to us but we anticipate that this is an outcome that is the best value for money outcome.
246. Mr Holden, LCR were pretty lucky on a number of occasions to get through this by the skin of their teeth?
(Mr Holden) We had some difficult situations to overcome and we discussed them with appropriate partners. We have been fortunate to derive solutions to the benefit of all concerned.
247. Let us hope they are to the benefit of all concerned, that is for sure. Your projections in 1996-97 basically were double what your actual figures were, were they not, in terms of passenger numbers?
(Mr Holden) The reality has not justified the projections which existed at that time, that is true.
248. By a quantum of almost 100 per cent?
(Mr Holden) In terms of passenger numbers, yes.
249. Why do you think you got that so badly wrong?
(Mr Holden) It was not only LCR that got it wrong.
250. I am asking you because you are LCR. The question I am asking you is why do you think you got it so badly wrong, not the others, why did you?
(Mr Holden) We had to rely on the information which was available to us at the time. The experts at the time were British Rail and SNCF. There were, however, a number of circumstances which we could not derive information from. It was a new service. The Eurostar service had been in operation for less than a year when we were required to put in our projections. There was no real experience of international rail travel in this country. That expertise we believe rested with the French SNCF and we relied on information given to us.
251. You believed what you were told and that was why you got it wrong. British Rail, sorry to point to you, Mr Marshall, Railtrack is an offspring not a parent, you relied on British Rail, you relied on SNCF. At the end of the day you are responsible for those decisions. You were responsible for the estimates, were you not?
(Mr Holden) SNCF was one of the shareholders in the LCR group. As the experts in the field at that particular time I think it was natural for the LCR executives and other shareholders in LCR to rely on the information which SNCF were bringing to the discussions.
252. Okay. Sir Richard, let me ask you, first of all, is paragraph 1.12 a paragraph which we agree on?
(Sir Richard Mottram) Paragraph 1.12?
253. I do not need to find out it is not agreed.
(Sir Richard Mottram) The only bit of this report that I have queried is the bit that is headed NAO's opinions.
254. Okay. I take that as a yes.
(Sir Richard Mottram) That is a yes.
255. Jolly good. Tell me this then, when you are looking at the shareholders of LCR and you are saying they have got to make an assessment of the passenger figures that have been put forward, normally one would say there would be this sort of external scrutiny on the figures but in the case where LCR was made up of shareholders who were going to benefit by the tune of 150 per cent of the investment that their shareholders represented in the likely revenue back to them, do you think they had a vested interest in making damn sure that this went ahead regardless?
(Sir Richard Mottram) The Department appraised. The department ran a competition.
256. Let us, please, cut through that, I do not want the history of what the Department did, I want an answer to the question which I have asked?
(Sir Richard Mottram) The Department evaluated LCR's bid alongside other bids. In the process of evaluating LCR's bid the Department, with the help of it advisers, employed a sensitivity analysis to their numbers and it is now clear that that sensitivity analysis was insufficiently ruthless in the downside estimate of the numbers. The Department looked at the numbers and it asked questions about the numbers.
257. That is not what I asked you, maybe it is just that I am being too verbose, what I am asking you is this, was there a perverse incentive operating within LCR, because as paragraph 1.12 puts it,"LCR expected that project development costs amounting to £92 million would be paid to its own shareholders . . .", when those same shareholders had only had to put up and investment of £60 million. Was that a perverse incentive?
(Sir Richard Mottram) No, because project development costs were money paid for work done. No one can doubt the LCR shareholders are the people one would expect to find doing projects of this kind in the United Kingdom. The £92 million was not a return on £60 million; is that what you are asking me?
258. In that case, given that you answered me no, let me draw to your attention the final three lines at the bottom of the first section on page 14, the word in the fourth line, "Since all the shareholders were also suppliers to LCR, there is some doubt as to whether the value of the equity at risk was sufficient to balance the shareholders' interests in becoming major contractors to the project".
(Sir Richard Mottram) I agree with that.
259. There was some doubt. The issue was, should they have had more than £60 million worth of equity.
(Sir Richard Mottram) As I explained earlier, there is an argument which says it should have been somewhat more, but not a lot more.