Examination of Witnesses (Questions 260-279)
MONDAY 9 APRIL 2001
SIR RICHARD MOTTRAM, KCB, MR ROBERT HOLDEN, MR STEVEN MARSHALL, and MS LOUISE HART
260. In your view, what does it mean when it says, "There is some doubt as to whether the value of the equity at risk was sufficient to balance the shareholders' interest becoming major contractors to the project".
(Sir Richard Mottram) At the risk of seeming defensive, there was some doubt as to whether it was sufficient. I agree there was some doubt as to whether it was sufficient.
261. What does it mean, whether it was sufficient growth to balance the shareholders' interests and become a major contractor?
(Sir Richard Mottram) It means that given that they were going to become a major contractor we might have asked them to supply more equity into the project. That is what it seems to mean to me.
262. Sir Richard, do you accept that it was in LCR's interest to be over-optimistic in its assessment of its projected passenger numbers?
(Sir Richard Mottram) I think whenever you are bidding for a project you way two sets of things, you want to frame it so that—
263. It is possible to say "yes" or "no".
(Sir Richard Mottram) It is the possible to say "yes" or "no", but I am trying to be helpful. There are two sets of considerations that you have to balance, one is you want to be optimistic, but you do not want to be so optimistic you put at risk your reputation, your money and all of the things that would come about if you overbid for a project, in other words if you said you would do it for a lot less than you said it was going to cost you.
264. That was not a danger to LCR.
(Sir Richard Mottram) It was, because they could have lost their equity.
265. They wanted to make sure they became the major contractors.
(Sir Richard Mottram) If the project collapsed there would have been no project and they would have lost their £60 million. What we recognise right from the beginning is there was a risk in relation to proposals that were being put forward. What I said earlier was that I think that we underestimated the revenue risk, quite clearly we did, because it turned out to be so much more than our downside sensitivity analysis of it. I do not think we should assume there was some large conspiracy here, where LCR got this project by being . . . Let me make myself absolutely clear, LCR were chosen to do the project because they won a competition.
266. Mr Marshall, I appreciate that you are Railtrack, you are not one of the operating companies, but I have no doubt you have a fair handle on the way the operating companies run, could you tell me, are there any operating companies that, to your knowledge, have managed to increases their passenger numbers by approximately 500 per cent in a period of 10 years?
(Mr Marshall) It would be unusual, certainly, but you have to look at each case on its merits.
267. What I was asking about is any operating company that has done it.
(Mr Marshall) We do have not separate operating companies for that period of time, back to the British Rail example that you cited yourself, so we do not have any empirical data to draw conclusions from.
268. Looking at the graph we see at the bottom of page 14, in six, are there any that are achieving that sort of profile?
(Mr Marshall) It would be unlikely. Again, we have to remind ourselves this is a semi-greenfield site situation.
(Sir Richard Mottram) As I understand it—I am beginning to lose confidence in my capacity—the passenger numbers have grown 35 times since 1994, 35 times! They have gone from 0.2 million to 7.2 million, which is an increase of 35 times, or thereabouts. The issue for all of us is, can you go on doing that, and the answer is you cannot. The second issue is what rate of growth could you achieve, which takes us back to our earlier discussion.
269. From zero it is possible to increase exponentially.
(Sir Richard Mottram) They have doubled in five years.
270. You know what Disraeli said, Sir Richard, "Lies, damn lies and statistics". What is the increase in ticket price that can be expected, it was a question that Mr Steinberg asked?
(Mr Holden) At the moment ticket prices average in the order of £55, or so. I do not envisage, from the forecasts which have been referred to this afternoon, they will increase more than on average between £1 and £1.50 per year over the next 10 years.
271. £1 and £1.50 over the next 10 year per annum.
(Mr Holden) In real terms.
272. You said that the guarantees will not be called in.
(Sir Richard Mottram) The point I was trying to make was that we calculated the likely risk we face on different assumptions about passenger growth and within the foreseeable range we did not see the guarantees being called in.
273. I am glad you calculated that spread, therefore, you must have calculated what the point is.
274. Fine. A note to the Committee will do.
(Sir Richard Mottram) Essentially what we are saying is that in so far as Eurostar's performance requires further subvention beyond the year 2010 we do that in the form of the loan that we described earlier. We have bounded what that loan might arise to over the period ahead. Does that make sense?
275. I am sure it does. I was happy to accept that you are going to send the Committee a note to say at what point it would take to reach before a guarantee would be called.
(Sir Richard Mottram) Right.
Mr Williams
276. Can you supply that?
(Sir Richard Mottram) I will[7].
Mr Gardiner
277. Whilst we are on the subject of notes, could we have a note, Sir Richard, because you said that your advisers had reviewed the passenger number statistics and that they were part of the revenue risk appraisal which they had done.
(Sir Richard Mottram) They were part of the appraisal we have done of the whole project, yes.
278. You said they were part of the revenue risk. You said passenger numbers were reviewed as part of the revenue risk.
(Sir Richard Mottram) Yes, which was reviewed as part of the whole assessment of the project.
279. Can we have a note showing exactly what your advisers advised you on that?
(Sir Richard Mottram) Yes[8].
Mr Gardiner: I will leave it at that.
7 Note: See Evidence, Appendix 2, page 31 (PAC 00-01/164). Back
8 Note: See Evidence, Appendix 2, page 32 (PAC 00-01/164). Back
