Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 200-219)



  200. Could I just ask though, there seems to be some concern being expressed privately by Train Operating Companies, who have been offered, apparently, under the new arrangements for Railtrack, that they can take over part of Railtrack's network; in those circumstances, who do you believe would be held responsible for an accident on part of that network, would it be the new Railtrack, or would it be the Train Operating Companies?
  (Mr Kiley) I think, if Train Operating Companies are perhaps in some consolidated form to take broader and deeper responsibility for train operations, so that you have got truly integrated operations, then the accountability will be clear in the case of anything that goes wrong, including safety issues. I think it is the fact that that has been missing for the last five or six years that gets to the root of the problem.

Mr Donohoe

  201. Are you concerned at all about the funds that are being made available by the Government for the ten-year plan, over the next period; the money that the Government has given, the £30 billion?
  (Mr Kiley) To the national rail system?

  202. Yes?
  (Mr Kiley) I am one who believes that we do not know what the cost of bringing the whole network to a state of good repair really is.


  203. Why do you not know that then, Mr Kiley?
  (Mr Kiley) Because there has never really been a thorough-going, stem-to-stern, asset assessment. These are expensive to do, it will take time to do them; but, once and for all, we need to get a real cash value attached to what it is we are going to be doing, and out of that kind of assessment will come, I think, a new sense of priorities, what needs to happen first, second, third, and so on.

Mr Donohoe

  204. So how much is it in London?
  (Mr Kiley) I have no idea what it is in London.

  205. Are you doing any work to find out?
  (Mr Kiley) I am going to guess, from—do you want to take a stab at this?
  (Mr Brown) Yes. To get at that, we formed the London Programme Committee, jointly with the SRA, actually to map everybody's scheme and asset condition down as a base; it is a big exercise just to get that base established.

  206. So where did the £64 billion come from, as far as the Government's ten-year plan is concerned?
  (Mr Kiley) My memory of the plan is that roughly half was to come from the public sector and another half was to be raised from the private sector.


  207. Yes, but I think the particular point that Mr Donohoe was making is, how do we get a sum if you do not feel that there is any sensible basis on which such an estimate can be made?
  (Mr Kiley) I think we have to be smart about this, do the assessment and then do the sums, and there will be a credible business case for what it is that we are doing. £64 billion sounds like a very large amount of money, and it is, but a fair amount of that money has already gone into an unexpected series of what turned out to be black holes in Railtrack, and that has compromised the ability, for the time being, to bring money in from the private sector. So that that number has probably shrunk at this very moment to something about a fifth of the size that it was just 14 months ago.

Mr Donohoe

  208. Do you think, given Railtrack has been taken into administration, that will allow the private money in that formula to come about; do you think that investors are going to run a successor company and hand money to them?
  (Mr Kiley) It all depends on how the financing is done, and what the risk is that will be assumed in the private sector, if we continue to go to the private sector, which I believe we should do. There are many ways that you can get private money into a rail operation and give a reasonable expectation to the lenders, or the investors, that there will be a return on that investment. And some of what the Secretary of State was talking about yesterday makes some sense along those lines, that you can securitise revenue streams, access charges, for example, or fares, to use two obvious ones, but once you do that you give the lenders an absolute pledge that they will have first call on that source of revenue if something really goes wrong. If there were something approaching a default, let us say, in the area, that appears to have happened with Railtrack, then the lenders, the investors, if you will, will be at the front of the queue, because these revenue streams, arguably, will continue, unless we just abandon rail altogether. So that is the kind of commitment Government would have to make to the private sector in order to get them re-engaged in the investing process. It is not that difficult to do, it is a different form of security, it is often referred to as bonds. I know it is a four-letter word that should not be used in polite circles, but it is possible to do. And a company limited by guarantee is a vehicle through which you can do that.

  209. How long are you going to be around to influence that decision?
  (Mr Kiley) I hope so, too; do you know something I do not know?

  210. But you have not said that you are going to resign at any point, have you?
  (Mr Kiley) No.

  211. And your contract lasts, how long?
  (Mr Kiley) I am here for the duration. I signed up for a four-year hitch, and I see no reason why that should change.

  Chairman: We are very glad to hear that. I always remember the Indian Minister who said to me, "Never, never resign, always let them chuck you out."

Mrs Ellman

  212. If Railtrack were to be split up into a series of regional Railtracks, as you advocate, exactly how would national inter-city services run; would this be more or less likely to be effective in the eyes of the public?
  (Mr Kiley) I think that ends up being, quite frankly, a timetabling and despatching challenge, which train operators all over the world have been able to master. And, yes, there will be some political and policy considerations that go into that equation, because, depending on which way you go, it affects the frequency of train movements, and there is always going to be someone, maybe everyone, who will complain that they are not getting frequent enough moves, and will probably change, the rush hour will have one set of schedules, off-peak will have another, in the major metropolitan areas. And scheduling the inter-urban or national trains in that environment will be a challenge, but it is very do'able.

  213. You say in your evidence that operators should have some ownership of Railtrack. How do you envisage that happening?
  (Mr Kiley) One vehicle for doing that, one way to go would be actually to get the Train Operating Companies into an integrated ownership position that has control over both rail and operations, over both maintenance and operations. Another way to do it is to examine closely something like the company limited by guarantee model, to see if that is not a way of getting the Train Operating Companies involved. Because the key to this working is that it remain a private entity, because we are all dedicated to the notion that none of this should fall on to the Government's balance sheet. And if that is the case then there is a role in this entity for the Train Operating Companies, on the board, being part of the majority that must be private.

  214. And would you see them involved in a regional company and a national company?
  (Mr Kiley) They could be involved either in a regional operating entity or oversight entity, or if we decided to stay with the national model, that I think has been somewhat discredited recently, they could be part of the national model. You need operating input into this at the highest possible level of ownership, wherever it is, there is just no getting around that, and I think it was so fragmented and unclear about that, over this last experiment that we have had, that it all just fell apart.

  215. Whose job should it be to find a way forward now?
  (Mr Kiley) I think the Government is in the lead, I think there is little question about that, but the other stake-holders need to be standing there shoulder to shoulder with the Government at every step along the way. That includes the Train Operating Companies, I think it includes the major metropolitan areas, important passenger groups, the trade unions, and the sooner that starts the better; let us have the wrangling now, not after a model has been precipitated that we will all be arguing about later on when it is too late.

  216. Would you envisage a change in role for the Strategic Rail Authority?
  (Mr Kiley) We have a good working relationship right now with the Strategic Rail Authority, and I am not sure I want to abuse it by suggesting a different way to do it; it is a little bit beyond my ken anyway. I think I would rather take a pass on that. I do think that the idea of having a relatively autonomous corporation that is taking major responsibility for enhancements all the way forward makes a lot of sense, and we like what we have seen of SRA so far on that side of the house, and we have been inattentive to that, in recent years, here in London, and I think that is a good role for SRA to be playing. The role that it has been trying to play in overseeing the franchising process has obviously turned out to be far more complex than anyone anticipated, and, as Sir Alistair Morton has opined,—

  Chairman: Sir Alistair is very good at giving us his own views, if you do not mind, Mr Kiley.

Mr Stevenson

  217. The financial integrity of the successor to Railtrack, which you referred to in answer to questions from my colleagues; is it not a fact though, Mr Kiley, that, although the money, up to yet, does not appear on the Government's books, in some way or other, a point you made, Government is paying for it? And, that being the case, could I ask how you envisage the successor company in getting the sort of financial credibility it would require, if, as we understand it, the Treasury have ruled out providing guarantees for the debt or otherwise making it part of a public sector borrowing requirement; is not the private sector going to be very wary about entering into any deals with such a company in that context?
  (Mr Kiley) I think your question is right on, I think there is going to be extreme wariness in the investment community, particularly in difficult economic times, in the early going. But I think the remedy lies somewhere in the following, that if we can get a structure to succeed Railtrack, whether it has regional components or is still national, if we can make it transparent, if the question of risk sharing is clear, then I think we can get back into business with the private sector. To do that though we will have to have a plan that is probably less than ten years in length, five or seven years, that everyone signs up for, and where we will have done the asset assessment as best we can, that will undergird the plan, and the plan basically will be the first and most important priorities that must be addressed by everyone. I think, at some point Government has got to be willing to make a long-term commitment, as they have in the past, and at that stage it is reasonable to expect that the private capital will flow again.

  218. Private capital will flow?
  (Mr Kiley) It may not flow the way it flowed in the past, because you are going to have to be able to give them a gilt-edged, not a Government guarantee but gilt-edged securities, where if all goes wrong they will know where to go, which will be to the Government.

  219. In that context, forgive my ignorance, but you did mention other countries and sister countries, cities, and so on, in the context of risk sharing and the amount of risk that should be attributed to the private sector, can you name any single railway operation that has successfully transferred reasonable risk to the private sector?
  (Mr Kiley) I think, if you looked at the half-dozen, or so, metropolitan areas that I mentioned, you would find risk transferred in varying degrees to the private sector. Let me use the example I know best, which is New York, where the private sector did not play an ownership role in the transport system itself, but what it did do was play the overriding role in the reconstruction of the network, which it continues to do this day. And they have been the source of all the bonding capital that is going into that system, and it is close to $25 billion of bonding capital itself, and they have made profit out of that, they have taken some risk and, in the end, it is the Government that has to deliver if, in fact, there is a default.

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