Examination of Witnesses (Questions 343
WEDNESDAY 31 OCTOBER 2001
Chairman: Good afternoon, gentlemen.
Before we begin may I just make a formal declaration. I am a member
of the Rail, Maritime and Transport Committee. Does anyone else
have any declarations?
Mr Stevenson: Transport and General Workers'
Chairman: Any other members?
Mrs Ellman: Transport and General Workers'
Miss McIntosh: I have a shareholding
in Railtrack First Group and Eurotunnel.
Helen Jackson: Transport and General
Mr Donohoe: Transport and General Workers'
Chairman: Two Transport and General Workers'
Mr Donohoe: Four.
343. Gentlemen, you now know where we come from,
we would be grateful if you would just identify yourselves, please.
(Mr Marshall) I am Steve Marshall, Chief
Executive of Railtrack.
(Mr Harding) David Harding, Finance Director of Railtrack.
(Mr Bloom) Alan Bloom, Special Railway Administrator
(Mr Rollings) Mike Rollings, Special Railway Administrator.
344. Gentlemen, ground rules. If you agree with
one another, please do not repeat what has been said. Do you wish
to say anything to open this session?
(Mr Marshall) With your agreement, I would certainly
like to, yes.
345. Please, Mr Marshall.
(Mr Marshall) Okay. It will be a very short statement.
I will do it in my normal direct style if that is acceptable.
Railtrack plc was not insolvent until the Government decided to
make it so by its actions on Friday 5 October. It did so by firstly
withdrawing future financial support from Railtrack and that included
reneging on a £450 million transaction, the payment of which
was due on 1st October and subsequent payments thereafter. It
secondly did that, and most remarkably, by telling the Rail Regulator,
and telling us as well, that he would be prevented from exercising
his statutory right to provide the company with any relief if
he chose to do so and that, if necessary, would be achieved by
draft legislation being pushed through Parliament on an emergency
basis. Stepping back I think whatever one's views about Railtrack's
failingsand I yield to no-one in highlighting Railtrack's
failings because I have spent the last two years trying to do
some things about thatwhatever one's view on that, the
prospect of levering in £34 billion of private sector finance
over the next ten years is simply not credible if the Government
is prepared to deal with investors in this way. Railtrack was
meant to raise half of that £34 billion, the cash is needed,
where is it going to come from now? However, now that Railtrack
is in administration the whole industry, all of us, are presented
with some additional challenges and I would just like to briefly
comment on those. We, in Railtrack, and in the industry, have
made some real progress over the last six months from a very difficult
period that we all know about on infrastructure performance, which
is now back to pre-Hatfield levels, on broken rails, which have
further reduced, they are now 40 per cent down on two years ago,
we have tripled train protection warning system commissioning
and the trend on temporary speed restrictions is firmly and continuously
down, with a year end target of getting them below 500. Today,
our organisation now has some very significant rail problems.
Over 90 per cent of our employees, as has been publicised, were
shareholders in Railtrack, and indeed are. They have all lost
money, some of them have actually lost their life savings. With
an uncertain future, our ability to recruit has already been severely
impaired and we are very concerned about our ability to retain
people in this industry and in Railtrack in particular. Those
of us who carry responsibility for maintaining safe performance
on this network, and particularly the three of us who are personally
named on the Railway Safety Case, now that we are in administration,
are amazed at the breathtaking lack of interest the Government
appears to have taken for the people issues as we go through this
difficult time. I and my team have met some ten per cent of the
workforce over the last three weeks or so and we are meeting many
more over the next couple of weeks. I would strongly suggest to
the Secretary of State that he gets out more as well.
346. As you particularly mentioned the shares,
perhaps I could ask you a question. Is it true that you paid all
the bonuses owing to your staff in terms of Railtrack shares?
(Mr Marshall) All bonuses, no. We did have a profit
share scheme across the whole company. The maximum earn out for
a year of good performance, which clearly is not the year that
we have just had, was 750.
347. The bulk of the shares held by your members
would be in that?
(Mr Marshall) The bulk of the shares would be in that,
348. Instead of giving them cash you gave them
shares. Is it true that they had to be held for a certain period
of time or they would have to pay tax on the sale?
(Mr Marshall) They would have needed to have owned
them in trust for a certain period of time, absolutely.
349. I see. It was an estimate as to whether
or not one should trade on the Stock Exchange for the people concerned?
(Mr Marshall) They would have needed to have received
the money to have owned the shares for a period of time.
350. Yes. Doubtless there will be some very
interesting debates about that. Can I ask you a very simple thing.
Do you agree the Secretary of State needs a company which can
have the interests of the travelling as its priority, not the
need to increase shareholder value?
(Mr Marshall) I agree that the need for the interests
of the travelling public is a priority and I would assert that
it indeed was and is the priority within Railtrack. The method
of financing, which is the core of you question, can be achieved
by a variety of means. Railtrack self-evidently was not following
a shareholder agenda because it would not have invested in the
way that it did and be as financially stretched as it was if it
was choosing to do so.
351. Not following a shareholder agenda, there
were not instances where Railtrack chose to pay shareholders when
any other company in the same financial situation might have considered
it was not a very good idea?
(Mr Marshall) I am very happy to address that. I am
presuming what you are really talking about is the final dividend
that was paid earlier this financial year.
352. Yes. Are you saying to us that in your
view Railtrack put the interests of the travelling public above
the interests of shareholders?
(Mr Marshall) I am telling you that has been our principal
interest for some time and my evidence for that, if I can provide
some, is the fact that we have been spending money on the network
as fast as we humanly know how. We, this year, will spend £3
billion investing in the network. Our biggest problem, and that
of our contractors, is attracting the people to enable us to spend
the money fast enough. So with respect to all who have commented
on this, the payment of the dividend is a total distraction. It
did not divert resources at all.
353. Where does your fiduciary duty lie, Mr
Marshall, to your shareholders or to the travelling public?
(Mr Marshall) Our fiduciary duty, as all here will
know, is to the shareholders but the only way you have a business
is to deliver your product.
354. You are not fulfilling your fiduciary duty?
(Mr Marshall) The fiduciary duty is for long term
shareholder value. You self-evidently will not have any long term
shareholder value unless you are delivering the product the public
355. When is Railtrack going to come forth from
(Mr Bloom) Can I make a couple of introductory comments
before I answer that?
356. Please. I beg your pardon, I assumed that
you did not want to, Mr Bloom.
(Mr Bloom) It is all right. It is just that you have
effectively got two teams here. If I can just make a couple of
comments and then I will come back to the question. I just thought
it would be helpful if I could put the railway administration
in context because it is a unique use of this Railway Act procedure.
We have two purposes within the railway administration. One, to
transfer as a going concern the undertaking of the network sufficient
to ensure that the management of the rail network can be properly
continued, and to carry on the management of the rail network
in the intervening period. With regard to the latter, the management
of the rail network, we have retained the board of Railtrack plc
who are working very closely with us and who have specific continuing
authority for day to day matters. Under the Railway Administration
Order, the directors have also retained specific responsibility,
as you have heard from Mr Marshall, for all safety related matters.
With regard to our duties to transfer the railway network to a
new company or companies, it is our responsibility to develop
interest amongst those who may want to finance it or buy it but
the ultimate approval of any proposal lies with the Secretary
of State. Now, to go on to respond to your question. The current
anticipation is somewhere between three and six months. I have
to say that I think that is
357. From the date when you actually took over?
(Mr Bloom) From the date when we were appointed on
October 7th, yes, ie, around about March/April of next year. I
have to say from what we have seen in the brief three weeks that
we have been involved to date that looks like a tight timetable.
358. For what reason?
(Mr Bloom) Because I think in order to achieve a transfer
a lot has to be put in place and a lot has to be segmented in
order for the finances to be put in place, the sort of things
that Mr Marshall has been talking about. I think that will take
a good deal of time. Preparing a business for sale or investment
takes a considerable amount of time. I am not saying six months
is impossible, I am just saying it takes time.
359. You are not saying it is impossible. Could
I just ask, what is the estimated total cost of the fees that
will be incurred as a consequence of placing Railtrack plc into
(Mr Bloom) We have not made an estimate for the entire
duration because, by definition, we do not know how long the thing
is going to last.