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

Examination of Witnesses (Questions 420 - 439)



  420. Who are your discussions taking place with?
  (Mr Rollings) At this moment we are working through the information that is available within Railtrack. Clearly to the extent that we need to go to third parties, such as the contractors and so forth, we will be doing that.


  421. Are you confident in the estimates that you have discovered within Railtrack?
  (Mr Rollings) It is a little early to say on a line by line basis.

  422. Well, in a general sense are you confident, if not on a line by line basis?
  (Mr Rollings) I think it is fair to say that it depends where you look at these things on the development levels.

  423. Yes.
  (Mr Rollings) So that an estimate that is at a very early stage in the process is —

  424. As we have heard can differ by something like three or four times by the time it gets through.
  (Mr Rollings) Yes.

  Chairman: We can understand your caution, Mr Rollings.

Chris Grayling

  425. Mr Bloom, can I start by just clarifying a couple of factual points which I think there has been some confusion over. Your involvement in the project, can you give us a sense of the dates when you first had discussions with the Department and when you first got a fairly clear indication from the Secretary of State that the project was likely to go ahead?
  (Mr Bloom) The first discussions that we had with the Department were late afternoon 23rd August and we were not notified that it was going to go into administration until the evening of Friday 5th October.

  426. In that intervening time were you involved in pre-work on what you were going to do?
  (Mr Bloom) It essentially fell into two phases. In the first phase, immediately following 23rd August, we were asked to look from a desk top, that is to say without going to see the company, at the sort of issues that would be faced in relation to the hypothetical administration of Railtrack, especially as this would be the first use of the Railway Administration Procedures under the legislation. That phase lasted through until about two weeks before the 5th October. During the two weeks or so before the 5th October—and there was no specific date at which it changed but broadly the two weeks before—we were actually specifically getting ourselves more familiar and more geared up with the real prospect of it being in administration. We were doing that as we understood, and I still understand, in the context of a number of different options that were being looked at but we were only looking at this one option, I understand others were looking at different options.

  427. Now that you are special administrators, we have heard already from the SRA that they have not had an involvement in the preparation for administration . You have said also that you are not involved in planning the future structure of Railtrack, even though you are clearly working with the Government closely on current management of the organisation. To the best of your knowledge who actually from within the industry is working with the Government to shape the future structure of the successor to Railtrack?
  (Mr Bloom) There are two elements to this. The first element is that clearly the Government is working on its proposed solution, and I read about it. Obviously we do have a dialogue with them but not in terms of —

  428. Your opinion is not being asked for?
  (Mr Bloom) — helping to prepare that. In parallel, we are working and I have to say, given that we are only three weeks in, we have only just started this phase of the work, the transfer element of the work, getting together a group of professional advisers and others and critical people within Railtrack to help us to formulate an alternative and, indeed, to help us to react to any proposal that the Government makes. As to who precisely is advising them, I am not really in a position to respond that.

  429. Even though the Government has asked you to come in and take over the administration of the company, you are not being asked to advise the Government in any way on shaping the future structure of the industry, to recommend to it what the best approach would be given the insight that you are gaining?
  (Mr Bloom) It would not be our position to advise anybody on the future shape of the industry. It would, however, be our position to help the Government understand the issues that interested parties may have in relation to the future of the industry in order to enable them to formulate an investment or a bid.

  430. Can I ask, beyond the routine that would always be there, what investment programmes are currently taking place? You have mentioned the West Coast Main Line, what other investment programmes are currently taking place under administration?
  (Mr Marshall) Yes. All of the core renewal programmes and, indeed, maintenance programmes that were underway will continue.


  431. I think Mr Grayling said actually new projects, not maintenance, not renewal.
  (Mr Marshall) Okay, purely new projects. We will continue with all projects that are currently under way. That will include, as we have already covered in this discussion, Leeds First, Newcastle, Tyne and Wear upgrade. We have got Channel Tunnel Rail Link, which is an unregulated activity so not part of Railtrack plc, clearly continuing as well. The West Coast Phase One, which we are speeding forward with. TPWS, which is a £500 million scheme, is continuing. We have just tripled our rate of commissioning this year on that so that is going well. Thameslink 2000, where we have a commitment to spend up to £150 million in the development of that project, we are proceeding with that and, indeed, are just about to let a significant contract on it.

Chris Grayling

  432. Is there any reason for speculation that Thameslink 2000 will not happen? Indeed, it has disappeared from written responses from the Government about projects which will definitely happen over the next few years.
  (Mr Marshall) Whether Thameslink 2000, Railtrack having spent the £150 million commitment it has, goes forward is really entirely a matter that the Government will make a decision on. As I understand it, it requires a Special Purpose Vehicle—that is the current thinking—to be created. That suggests that a point of commitment on Thameslink 2000 is some way away.

  433. Based on your experience—and this question I direct to both groups, if I can—if you look to the Government's ten year plan for the industry, the investment that needs to take place on that both in significant new projects but also to underpin some of the franchise renewals which are currently going through, can you both give me your professional assessment of the consequences of the process that is being gone through at the moment for those investment programmes both in terms of likelihood to actually happen and also timeframe? Have we actually got an investment hiatus for the next generation of projects as a result of what is happening at the moment?
  (Mr Bloom) I do not see any hiatus at all. The dialogue that was there before the company went into administration continues. The contact and the communication with the Strategic Rail Authority, with various other parties, the Office of Rail Regulator, continues. If there was a hiatus it was a few days at the beginning but everything else continues as usual. I do not think that the administration has had that impact.
  (Mr Marshall) If I may, I would take a different view, not in any way to disagree with the effect of administration over a matter of weeks, that is not in itself a material matter but I do believe there will be a hiatus or that there is a risk of it, for several reasons. Firstly, as I set out in my brief opening comment, £34 billion of private sector investment was assumed, half of that was assumed to be leveraged by Railtrack, by accessing the financial markets. Railtrack, as it was, is no more and it is very hard in an environment where effectively 100 per cent of all risk for the foreseeable future is with the Treasury, it is very hard to see that the Treasury, if it is on risk in all respects, is not going to be wanting to seek control in all respects. In those circumstances it is very hard to see how projects that currently are not coming off the runway are going to come forward quickly. I think it is a difficult situation. There will not be a Special Purpose Vehicle up and running because South Central was the franchise with which we were putting a lot of effort to take it forward. Financial close on any Special Purpose Vehicle before the end of 2002 is looking quite a challenge. For those reasons I see a hiatus rather than the practical implications of administrations coming in the door three weeks ago.

  434. Can I just ask one final question on the setting up of the successor organisation. One of the issues will inevitably be the investment rating that Railtrack debt currently has with the agencies and how that debt rating can be restored to a level which enables the successor organisation to pull in the investment that will be needed. I have been told by at least one of the agencies that is a process that can take up to two years. You have referred to the process of administration being challenging within the six months' time frame. In your view and professional judgment, Mr Bloom, how long will it take to restore a successor organisation to the position where it can fully function within the investment community to raise the funds that will be needed to complete the ten year plan?
  (Mr Bloom) This is not a precise science, the rating of companies. You can see the imprecision in the science by virtue of the fact that there are two rating agencies which are both rating it at different rates. One is rating it as a double B rating at the moment, the other is a double C rating at the moment. That gives you an indication as to the imprecision of the science. Therefore, there has to be imprecision as to how long it takes. It is not just a question, however, of time, it is a question perhaps more than time of the structure of the new entity, its ability to generate the returns that are required by those investing in it and their confidence in the organisation and the structure that has been set up. That is the thing that will determine it and it is the time that it takes to do that as opposed to how long they have been doing it for. That is going to be a question, back to the way in which this thing is funded, the new entity is funded, whether it is a company limited by guarantee or whatever the future entity is, and how much Government funding, to be frank, there is in support of it.

  435. How long do you think it will take?
  (Mr Bloom) I have said in answer to probably the very first question that I think it is possible this could be achieved inside the six months but I think that is tight.

Mr O'Brien

  436. Mr Marshall, we have been pressing the people who ran the East Coast Main Line and the North of England to ease the bottlenecks, speed up the trains and to add more capacity and to improve the facilities. We were advised that there were four phases, Leeds was the first one, what has happened to the other three?
  (Mr Marshall) The original intention was to link those phases, two, three and four, to the refranchising of the East Coast Main Line which was, as you know, going to be let on a 20 year franchise linked to the upgrade. For a whole variety of reasons which I am more than happy to go into the shorthand was that the upgrade of the infrastructure and pricing of it was decoupled from the negotiation and also because there were two separate contenders with different solutions, for a whole variety of reasons that did not come off. The decision was taken by Government to give a short term extension.

  437. Would it be fair to say that in October 2000 you advised Sir Alastair Morton of the fact—and I quote—"There was no doubt in Railtrack's mind that they would be the developer of the East Coast Main Line upgrade in its four phases, of which phase one is Leeds". Then they suddenly said "We cannot handle this" and pulled out.
  (Mr Marshall) No, I would not agree with that characterisation. One important matter which changed over the time that you are talking about, of course, was that the SRA did take overall responsibility for steering where resources were put into upgrades and who was going to do them.

  438. Do you say that you did not say to Sir Alastair that you could not handle it?
  (Mr Marshall) No, we did not say that at all. What we certainly were clear on, and it got an awful lot of press coverage, I guess, in February or March of this year, was that the pricing assumptions, back to projects being assumed to be priced at an incredibly early stage, were plain wrong.


  439. Who was responsible for those pricing assumptions?
  (Mr Marshall) They were being developed internally within Railtrack but they were being shared with the SRA on a real time basis.

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