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

Examination of Witnesses (Questions 481 - 499)




  481. Gentlemen, I am sorry to have kept you waiting a little time. Would you be kind enough to identify yourselves.
  (Mr Green) Chris Green, Chief Executive of Virgin Trains.
  (Mr Garnett) Christopher Garnett, Chief Executive, GNER.

  482. Do either or both of you have any remarks that you would like to begin with?
  (Mr Garnett) We would just like to make the point that we are very pleased to be here for your inquiry. The timing could not be more appropriate given what is going on. GNER has had unhappy experiences at the hands of both of the things you are looking at—franchise replacement and Railtrack. Our 20-year franchise disappeared from 20 years to two years. We also had four passengers tragically killed at Hatfield just over a year ago directly as a result of the interface between Railtrack and its contractors. We still to this day do not know where responsibility lies. For these reasons, perhaps more than any other TOC ,we desperately need a period of stability and certainty in the rail industry and we are particularly worried about the state of Railtrack at the moment in terms of how long that goes on and what it is to do. We want to work with the Government on developing the East Coast Main Line. We need to work with the Government and the SRA to sort out a proper structure and take the opportunity of what has happened to Railtrack to get something better in its place and, therefore, we are very keen to play our full role in that.

  483. Thank you, Mr Garnett. Is that a statement on behalf of you both?
  (Mr Green) Yes it is.

  484. Thank you very much. Can I then ask you where you agree not to respond in the same way but where you have differences to indicate that you would like to make some comment. Could the not-for-profit proposals prove to be a poor option for Railtrack's successor, combining the worst of privatisation and nationalisation?
  (Mr Garnett) I think there is a serious risk of that. The first issue we have got to discover is how much does it cost to run Railtrack. Railtrack on operation, maintenance and renewal, as it is going to become, nobody knows what it costs to run. They have gone bust, and whatever replaces Railtrack, there has got to be a knowledge of what it is going to cost to run it. Whether it is a company limited by guarantee or somebody else that buys it, we have to start off by knowing what it is going to cost and what its responsibilities are going to be. Whether the company limited by guarantee can really raise the capital that this industry needs is one question. The second question is how is this board made up of so many disparate parties, as we understand from the Secretary of State's statement, going to make decisions? It may not be the most efficient solution.

  485. Are you suggesting that Railtrack being in administration ought to be a reason to restructure the company altogether?
  (Mr Garnett) We know there were faults in the way Railtrack operated. They were not customer focused, they did not look after the interests of the train operating companies and our job then of looking after the passengers. Railtrack's ability to forecast costs was legendary. So there were a lot of things that were wrong and we need to get those things right in the new company. We must not therefore rush to get the wrong solution; we need to get this right. We are not going to get a second chance.

  486. Is there a consensus amongst the train operating companies on what should be proposed?
  (Mr Garnett) I think that we feel that we have got to create the new Railtrack. Whether there is then a case for vertical integration, which has been spoken about, we believe there is probably a case for a trial. The first thing is to get the new Railtrack set up, get it costed properly and get its funding in place, and then we may well try in one part of the country a trial on how you put together Railtrack, the infrastructure and the train operating company.

  487. Surely it is rather a fundamental decision, is it not? If the train operating companies think that vertical integration would be suitable, presumably they would want that to form part of the new successor to Railtrack?
  (Mr Garnett) I do not think we know if vertical integration is going to work. There is an argument that says let's try it in one part of the country. We do not have a view that that is necessarily the right way to go.

  488. Is there a difference between the large and small train operating companies in that view?
  (Mr Green) If I could come in there. There is not going to be one solution which fits all the TOCs across the country. It will never be vertically integrated across six Railtrack zones and using every route of the country.

  489. So we are talking about more fragmentation?
  (Mr Green) I think there will be exceptions to the rule. Cross-country freight will always be buying in their services. If you are a self-contained regional TOC like South West Trains it probably makes good sense.

  490. I just want to be clear. You are saying that the train operating companies would accept some vertical integration for some companies in some areas after a trial? Is that what you are saying?
  (Mr Green) Yes, Scotland would be a natural one.

  491. So there would be increased fragmentation?
  (Mr Green) You would want to be pretty certain it was working, I suggest, before you make another big change.

Chris Grayling

  492. I have a point on that which very much relates to the cross-country franchise, to freight, and to some of the initiatives to pull trains from East Anglia into Basingstoke and so forth. If you have got fragmentation of the network, if you have got integrated companies operating in individual geographic areas, how are you going to create the opportunity for innovation in long distance cross-country services?
  (Mr Green) You have got to buy in. Eurostar, for example, buys into Eurotunnel every day of the week and Eurotunnel is a vertically integrated company.


  493. Does it have alternatives? Does Eurotunnel have competition?
  (Mr Green) There is no reason why another freight operator should not buy access through the Tunnel.

  494. Does it?
  (Mr Green) I would suggest you are looking for a model where there is flexibility for experimenting and changing. If you are a local suburban train operating company why not have your own infrastructure?

Miss McIntosh

  495. Could I first of all put a question or two to GNER. In the memorandum you very kindly submitted to the Committee you referred to the 21-month competition for the original 20-year franchise. Are you able to put a cost on—and I hope this is not commercially sensitive—the work you prepared?
  (Mr Garnett) The cost was between £2 and £4 million to do that in straight costs. Costs in terms of disruption to the business, things that we deferred doing because we kept saying "When we get the franchise we will do this ", were very much higher. There is no doubt that the business suffered because of the amount of attention that was being given to the whole disruptive process of doing the bid.

  496. Is that cost recoverable?
  (Mr Garnett) Not at this stage, it is not recoverable.

  497. Are you surprised that the present Secretary of State never actually sought or met with the present Chairman of the Strategic Rail Authority prior to putting Railtrack into administration?
  (Mr Garnett) I was surprised that there had been no dialogue between the two of them. But we now have a new Chairman of the Strategic Rail Authority appointed and clearly there must have been some dialogue going on between the new Chairman and the Secretary of State, so we have to look forward.

  498. You may have heard me put a question to the previous witness about the Strategic Rail Authority recruiting consultants to look at the alternative lines to the line that you presently operate. Do you think that might jeopardise the investment you are making in improving the services?
  (Mr Garnett) I think the Strategic Rail Authority is in a slight time warp at the moment. They are pursuing a number of activities which I do not think recognise the reality of the financial state that the industry is in, where the money is not there. There is not the money, in my view, to see something like a new East Coast Main Line for a very long time and I believe this money would be far better spent saying how do we upgrade the existing route. We have got enough problems with the railways in the UK delivering what we are trying do today before we start looking at great new plans.

  499. My last question is to both GNER and Virgin. Are you convinced that the new Chairman of the Strategic Rail Authority will be completely impartial in reaching his decision as to who the new franchise on the East Coast Line bid should be awarded?
  (Mr Green) We will perhaps answer this together.

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