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

Examination of Witnesses (Questions 780 - 799)



  780. Are you saying to the Committee today, Sir Richard, that the agreement that was made in April to use Renewco as a vehicle was doomed from the start?
  (Sir Richard Mottram) No. I am not saying that, no.

  781. It does seem extraordinarily that for a six month period Railtrack and its shareholders were led to believe that there was going to be a vehicle coming into place that would not have public sector borrowing or spending requirements, and then the rug was pulled from under their carpet on 1 October?
  (Sir Richard Mottram) I do not think that is the description of what happened. What happened was—I am not an expert on these vehicles—we agreed with Railtrack that we would give them more money, and what we were then discussing was could a vehicle be created which would enable Railtrack to add to its cashflow, over and above that money, through such a financing vehicle. These things are very, very complicated. At the beginning of April everyone was using their best endeavours and throughout the process everyone was using their best endeavours but they are, however, very complicated, otherwise it would not have taken that many months for that to be done. Everyone behaved in good faith.

  782. I was fortunate enough to secure an adjournment debate in December on Railtrack and in that the Minister, David Jamieson, replied and seemed to indicate that the Office of Independent Rail Regulators and the Strategic Rail Authority were going to be merged. Subsequently he had the courtesy to write to me to correct that position. If the two are, indeed, going to continue separately, SRA and the Rail Regulator, can we have an assurance from you, Secretary of State, should Railtrack emerge from administration in private sector hands that you would not in future give a power of direction over the Rail Regulator.
  (Mr Byers) Those matters are matters not for the Secretary of State but for the House of Commons and the House of Lords. The Rail Regulator is independent and his functions and responsibilities can only be changed by both Houses.

Chris Grayling

  783. Can I talk a little bit about the funding plans for investment in the infrastructure? There have been a number of questions raised about the amount of money that has been set out for investment, firstly by Railtrack and then by its successor in the network over the next five years. Railtrack itself said that there was a shortfall of about £3.5 billion over what was required. Swift Rail has estimated that there is a shortfall of £6.8 billion. It certainly appears to be a question about whether the potential shortfall must be provided for. Is that shortfall reflected in the funding that has been allocated to the 10 Year Plan or is there a potential issue that is as yet unfunded?
  (Mr Byers) We are confident that adequate funding can be found within the 10 Year Plan. It is also just worth stressing to the Committee, as we said at the time the 10 Year Plan was published, the 10 Year Plan is a flexible framework and during the period of the 10 Year Plan there will be three Spending Reviews. Those Spending Reviews will need to identify the priorities of the government at those particular times.

  784. You have not specifically budgeted for a potential gap in the projection?
  (Mr Byers) The Administrator is still doing his work, it would be premature because that work has not been completed.

  785. In relation to the funding that you are paying over to the Administrator to support the organisation in administration there is a potential debt there of up to £2 billion. Can you give us some clarification about how that money will be repaid? Is it your expectation there will need to be an asset sale of some sort to the organisation that takes over the Railtrack assets in order to enable the Administrator to repay funds to the government?
  (Mr Byers) There are a number of avenues that the Administrator is giving consideration to. He has not decided who will take Railtrack out of administration, who will be the successive body and there are one or two options about how that might be achieved. It will really be for the Administrator under one of those options to make recommendations to me under the Railways Act. As I say, the Administrator is still doing his work.

  786. There have been a number of questions raised, not least by Railtrack itself, its previous Chief Executive Stephen Marshall in evidence to this Committee, about the solvency of Railtrack on the date you chose to push it into administration. There are two issues that have arisen as a result of that, first of all, the publication of Railtrack's results and, secondly, the discussion over whether the Administrator has or has not undercovered a significantly worse financial position than had previously been identified. In the terms of the agreement that you have with the Railtrack Administrator, and they are providing you with regular management accounts, can you give the Committee an indication as to what in those management accounts have identified significant shortfalls in Railtrack's financial position? Can you confirm to us that it is still your view that Railtrack was insolvent on the date you pushed it into administration?
  (Mr Byers) To say I pushed it into administration is a judgmental view. What happened was I petitioned the High Court and the High Court decided on 7 October that Railtrack was insolvent. Indeed the High Court judge, Lightham J. made it very clear he would grant the order immediately because of the evidence that was put to him.

Mrs Dunwoody

  787. Could you tell us why, since they have been squealing like stuffed pigs ever since that date, Railtrack did not oppose that if they were so convinced of the security of their existing financial position?
  (Mr Byers) That is a question for Railtrack. Railtrack did attend court and they had counsel present and they did not object to the petition and did not raise a word against it. I know some people have drawn attention to the fact that Railtrack made a profit in the last six monthly report, but to announce a profit in no way reflects on whether or not a company is solvent or insolvent, because one has to look in relation to the profit that has been made over the six month period with the debt which has been incurred over a lengthier period. The directors of Railtrack will, as they have to do under legislation, have to make a statement of affairs. That statement of affairs will need to disclose the level of the debt that Railtrack have to service. I think when people see the level of debt, coupled with our projections of a £700 million deficit by December of last area, rising to £1.7 billion by the end of March this year, they will understand why the High Court judge, Lightman J., took the decision which he did.

Chris Grayling

  788. Can I just press you on the issue of the management accounts. Have the accounts the Administrator submitted to you revealed significant discrepancies, significant gaps, between the budgeted amounts for the year and the actual out-turns?
  (Mr Byers) That is still work the Administrator is doing. When he has completed his work all of that information will be made public and people will be able to see them.

  789. Are those accounts being submitted to you on a weekly basis? The Prime Minister has made a statement in the Commons to say that those gaps have been there.
  (Mr Byers) The Committee and the public would not see the whole picture. It is far better if people can see the whole picture. It is far better to publish by the Administrator at the end of the exercise rather than to take a weekly snapshot of what is a changing picture. As the work goes on the Administrator is discovering more about the true position of Railtrack, about its major projects, like the West Coast mainline, and so on. Let us get the whole picture at the end of the exercise, it is far better than to get odd little briefings from certain people we see in the press, and so on. Let us get the Administrator to make his report and then we can all see the situation.

  790. It would be premature to say that significant gaps have been unveiled?
  (Mr Byers) It would be true to say the Administrator is discovering things like, for example, on the West Coast Mainline, which people did not expect. Let us see what the Administrator comes up when he has completed his work.

Ms King

  791. When do you expect that to be?
  (Mr Byers) He has legal obligations he has to meet. The important thing is that we use this period of administration to do two things really, one is to make sure that the successor to Railtrack does not have the baggage which has been left behind by Railtrack and begins with a clean sheet so it can get on with the job. Secondly, that we use this period to make sure that there is good management to run Railtrack Plc. For understandable reasons the Chief Executive who was there, Steve Marshall, wanted to argue the case for the shareholders. It is a very good example of the difficulty that Railtrack always had between trying to serve two masters, the shareholders and the travelling public. In the end, of course, their legal obligations by statute are to the shareholders and not to the travelling public. They were concentrating on arguing the case for the shareholders and were not concentrating on reliability and punctuality within the network. We have new people in, John Armit as Acting Chief Executive and Jim Cornell, engineers and railway men, and they are now committed, really focussed, on improving the way in which the licence is operating. That is important because, obviously, we do not want to see the situation worsen during this period of administration.

Chris Grayling

  792. What is the latest estimate of when Railtrack will emerge from administration?
  (Mr Byers) That is a matter for the Administrator, it would be improper for me to put pressure on the Administrator when he has his legal obligations.


  793. What is your hope?
  (Mr Byers) He shares my objectives that the sooner it can be done the better. The sooner it can be done the greater the value there will be in Railtrack.

Chris Grayling

  794. Can it be done this year?
  (Mr Byers) I hope and I am confident it will be done this year.

  795. Why was no contingency plan been prepared to cover for the possibility of Railtrack being put into administration?
  (Mr Byers) No contingency plan in what way?

  796. Within the Department. I know there has been discussion within the Committee that that decision happened in a very rushed way. As you look through all of the issues that faced the industry in the past 12 months why did the Department never factor-in the possibility of a Railtrack administration and prepare an advanced contingency for that?
  (Mr Byers) In evidence I have given to this Committee before there were basically two options that were being looked at, one was to provide more money to Railtrack and, secondly, if we did not provide more money to Railtrack what would be the consequence of that. The consequence was that Railtrack would go into administration. Under the Railways Act there has to be an administrator appointed and there will then need to be a successor to Railtrack. I think the Committee, and the honourable member in particular, would have had a lot to say if on the Monday, after the administration had been granted on the Sunday, there had been a blueprint that somehow we had imposed it on the industry. That would have been improper.

  797. Taking you back to the issue of investment in industry. There are a number of factors that are effecting investment in the industry, most notably the Disability and Discrimination Act and the Automatic Train Protection System. Taking each of those in turn, there has been an estimate it could cost £3 billion to implement the DDA on the network. Is there a case for looking at the timing of that, given the current situation, and saying that, perhaps, is set after some of the short term priorities you outlined this week?
  (Mr Byers) I think the strategic plan makes it very clear that access for people with disabilities is a very important thing to deliver on, not just for the individuals but for the industry itself. I am pleased that there is an assurance and a commitment in the strategic plan that a person in a wheelchair will no longer have to travel in the guard's van by the end of 2004. I have to say I would like to see it brought forward, I said this to the House on Monday, sooner. As far as I understand it, there are no difficulties in terms of delivering on the disability and discrimination commitment.

  798. In terms of the detail of the SRA plan a number of the forecasts for the timing of individual projects that are contained in the SRA plan are based on what are set out in the original heads of agreement between the SRA and the franchising industry. The plan does not appear to take into account, for example, any time factors encompassed by delays in the issuing of franchises—the Chief Executive of the SRA told us that those delays were likely to happen—nor does there appear to be any allowance made in timing as a result of the Railtrack situation. I can give you two very specific examples of that, the timing of the South Central upgrade and the South West Trains upgrade, where both companies say they are not going to happen in the time frame the SRA suggests, can you explain why the SRA plan contains those ambitious timetables?
  (Mr Byers) I think we need to be aware in one of the situations that you have mentioned that although heads of agreement have been arrived at there are still very detailed negotiations going on. What we might be seeing here, certainly for understandable commercial reasons, are people putting forward a particular situation because they want to secure the best deal they can for themselves. We should be cautious about people with an understandable commercial interest because they are involved, as we speak, in very detailed commercial negotiations with the SRA about the details of those franchise agreements.

Mr Wiggin

  799. From what you said at the beginning, Minister, that you were planning to spend £180 billion over the next 10 years and that total Railtrack debt was something in the region of £1.7 billion—
  (Mr Byers) I was not referring to debt. I said that there will be a deficit of 1.7 billion by March this year.

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