Examination of Witnesses (Questions 260
- 279)
WEDNESDAY 6 FEBRUARY 2002
MR JOHN
ARMITT, MR
JOHN SMITH,
MR ALAN
BLOOM AND
MR CHRIS
HILL
260. It is rather longer than what you told
us in the first place.
(Mr Bloom) We did when we were last here say that
March was tight, and indeed it turns out that March was tight.
One of the reasons why the timetable is longer than we had thought
is the very business planning process that John Armitt has described
which only commenced in earnest in about November and was already
planned by the company at round about that time. That is setting
the critical path for opening a data room for interested parties
to view what the business is all about. We do not anticipate that
that is going to be available in its final form until some time
in March.
261. So potential bidders are not going to get
access to the data room until March?
(Mr Bloom) Until March/early April.
262. You have got a lot of experience in administration.
Tell us what is the likely time period for the bids to be brought
forward after that.
(Mr Bloom) A formal timetable will be developed by
ourselves and Deutsche Bank which will go out when we issue a
notice that we are opening up the data room. We will set out the
timetable from there over the next few months. I expect that some
time between early April and round about June, July would be when
we would expect bids. I expect that there will be more than one
round of discussions and negotiations. It is a complicated business.
The contracts that govern Railtrack's business are complicated
and need people to guide them through, which is what the data
room is all about. When people put their first proposals together
I have no doubt that we will need to have a second round at least
of discussions, so that process is likely to take a few months.
263. Can you envisage any particular grounds
that would cause the Secretary of State to overturn any suggestion
that you might make about a successor to Railtrack?
(Mr Bloom) It is not for me to second-guess what grounds—
264. Oh, come on, Mr Bloom. Everybody second-guesses
everybody else in government.
(Mr Bloom) The Secretary of State has laid down his
criteria that he would expect any successful applicant for a licence
to satisfy. Those are being used as guidelines by us as part of
the data room and the information memorandum that we send out.
I expect that if parties are able to satisfy those guidelines
they have got a reasonable prospect of satisfying the Secretary
of State's criteria. They then have to satisfy our criteria which
are to achieve the best we can possibly achieve for the creditors
and the shareholders. As long as parties recognise what each of
the Secretary of State and the administrators are trying to achieve
then they have a good prospect of success.
Helen Jackson
265. I wondered if setting up your data room
by the end of March has helped Railtrack establish the state and
condition of all its assets, which was one of the criticisms of
our earlier report.
(Mr Armitt) The quick answer is no, because that was
an ongoing process beforehand. It had started before the company
was put into administration. There is a long term plan over the
next couple of years to achieve a complete register of asset condition.
We have a register of what we have got. What we do not have is
a register of asset condition. That is a continuous process. It
will be at the point that it is at at the end of March but it
is not one which is being accelerated simply because there is
a requirement to have documentation available. There are major
resources applied to it and it is an ongoing process.
266. But bidders will need to have this information.
(Mr Armitt) The bidders will have access to that information
as it stands at the time.
Chairman
267. So you would not agree with one of your
predecessors who said that anyway it would be nonsense because
it would not mean anything? I paraphrase mildly.
(Mr Armitt) Whatever my predecessor may have said,
my own view is that what information is there must be of value
because it will give a level of information about the state of
the network as it is today.
Mr O'Brien
268. In the 10 Year Plan it is anticipated that
there will be £15.9 billion worth of private sector investment
and £3.6 billion of public investment expenditure between
April 2001 and April 2004. Is this achievable?
(Mr Armitt) The private sector investment is a matter
for individual schemes. Levering in private sector investment
will depend on the individual scheme, it will depend on the risk
profile applied to that scheme, and one will have to take each
scheme on its merits. That is a matter for the private sector
at the end of the day. It will not be easy; I do not think anybody
has ever pretended it would be easy, but I am sure it is possible
to get private sector money into the railways. It has clearly
already gone into the rolling stock and in the right circumstances
I am sure it can be put into infrastructure development.
269. Do you think you will require more public
money than the £3.6 billion?
(Mr Armitt) That depends clearly on how much comes
from the private sector. The mix of the two will very much depend
on the individual schemes.
270. The Strategic Plan has been published by
the Strategic Rail Authority and does envisage 80 per cent of
expenditure in the south, therefore denying a lot of expenditure
in the north. I come from the north of England. When we put this
to the Chairman of the Strategic Rail Authority he said it was
for Railtrack to distribute the resources. What have you got to
say to the people in the north of England who are being denied
the resources? We still have trains running late, we still have
problems with stations, we still have difficulties that exist
there.
(Mr Armitt) Railtrack at the moment has a primary
objective, which is to maintain the existing network and to renew
the existing network. That is our fundamental task on a day to
day basis, and to take forward, in addition to that, the new projects
as and when they are funded. There are half a dozen of those which
are going on at the moment in addition to the first two elements
of work I described. There is an enormous amount of work done
in every zone, as it is called, of the Railtrack business and
I am sure there are people in the south of England who would complain
as bitterly as those in the north that the condition of their
stations could be better and their trains are being delayed. I
have not seen anything which suggests to me that there is a significant
bias towards any part of the network in the level of expenditure
and resources that Railtrack are applying today.
271. You are advising the Committee that the
programme for the improvement of stations, including Wakefield
Westgate Station, is on target? Leeds has been completed.
(Mr Armitt) Leeds is almost complete. I would say
yes to that.
272. Wakefield was in the pipeline for the next
improvement. Is that on target?
(Mr Armitt) Station improvements which are in the
programme will be taken forward according to the programme. There
is no intention at the moment of changing the current programme.
The reference in the Strategic Plan is to the suggestion that
there were a lot more people travelling in the south east and
therefore there was potentially an argument for applying resources
in a bias towards that. At the moment we are following our current
plan as it was previously set and we will have discussions ongoing
with the SRA about any particular areas that the SRA may wish
us to focus on.
273. But the programme that was set previously:
you are assuring the Committee that that will continue on target?
(Mr Armitt) Yes.
Chris Grayling
274. Mr Armitt, the Secretary of State told
the Committee a few weeks ago that Railtrack would be expected
to live within the budgets put in for control period two regardless
of anything else. Is it your assessment, based on your initial
work with Railtrack, that your obligations under the 10 Year Plan
and the SRA Plan can be achieved within the budget set for control
period two?
(Mr Armitt) We cannot meet it within the budget set
by control period two and it is our intention to go back to the
regulator and argue for more during the next few months.
275. How much, roughly?
(Mr Armitt) That is what we are working on at the
moment in terms of putting a business plan together. Clearly we
are also going to have to provide the necessary information and
arguments and evidence as to why we should be entitled to more
money and that also we are working on at the moment and we will
be working on over the next two or three months before we are
ready to go to the rail regulator and argue for more.
276. So you will be asking for a formal review?
(Mr Armitt) An interim review, yes.
(Mr Smith) Could I add to that? That was anticipated
by the regulator in January last year when he issued a policy
statement and said he would consider sympathetically an application
when we were in a position to understand the ongoing implications
for network stewardship of the events at Hatfield.
277. And you cannot give us a sense of how much
roughly that is likely to be in extra needs?
(Mr Armitt) I think it would be inappropriate to just
pluck a figure out of the air today.
Chairman
278. That is part of the tradition of Railtrack,
is it not?
(Mr Armitt) Perhaps it a tradition which has not borne
us well in the past. When we have calculated properly a figure
as best we can we will be happy to tell people what it is.
279. Mr Bloom, it has been said that since you
took over as administrator of Railtrack you have, as the work
has gone by, uncovered more and more financial difficulties within
the company. Is that true?
(Mr Bloom) When we arrived at Railtrack on 7 October
we had had no access to Railtrack before that date. Any information
that we had about Railtrack was from a desktop from a distance,
so we had no prior expectations as to what it was that we would
see and the numbers that would be required, etc. We produced,
with the help of the Railtrack management team, a forecast for
funding initially for the first six months of the administration
to 31 March of £2.9 billion. It is our full expectation that
in the period to 31 March we will come inside that figure.
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