Examination of Witnesses (Questions 100
- 119)
WEDNESDAY 27 FEBRUARY 2002
MR BRIAN
APPLETON, MR
PAUL GODIER,
MARTIN CALLAGHAN
AND MR
TONY POULTER
Miss McIntosh
100. One last question: say there was 10 per
cent or 7 per cent or 5 per cent, so more than 1 per cent transfer,
would you not prefer that the PPP was up and running and working
before congestion charging was introduced?
(Mr Godier) Clearly, because of the very significant
improvement to capacity and reliability that the PPP is going
to unlock—
101. In how long a timespan?
(Mr Godier) The system would be much more able to
cope with significant increases, but since we are not forseeing
significant increases, I do not think it is really an issue.
Dr Pugh
102. Can I ask you about contractual arrangements.
It seems to me you are entering into contractual arrangements,
which, for all practical purposes, you cannot terminate. Is this
thing rather reckless about that?
(Mr Appleton) No, but I think Mr Callaghan will answer
the question better than I will.
(Mr Callaghan) A fundamental part of what London Underground
needs to achieve out of this contract is to have people who are
looking after its infastructure; recognising how long that infastructure
lasts, which is typically of the order of 40 years for trains,
and it might be 100 years for bridges because it is only by taking
a long term view of what makes the infastructure work that will
get the right balance between maintenance and investment, and
the right balance between investment in different types of assets.
Our view, therefore, is that it would represent a fundamental
weakness in the structure if it were very likely that the contract
would come to an end earlier than 30 years, because it would create
exactly the wrong incentives. It would create the incentives in
the private sector to guess that the contract would end early,
and then try to optimise their position over a shorter period
of time.
103. You do not see that as a problem, but as
a virtue?
(Mr Callaghan) Exactly. So what we have done is to
say, "If it works, provided the private sector are delivering
what the underground needs, there is no reason to bring it to
an end, and, therefore, the only circumstances in which it would
come to an end is if the private sector do not deliver".
104. So the circumstances are you are going
ahead with it, which you acknowledge, without any kind of democratic
mandate on this, but, by not having a public termination clause,
you are ignoring Treasury Taskforce's guidance, and you are ignoring
the recommendations of Ernst & Young and Transport for London.
Why, simply, have you not included some kind of clause to get
out?
(Mr Callaghan) I think the precedents are completely
different. Most PFI schemes are—
105. A scheme like this has never been done
before, so precedents do not come into it, do they?
(Mr Callaghan) You said that other PFI schemes have
it, and I am explaining why they are different. Other PFI schemes,
or almost all, are about a building phase early on, and a maintenance
phase thereafter. Therefore, the fundamental asset is in place
very early. This is not like that, this is about investing in
a huge portfolio of assets over a very long time. What Ernst &
Young said was that they did not address the question of whether,
structurally, having this termination right was the right thing
to do. What they said was, "Other deals have it, and if you
wanted to negotiate it afterwards, it would be more difficult
to do then than it would be now", which is clearly true.
That does not address the fundamental question, which is that,
in our view, it is a bad idea in principle to have it at all,
and that is why we have not got it.
106. So just backing your evidence, not the
evidence of lots of other schemes that are run differently?
(Mr Callaghan) I am making an assessment based on
the fact that this scheme is completely different from other schemes,
as you said yourself.
Mrs Ellman
107. Do you have any absolute commitment from
the Treasury that the funds will be available for the next 30
years?
(Mr Appleton) We do not have such commitment yet,
but everything we have heard, assuming that the Government finally
say, "Yes, you can proceed with this scheme", the Treasury,
as a consequence, will make the funds available.
Chairman
108. I am sorry, Mr Appleton, can we have that
a little louder?
(Mr Appleton) We do not have a commitment from the
Government, from the Treasury, in writing at this instant that
says, "We will make X amount available in Y years".
Everything we are led to believe is that if this scheme goes ahead
and gets the Secretary of State's approval, that such funds will
be made available.
Mrs Ellman
109. If you do not have a commitment, how can
you be so sure that this scheme is so good?
(Mr Appleton) It is where we came in. We started this
in order to get the funds to fix the tube. We have now reached
the point where we have a scheme that will do it and the money
will be provided. It will involve the Government in making up
the difference between what we generate through the fares and
what we have to pay for the Infracos(?). It would strike me as
quite ludicrous for the Government to agree with us going ahead
with the scheme if it did not in the same breath say, "Yes,
indeed, we will make up the difference".
110. But the Government have not said that,
have they?
(Mr Appleton) They will.
Mrs Ellman: You are confident they will.
Chairman
111. God will provide, is that what you are
saying, Mr Appleton?
(Mr Appleton) Not God will provide.
Mrs Ellman
112. What kind of commitment have you had?
(Mr Appleton) If they agree this is a sensible way
forward and they encourage us to do it, and agree with our decision,
then it seems logical they will say, "We will play our part".
Chairman
113. You do not have that in writing. You have
only your impression that this is what they will do. How long
have you been dealing with Government departments, Mr Appleton?
(Mr Appleton) Regretfully six years, Chairman.
Chairman: You are obviously very new at the
job.
Mrs Ellman
114. Who have you been dealing with in the Treasury
who has given you the certainty and faith in their ability to
deliver?
(Mr Callaghan) We do not deal, as a matter of routine,
with the Treasury. We deal with the Department of Transport, Local
Government and the Regions, which is our sponsoring department.
As Mr Appleton says, everything we have heard from the Government
is that they will make such a commitment at the appropriate time.
I understand that they are having discussions with us, and indeed,
most recently with Transport for London on that basis.
115. Might that come from officials, or certainly
ministerial authority for those statements?
(Mr Callaghan) Obviously we deal with officials. No
doubt, when we get the final statement, it will have the appropriate
ministerial authority. But, as Mr Appleton says, there is still
some way to go between sitting here today, and finally signing
off on these deals, and getting the funding in place is clearly
part of the process of concluding the process.
116. Would it make you feel even more secure
if we were able to have a Treasury representative in front of
us at this Committee, that we could ask that Treasury representative
the same question? Would that make you feel better?
(Mr Appleton) That is one for the Committee, not for
us.
117. It would be helpful to you, surely, if
we could ask the Treasury?
(Mr Appleton) We are trying to tell you that we remain
confident we will get the funds. We would not take this decision
if we did not have that confidence.
118. But does that mean you have been given
the commitment and been asked not to disclose it?
(Mr Appleton) We have received no such instruction.
Chairman
119. No such commitment and no such instruction.
No to both questions, Mr Appleton, or only one?
(Mr Appleton) To the second: no instruction to conceal.
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