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

Examination of Witness (Questions 20-39)




  20. I think we are all willing to accept that as a theory but, of course, if you do not have sanctions that are effective, if that is not the case then it will not be just Arriva that you have problems with, it will be other companies. I think Mr O'Brien's question is a very valid one. Are we to assume that your new franchise contracts will be not only tougher but clearer and carry quite positive sanctions if the conditions are broken, otherwise you are selling our passengers short?
  (Mr Bowker) It will be all those things.

  21. We have your word for that, Mr Bowker, because you will remember that you will be coming back to see us again.
  (Mr Bowker) I do. The contracts will be all those things. I would also say that I am trying to get, and the evidence is we will succeed in this, a spirit or relationship with the franchisee where they actually want to be—

  22. I am not too hot on spiritual relationships. I have enough trouble with spiritual relationships with any men.
  (Mr Bowker) I think you misheard me. To try to get one where it is win-win.

  Chairman: Now you have got Ms Jackson and Mr Bennett both wanting to ask you about Arriva.

Helen Jackson

  23. Arriva are also involved in the Trans-Pennine franchise bid, which could have been linked with the Northern franchise but the decision was taken not to. My question is are all the bids now with you for the Trans-Pennine franchise and in what specific ways are you going to look at those bids in the light of the failure of Arriva to deliver on its present franchise arrangements?
  (Mr Bowker) The bids are in.

  24. How many have you had?
  (Mr Bowker) That is a matter that is commercially confidential because I do not want bidders to know what their competition is at the moment, there is still negotiation to be had. It would be wrong to prejudice the analysis of the bids on the basis of one specific issue for one specific franchisee. However, we will take into account all the matters that we think are relevant and clearly past performance and what they are saying about delivering future performance will be important factors in assessing the bids.

  25. Many of those bidders have raised with us and other MPs from the northern area, like Mr O'Brien, the fact that delivering satisfactorily on that franchise relies on a higher standard of investment for upgrading the track, etc., vis a vis the south east and they have made that point quite strongly to us. How are you in practice going to ensure that you use the franchise bid process in order to redress the balance, which you say you are keen to do?
  (Mr Bowker) In redressing the balance you mean between—

  26. The south and the north.
  (Mr Bowker) I am not sure where the statement necessarily comes from that the bids for the Northern Rail franchise, for example, means that there is more infrastructure investment required to address the infrastructure. I do not think that we would necessarily accept that as the position. We think that what we have done with Northern, or what we will be doing with Northern because we have not started the tender process yet, is we will be setting a core specification for what we want out of Northern, it will be done in consultation with the PTEs because they have rights and we have begun that process already. That will set the core specification and it is against that specification that they will bid. What we are doing in the process, however, is ensuring that bidders have the opportunity to offer more than the core specification so we can see what the incremental cost and benefit is of doing more than what is in the core.

  Chairman: I do not want to get stuck for too long on Arriva. Mr Bennett.

Andrew Bennett

  27. You have just told us finally that Arriva is not a very satisfactory way and in the new contracts you want to avoid that and put in other mechanisms. Really that fine on Arriva means that passengers are paying twice, are they not? They got poor service and they in one way or another are going to pay the fine, are they not, because if it is possible the trains will be cleaned even less, there will be shorter trains and they will make savings in other ways? Is there not some way in which you can make sure that the shareholders of Arriva actually pay the fine rather than the passengers suffering twice?
  (Mr Bowker) Because Arriva Trains North is on a final year contract now we have seen the budget for Arriva Trains and there is no evidence that what you suggest will happen. They are under obligations to carry on delivering the service notwithstanding the fine that has been imposed upon them. If I may go back to the first thing you said, I did not say that I want to get rid of fines, I want to find another way. Going back to the earlier point, it is important that these contracts are tough and that we are prepared to be tough if we need to be. Both those things will happen but I want to add a new dimension which is to make sure we do not end up in this position, that the contract, the relationship, is such that performing and delivering service is by far the best solution for them and us.

Miss McIntosh

  28. Can I just be indulged on one question on the Northern Spirit. You did say when you last gave evidence to this Committee that Arriva or any other company that were subject to strikes would not be penalised. Can you give a guarantee that is still the same as the strike is ongoing, two more days have been announced. Arriva are caught by train drivers and now guards want the same as drivers. Do you see any way you can improve this situation?
  (Mr Bowker) The negotiations between Arriva and its management are and must remain a matter for the company and their staff and their union representatives. We have made available some limited relief in their performance regimes. That is done because not to do so would actually cause an imbalance in the playing field between the two sides and we do not want to create a situation which prolongs any industrial dispute, so we have done that. The resolution of that is a matter for Arriva and its management.

  29. Could you be more specific giving a broader split between the three areas in compromise negotiations between the split of private sector contributions, train operators, rolling stock leasing companies and infrastructure investment?
  (Mr Bowker) On Arriva or generally?

  30. This is a general question.
  (Mr Bowker) I do beg your pardon, is that in terms of the amount of the investment or the amount of competition for the investment?

  31. I think it is the amount of investment over the length of the franchise. You are probably aware that the Freight Transport Association told us that their members will only invest where they can see certainty. What I am asking you is can you provide clearer details of what the financing of individual projects will be to help project certainty?
  (Mr Bowker) I think on Northern, until we finalise the core specification, what the franchise will be, and until we finish the consultation with the PTEs it is difficult to do that. There will be investment in all those areas because that is necessary to deliver a core requirement. We are in the process of discussions around what can be done in terms of the longer term investment. I think it was clear in the Strategic Plan that there is not significant capital investment assumed in the Northern Rail franchise but there is substantial investment in terms of continuation and improvement, where we can, of the service that we currently have today. The franchising process is designed to isolate opportunities where the costs and benefits represent value for money and if we can justify those then those are things we can take forward.

Mr Stevenson

  32. When you gave evidence last time this question was asked: what is the ball park figure in terms of investment from the private sector vis a vis the 10 Year Plan. If memory serves me correctly you stated, and I think the Secretary of State confirmed, a figure. I cannot remember what that figure was but it was significant. You may recall it. The question was asked "Yes, but how does that figure break down in terms of rolling stock, the train operating companies and so on and actual infrastructure investment" and I think your response was you were not prepared to talk about that really because it might compromise negotiations. Could you remind the Committee what the overall figure of private investment is to date and would you be prepared to consider the same question again, how much of that is infrastructure investment and how much of it is rolling stock, leasing companies and so on?
  (Mr Bowker) The numbers in the Strategic Plan are £33.5 billion of public expenditure over ten years, over the 10 Year Plan horizon. In terms of the private sector investment, and it is dependent upon the assumptions that are used to support the calculations because cost of finance, interest rates, etc., are all part of that, is a number broadly around £30 billion. The difficulty of breaking it down further than that is because a lot of the financing that we get in that £33.5 billion is actually a revenue support to underpin borrowing by the infrastructure operator, so it is not very easy to say out of that number exactly how it is split.

  33. I am happy with that. Can you remind the Committee of that £34 billion of private sector investment that the 10 Year Plan envisages, how much to date has come from the private sector?
  (Mr Bowker) So far we have secured private sector investment totalling around £370 million for the Chiltern franchise and roundly £100 million for the GNER two year extension.

  34. So as we sit here today, out of that 34 billion we have got half a billion?
  (Mr Bowker) In terms of what is actually contracted for since last December that is what we have got secured.

  35. Half a billion.
  (Mr Bowker) Sorry, if I may, my apologies. We have also now secured the GoVia contract for additional rolling stock for South Central, that is another roundly 450 vehicles, so that is about £600 million. That is in addition to the amount that I—

  36. So that is a billion.
  (Mr Bowker) Yes.

  37. And all that is rolling stock basically.
  (Mr Bowker) No. In the case of Chiltern some of it relates to, for example, station improvements and track doubling.

  38. I do not wish to press you on these figures, that is not what we are here for, we understand there are difficulties, but it is extremely important. Of the figures that you have just given us, which is roughly about £1.1 billion of the £34 billion that is required, the majority of it is rolling stock, leasing and so on, there is this element of it that is infrastructure that concerns one area and a number of stations. Are you able to give the Committee some sort of general figure of how much that infrastructure investment is that relates to the stations?
  (Mr Bowker) From memory, although if you will forgive me I will come back to you and confirm it, it is in the order of 150 million. Can I just make one point, if I may. The rolling stock investment is quite a mature market and it has now been developed over four, five, six years, so rolling stock leasing, the techniques for it are quite well developed. The other thing is with things like Mk I replacement rolling stock, that is quite front-ended in the plan anyway. The infrastructure investment which will come through on the upgrades and enhancement and through techniques around SPVs, for example, is more further down the plan. The work is going on but securing financial closure for these things will come later, so the split at the moment is not really surprising.

  Mr Stevenson: I do not want to prejudge the Committee's questions but I wanted to get on to SPVs.

  Chairman: I think we can move on to that, particularly as you mentioned GoVia.

Mr Stevenson

  39. How many Special Purpose Vehicle negotiations have you got on the go at the moment?
  (Mr Bowker) There are discussions under way on South Central on GoVia which at the moment are primarily related towards finalising what we call a functional specification for South Central. That will lead into detailed SPV discussions in due course. There are discussions under way at the moment on Thameslink 2000 and there are discussions under way, at least at a preliminary stage, on the East Coast Main Line upgrade. Both of those latter two are inextricably linked with the detailed design and feasibility and business case work that is also going on. Really the SPV closure is the last thing you do before you start the construction period, so these are parallel processes that are under way at the moment.

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