Examination of Witness (Questions 60-79)
MR RICHARD
BOWKER
WEDNESDAY 10 APRIL 2002
60. You were consulted, were you?
(Mr Bowker) We were consulted over it, yes, because
it is an amount of money that is being provided through us as
a grant. We had to be content that it was being used for its proper
purpose which is to secure the network. We in consultation with
others were comfortable that it represented a reasonable amount,
given the benefits of an early exit from the administration, so
we were involved in that process.
61. The Secretary of State said there were efficiency
savings involved in this. Can you tell us what they are?
(Mr Bowker) It is a combination of a number of things.
We believe there are some efficiency savings: we are keen to see
that—
62. Which are?
(Mr Bowker) Well, the Regulator set Railtrack quite
a challenging profile of improvements in efficiency during control
period 2. Those targets have not as yet been delivered and we
believe that a new entity coming in now would be able to get on
and deliver towards those targets.
63. Could you put a figure on the efficiency
savings?
(Mr Bowker) There were two net efficiency targets.
There was a 2 per cent in 2001-02 and 3 per cent in 2002-03. If
we could catch up on those two targets alone then, for every billion
pounds of expenditure you are saving roughly £50 million
of cost, so that is something clearly worth having if you can.
64. In the current situation where you have
a company limited by guarantee, do you understand it as having
a same responsibilities as its predecessor?
(Mr Bowker) In what respect?
65. Legal? Structure?
(Mr Bowker) It will be a private company established
under the Companies Act, the difference being that instead of
up-streaming profits to shareholders they will be re-invested
in the railway, but in all other senses it will operate within
a network licence and operate within a regulatory regime as set
out in the Transport Act 2000.
66. With the same assets?
(Mr Bowker) The proposal that Networkrail have made
is to purchase the shares of Railtrack plc and the assets and
liabilities.
67. Would you favour the idea of train operating
companies having a share in the equity?
(Mr Bowker) The proposal will be that there will not
be equity as such but members of the company limited by guarantee
and there will be wide-ranging industry representation on that
membership, reflecting the fact that we want to create a real
sense of—
68. You are happy with the train operating companies
being involved in that way as a strategic rail company?
(Mr Bowker) I am happy that there is a wide range
of representation across the whole industry.
69. Finally, Railtrack announced this financial
year they are cutting their track and signalling budget by about
50 per cent. How much more difficult is that making your job?
(Mr Bowker) I do not think they did announce that
actually. I think there were some reports that surmised that and
I understood Railtrack denied them quite strenuously. My understanding
is that Railtrack's actual renewal and maintenance expenditure
is increased over this year.
Mr Donohoe
70. When you answered Mr Stevenson's earlier
questions in terms of investment you gave an indication of something
in the order of £1 billion and said it was £31 billion
that is expected over the 10 Year Plan of private money. Can you
give us any indication as to what, year on year, over the ten
years you expect the private sector to be investing in any of
the new rail network?
(Mr Bowker) In terms of broad profile, quite a lot
of the expenditure resources will be around the mid-range of the
plan because when you start to develop the major upgrade schemes
that are on the stocks now, clearly the finance to construct to
and deliver those will be—
71. So you could give the Committee a note with
the figure down the left hand side for the first year, second
year, etc, for the investment you would expect that would deal
with that ten year period? You must have that information.
(Mr Bowker) As I say, I do have a concern that being
too specific in detail around specific capital project and investment
expenditure over the 10 Year Plan is information which is quite
commercially sensitive if people are bidding and involved in major
projects.
72. So in that sense, then, you would be in
a position to give the Committee a note on the extent of public
money, since it is about £33.5 billion for the ten years
that is expected from the public sector, and the intended spend
by Government over that period, because that is not commercially
sensitive, is it?
(Mr Bowker) It would be possible to give the Committee
a note giving some sort of broad indication of what the profile
may look like.[1]
73. The evidence that is around in terms of
special vehicle investments is not all that good at present, is
it, in terms of what they expect to have, given that projects
are being stopped because of the uncertainties that there are
and that the staffing levels that there were in some of the special
vehicle companies has been run down quite significantly. It does
not give any great confidence that that direction is one that,
at the end of the day, is going to deliver what is required to
the travelling public, is it?
(Mr Bowker) There are a number of points there. In
terms of the SPVs themselves, you are right in that we have not
yet seen the pipeline really starting to come through, and in
one sense that is not a huge surprise because a lot of the early
work around this has to be detailed design and development of
the actual schemes we want to do, and the experience over the
last few years that is taught us that getting the design and feasibility
work on a project done at the early stage pays dividends downstream.
There is a lot of activity on SPV development at the moment with
a lot of work done by the Strategic Rail Authority and by Railtrack—
74. But none of that work, with the greatest
respect, is impacting at all on the general public?
(Mr Bowker) But it will take time to put together
these projects and close them and then carry out the construction.
It really does take time.
75. Changing the subject but staying with the
same matter of investment, how is it possible that you would get
the necessary investment in with longer franchises when, at the
same time, there is potential for there to be vertical integration
introduced?
(Mr Bowker) On the vertical integration point, I would
not like the Committee to think there is potential to introduce
vertical integration. The issue around SPV was entirely down to
relationship on who upgrades and then operates the infrastructure,
irrespective of the train operation. SPVs are not about vertical
integration at all. In terms of uncertainty around it, I do honestly
believe that we have to go about this in an extremely structured
way—which is what we are doing. There is a massive amount
of work going on between the Strategic Rail Authority, Railtrack
and a number of partners on doing the really detailed work that
we need on projects like Thameslink 2000 and East Coast upgrade,
so when we do come to the market and say, "Okay, we want
to produce an SPV now and we would like you to tender for this
output specification and we would like to raise this finance",
there is absolute clarity on what we are asking them to do, what
we want it to look like when it is finished and the risks we are
asking them to take in the meantime. The last thing I want to
do is to do it the other way round because that is where we got
into trouble before. We do the work so that when we are ready
to go out into the market with a proper tender we will be ready,
and that comes downstream in the process, not at the front.
Chairman
76. So the report on GoVia which says that the
team that they have who have been doing this have now been stood
down is inaccurate?
(Mr Bowker) No, it is not entirely inaccurate. There
was some work done on the South Central SPV over the course of
the last twelve months: there is now a need—which I endorse—to
review what we have called the functional specification, to make
sure we are absolutely certain we know what we are buying and
when we are going to buy it, and what it is going to be when we
have bought it. That is under way now. In parallel with that we
are talking about the SPV structure for South Central and, when
we have done this specification work, then we will be in a position
to take the SPV work forward.
77. So it is accurate to say that, because they
were still unsure, either about the terms and conditions or about
the work that is required, they are standing down the team that
have been doing it because they foresee a gap between what you
are proposing—which appears to be reasonably sensible; "We
do the work first and then we present it to people"—and
what they were doing which is working on a Special Purpose Vehicle
which they had intended, presumably, to present to you quite quickly?
(Mr Bowker) But the GoVia team are now actively working
with us on the specification. The actual level of engagement—
78. So they have not been dismissed or stood
down, but they are now working on a slightly different application
for the same idea of a Special Purpose Vehicle?
(Mr Bowker) I think that is a reasonable interpretation.
Chairman: Good. I am always a reasonable woman.
Mr Donohoe
79. But that is not what the managing director
says.
(Mr Bowker) I was with the managing director of GoVia
only the other day and we were talking about how we work effectively
on developing South Central.
1 See supplementary memorandum by the DTLR to
the Transport, Local Government and the Regions Committee's inquiry
into the 10 Year Plan for Transport (Eighth Report of Session
2001-02, HC 558-II, Ev 189). Back
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