Memorandum by T Martin Blaiklock (NAT
5)
1. INTRODUCTION
1.1 The Chairman of the Transport Sub-Committee
may recall that in October 1999 I wrote to her suggesting that
the NavCanada-type trust company structure might provide a suitable
model for the proposed NATS privatisation at the time**. The Chairman
kindly passed my letter to the DETR, and on 8 November, 1999 John
Prescott, Deputy Prime Minister and Minister for the Department
of the Environment, Transport and the Regions, replied that, whereas
the Government had studied a range of options including NavCanada,
"there is no UK equivalent to the NavCanada legal structure".
He added that: "NavCanada's entire capital base is sourced
from external financing—the vast majority is via long term
bonds secured against the future revenue of the company".
[**:I also suggested at the time that such a
structure could similarly apply to Railtract,. . . and three years
on we have the Network Rail CLG!!!].
1.2. Notwithstanding the additional comment
by the Deputy Prime Minister that NavCanada was: "strictly
speaking a private sector body", a criterion which should
stand in its favour in any privatisation exercise, I let the matter
rest as it was clear that Government (and CAA) preferred a conventional
privatisation which presented the prospect of bringing in £800
million to HM Treasury in 2001. The NavCanada solution would not
have brought such monies to the Treasury at "sale",
as the ATC assets would have just been transferred to the new
not-for-profit trust company for minimal consideration. Additionally,
I also felt unable to challenge the somewhat dubious argument
that there was no UK legal equivalent to NavCanada, albeit that
any such privatisation would have required approval by Act of
Parliament, and through such Act, which of necessity have to be
prepared by lawyers (the highest paid professionals in the land
and the best to be found in London) it should have been possible
to create the appropriate corporate vehicle at the same time!!
2. COMMENTS ON
THE CURRENT
SITUATION
2.1. We now learn that TAG, the owners of
newly-privatised NATS, has a cash-flow shortfall due to an unforeseen
down-turn in air traffic. Reports (FT Dec 2001) suggest that TAG
really needs £100-200 million additional capital injection.
Other reports (ref. PFI Feb 20, 2002) suggest that TAG and the
Government will inject £30 million each as an interim measure,
whilst TAG seeks an early approval of CAA to a five per cent increase
in tariffs. It had been anticipated that tariffs would not be
formally reviewed before 2005.
2.2. The problem facing TAG (which to a
certain extent could be mirrored by Railtrack plc (RIP) and, in
future, LUL/TfL PPP) is that Government controls tariffs and,
therefore, the revenues of these private sector monopolies. TAG
on the other hand, notwithstanding any comment as to its business
intentions to be "not-for-profit", is structured precisely
to be a profit-generating venture. Further, the business regulatory
regime is confrontational, bolstered by a misplaced notion perceived
in Whitehall that it is imperative to preserve an element of competition
in all PPPs at whatever cost. (How one can preserve competition
in what, in effect, is a private sector monopoly is rather beyond
me at times!!).
2.3. The NavCanada trust structure is not
faced with such problems as NavCanada adjusts and sets its own
tariffs as required to meet shortfalls or in the event of gains,
albeit it operates under an admittedly benign, but no less effective,
regulatory regime,—but then is not the intention of any
PPP as well? The UK PPP culture of risk transfer and allocation,—as
opposed to sharing the upsides and downsides,—combined with
the institutional desire to maintain competition is not necessarily
conducive on occasion to optimal public-private co-operation,
particularly for monopoly services.
2.4. These conclusions are best exemplified
by the supposed reluctance of Government/Treasury to support any
bail-out of TAG/NATS to the tune of £30-60 million, notwithstanding
that Government had received £800 million in the privatisation
a few months earlier!! Whereas it was right to question why TAGS
wanted this specific amount and the impact of September 11, etc,
on their business plan, the bail-out consideration seems minor
in contrast to the overall consideration of the transaction.
2.5. Overall, I have to question whether
the Government and their advisers (CSFB?) for the NATS privatisation
in the first place chose the best and most flexible corporate
structure for a "NATS PPP". Some alternatives, such
as NavCanada, could have avoided the recent conflicts and perhaps
better served the public interest (notwithstanding leaving the
Exchequer a bit poorer in the short-term).
T M Blaiklock
27 March 2002
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