Examination of Witnesses (Questions 384-399)
RT HON
JOHN SPELLAR
MP AND MR
MARK COULSHED
WEDNESDAY 26 JUNE 2002
Chairman
384. Good afternoon, Minister. We are delighted
to have you with us. Would you be kind enough to tell us who you
are?
(Mr Spellar) John Spellar, Minister for
Transport and I am with Mark Coulshed, Head of the Rail Sponsorship
Division.
385. Thank you very much indeed. Did you want
to have a few minutes to yourself to tell us what we should know,
Mr Spellar?
(Mr Spellar) No, I think I am quite happy to move
into questions on quite a wide-ranging topic.
386. Good, so can you assure us firstly that
the Department knows the difference between maintenance and renewals
as opposed to upgrades and enhancements?
(Mr Spellar) Yes, I think so, but I wonder why there
is a question on that.
387. Because we have taken quite a lot of evidence
that it is not necessarily so that enhancements are going to be
given the same priority, but can I ask you is it not commonsense
to assess whether a piece of track can be upgraded when it is
being renewed?
(Mr Spellar) Well, all the time, if we are looking
at Railtrack, and this would obviously be true right the way across
the system, they should be looking towards through-life costing
and, therefore, assessing the need for maintenance, but also of
course a rolling programme of renewal. Now, in one sense what
that means is that they actually have to have a clear view of
their assets and a clear register of their assets and, as the
Committee will be aware, one of our concerns which has been heightened
since Railtrack went into administration and the new management
have come in is that there was a significant deficiency in their
understanding of their assets, let alone of their cost base, and
the new management is having to wrestle with that.
388. We do understand that, Minister, but I
think what concerns us is that we would really like to know whose
responsibility it is going to be. Will it be Network Rail, who
have no remit for enhancements, or the Strategic Rail Authority?
(Mr Spellar) Well, the whole question of Network Rail
and the role of Network Rail, although it will obviously be more
widely discussed when we are able to make an announcement on this
subject once negotiations have been completed and the Secretary
of State is able to make—
389. Yes, but presumably you have thought about
this division of responsibility because the new company coming
in is not exactly a secret, is it? We not only know that we need
it, but you have been working on it for some quite considerable
time.
(Mr Spellar) This is true.
390. So you must have thought about who is going
to be responsible for this rather important division.
(Mr Spellar) True, Chairman, but I think also I am
slightly constrained by the final details and the detailed announcement
which will probably be made to the full Chamber of the House of
Commons.
391. I see, on something as specific as that?
(Mr Spellar) Well, just generally on the question
of Network Rail and of the new arrangements and the finalisation
of the deal.
392. Well, can I then ask you about engineering
works. Their costs are going up in bounds and bounds and they
have been criticised for offering poor value for money. What solutions
have you got in mind for that?
(Mr Spellar) Well, I think there are a number of areas
which Railtrack will be addressing and of course that applies
not just in the north, but right the way—
393. Network Rail!
(Mr Spellar) No, but Railtrack at the moment have
been addressing under Railtrack in administration, under the management
on the operational side, have been examining the system operating,
particularly because they have a number of examples where outside
contractors, outside of the main contractors, would have been
able to bid for doing work considerably less than Railtrack. I
had an example yesterday when I was in Yorkshire, this is a small
station improvement and a difference of over £1 million between
the estimate from Railtrack and the estimate from another builder.
That is a good example, I think, of the variation in cost. In
quite a number of cases Railtrack have been contracting work out
and again, as an example of their failure to understand or control
their costs, therefore, paying far more for those services than
they would have done in a proper contracted environment, and I
am sure that the current Railtrack management and then Network
Rail will be looking at how they can rationalise that work and
actually get costs which are more comparable with both costs and
indeed the rate of return which prevails in the commercial sector.
Chris Grayling
394. Minister, there has been widespread speculation
that extra funding will be announced along with the Network Rail
announcement. I do not expect you to confirm the amounts, but
can I ask you, particularly given the evidence we have been hearing
this afternoon about the situation in Manchester and the proposal
for Manchester which has been delayed beyond the ten-year time
period, can you give us an indication of whether any of that funding
would be available for some of the projects which have been pushed
outside the Ten-Year Plan?
(Mr Spellar) I think there are a number of issues
wrapped up there, ones which you rightly indicate I would not
be in a position to make a statement on, namely the financial
settlement with the Treasury. However, I think also it is fair
to say that we still have to resolve the issue of a number of
projects which have run substantially over budget, of which one
is obviously the West Coast Mainline, and discussions are still
taking place between the various parties to scope that problem
and then obviously to make decisions arising from it. Now, we
then have to look further down the line at other projects, but
while we are dealing with the major projects, of course a number
of smaller projects, smaller enhancements, Rail Partnership projects
are also going ahead, and of course work has been going ahead
both at Manchester Piccadilly and, for example, at Leeds where
I was yesterday where there has been a very significant enhancement
both to the station, but also, therefore, of course to the availability
and capacity at Leeds as well.
395. You mentioned the West Coast Mainline.
Who actually is financially accountable if Network Rail gets it
wrong, its sums? When you have a private company, it is the shareholders
who take the hit and when you have a public company, it is the
taxpayer who takes the hit. Network Rail is effectively neither,
so if it overestimates or underestimates the cost of the West
Coast Mainline and ends up with a bill that is vastly in excess
of what is expected, who picks up the tab?
(Mr Spellar) Well, I do not know that it was always
the case that when it was a private company they picked up the
tab because they kept coming back to us asking for more money
and that was the underlying problem that Railtrack faced and which
finally led to them having to be put into administration. Of course
the operations of Network Rail, indeed the operations of any infrastructure
company on the railway are dependent on the monies that the Government
makes available in order to fund the system, and that is the basis
on which of course they can borrow in order to run their operation.
Therefore, the Government has a very keen interest in ensuring
that they are rather robust figures for a scheme and indeed that
is the work that is currently being undertaken on behalf of Railtrack,
but also obviously of the other parties involved, by Bechtel.
396. But the Government ultimately, therefore,
is going to be liable for any financial errors which take place
at Network Rail in costing major projects.
(Mr Spellar) Well, it is then the case that you have
to evaluate how far you proceed with that scheme, which is precisely
why an evaluation of West Cost Mainline is being undertaken at
the moment, and the same reason why very careful work is being
done on East Coast Mainline, because it was quite clear before
Railtrack had to go into administration, even more clear since,
that they had lost control of the costs of that project and indeed
did not even understand the costs that they were incurring and
there was a systemic failure within the management system of that
company.
397. Are you confident that that failure has
now been removed? I ask the question because there are increasing
reports coming out of the industry that it is running even more
out of control than a year ago.
(Mr Spellar) I do not think that. I think that in
fact, which I think you might be alluding to, it is becoming clearer,
the underlying costs to which Railtrack were committing without
actually having clear view as to how that would finally resolve
itself in terms of numbers. We do have a greater degree of confidence
that there is a better understanding, but also, I think, an understanding
of some of the underlying problems which I was alluding to earlier
regarding the extra costs that Railtrack are paying over and above
that which would be experienced outside in the commercial contracting
sector.
398. Is it, therefore, true that the estimates
of the final cost of the West Coast Mainline modernisation, which
I think when we met last November was estimated to be running
at about £6.8 billion, there is now widespread coverage which
suggests that the costs are now sailing on towards £10 billion?
Should we be concerned that the price is now soaring well above
the £6.8 billion which we discussed last year?
(Mr Spellar) I think we can be fairly clear that it
is going to be greater than that, but we are finalising the balance
to be struck between the various parties and looking at the feasibility
of alternatives.
399. Lastly, on the East Coast Mainline which
comes in with a number of projects in the remainder of the Ten-Year
Plan dependent on the special-purpose vehicles, where do we stand
with special-purpose vehicles, first of all, in establishing them
and, secondly, in establishing a mechanism for contracts and then
an eventual transfer of those projects to Network Rail and, thirdly,
for the financing vehicles to be put in place for Network Rail
to be able to take them over later in the Ten-Year Plan period?
(Mr Spellar) At the moment the SRA are driving forward
this programme for the prospect of an infrastructure upgrade and
they are working closely with Railtrack and they will be taking
it forward as a special-purpose vehicle. Indeed we announced in
April of last year that it would be taken forward as a joint venture
with the SRA in the lead and potentially involving train operators,
project managers and financiers, but it is still, I think, a little
too early for us to make an announcement on the final shape of
the proposals for the upgrade, but you are right, that this is
obviously a project that commends itself to a special-purpose
vehicle.
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