Examination of Witnesses (Questions 1
TUESDAY 20 NOVEMBER 2001
1. Order, order. Welcome to this Committee hearing
this morning. I am very pleased you were able to come, Mr Gibb.
Perhaps you would like to introduce yourself and the company you
have with you.
(Mr Gibb) Good morning. My name is Chris Gibb, I am
Managing Director of Wales & Borders Trains.
(Mr Brown) I am Nick Brown. I am Director
of Commercial Development for National Express Group.
(Mr Pheasey) Good morning, I am Malcolm Pheasey, Project
Director, Franchising for Wales & Borders and National Express.
2. Thank you all for coming. Wales & Borders
Trains was formed only a month ago I understand. Can you explain
the reasons for its formation?
(Mr Gibb) Certainly. Wales & Borders Trains was
formed as part of the Strategic Railway Authority's plans for
an All-Wales franchise and we have formed the first stage of this,
bringing together the three National Express Group activities
3. What improvements are you focused on delivering
for passengers in Wales in the short term? What is your long-term
strategy should you be successful in securing the franchise?
(Mr Gibb) The short-term agenda is one of improving
performance and reliability and safety. At the moment we are working
on a three-month future because of the state of our franchise.
Against that, we are working on a plan of train refurbishment,
train reliability improvements, improvements to the timetable
and we are also working with a number of grant-funding bodies
to seek grant funding for various initiatives across Wales, some
of which have recently been successful and many others are in
4. In your written memorandum you say, "Recently,
both network congestion, as other operators have increased their
services, the track difficulties experienced by Railtrack and
overcrowding of services from passenger growth, have caused an
imbalance in the previous relationship between costs and quality".
Is that a euphemism for saying that the standard of service has
(Mr Gibb) The standard of service we offer has been
affected by a range of different things over the last 12 months
and prior to that. The increasing passenger numbers is one of
the things which has affected the standard of service we provide;
other issues such as the infrastructure and changing standards
have also affected the level of service we provide. We have seen
a very big growth in passenger numbers in some areas, for example
on Valley lines we have seen a 23 per cent passenger growth in
the last two and a half years.
5. How quickly can you turn around that imbalance
between cost and quality?
(Mr Brown) This goes to the core of the issues around
re-franchising for Wales and Borders. What we are looking for
is certainty of funding to enable us to plan long term. Mr Gibb
has mentioned the three-month termination notice which Wales &
Borders Trains face at the moment.
What we would be seeking is either a two-year
franchise extension or a complete re-franchise through the process
which was initiated by the Strategic Rail Authority last year
to secure long-term certainty for the business so that we can
plan on a longer term basis, levering the investments which are
needed and restore that balance between cost and quality which
we refer to.
6. You say in your memorandum that the current
division of responsibility for transport between the Government
and the National Assembly can work against a fully integrated
approach. Is this a serious problem?
(Mr Gibb) We have a very good relationship both with
the Assembly and Westminster's representatives whom we deal with.
We are quite content to work with both organisations into the
future. The Assembly has taken an increasingly proactive role
in infrastructure investment in Wales, but also support/funds
additional train services which we run in Wales. We receive the
bulk of our funding from the Westminster governed Strategic Rail
Authority and we have a good relationship with them and have been
successful in securing additional funds over the last 12 months
for new services and new projects.
7. You say in your memorandum that this separation
can work against a fully integrated approach. What sort of things
had you in mind?
(Mr Gibb) The determination of our franchise structure
through a thing called the passenger service requirement, which
lays down the level of services we operate on the routes in Wales,
is by the Strategic Rail Authority to the instructions laid down
by Westminster. The National Assembly has a transport policy of
its own and sometimes potentially those two transport policies
can conflict. The franchise agreement that we are operating to,
does not necessarily match the transport strategy held by the
National Assembly for Wales.
8. Would further devolution of transport policy
(Mr Gibb) That is a question for the politicians to
determine between the two organisations. We are happy to work
with both or either organisation in the future.
9. Could you elaborate a little more? We should
be grateful for your opinion on that rather than a fob, if you
would not mind.
(Mr Brown) Just to give you an illustration, we have
seen some encouraging initiatives from the National Assembly for
Wales through the capital grants aspirations they have and the
capital funding route seems clearer. The issue is the revenue
funding going ahead into the future over whatever lengths of franchise.
That is currently split between the responsibilities of the National
Assembly and what is currently funded through the Strategic Rail
10. In your memorandum you say that one element
of the operating cost is the leasing charge for the additional
rolling stock required. National Express have suggested to the
National Assembly for Wales that they consider capital grant funding
the additional rolling stock as a way to reduce the operating
cost and hence the call on public subsidy. That is transferring
the subsidy to capital rather than revenue, is it not? What is
the advantage of that?
(Mr Pheasey) The advantage is precisely that. The
local authorities traditionally and that continues with the Welsh
Assembly, find it easier to make a one-off capital contribution
in some form of grant than ongoing revenue subsidies. The normal
structure at the moment in the industry is that a rolling stock
company would capital finance the rolling stock and then whoever
is leasing it, the train operator, would then pay so much a year
as a rental by leasing it and that is a revenue cost that goes
on. If the Welsh Assembly wished to capital purchase those trains,
then that would not go onto the subsidy line which goes on for
ever. It still costs the same amount but it transfers it into
capital money which is often easier for local authorities to gain.
The Strategic Rail Authority is the body which would provide the
(Mr Gibb) We do have a precedent in Wales for that
where we have trains owned by local authorities which we are operating,
Bridgend County Borough Council and Rhondda Cynon Taff both own
trains which were sold to them under BR in the early 1990s and
we still operate them on that basis.
11. You refer to local authorities there and
in your memorandum you refer to liaison with the local authorities,
with the National Assembly and others, including other transport
operators. Could you tell us a little bit more how you work with
these other institutions and agencies to deliver an integrated
public transport system for Wales?
(Mr Gibb) The most effective liaisons of that kind
are through consortiums of local authorities. We came from the
early 1990s of dealing with the very large local authorities such
as Mid Glamorgan and West Glamorgan and through those local authorities
we built new railway lines, opened new stations and built new
trains. Since local government reorganisation it has been a little
more challenging dealing with a larger number of smaller authorities.
In some areas the local authorities have formed themselves into
consortiums, for example SWIFT in the Valleys area, which is a
very effective consortium of local authorities which has submitted
transport grant applications to the National Assembly. We are
a full member of SWIFT and play a very active part in the development
of SWIFT's activities in the Valleys. Those are the most effective
schemes for the larger projects. For the smaller projects, we
work closely even with Parish Councils, very small local authorities
for station enhancements and for grant funding applications where
we shall work jointly for very small schemes such as cycle racks
at stations and things like this. We shall talk to anybody who
is willing to come to that sort of partnership.
12. Do you see ways of improving this partnership
to achieve an integrated system?
(Mr Gibb) We have gone from a position in the early
1990s where we did not spend any money and we expected the partners
to come forward with all the funding, through a position where
we have started to make some matched funding contributions, especially
to joint marketing partnerships with local authorities which have
been particularly effective. In the future further contributions
from us and an ability to fund those sorts of relationships and
play an equal part with those local authorities would add to the
effectiveness of those relationships.
13. The new draft Directions and Guidance to
the Strategic Rail Authority on 29 June require that "all
bidders ... must be made aware of the criteria upon which their
bids are being assessed". Has the Government achieved this
position with the SRA?
(Mr Brown) We would always welcome further clarity
on this. We read the draft Directions and Guidance and we also
read the Secretary of State's statements. We are looking forward
to the Strategic Rail Authority strategic plan which we believe
will be published before the end of this month. We hope that gives
us a clear way forward for the industry.
14. How close are the SRA and National Express
to getting agreement from First North Western to transfer the
North Wales section of its franchise?
(Mr Gibb) The discussions we have had with the Strategic
Rail Authority so far have primarily concerned the three National
Express Group activities within Wales. We are well advanced in
discussions on the transfer of the six First Great Western stations
in South Wales, that includes Cardiff Central, and we are expecting
a transfer of those stations in January. We are ready to take
the First North Western activities in North Wales at any time.
Practically I believe the earliest that can be achieved is September
next year and we are ready to take it in on that basis if the
SRA so wishes.
15. Why such a long delay?
(Mr Gibb) The changes necessary to re-map the franchises
are extremely complex and we have now completed the first stage
of that and are very clear as to the work involved. In North Wales
it is necessary to disentangle the timetable between the two parts
of the resulting operation. It is very important that there is
very clear accountability as to who runs what services, who is
legally responsible for issues like safety and performance. Any
complication in terms of accountability would make it very difficult
to operate these services, so the next timetable where those sort
of changes can be made is the September timetable next year. We
are assisting in every way that we can to make that a practical
16. What is the difference between letting the
franchise by extension or by competition?
(Mr Brown) Franchise extension would not involve a
competition. It would be an extension to the existing franchise
agreements. They all have in them a clause which can extend up
to 26 financial periods, effectively two years.
17. What would be the benefits and disadvantages
for Wales of short, two-year extensions as opposed to 20-year
(Mr Brown) The benefit of an extension at this stage
is that we can hit the ground running much faster with some of
the investments and the initiatives Mr Gibb has already described
and that we have put in our submission. The issue of 20-year franchises,
obviously gives you a much longer planning horizon. We believe
that with some of the difficulties in the rail industry at the
moment, balanced against some of the very encouraging initiatives
which have come from the National Assembly, we can make a very
positive contribution to continued development of rail in Wales
now rather than waiting for a re-franchising process in 2004,
which is the end of the current franchise.
18. What kind of time period and what level
of investment would Wales require to make a significant contribution
to objectives such as access for disabled people, punctuality,
which is a big issues? What level of investment do you think would
(Mr Pheasey) Picking up the disabled point, the arrangements
for funding works to improve disabled access, I am talking particularly
about stationsnew trains are bought and they come more
or less ready prepared for thatwe have done an assessment
which is round about £19 million to make reasonable provision.
The issue actually is how far you go to make reasonable provision.
At the end of the day it can only be tested in court. We have
made an assessment of what we think is reasonable and it comes
to about that sort of figure. Separately from that we would expect
that something in the region of £39 million of capital investment,
that includes capital investment in rolling stock, would meet
the Secretary of State's current Directions and Guidance and make
significant improvements in the short term in Wales. That would
be associated with a franchise extension, which we believe could
be negotiated and put in place very quickly. We believe a longer-term
franchise of 10 years, 20 years or whatever, particularly let
competitively, would have a much longer lead time to get the new
franchisee in place. You have to specify very clearly at the outset
what you want bidders to bid against. We think that will take
the SRA a lot longer and delay improvements. We suspect that the
SRA will not be able to afford anything like the sort of monies
we put in our initial proposal 12 months ago. That was based on
extensive discussions and consultation with the local communities.
We felt that met what Wales needed but it has become clear that
the SRA are not able to sustain the sort of money involved in
19. I was not quite clear. Did you say the level
of investment was £40 million, but over what time period?
(Mr Pheasey) That would be to 2006. I should stress
that is not the subsidy which will be required, that is just the
capital element of the investment.