MONDAY 18 NOVEMBER 2002 __________ Members present: Mr Edward Leigh, in the Chair __________ MR TIM BURR, Deputy Comptroller and Auditor General, and MR JEREMY COLMAN, Assistant Auditor General, further examined. MR BRIAN GLICKSMAN, Treasury Officer of Accounts, HM Treasury, further examined. REPORT BY THE COMPTROLLER AND AUDITOR GENERAL The Public Private Partnership for National Air Traffic Services Ltd Examination of Witnesses MS RACHEL LOMAX, Permanent Secretary, and MR IAN McBRAYNE, Head of Civil Aviation Division, Department for Transport; MR RICHARD EVERITT, Chief Executive, National Air Traffic Services Ltd, examined. Chairman
(Ms Lomax) Mr Richard Everitt, the chief executive of NATS, is on my right and on my left is Mr Ian McBrayne from the Department, who is the head of the civil aviation division. (Ms Lomax) This was discussed at great length when the Transport Bill was going through the House and I think the Treasury sent a memorandum to the transport select committee. At the time, the government felt that a PPP would provide a stronger commercial framework and would promote more efficiency than the untried and untested not for profits model which had only very recently been adopted in Canada. With the benefit of hindsight and given the strategic partner we have ended up with, the difference between the PPP and the not for profit model is perhaps not as great as people thought at the time. (Ms Lomax) The arguments would have looked a bit more finely balanced, yes. (Ms Lomax) No. On the minor point first, the Department had no benefit at all from the receipts being so far in excess of the 500 million that had been taken into account at the time of the Comprehensive Spending Review. Naturally, the Department was concerned to get value for money for the taxpayer and was mindful of the points which have been made in this Committee about the need to do that. The major objectives of the PPP were to provide a viable way forward for NATS and to ensure that the concerns about safety, security and public accountability that had been expressed in Parliament were adequately addressed. (Ms Lomax) It was a highly leveraged structure that emerged from the PPP negotiations. It would have been the same if it had been any of the other bidders at that stage. This was pretty much in line with the sort of structure for regulated utilities that other sectors were adopting at that time. The water sector, for example, followed the lead of Plas Cymru. That very highly leveraged structure was something that was popular with other utilities. (Ms Lomax) There has been nothing on the scale and the severity of the downturn that followed 11 September. In terms of its impact on NATS' business, which is very dependent on large, long distance aircraft to generate income, in terms of chargeable service units, this downturn has been way in excess of anything that has been seen before. For example, the downturn following the Gulf War on a year on year basis in chargeable service units was one per cent. For the last 12 months, it has been 11 per cent. (Ms Lomax) Yes. (Ms Lomax) It was very extensively stress tested. Every scenario that people could think of to throw at these models, these bids, was worked up. There were compulsory ones which our advisers suggested. Each of the bidders devised their own and we also did some in-house. That is not to say that every possible scenario that anyone could ever think of was tested because life is not like that. The honest truth is that, in the circumstances of the time, the world looked a less risky place than it does today. (Ms Lomax) Yes, and they did a very great deal of work for it. Every year since data on chargeable service units has been collected, since 1983, there has been growth in that measure of particular relevance to NATS, with the exception of the Gulf War when, as I mentioned, there was a relatively small downturn. It had been a very strong, consistent picture in upward growth in that market. (Ms Lomax) September 11 has hit the aviation sector very hard, including the Airline Group. It is a question of what they can afford to do. The taxpayer is not picking up the whole consequence. (Ms Lomax) Neither are users. The 60 million that you are talking about was a temporary facility that was put in place earlier this year which ran out at the end of September and has not been used. What is being worked up at the moment is a more lasting solution which the CAA and NATS are actively discussing. The CAA put out a consultation paper in the middle of October which has been out to consultation until last week. We are expecting a decision from them in a few weeks' time. The principle that they have adopted is that all parties -- users, the government and the banks -- should be making a contribution to a lasting solution. (Mr Everitt) Yes. I am determined it will be sustained and indeed improved. Our performance this year in terms of risk bearing air proxies is similar, perhaps slightly better than last year, although they have not been all fully assessed by the Aircrafts Board, which was in single figures. I am determined to improve on that. This is our absolute priority. That is what we are here for and whatever the financial situation we are determined to work on our safety record. (Mr Everitt) We have Swanwick and we have brought Swanwick into use very successfully in January. That is one of the principal drivers of our future capacity. The way we will increase capacity over the near term is to increase the number of sectors. Airspace is broken up into sectors, which enables us to distribute the work amongst a greater number of controllers. We are doing a major resectorisation which we anticipate coming on stream in March, which will give us additional capacity in the North Sea which is one of the big pinch points we have at the moment. It will also meet some military needs. We have not stopped growing capacity. We will also grow capacity through the Swanwick system as we bring additional controllers in. Where we have paused -- and I stress "paused" -- is in investment in our future sensor systems, but we have used this year to really think through the risks and the opportunities and how we might collaborate on future sensor systems. I am confident that once we are through this refinancing following the CAA's decision we can get on with some of these projects. (Mr Everitt) I am reasonably confident that that is the case, as long as we can get these issues resolved in the next few months. We will have better projects. One of the things the PPP was set up for was to improve the project process within NATS and we have used this year to really think through what we can do and how we can manage the risk of these very, very complex projects more effectively. We have used this year well. What we now need is the composite solution to be put in place so that we can continue to move forward. I would stress that we spent, in the last financial year, £64 million on capital. This year, we will spend about 50 million, so we have not just stopped spending. We have just been careful how we use our money, given that we have had to lift our cash flow now for nearly 15 months. Mr Williams (Ms Lomax) It is not a question that I think I can answer. It goes to the question of discussions that were going on between ministers and departments which, even if I had been party to, I would not want to reveal. On a major, controversial issue like this involving the ownership of a safety critical industry like NATS, I would be most surprised if the Department just did it off its own bat. It really does need to be agreed with the Treasury. (Ms Lomax) The way I see this ---- (Ms Lomax) No, I have not seen one. (Mr Colman) For many years, privatisations took place without any form of public sector comparators. (Mr Glicksman) I have not seen a public sector comparator. I cannot answer your question directly. (Ms Lomax) I do not think I would expect to see a public sector comparator in a case like this. You see them for PFI deals but I have never seen one for a privatisation. This was a share sale of 51 per cent of the shares. It was a major policy decision and it went through the Houses of Parliament. The trouble about PFIs is that they do not have that sort of political scrutiny. (Ms Lomax) They paid 50 million for an equity stake and then there was a £15 million loan from British Airways. (Ms Lomax) It was paid into NATS. (Ms Lomax) NATS will pay it back. (Ms Lomax) Yes. (Mr Everitt) Yes. It is a debt of the company. (Mr Everitt) Yes. We have a loan put in place as part of the restructuring of the finances of the company at completion. It is our job as a company to service that loan both in terms of interest and to repay it. (Mr Everitt) Yes. (Mr Everitt) I think the interest rate is around seven per cent. (Mr Everitt) It will be quite a lot less than that because we will be paying back part of the loan over the 20 years. (Mr Everitt) The two shareholders, Her Majesty's Government and the Airline Group, structured the finances of the company at completion and determined that they would put this amount of debt in place. That represented the proceeds to the government ---- (Mr Everitt) We have a large debt and that is making it difficult. (Ms Lomax) Yes. (Ms Lomax) There is a limit to the amount of debt that people would have saddled with NATS and that is the amount of debt which NATS was thought to be able to service out of its income. That is why the deals were structured in this way, because it was thought to have a very strong income revenue. (Ms Lomax) The Airline Group. (Ms Lomax) They are not here. (Ms Lomax) The Airline Group put the bid in on the basis that they would not be taking dividends out. They are not looking to make a profit out of this. (Ms Lomax) There is an issue about how much a business carrying this much debt is going to be worth. The equity shareholders are the last in line. If the business is very encumbered with debt, there is going to be less for them even if they were going to take dividends out. (Mr Glicksman) 800 million was the amount that was offered by the best bid. It would be quite difficult to go back to them and say, "This is too much. We do not want so much money for this sale." What we were looking for was best value for money and there is no reason why this should not have been the best value for money. (Ms Lomax) Two valuations were done of NATS by Price Waterhouse Coopers as well as by CFSB, our advisers. They put the value of NATS at somewhere between 800 million and a billion. I would be in a very uncomfortable position indeed if I had come before this Committee and said that we deliberately decided to take 500 million when that was the valuation sitting on the table by our advisers and independent valuers, supposing September 11 had not occurred. It is very difficult to justify to the Public Accounts Committee accepting a bid so far off the valuation that the market is putting on it. Mr Rendel (Ms Lomax) I think so, yes. There is a refinancing going on at the moment as part of putting a composite solution in place, but by and large the PPP has emerged pretty well over the last year. (Ms Lomax) That looks unlikely at the moment, yes. (Ms Lomax) The question that I think was asked, which is not exactly the same as testing these scenarios, was what sort of shock to airline traffic would cause this deal to fall apart. As I understand the advice given to me when I have asked this question, the answer was such a large shock that it was thought to be quite implausible. (Ms Lomax) I do not think that is quite right. I think that downside scenarios were tested. (Ms Lomax) There was a prolonged period of low growth and individual shock in one year on the same scale as the Gulf War, which I am told we did test for. (Ms Lomax) These are flights as opposed to the chargeable service units. These are not comparable data for ---- (Ms Lomax) I do not think they can be for the first and second oil shocks because comparable data do not exist before 1983. (Ms Lomax) I think it actually says ---- (Mr Colman) I am as puzzled as you are. The chart is what it says, chargeable service units, and this report has been agreed in detail with the Department. (Ms Lomax) I do not want to make a big thing about this because I think there are general points to be made. I am told you did not take account of all our comments. (Ms Lomax) The important point to make is that very large numbers of scenarios were tested. They did include some downside scenarios. The ones that were tested ---- (Ms Lomax) I do not want to pursue this. (Ms Lomax) It may be me who has got this wrong. I would much rather ---- Chairman (Ms Lomax) Can we write to you? We think it is flights that the data are showing here. If we failed to pursue the point sufficiently vigorously with the NAO at the time when we should have done, I apologise to the Committee. We need to beg the Committee's indulgence to follow this up afterwards. The general point I think I can make is that downside scenarios were tested. There was extensive testing by the bidders, by our advisers and for the benefit not just of the Department and the Treasury but also credit committees of four banks. This was a very thorough exercise. The issue that is worth thinking about is that, in the circumstances of May 2001, the world looked a safer place. The expectations for that traffic growth were different. Even if you had said that there could be an absolutely catastrophic development of the sort that September 11precipitated, how much weight would you put on that in deciding what was an acceptable price and an acceptable financial structure for NATS? Mr Rendel: Chairman, I understand what the witness is saying but this is a serious matter. We have come up, apparently, with a disagreement between the NAO and the witness as to whether this report is accurate or not. It does make a difference to my further questioning because clearly if this report is accurate and what the witness was saying earlier in answer to you was not accurate, if she is now correcting what she is saying about this and the NAO have made a mistake, obviously that makes a difference to any further lines of questioning. We may wish to discuss afterwards as to whether we need to recall this witness at a later stage to answer these points once she has been able to hammer out with the NAO what is the truth of this matter. Mr Williams: Or recall the Permanent Secretary who was there at the time. Mr Rendel (Mr Burr) Whatever these are, the point still remains that the scenarios in blue did not exhibit the patterns of the scenarios in grey. (Ms Lomax) The risk has clearly been transferred in the sense that, had NATS remained in the public sector, there would have been a choice of two possibilities to respond to the events of September 11. One, the government could have picked up the whole tab. Two, the costs could have been passed straight on to users. The whole business about the composite solution is an attempt to find a way of spreading the adjustment across a wider collection of people. (Ms Lomax) No. The choice was made in the round. There was a small difference between the Airline Group and Nimbus at the end but it was only a few million. The Nimbus deal was different because Serco wanted to put their existing ---- (Ms Lomax) By the time the Airline Group's bid had been adjusted down, the difference in terms of the net sales proceeds between the Airline Group and Nimbus was quite small. The Nimbus Group also involved a great deal of debt for NATS, by the way, but it was different in some other respects. (Ms Lomax) Yes, and also worse in some respects. (Ms Lomax) There were differences across all the criteria. For example, certainty, clarity and conditionality. Nimbus was rated acceptable to poor. (Ms Lomax) Nimbus did volunteer that they did not want to change their bid. This was against the background of foot and mouth and the impact that that was having on traffic forecasts. (Ms Lomax) We prudently took account of what was happening in the outside world and I think we would have been criticised if we had not. Traffic forecasts were coming down. The questioning so far has suggested that we were so greedy for proceeds that we did not look hard to see whether it was a safe deal. We did take account of the fact that the world was changing and that the world economy was slowing, that foot and mouth was hitting the North Atlantic trade quite severely and that those were good reasons for allowing the Airline Group to revise its forecast down. Even so, it remained higher than the Nimbus Group and the Nimbus Group voluntarily decided they did not want to adjust their bid. Chairman (Ms Lomax) Could I have a shot at explaining? First of all, I apologise for appearing to criticise anything in the report at this stage. I should not have done it. It is out of order. The truth of the matter is that the amount of technical testing for a bid like this is enormous. The NAO report may not be inaccurate so much as over-simplified. I stick completely to what I said to you at the beginning, which was that the impact of September 11 on the measure of airline traffic that matters to NATS' income was quite unprecedented. For the purposes of considering the present situation, that is a very important point. With the ink scarcely dry on the contract, with the PPP only seven weeks old, NATS was hit by a quite unprecedented shock. Chairman: I am not sure that answers my question. I have made my point. You have promised us a note. I do not really like dealing with notes because it is much better to resolve these things. Maybe, before the end of the meeting, we will get to the bottom of it. If we have not, I will ask you some more questions. Mr Osborne (Ms Lomax) There are two relevant points. One is that the NAVCANADA model, at the time when it was being cited as something that we should look to in structuring the future for NATS, was relatively recently introduced. It came in in 1996. It was difficult to use that. It was not a tested model. In practice, it turned out rather well. The second thing is that the strategic partner in the PPP is the Airline Group which has said that it wants to operate on a not for profit basis and it will not be looking to take dividends. (Ms Lomax) I think that is very similar to most people in the aviation sector, is it not? (Ms Lomax) The PPP is there. A lot of work has gone into it. It has been very carefully thought through. I was asked to say how could we therefore be going ahead with Network Rail which is a not for profit structure and I have indicated that people's minds are not closed on it. It was not a theological thing. (Ms Lomax) If I could read the next sentence: "However, any definitive view would be subject to detailed assessment of the body's control and risk transfer arrangements." The same is true of Network Rail. (Ms Lomax) The decision to classify Network Rail the way it is does reflect particular opposition that has been put forward by Network Rail about control. (Ms Lomax) One significant difference is that Network Rail is in receipt of a large amount of public subsidy; whereas NATS is not. (Ms Lomax) Is it? What soft government loans? It is not in receipt of any soft government loans. (Ms Lomax) Are we talking about Network Rail or NATS? (Ms Lomax) No, not at all. (Mr Everitt) In March a 60 million facility was put in place on commercial terms, subscribed 50/50 by the banks and the government. That was designed to be working capital. It expired and was repayable by the end of September. We did not have to draw on it. Had we had to draw on it, it was on straight commercial terms. (Mr Everitt) That was the arrangement that was put in place between the government as shareholder and the banks as funders. It was done on strict commercial terms because the banks would not do it in any other way. (Ms Lomax) No, we are certainly not thinking of another major change. There is no need to at the moment and having gone to so much time, trouble, parliamentary time and money to construct the PPP it would be a very serious decision indeed to abandon it. (Ms Lomax) The structure of the PPP and the economic regulatory framework within which it is operating does provide for recourse if NATS gets into difficulties. For example, there is in the NATS licence a condition which provides for an exceptional user contribution in circumstances which could not have been foreseen. Prices could be raised. In the legislation, as you no doubt recall, there is provision for air administration on the same lines as rail. There is a wide range of things which could be done if NATS got into serious difficulties, but that is not where we are at the moment. We are negotiating a restructuring which will put us on a firm footing even in these difficult circumstances. (Ms Lomax) We have plans against almost everything in the Department. (Ms Lomax) At the moment, we have reasonable grounds for supposing that a composite solution will be in place shortly. (Mr Everitt) That is right. (Mr Everitt) Not a great deal more than that. The big issue would have been the speed with which we could move on the Scottish centre. We had already made decisions prior to September 11 that we needed to review that project. As I explained to the Chairman, we have spent this year examining what our best options are and particularly how we can collaborate more closely with key partners in Europe. I think we are making good progress on that, so I would be surprised if it would have been a great deal more. (Mr Everitt) Yes. It is a broad order number obviously, £100 million a year. Part of my job is to make sure that we spend money wisely and effectively. We have taken this year to really work through what our best options are on the capital programme. (Ms Lomax) One has to be careful. I think software is developed. "Written" is the right word. It is written in a language, as I understand it -- I am not a technician -- which dates from that time. It is our flight data processing and is a very similar system to that currently in use in the United States, so we are not alone in that. (Mr Everitt) Firstly, the hardware is modern. It is the software where we have the issues and we have resolved satisfactorily now the issues that we experienced earlier on this year. Part of the capital plan is a sequential move away from the existing flight data processing that we have, but it will take time to do. This has been an extremely difficult issue for both our colleagues in America to address and for NATS itself to address, because the whole system is in effect driven by the software. We have a group of internal experts who understand it broadly and we bring in external advice on how we maintain it. Swanwick brought in a new dimension which I could go into, but I know time is limited, and we had to address that dimension which is basically sequencing the Swanwick software with the West Drayton software. We have learned a lot in the past nine months, but it does remain one of our vulnerabilities. This is a very complex system that we are trying to operate. The capital plan will address it but we will not finally be through dependence on that software probably until 2011/12. We will reduce it over time. Angela Eagle (Mr Glicksman) Yes, that is correct. (Mr Glicksman) Yes, that is correct. (Mr Glicksman) I am not sure I would describe it as a hole. (Mr Glicksman) There was a requirement to reconcile the public expenditure plans that were inherited with the government's contracts. (Mr Glicksman) It meant that some way needed to be found to reconcile the two plans, yes. (Mr Glicksman) A capital receipt would have enabled the plans to be reconciled, yes. (Ms Lomax) I think so, yes. We could have got receipts which were not for profit. That is made clear in the NAO report on page 16. (Ms Lomax) What it says here -- and I have not seen anything to contradict it -- is that the department thought it would be difficult to ensure that NAVCANADA's particular structure would be classified as in the private sector so avoiding inclusion in public sector borrowing. (Ms Lomax) It is not for me to comment on the Treasury rules but I think there were other reasons. (Mr Glicksman) The rules are not the Treasury's. The classification rules are from the Office of National Statistics and the international rules the Office of National Statistics uses in deciding on the classification of public bodies. (Mr Glicksman) For classification for the national accounts, yes, and statistical purposes in the case of the Office for National Statistics. The NAO report does not state that a not for profit solution would have been classified in the public sector. (Mr Glicksman) As the report says, the definitive view would have been subject to a detailed assessment because it would have depended how exactly the body would have been structured. (Mr Everitt) We are not in a position to distribute dividends but the position of the Airline Group as shareholder is that they went into this on the basis that they would not seek a commercial return on their equity. At the end of the day, it will be for the board and the shareholders to decide on dividend distribution. There cannot be a prospect of that for some years. (Mr Everitt) I certainly looked at it. From a personal point of view I came into this job on completion of the PPP and looked at the testing that had been done against scenarios in the first two years and whilst it was clearly going to be tight it looked to be doable. The real change, of course, has been the unprecedented down turn since September 11. (Mr Everitt) I have already answered that. We did 64 last area and we will do just over 50 this year. We clearly have to tailor our short-term capital investment to the circumstances in which we find ourselves, that is one where cash has had to be conserved while we go through the restructuring of our regulatory board, the restructuring of our finances, part of which is the application to the Civil Aviation Authority. (Mr Everitt) In our business plan in two years we are planning to spend in excess of 100 million, yes. We will get back on track and I think we will be able to manage the risks much better. (Ms Lomax) There have been some very significant benefits from the PPP, even in the very difficult circumstance it has had to live with. For example every other air traffic control body in Europe and north American has responded to the down turn since September 11 by raising prices, sometimes by very significant amounts. That has happened because it is not subject to economic regulation, which is part of the PPP process, and that is a significant benefit. I think that the whole PPP process clarified and strengthened the safety framework in an important way. You can say, well it was not absolutely necessary but actually the process of developing the PPP meant that issues were addressed, like the safety frame works, in a way which I think put NATS in a stronger position. Those are just two examples. (Mr Everitt) We have also been able to attract new management, as it were, to complement the existing management, and that has been an important development. (Mr Everitt) One has to attract the right people and that has not been easy in the uncertainty we have been in, but it is critical for our future. (Ms Lomax) The real proof of PPP will come in the longer term because what it was really about was providing a sustained place of investment, which is something you can never be assured of in the public sector because there is always the risk of capital rationing in circumstances which are way beyond the concerns of individual public sector bodies. Over a period of time you ought to see a more sustained further investment into NATS and that will enable it to grow a culture in which people who are good can make a future, so we will get a stronger project management culture that will go with that. (Ms Lomax) I think that NATS has the highest charges in Europe by some margin as far as I can make out. Even allowing for the greater complexity of the airspace over the south east of England NATS charges are pretty high. It was believed in the aviation sector that there was scope for genuine improvements in efficiency. I think it has been under pressure to manage the position in the way that it has and it is not necessarily an unhealthy matter. The Regulator's first duty is to have regard to safety. I think that we have a framework which safeguards safety but also puts serious pressure on NATS to be more efficient. (Mr Everitt) Yes, I think the regime that we have asked for - which is the RPI-2 for each of the next 3 years with an indication that that sort of level will continue into the next 5 year period, which starts in '06 - is a reasonable balance and will keep pressure on the business for efficiency. I think that is what our airline customers expect, indeed they hold us out as the model. If you talk to IATA or any of the representative groups this is the way they want to see air traffic control in Europe go. As the Permanent Secretary said we reduced our charges last January and we will reduce them this coming January. Very few major suppliers in Europe have done that. The average increase last year in Europe, last January, was 12 per cent in a very depressed aviation plan. Geraint Davies (Mr Everitt) I have no idea. Not that I am aware of. I do not think so. (Mr Glicksman) Some of that 800 million was used to pay off NATS. (Mr Glicksman) Roughly that sort of figure after paying off the debt. (Ms Lomax) The government's cash proceeds were 758 million, as stated in the NAO Report. (Mr Glicksman) Some of which was used to pay off the debt. (Ms Lomax) It is a clear answer, there is a very good table in the NATS --- (Ms Lomax) There is no need for a note, if I may respectfully suggest, it is all set out very clearly in the NAO Report in Table 20, page 37. (Ms Lomax) 700 million of government debt was paid off, 330 was National Loan Fund debts, which was quite old. (Mr Glicksman) 330 million was paid off. (Ms Lomax) I am not sure how much risk spreading you would have got because Serco are also involved in this sector as well. If you are talking about a totally major impact to the aviation sector there was a provision in NATS' licence, as I think I mentioned a few minutes ago, for an exceptional price review. (Ms Lomax) I cannot answer that question. I think that probably the structure of the deal would have been a little bit different. I think that the work that is going into the big announcement at the moment as a competent solution is a reflection of the need to adjust to the world as it is now. (Mr Everitt) There are a number of reasons, I think. One is they have had the benefit of increased capacity through something called RVSM, which is vertical separation. (Mr Everitt) We have brought on this major centre at Swanwick which is a huge technical challenge. I have been on the record publicly saying we did not have enough controllers, we were some 30 to 40 controllers short, we have addressed that issue. In our memorandum you will see how we have progressed from the early summer. (Mr Everitt) It is nothing to do with PPP, it is to do with the fact that we brought Swanwick on. (Mr Everitt) We have an independent regulator who will make sure we reach the right quality level. We have not shortened training. We have certainly set challenges to improve the pass rate, the pass rate is wholly unacceptable. (Mr Everitt) The training has to satisfy the CAA. (Mr Everitt) We, "hope to achieve significantly higher pass rates by more selective recruitment and effective training and shorten the period of on-the-job training". It is a hope. It is an aspiration. This is what happened in the airlines over many years. (Mr Everitt) We currently spend 23 to 25 million a year on training. I want to get more out of that money, like more people where I need them. (Ms Lomax) You take me outside my field of expertise. (Mr Glicksman) I am not familiar with the Maastricht Treaty. (Mr Glicksman) I think we comply with the international conventions on the classification of expenditure. (Mr Glicksman) I think the question is, what are the figures that are controlled rather than whether they are in the public sector or not? (Ms Lomax) We have in the case of the regional airports, that is correct, but not on anything like the scale that would be necessary for NATS purposes. (Mr Everitt) The first big tranche of capital investment, technically the most challenging one, has been Swanwick, which we bought in in January. Our objective is to renew most of the system over the next ten years. We think we can do that within the sort of figures that we have just been talking about. Part of our job as a management team is to manage that risk effectively. (Mr Everitt) You are asking me to deal with a hypothetical. The responsibility that we have as a management team and as a board is to manage our way through these technically demanding projects, and they are technically demanding. The biggest one we have now brought home, which is Swanwick. (Mr Everitt) I would need to consider that. I do not know the circumstances about night time radar in Edinburgh. Mr Howarth (Ms Lomax) I was quoting when I used the words "stronger" and "commercial framework" from a memorandum Treasury sent to the Transport Select Committee in 1998 in explaining why we were going for the PPP rather than the not for profit. I am not sure it is necessarily a word that I would use myself. What do I mean by greater efficiency --- (Ms Lomax) I think it means an organisation which uses the resources at its disposal more effectively and more efficiently which perhaps some of the ways that Mr Everitt has been talking about this afternoon, it does not necessarily have the highest charges in Europe, for example. (Ms Lomax) Yes. (Ms Lomax) Commercial pressures come from the scrutiny of the strategic partner and the banks providing a demanding financial framework within which NATS' performance is assessed. For example the business plan is much more widely discussed now than it was in the public sector, people are scrutinising NATS' performance in a demanding sort of way and their ability to attract finance and maintain a good credit rating will depend on their performing. That, I think, is the sort of thing I had in mind when I was talking about strong commercial framework. Those sorts of disciplines come from seeking private finance in the financial market, it is very different from operating in a political competition for finance within the public sector. (Ms Lomax) There are a number of different ways of measuring efficiency. At the moment two thirds of the 5,800 people are not air traffic controllers. (Mr Everitt) We employ just under 2,000 people who are air traffic controllers, of which 1,400 are active, the others are in training. (Ms Lomax) No doubt eventually over a period of time the Airline Group certainly seem to envisage working towards an organisation which basically had more of the resorts put into the frontline operation. That would be one way which it might make them efficient. (Ms Lomax) I will ask Mr Everitt. (Ms Lomax) I was talking about the framework within which NATS was operating and the sort of scrutiny they were subjected to and the sorts of things that people would look at when they would decide whether NATS was performing well. They would certainly be looking at things like whether NATS brought on projects on time and into budget and got benefits from them. That is what investors were looking for and it is something which it has not been successful at in the past. (Mr Everitt) Commercially, as the Secretary of State said, the accountability, particularly to the capital markets for the money that we seek and, indeed, to our shareholders is one way. I think we are highly accountable for our performance now, not only to those capital markets but much more widely. We have independent regulators in a way we did not have before, we have economic regulators, we have safety regulators and stakeholder councils, so there is very high accountability. That is part of commercialism. I also think we now have an opportunity to take some of our skills and expertise outside the company and seek to learn from those. We are doing that in a measured way, because these are not easy markets to get into, but I would expect over time we will make good progress in that area too. Procurement is another area. We have spent a lot of time this year improving our procurement arrangements. We have also brought much greater efficiencies in the way that we transact our human resources, our facilities management, we bought all those into single organisations rather than having them scattered all over the business. There is a host of things we are striving to achieve to get greater efficiency, which means greater return for each pound we have available to us. That is really the way I would characterise it. (Mr Everitt) Indeed. (Mr Everitt) Yes. We now have a bonus scheme for part of our senior management. They are rated in a number of areas, the overall safety performance of the business is number one, quite clearly. They have personal targets. We have financial targets in at least 3 of the 4 criteria that we use. Each year we assess their performance against their individual performance and obviously we assess where we are in relation to the overall group performance and then appropriate bonuses are determined. They will not be a single bonus for everybody or a single percentage for everybody, it will range according to how people perform. (Mr Everitt) It would be right to say in the public sector that was a possibility. What we have done is introduced a bonus scheme which has an ability to pay element in it. One of the issues we face this year was that people had contractual entitlements to bonuses which was a carry over as the PPP came in, we changed that this year so that there is now an ability to pay element in the bonus. (Mr Everitt) Yes. Part of the decision I had to make this year in relation to the contractual bonuses was how much we would be prepared to pay. (Ms Lomax) The test for financial credibility capacity was not properly executed, is that your point? (Ms Lomax) There was extensive testing of all of these bids against a range of financial criteria, yes, it was a long and very technical exercise and that was part of what the advisers were doing. I cannot now remember exactly what point Mr Williams was talking about. What I was trying to say in answer to somebody else was that the decision that was taken about which was the best bid took account of all of the evaluation criteria, it was not just the proceeds, it was not just the financial credibility capacity. it was a decision taken in the round. Chairman: Thank you, Mr Howarth. Mr Jenkins (Ms Lomax) I think that the original estimates were based on, it says in footnote one, the estimate was set in August 1999 using estimates provided by the advisers, NATS and the CAA. (Ms Lomax) The advisers estimated how much work they thought would be required. NATS and the CAA based its initial estimates on those views. (Ms Lomax) The original cost estimates were clearly optimistic. I think the Department took account of what information and advice was available not just from the advisers themselves but from NATS and the CAA and its own experience too of previous operations. What was clearly the case is this was a much lengthier process and a more complex process than people understood when those original estimates were met. (Ms Lomax) I do not think this is a completely unconventional way of making an acquisition. I think this happens quite commonly and you always put debt on acquired company, you put as much debt on you think it can bear given the amount of income it is likely to generate. The more debt you put into it the less there is going to bed available for splitting out between the equity shareholders. The general view for regulated utilities I think is that making large profits for the equity shareholder is not a good thing. (Mr Everitt) That I think is correct. In other words the bank have the first call on the money in the business to service that debt. It was a very clear policy of the Airline Group that we would use the remainder to contribute to the capital expenditure of the business. It would certainly be the case in the initial years. (Ms Lomax) You managed to get £758 million in proceeds to compensate you in the beginning. (Ms Lomax) The value of NATS at the time, at the risk of confusing this any more, the total value of the business at the time of the sale was estimated to be rather higher than 758 million, something like 873 million, the difference between the 758 and the 873 being the value of the equity is the way I have looked at it. (Ms Lomax) No. (Ms Lomax) I do not think anybody thought NATS as a profit generator, it was supposed to be a better deal for NATS as a business. All of the debate about it and the structure of the PPPs is about providing a better framework for which NATS can provide air traffic control services not as a profit generator for the government or the Airline Group. (Ms Lomax) Yes. (Ms Lomax) The legislation does allow the PPP to pay dividends, it is just that the Airline Group put in its bid on the basis that it would not be looking for future dividends. (Ms Lomax) I am not sure I follow you. (Ms Lomax) I think the impact on them as consumers - I am not sure I am entirely with you - the body will determine the charges to consumers, to airlines, to the CAA through its economic regulation division. It is the economic regulator that sets the prices. I do not think the Airline Group has the ability to manipulate a business in NATS to its own advantage. There are various safeguards in the structure of the PPP to make sure that NATS is not run for the benefit of the Airline Group in the way that you seem to be implying. (Mr Everitt) I also think it is critical we make profits in order to invest. We have to make profits in order to invest because that is the only way we are going to attract the income. (Mr Everitt) Surplus being reinvested. (Mr Everitt) When dividends are ultimately paid they will get 49 per cent of the dividends. (Mr Everitt) What has gone on here economically is that the taxpayer has taken a very sizable sum, in other words in lieu of certainly dividends over the next few years. That is really what has gone on here. (Mr Everitt) We were in a period where we had not settled with the Civil Aviation Authority and the Civil Aviation Authority were considering our application for price adjustments. This was a temporary facility, hence it ran out in September, to tied us over a period to enable the CAA to make a decision. It has taken longer to get the CAA decision but we have not had to call on that money. It is not a precedent for the future. (Ms Lomax) The CAA has made it clear that it thinks that an appropriate financial structure for NATS in the current circumstances given the risks as we now see them post September 11 is less debt than it had at the time the PPP was concluded. That is part of what the financial restructuring is achieving. Both the government and the new shareholder will put in some more equity to reduce the amount of bank borrowing levels. That is the essence of the composite agreement that is being discussed at the moment. The details on it are not finalised but at the moment but that is where we are. (Ms Lomax) This is a conversation that is going on between NATS and the CAA, I do not want to anticipate a deal which has not yet been done. Chairman: You are going to have to leave it there. Mr Davidson (Mr Everitt) The average increase in Europe this calender year was 12 per cent, that took effect last April. We went down 1.5 per cent. (Mr Everitt) Our total income is just under £500 million a year from airlines in the en route business and another 80 or so in the airports business. (Mr Everitt) They are about 25 per cent of our costs. They pay about 25 per cent of our charges. (Mr Everitt) I think there are very few airlines that would see it quite that way. They have clearly lost significant sums of money in the past 12 months, certainly the major carriers have obviously tremendous difficulties. (Mr Everitt) I think it is difficult to characterise it in that way because whether they invested in us or not they would still --- (Ms Lomax) We have already made it clear, and it is in the NAO Report, that the government will match as a responsible shareholder contribution by another equity shareholder, yes. (Ms Lomax) We will not go beyond that. (Mr Everitt) That is a way of looking at it. The way I have looked at it is that we have needed to conserve cash in the business. As I set out earlier, my criteria were that safety was paramount, et cetera. What we will need is access to additional capital as we move into more significant projects. (Mr Everitt) I have had to deal with the situation that I have had, that was clearly that we do have the debt in the business. What privatisation has brought to it is a number of things we outlined, not least charges to the customer going down in very difficult circumstances. (Ms Lomax) In general terms government can usually borrow significantly cheaper than anybody else. I do not know what the expect margin will be. (Mr Glicksman) It varies. (Mr Everitt) About half a million. (Ms Lomax) Half a million. (Mr Everitt) A bit more, 7 million. (Mr Everitt) I do not have that number at my fingertips. I am looking at our Annual Report. There has certainly been some increase but I cannot confirm that number. (Mr Everitt) I do not know, I would have to check that. (Ms Lomax) That is the way these people are customarily remunerated. I think a large, highly complex, highly controversial deal like this is not one to buy advice on. You want the best advice you possibly can when you are dealing with such a large, sensitive and important business. (Ms Lomax) I quote back to you what the NAO says, as each deal is different any comparisons have to be treated with care. As a proportion of the value of the assets sold the transaction costs are higher than average but not evidently unreasonably so given the need in this case to negotiate an on-going PPP as opposed to a more straight forward trade sell. (Ms Lomax) I did not say it was a privatisation. I said in privatisation there was not one. (Ms Lomax) It was a partial share sale. (Ms Lomax) Yes, it is a partial privatisation, is it not, but of a particular and innovative kind which safeguards the concerns that members on both sides expressed very strongly. (Ms Lomax) It is not a simple privatisation, it is a public private partnership. (Ms Lomax) It is not the same as a privatisation, no. The idea of a public sector comparator is of relevance. I suggest in situations where there is not a policy decision to do it as there was in privatisation, this reflected a policy decision to sell off some of the shares in NATS, to sell equity interest and to seek a strategic partner for NATS, it went through the House of Commons and it was extensively debated. It is not something that was a sort of value-for-money decision by a civil servant. Chairman (Ms Lomax) Would it be helpful if I clarified what I tried to say because one does not always say absolutely what one means the first time round, I was trying to say that public sector comparators are not the invariable rule, we do them for PFI projects but we not do them for privatisation, where there is this much greater degree of political involvement, including in the House of Commons. With a PFI deal it would not go through the House of Commons, it would not be such a political thing, it would be a value-for-money decision. I as accounting officer would need to satisfy myself this was good value for money. This was much more in the political arena of policy decision. (Ms Lomax) I do not know what the question was. Chairman (Ms Lomax) I would like to clarify at the end the confusion I caused over Figure 21. (Mr Everitt) Can I just mention that the cost of the board has gone up from £684,000 to £770,000 from 2001/2002, I calculate that as 12.5 per cent. At that time we had taken on 3 government directors as well. I think there were reasons for it. (Mr Everitt) I am simply taking the costs in our accounts of the board remuneration to directors in total, non-executive as well as executive, for 2001/2002. Chairman: That is not an answer to the point. I wonder if we can have a note clarifying what the comparison like to like for senior management is. It is my understanding it is a 70 per cent increase. If that is not the case I would be grateful to have that clarified. Mr Bacon (Mr Everitt) My personal pay was settled at the time I joined the company. (Mr Everitt) So far as the second director is concerned, that contains an exceptional bonus which was paid and agreed prior to PPP and which triggered on the opening of Swanwick. (Mr Everitt) Part of the £69,000 was his general bonus and the second part, the £39,000, related to Swanwick. (Mr Everitt) The payment was contractual. (Mr Everitt) It was certainly justified against the fact that he took hold of this project three years before. (Mr Everitt) In Swanwick we are now in the winter season so we would not normally open as many sectors as we would in the summer. Our plans are focused on next summer and a considerable amount of work is going into the planning for next summer. On our current estimates we would think that we could be up to 12 controllers short for next summer, but we are working on that and our plan is not settled. (Mr Everitt) From the summer we were 40 short. (Mr Everitt) Between 30 and 40 short this summer. (Mr Everitt) I do not have the precise number as of this moment. (Mr Everitt) Sure. (Mr Everitt) You mean in terms of the deal that we did we controllers for voluntary attendance? (Mr Everitt) I could give you a note on that. Very few so far, they would mainly be for summer next year. (Mr Everitt) As part of the pay deal we are buying out their days off. (Mr Everitt) I have not got the number at my fingertips. (Mr Everitt) I can give you a precise number on that but, again, I would want to give you a note. There has certainly been an increase but that has apparently been a consequence of Swanwick coming into operation. (Mr Everitt) Yes, a 1261. (Mr Everitt) That I do not know, I would have to check. (Mr Everitt) I would have to check. (Mr Everitt) I think it is an indefinite approval. (Mr Everitt) Yes. (Mr Everitt) Indeed it was --- I will need to check that but my understanding --- (Mr Everitt) I would need to check that. (Mr Everitt) My understanding is that it is indefinite but I would need to check. Chairman (Mr Everitt) I did not come prepared for operational questions, I thought we were talking about the NAO Report. Mr Bacon (Mr Everitt) No. (Mr Everitt) I do not think that is the case at all. We were given checks before we opened Swanwick and the safety regulator was perfectly content that Swanwick met all aviation safety requirements and the health and safety issues were around the possible effects on people at work, as it were; they were not air safety issues. (Mr Everitt) The aviation safety regulator clearly has to make judgments, as most regulators would have to in these circumstances, and those were the CAA's judgments. (Mr Everitt) Can I just check for one moment. Could I give you a note on that rather than speculate. (Mr Everitt) That is my understanding. (Mr Everitt) Indeed. (Mr Everitt) My understanding relates to the current approval we have. We have approval to operate an air traffic service as issued by the regulator. (Mr Everitt) Could I give you a note on that. (Mr Everitt) I can give you a percentage but obviously, as we have boarded in and dealt with the situation this summer, there has been an increase in height capping, yes, and that has been part of the management of the system as we have worked through the opening of Swanwick. (Mr Everitt) I think that would be difficult but I will do my best. (Mr Everitt) I will do the best I can but we obviously do not measure each one. Mr Bacon: No further questions. Chairman (Mr Everitt) Certainly, very easily. (Ms Lomax) We think so, yes. They did a lot of work (Ms Lomax) That is the way they are normally renumerated by their clients and they are not alone; most similar firms operate on exactly the same basis. Lawyers do not and that is why we dealt with Slaughter & May differently. (Ms Lomax) It looks that way. How risky it is depends on how the regulator himself behaves. I think it is difficult to say how risky a utility is in the absence of clearly stated regulatory policy and that is only now being agreed. (Ms Lomax) We have not seen that. (Ms Lomax) Can I approach the question from a different end and explain why I succeeded in confusing everybody, because I did not mean to quarrel with the NAO Report and I got led into it by simply assuming that the figures in Table 21 were the same as the figures in Table 24, or whatever it was, which was flights. The confusion arises because it is a fact that chargeable service units are not available on a consistent basis before 1983. I want to get into why I confused you, I will come to it in the end. The material that you have got in Table 41, chargeable service units - (Ms Lomax) -- where we got into confusion is the table which shows different scenarios. What the NAO says is, look at these scenarios, they did not test them and when we tested them they showed that the bid was financially flawed. When I said that, while we might not have tested exactly these, enormously extensive stress testing was done which showed that the bid was robust. We got into great confusion and you said, did you or did you not do these and I said these are on a different basis. Let me go back, this Table 21 I had assumed was flights because everything else is in terms of flights. The reason I assumed that it was flights is because I know that before 1983 chargeable service units are not available on the same basis as post 1983. What has happened, I have now had advice from behind me, is that NAO extrapolated these figures from flight data and basically recreated a series for chargeable sales units before 1983. This was a subject for some unhappiness while the Report was being prepared. Why I should not have mentioned it is we basically decided not to push it. (Mr Colman) I agree with every word Ms Lomax has just said. There was discussion, the scenarios in grey in Figure 21 are scenarios that we constructed extrapolating from data regarding flights. Our point is that these were scenarios that were markedly worse than those that are in blue and however they are measured we asked the Department whether they had tested the robustness of the model against those scenarios. We did our own modelling, which is what 3.27 is about, which suggests that either of the oil shocks, were they to have been repeated with the NATS' financial structure in place, would have caused difficulties. 3.27 is reporting NAO's analysis. (Ms Lomax) Not shared with the Department or CSFB. My answer is what you say is interesting and I fully accept that we did not challenge this, and I must say I walked into this debate by mistake. The point I was trying to make is it is a highly technical business testing these bids, they were tested extensively against a wide range of scenarios, volumes and volumes of scenarios were tested. Mr Davidson (Ms Lomax) That is exactly what they were for and that is what they were doing to earn this huge amount of money. They did not specifically test a repeat of 1973 and 1979, but they did test --- Chairman (Ms Lomax) Why did they not? I have had two answers to this. They did test scenarios which they regarded as severe but more relevant, a sustained period of low growth for 10 years and a sudden shock to CSUs in the scale of the Gulf War. In both cases the Airline Group bid was robust, NATS did not go out of money. They also asked themselves a different question, which is not discussed here, how severe a shock would there have to be to cause this real trouble to this financial model? The answer they got was one which was regarded as so extreme as not to be worth pursuing. The real issues that I was trying to explain is the problem is that peoples' imagination of the situation in May did not embrace a situation as severe as actually happened. You can do an awful lot of arithmetic if you like but if you think the world is a safer place than it was -- it is complicated, but very, very many scenarios were tested. The point that is being made, the general point that the NAO is making, which I am taking issue with, is that the Department did not do due diligence on these bids. I am challenging that. The Department took good advice and did extensive testing of all of the bids which people at the time thought was relevant. Did they do enough? In the light of what has happened they did not. Basically the world turned out to be altogether capable of more savage down turns than we had realised before. (Mr Colman) That is what our modelling suggested. Paragraph 3.28 shows the results of our discussion with the Department's advisers CSFB. Their view was that it would be inefficient to leave capital lying round in NATS, as it were, waiting for such a shock. It is clearly possible to have a debate about whether that is sound or not. The consequence is if you do not leave the capital in and shock occurs you have to do something about it. (Ms Lomax) Can I suggest that is a different point, that it is not worth looking at these down side shocks, there are other mechanisms to cope with them and therefore we should not put in reserves or whatever you are suggesting in your recommendations. If you did the modelling we have not seen it. Mr Williams (Ms Lomax) That is another point and I would like to respond to it, we established a regulatory system which can respond to exceptional events. There is a clause in the NATS' licence which specifically permits an exceptional user contribution if something happens which impairs the ability of both the shareholders and NATS to respond in the way that you are worrying about. We did think about that particular scenario. That is why it has got that clause in the licence. Also at the moment the PPP is coping with such a situation without falling apart. The CAA is negotiating with NATS on a composite solution where the burden will be shared between users, shareholders, investors and the company. (Mr Everitt) And the company. (Ms Lomax) And the company. The company is having to make adjustments which if it had remained in the public sector it would not have had to make. (Ms Lomax) No, it does not. (Ms Lomax) The risk is being spread between users through user charges. In all other air traffic control bodies the risk has been passed straight on to users in the form of higher charges. Most of the other air traffic control bodies put up their charges by amounts ranging from six, ten or even more per cent. NAVCANADA put theirs up by ten per cent. It is in the annex to this Report. That is one way in which the risk can be carried. Banks are having to participate in a refinancing of the loan and we are finding another equity shareholder in the Government responsible shareholder who has agreed to put in some money to match. It is not just simply coming back to the Government. Chairman: Obviously, as my colleague says, we will want to be kept informed on how this develops. Geraint Davies (Ms Lomax) Can I make one observation which is that the four separate committees of the banks who were putting in a very large amount of money into this bid, and who want to be repaid, looked independently at downside scenarios and stress tested these bids. It is not just something that was down to our advisers in the Department. (Ms Lomax) The conclusion that was drawn was that the bids were robust against foreseeable shocks at that stage. As I say, what was --- (Ms Lomax) If you go back you could say, "Why do you not replay the Second World War?" What is relevant is what people think will happen in the world in which we live at the moment, and people's views on that change. Mr Williams (Ms Lomax) I do not want to argue that in the world as it has now developed that enough downside testing was done. The thing that I am trying to throw doubt on is the idea that there was a perfectly obvious piece of downside scenario testing which should have been done which we utterly failed to do. I do not think that is a fair description of what went on. I think there was a very conscientious attempt to test these bids against the very wide range of scenarios and they did not predict 11 September. Geraint Davies (Mr Everitt) Can I make a point here. There is a very important condition in our licence that if we experience exceptional circumstances as they are defined - and I think by any standards the oil shocks of the 1970s and 1980s (and I was certainly in the industry when that was experienced) would be exceptional - the regulator can step in. This is not an unusual provision. You will find something similar, I am sure, in other regulated environments. The difference compared with NAVCANADA is that NAVCANADA have control over what their price levels will be. You have heard they went up six per cent last January and they are going up three per cent this January. Here we have a regulator who arbitrates, in effect, between the company and the users, and I think the design of condition 25, the exceptional circumstances condition, was to try and make some provision for circumstances of the type that could not be envisaged that we might experience and that is, in effect, although we are going under a different provision in the Transport Act, precisely what we are doing now. We are working through with all parties to this composite solution to deal with the totally unexpected and I think unforeseeable event. Mr Davidson (Mr Colman) I would take the opportunity of putting in a note on that, if I may. Mr Rendel (Ms Lomax) No, it did not. (Ms Lomax) Those were what the airlines asked for. (Ms Lomax) Those are the ones the banks and Airlines group asked for. (Ms Lomax) Yes, and I gather that every scenario done by the other bidders, Nimbus for example, was also run by the Airline Group, so there was very extensive stress testing using all the scenarios anyone could think of. (Ms Lomax) Two traffic scenarios were undertaken, one was a sustained period of low growth roundabout 3.5 per cent in CSU users, the other was a sudden shock to CSUs in the scale of the Gulf War. (Ms Lomax) The reason why it is in year 6 is because year 6 is the most difficult year, the year where it is most likely to fail. That is the one I am talking about. (Ms Lomax) It was chosen because it was the most difficult year. (Ms Lomax) They did tests which they thought were comparable in severity. (Ms Lomax) The scenarios were based on looking at experience since 1983. I do not think anybody did - (Ms Lomax) Nobody modelled the two oil shocks as such, the comparable data was not available. Mr Rendel: Nobody but nobody in all of these people who are doing the testing, whether it is CSFB, the mandatory testing, the bank or whether it is the Airline Group, nobody but nobody modelled the oil shocks. Personally I find that quite extraordinary. You did go on to say that the advisers were then asked to see what scenario would make the finances non-viable. You went on to say that they found that the only scenario that would make finances not viable were so extreme that it was not to be credible. The oil shock scenario made the finances non-viable, we are told that, because it was modelled eventually by the NAO. We are told that in paragraph 3.27. Why did the advisers not discover that an oil shocks scenario - which could not be described as non-credible because it happened twice - would make the finances non-viable. The advisers seem to have let you down very badly. Chairman (Ms Lomax) What I can do is send you a detailed note on what the stress testing was and our comments on the points that have been made. I think I am making the same points over and over again. (Ms Lomax) You deserve to have the best written account we can on this important point. I will end by saying we have not seen the NAO's work, I am sure it is up to perfect standard, we have not seen it, and it would be good if we could see it now please. Mr Jenkins (Ms Lomax) I personally am not but I am sure the partnership directors we have appointed to represent the interests of the government certainly are. (Ms Lomax) I cannot give you any guarantee of that sort, nobody ever can. Mr Howarth (Ms Lomax) I fully accept that and I apologise to the Committee. I think I got dragged into it as a result of trying to justify the amount of stress testing that had been done. I think it is a highly complicated and technical area. If I have confused the Committee I will try and put it right when I send a further note. Chairman: Thank you very much, Ms Lomax and Mr Everitt, for coming to see us. We will obviously return to this in our report. As you might imagine, we may have a lot to say about whether the way this PPP was handled put the company into financial distress. Before I end I am indebted to Mr Geraint Davies for a quote from Adam Smith who wrote this a long time ago: "The tolls for the maintenance of the high road cannot with any safety be made the property of private persons because they might neglect altogether the repair of the road and yet continue to levy very nearly the same tolls." Let's hope we can learn from the wisdom of the past. Thank you very much. |