Examination of Witness (Questions 100-119)
Wednesday 10 November 2004
Mr David Rowlands
Q100 Mr Williams: For all of them.
Mr Rowlands: Those costs fall
to the promoter in terms of putting together and evaluating the
proposal for Leeds and Manchester and then to put it to the department.
Q101 Mr Williams: So in a way they might
have been predisposed to find that the promoter wanted—were
you as a department carrying out the independent evaluations or
any monitoring of the private evaluations to make sure you were
not going to be taken for a ride, unlike your predecessors?
Mr Rowlands: There were independent
evaluations. Much of it was contracted out by the department at
the time to outside consultants and I think there was an element
of, "If the department has got it wrong as well it is not
our fault; it is the consultants we hired". I think that
was a mistake and it is one of the reasons why we are now putting
into place in the department, as I said earlier, our own local
transport major projects division with people in it who have been
there before and have done it before, so that we have got the
expertise in the right place. That does not make us geniuses.
We will still make mistakes but we want to do it better.
Q102 Mr Williams: Could you provide us
in writing with a list of the advisers who advised the department
on each project and who advised the private contractors?
Mr Rowlands: The promoter, Greater
Manchester PTE, for example, would have used advisers. The departments
concerned would have used advisers. It may have to be incomplete.
I have tried to work out how many departments had been involved
in all of these schemes and I reckoned it was the old Department
of Transport, the old Department of the Environment, DETR, DTLR
and DFT. I do not have a complete set of records for everything
but we will put together as much as we can. [1]
Q103 Mr Williams: That sounds like a
rather messed-up history. During that process do we take it for
granted that while the Civil Service body to which they were affiliated
changed the actual units involved were virtually the same over
the period?
Mr Rowlands: No, they will not
have been. You can see in the Report that a couple of the DLR
extensions were funded by the London Docklands Development Corporation.
They would have used their own people for scheme appraisal and
they paid grant to an awful lot of infrastructure projects in
docklands, so that was a different team. When we dug back into
it and we looked at Manchester Metrolink Phase 2 where this Report
says that about 11% of the capital cost was met by central government,
that was actually the DoE with an old scheme called City Challenge
back in the mid nineties, so I am afraid I cannot say that this
was always handled by the same unit. It was handled across the
piece by a number of different departments and units, I am afraid.
In putting together who advised whom we will try to be as comprehensive
as we can.
Q104 Mr Williams: It all sounds a bit
of an administrative mess but we will wait and see the list. What
happens in the end? Suppose these fail financially. They are failing
financially. What is going to happen? Are they just going to be
allowed to go to the wall or is the taxpayer going to have to
come in and bail them out?
Mr Rowlands: If one or more of
these concessions held by private consortia eventually fail then
in round terms the contractual provisions allow return of the
assets to the promoter and for the department, if the promoter
then disposes of it, for example, to recover its grant as well,
so there are contractual provisions to deal with the failure of
the private sector consortium.
Q105 Mr Williams: So the public sector
body will end up collecting the dead white elephant and that is
seen as being a benefit, is it?
Mr Rowlands: I have to admit that
the contractual detail of all of these schemes is not known to
the department because to some extent it is between the concessionaire
and its bankers, for example. What I can say is that were this
to happen—and I am not suggesting it will—the public
sector does not get a dead white elephant. It may well get a quite
lively creature where the equity has been wiped out by the private
sector consortium and the banks have taken a haircut. We get something
back where the private sector concessionaires and their backers
have taken the write-off and the public sector may get something
back.
Mr Williams: Congratulations. You make
it sound as if it is a devilishly clever plot.
Jon Trickett: It sounds like nationalism.
Q106 Mr Williams: I am deeply impressed.
Mr Rowlands: I am not saying that
it is necessarily a satisfactory outcome but I believe that is
how it plays through. Can I stress that I have no reason to believe
necessarily that any private sector consortium is going to withdraw
from one of these contracts. They are heavily incentivised to
make a success even if, as you can see from these figures, one
or two of them have already incurred substantial losses.
Q107 Mr Williams: Someone has to make
up for those losses.
Mr Rowlands: Those losses will
be borne in the first instance by the private sector concession
holder and when their equity is burned up they turn and talk to
the banks who provided the debt.
Q108 Mr Williams: But not the public
sector?
Mr Rowlands: I see no reason why
we should bail this out.
Mr Williams: I am reassured. Thank you.
Q109 Mr Allan: We have talked a lot about
the continental comparisons and have tried to work out what is
different here. I have been back to my childhood in the socialist
republic of South Yorkshire where I could get the bus anywhere
for 2p and the system was—
Mr Williams: Do not swear in this committee.
Q110 Mr Allan: — massively well
used. We had cheap buses and no tram and now we have got expensive
buses and expensive trams. When I look at what is happening in
London bus use is going up because the fares are cheap. I look
at this and wonder whether the statement, "The department
expect the operation of the system to be self-financing and not
require any operating subsidy from the government", is not
the killer sentence which means that these systems are never going
to get the passenger numbers because they are just too expensive.
Have you looked at this? That policy is set. Presumably that is
a central government policy that says, "Wherever we build
a tram system we will not give revenue funding to it".
Mr Rowlands: The policy is quite
clear. We expect in the long term any tram scheme not to require
operating subsidy. That is not to say that it does not need an
operating subsidy in its early years as the system builds up and
that is built into the overall arithmetic, but you are quite right:
that is the policy. What we also say is that in effect 75% in
general terms of the capital cost of this scheme comes free because
that is what the government provides by way of capital contribution.
Q111 Mr Allan: Grenoble is something
that is successful. They are planning that they will always put
some revenue subsidy funding into that, are they not, and that
is why they are getting 30-odd million passengers a year using
it, not 12 million like Sheffield?
Mr Rowlands: As a matter of central
government policy we are not going to pay an operating subsidy.
That does not stop a passenger transport executive or local authority
themselves subsidising and it does not stop them introducing revenue-raising
schemes like congestion charging or work-based parking levies.
We are not even contemplating helping to fund their second and
third lines. That does not stop them using those monies—
Q112 Mr Allan: You mean they can use
that to keep the fares down?
Mr Rowlands: They can if they
want.
Q113 Mr Allan: And on the new model,
the impact of this straight economic design as well, if it is
going to look at the Sheffield tram system, is that it goes to
both out of town shopping centres and neither hospital. It seems
to me that because it was designed to be self-financing that predicated
a design which is not ideal.
Mr Rowlands: No, we have not modelled
it.
Q114 Mr Allan: You do not model those?
Mr Rowlands: No.
Q115 Mr Allan: Because of that policy
that is it?
Mr Rowlands: Yes.
Q116 Jon Trickett: I used to be the leader
of Leeds when this was first conceived more than 12 years ago
now and we are no further forward. I now represent an area outside
Leeds which is still suffering from economic problems. The point
is that the big cities are the engines of regional economic growth.
It is entirely wrong, it seems to me, to have a national policy
and a culture within your department that these decisions are
entirely local, because the engines of economic growth eventually
will seize up as a result of inaction in terms of congestion unless
we do something about it. Therefore solutions have to be found
and this is a national policy because of the regional economic
effect and the national economic effect of these big cities. Your
answers say, "We have made mistakes in the past", and
maybe the Report will reflect that, but I think you are indicating
a culture within your department which is saying, "Even now
and in the future it is nothing to do with us, guv". Are
you prepared to say clearly that you stand behind these schemes
where they work financially and you are committed to work as a
partner with local providers in the private sector to make these
things happen?
Mr Rowlands: Could I say two things?
One is that where a scheme stands up in terms of its value for
money there is no reason to believe that it cannot go ahead. What
I cannot say is that all schemes will go ahead.
Q117 Jon Trickett: That is a completely
negative expression. "There is no reason why it cannot go
ahead" is two negatives. On the question of the tens of millions
of pounds' worth of risk which are being added to this because
of the department's indolence, frankly, you could help to give
guidance to local government and PTEs. Why can you not simply
say, "We are determined to solve the big city problems and
this is one of the weapons in our armoury and where we can make
it happen we will make it happen"? Why do there have to be
double negatives?
Mr Rowlands: Could I say the one
more thing? I do not know whether you will find this helpful or
not, but when we brought out the Future of Transport white
paper in July one of the things that that said was, "We propose,
and we need to consult on this, round about Budget time maybe
next year to set out outline regional transport budgets going
forward ten years, so that if you are Yorkshire and Humber there
will be an outline guideline transport budget for ten years showing
you how much money is available by year for the next ten years.
Those can be brought together with regional transport strategies
and you can sort through the priorities and decide". The
department cannot go around saying, "You can get a tram scheme
and you do not", because they will burn our headquarters
to the ground if we tried that and we should not be doing it anyway.
We do not have that deep understanding of local transport needs.
What we are trying to do is say, "There is the money for
the next ten years", on a guideline basis.
Q118 Jon Trickett: It is just a strategy,
it is just a tactic of, "Keep out of the fray, lads, keep
in the centre. Let them scrap it out on the ground and we will
just not take any responsibility for the kind of mess that cities
are going to get into", as everybody can see. Those regional
engines eventually will simply seize up because of your failure
to act.
Mr Rowlands: I do not think that
is true. We are genuinely trying to set out, "There is the
budget for the next ten years. You have got to produce a regional
transport strategy. Bring it together with the numbers. You help
us decide the priorities".
Chairman: This point about Leeds was
specifically mentioned in this Report at paragraph 3.29, and it
says, "In Leeds, for example, proposals for a light rail
system were included in the city's transport strategy as early
as 1991,"—under the brilliant leadership of Jon Trickett—
Jon Trickett: Thank you very much.
Q119 Chairman: —"yet the Leeds
Supertram is still under development. Excluding the time spent
on initial feasibility and design work, the seven systems currently
running in England took an average of eight and a half years .
. . " These planning systems are far too long, are they not?
Mr Rowlands: I do not disagree,
and I think that is why it is important to get out, "That
is the money for the next ten years. Now sort out with us how
best to spend it".
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