Examination of Witnesses (Questions 60-79)
DEPARTMENT FOR
TRANSPORT, STRATEGIC
RAIL AUTHORITY
AND NETWORK
RAIL
26 MAY 2004
Q60 Mr Curry: But there is a whole series
of utilities who have price regulators, but they do not have Strategic
Electricity Authorities or Strategic Gas Authorities, do they?
Mr McAllister: They do not but
I think that question is for Mr Bowker.
Q61 Mr Curry: I am asking you because
I want to know whether you think this architecture is necessary.
So forget Mr Bowker sitting at the end of the table there—
Mr McAllister: Very well.
Q62 Mr Curry: —and tell me whether
you think that, given that this is supposed to be a private company,
and you have been Chairman for a bit now, if you were starting
again how would you structure it to make it a proper private company?
Mr McAllister: First of all, it
is a proper private company—
Q63 Mr Curry: You just told me it was
in the private sector.
Mr McAllister: It is in the private
sector; it is debt-funded rather than funded by equity through
shareholders, as most other private companies are. I would, however,
question whether or not it is appropriate for an infrastructure
company to be funded by equity through the shareholders because
the requirements that we have are to ensure that we operate a
safe railway and one that provides financial efficiency to its
depots. Now in the case of a company which has shareholders the
pressure will be on the company to deliver maximum value to its
shareholders. That runs the risk that short-term actions may be
taken to improve profits which run against the condition of the
assets. So in a company like ours I personally believe it is more
appropriate to have a company that is funded by debt so that the
immediate pressures on this year's performance are avoided.
Q64 Mr Curry: But you coupled with that
the reference to safety. Do you deny that British Airways has
not been sufficiently interested in safety?
Mr McAllister: No, I do not, but
the asset conditions are entirely different.
Q65 Mr Curry: Well, you sit there as
Chairman. Would you say that you think it is absolutely right
that you should have, on the one hand, this Office of the Rail
Regulator and, on the other hand, the Strategic Rail Authority?
Do you not feel a bit like the baby in the Punch and Judy show?
Mr McAllister: Not particularly.
Q66 Mr Curry: You are a man of extremely
wide business experience; you have gone into this job—and
I think you probably deserve quite a lot of money for doing something
so obviously frustrating as that—
Mr McAllister: My sanity has been
questioned!
Q67 Mr Curry: I would not question your
sanity on this Committee but what I would question is whether
or not in your private moments you do not sometimes think that
perhaps the architecture is all a bit complicated and it could
all be functioning a bit more simply?
Mr McAllister: I think the architecture
is appropriate. We are a monopoly and monopolies are required
to be regulated.
Q68 Mr Curry: So three years down the
road from now, if you all do very well indeed with incentives
which seem to dominate the whole modus operandi of the business,
and all comes true and Bob Crow does not go out on strike, or
whatever else happens, how do you think this architecture might
be changed or lightened? What sort of transition do you see?
Mr McAllister: Firstly, if you
look at the initial model of privatisation, you need someone who
runs the infrastructure—that is us. Someone needs to run
the trains—that is the Train Operating Companies. Someone
needs to referee that issue—that is the Office of the Rail
Regulator, and someone needs to develop the strategic issues and
the long term requirements of the railway and where it fits into
the nation's transport strategy—that is the function of
both the Strategic Rail Authority and also the Department for
Transport.
Q69 Mr Curry: So you think there is a
permanent role here for the Strategic Rail Authority, even when
you get on even keel and you perhaps go to the markets to raise
money rather than have money under the rather curious conditions
you have now, and the Office of the Rail Regulator—they
all have a permanent job, these chaps?
Mr McAllister: I would turn it
around and say that if we go to the markets, as we truly intend
to do, the Office of Rail Regulator is essential to give the markets
confidence to invest, and to ensure that the funding of the railway
is not changed at the whim of whatever government is in power
at the time.
Q70 Mr Curry: Let me turn to this business
of performance because I always find it intriguing. For example,
by the year 2012-13 it says that the planned target should be
a decline of 43% in the delay minutes to 8.4 billion delay minutes.
Why 8.4 as opposed to 8.37962? How do you come to this happily
rounded figure? What goes into this calculation?
Mr McAllister: We did not.
Q71 Mr Curry: In fact, you were not demanding
enough. You were told to bring it down to 9.1.
Mr McAllister: It was a calculation
made by the Regulator based upon the improvement in asset condition
that would take place over that period of time. That improvement
in asset condition resulted in less disruption and delays to the
network and, as a result of that, a target of 8.4 million minutes.
Q72 Mr Curry: Do you think that is meaningful?
For the punters on the 9.15, most of whom probably think most
of those minutes have been spent by them, does it make sense,
do you think? Does this target mean anything?
Mr McAllister: It is a projection
based upon the condition of the assets as we know them today,
and the amount of delay minutes that have been incurred.
Q73 Mr Curry: What would be your estimate
of the reliability of projections of this sort? As a businessman,
how many things would you expect to go bump in the night between
now and the projection?
Mr McAllister: Lots, but the important
point is these projections are reviewed on an annual basis. We
are looking at projections each year and are adjusting our targets
accordingly. What we have to do is set the target for this year
based upon what we reasonably expect to achieve as agreed with
the Regulator, and then set our conditions and our objectives
in such a way that the organisation goes out to meet or beat that
objective.
Q74 Mr Curry: Would it not be more honest
in that way, since you revise annually, just to have an annual
target? Why have this 9.1 million, or whatever it is, megabytes
of delay sitting there, because it does not mean anything at the
end of the day, does it?
Mr McAllister: It does because
the organisation gets long term targets that it needs to achieve
and it needs to plan for those. Any organisation normally does
a business plan for a minimum of three, an average of five, a
lot do 10 and the Japanese go as far as a hundred years ahead.
Q75 Mr Curry: What did you do in Ford?
Mr McAllister: We planned 10 years
ahead.
Q76 Mr Curry: And in that competitive
market place what was your hit rate in terms of success?
Mr McAllister: Our hit rate in
terms of success? I am not sure what you mean.
Q77 Mr Curry: Well, it is no good having
a target if you do not measure it.
Mr McAllister: We reviewed the
plans on an annual basis and adjusted the numbers moving forward
but essentially, having set out on store to achieve a certain
level of cost or efficiency by year X plus 10 we set out our plans
to achieve those numbers. The issue for a company like Ford is
to ensure that the targets are competitive in the market place
and they are continually reviewed and benchmarked against what
everybody else has achieved.
Q78 Mr Curry: So next time I find myself
on a GNER train coming south on a Sunday—something to be
avoided at all cost—and find myself doing a scenic detour
throughout most of the south of England in order to get to King's
Cross, irrespective of the timings on the timetable, I shall look
here and say, "Gosh, it makes me feel much better because
in 2008 or 2009 9.1 million whatnots are going to be knocked off"?
Mr McAllister: I think the issue
with your detour is the fact that the line is being renewed and,
once it has been renewed, the delay minutes will fall.
Q79 Mr Curry: The minutes will melt away?
Mr McAllister: They will not melt
away but they will certainly fall.
Mr Curry: I have been told by the Chairman
that my minutes have melted away!
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