Examination of Witnesses (Questions 160-179)
MR NEIL
SCALES, MR
ANTON VALK,
MR IAIN
COUCHER, MR
PETER SARGANT
AND MR
PETER FIELD
12 JULY 2006
Q160 Chairman: So you are saying
that the detail required costs you a lot of money to comply with,
is that what you are saying?
Mr Sargant: I am saying that the
restructuring of the rail industry that happened at the time created
a significant difference in costs because previously PT Rail Services
were marginal users of the network and therefore did not pay significant
track access charges, for example, and a lot of the routes in
the West Midlands, for example, are our intercity routes and therefore
under the previous British Rail arrangements intercity services
effectively paid the full infrastructure costs of those routes,
whereas currently obviously it is through access charges, and
that was the structural change that pushed up the cost of rail
services.
Q161 Chairman: Mr Scales, in what
ways are your objectives different when you let the MerseyRail
concession as compared to the objectives of the Department of
Transport?
Mr Scales: I think we have a long-term
partnership, a long-term certainty with our operating partners,
Serco-NedRailways. We have fares, for example, fixed to RPI for
25 years, and we are able to match our investment to the Local
Transport Plan, which has been very generous, to match our investments
that we are getting from Serco-NedRailways. So I think working
in concert helps us a lot and in fact there is no extended time
delays between making decisions and having to go off somewhere
else like London or elsewhere; all the decisions are made on Merseyside
and that means that if we have any operating problems we can sort
them out really, really quickly and give a better service to the
people of Merseyside. So it is faster on its feet, it is more
cohesive and it is pointing in the same direction as our operating
partners, which is unusual, but it works really well.
Q162 Chairman: Mr Valk, you have
bid for and won all sorts of franchises both at the national level
and with Merseytravel. Did you experience the objectives of the
two processes in a different way? Are they different in any way?
Mr Valk: Yes, they are.
Q163 Chairman: Would you be kind
enough to tell us how?
Mr Valk: I think the way we work
with MerseyRail and with Merseytravel and the PTEs in the north
is very much a local approach, an integrated transport approach
aimed at the local users while working with the government in
London is much further away, of course. Therefore I believe that
it is a good way of working.
Q164 Chairman: Is it more difficult?
Are you telling us that because the government is more removed
it is more difficult to get what you want out of the franchise,
or is it in operating terms? Where do you think the real problem
lies?
Mr Valk: I believe that the transport
is integrated and you look to integrate the transport from a user
perspective. When you are a local it is much easier to look to
it from that point of view than when you are centrally in London.
Q165 Chairman: Mr Field, do you have
a view?
Mr Field: Certainly from the devolution
of responsibility for decision-making it makes multi-mode integration
within the urban railway network much easier; certainly in our
specification for the London Rail concession for the North London
Line, East London Line we are able to specifically specify the
requirements, which therefore match the passengers' needs when
travelling on by other modes, recognising that 50% of all passengers
arriving in London by rail go on to use another mode of public
transport.
Q166 Chairman: The Association of
Transport Coordinating Officers has said that franchises are not
putting passengers' interests first, they are driven by financial
objectives and they are constrained severely by DfT specifications,
and all of this restricts innovative thinking. Is that your view?
Is that a correct description of what happens with the franchises?
Mr Sargant: I believe that in
some franchises that is the case. I think each franchise has different
characteristics. In PT areas which are heavily dependent on subsidy
there has to be a very tight specification and that potentially
means that they cannot always act in their commercial best interests,
but we have to act to try and protect the passengers' interests
through tight specification. Whereas I think I would argue that
a longer distance is city-type franchise, which more relies on
fare box revenue, then there is more freedom on the operator to
innovate and to improve services for passengers that way.
Q167 Chairman: So what are the innovations
you would like to tell us about?
Mr Sargant: I think on a heavily
specified local franchise the innovations have to come in ways
of delivering services more cost effectively and in comparison
with, say, British Rail, the train operators have had to tackle
things like how you employ staff more effectively, and looking
at some of the restrictive working practices.
Q168 Chairman: Can you quantify any
of that, Mr Sargant? Employing staff more effectively is a marvellous
phrase and it is the sort of thing I would use if I were seeking
to sell my services to someone who did not know me very well.
Mr Sargant: Yes, you become more
focused on your resources and you look at different ways of delivering
a higher efficiency out of those resources, whether it is trains
or staff, but I am afraid I cannot quantity them as I am a train
operator and therefore I am unable to.
Q169 Chairman: No. Mr Valk.
Mr Valk: May I go back to the
Netherlands and how the system in the Netherlands works? There
is a more flexible contract in the Netherlands than there would
be in the UK and these flexible contracts are called framework
contracts for the long-term and that is combined with regular
reviews on an annual basis. Because it is a more flexible contract
there is a possibility for innovation and cooperation between
the industry partners. That is the way it works.
Q170 Chairman: So what happens in
the Netherlands is that there is a clear set of rules but then
within that there is much more room for flexibility; is that what
you are telling us?
Mr Valk: There is more room for
flexibility but it is not a very defined long-term contract; the
long-term contract gives the directions which the government wants
it to take of growth, of overcrowding, and within that contract
there is a short-term agreement between the parties to deliver
it and to deliver it on an annual or bi-annual basis.
Q171 Mrs Ellman: Mr Valk, in the
Netherlands there is the core system and then there is a great
deal of devolution to the cities and regions. What proportion
of services constitutes the core service and what proportion is
devolved?
Mr Valk: The core service is basically
the service between the four big cities in the Netherlands, and
it is regarded as essential for the economy and for the social
well being of the Netherlands. What is not part of that network
has been devolved to either the regions or the provinces, the
provincial assemblies or to the city operators. The central system
is treated differently because of its social and economic importance
for the Netherlands. The whole system in the Netherlands is aimed
at liberalisation, also in a more gradual way than the UK. When
you look at the UK system from abroad it has been privatised and
liberalised in one step and after it I would say that a lot of
work has been done to modify it. In the Netherlands it is a much
more gradual approach but should lead or will lead to the same
situation, which is liberalisation and privatisation.
Q172 Mrs Ellman: What proportion
of the network is constituted as a core service?
Mr Valk: I think the core service
is 1,500 kilometres and the whole network is 2,850 kilometres,
but the core services are the majority of the services and the
majority of the train services.
Q173 Mrs Ellman: Who is responsible
for coordination of services at the boundaries?
Mr Valk: The coordination of services
at the boundaries is done by the provinces, who are responsible;
it has been devolved. It is difficult to compare to the UK but
these are provincial assembles which could be compared to regional
assemblies in the UK, and they are responsible for that service.
There is of course an issue of expertise and in the Netherlands
we have a national expertise centre to help them to do franchising.
Q174 Mrs Ellman: What changes would
you like to see here as a result of your experience in the Netherlands?
What benefits would you be able to bring to Merseyside as a result
of that?
Mr Valk: That is a difficult question
to answer. We are very happy with the franchises we are operating,
we are happy with the partnership we have.
Q175 Chairman: You do not have to
be entirely diplomatic all the time, Mr Valk!
Mr Valk: I try to be because I
am a guest in this country, of course.
Q176 Chairman: I thought the Dutch
had been running this for so long we had not noticed!
Mr Valk: I think the partnership
approach, which we very much value, brings a lot of benefit and
we have that with Merseytravel and we have this with PTEs, of
course, and I think it brings a lot of benefits to the franchises
which are running very well. In general the franchising system
in the UK, should give room for innovation and give room for investment.
It should also find a structure where you can look at the long-term
on one hand, so that you can set a long-term objective of growth,
because in the UK rail is also very essential. Put in those objectives,
and try to give room also to the operators to innovate and invest.
Q177 Mrs Ellman: Mr Scales, Network
Rail opposed you getting the sort of integration that you wanted
in for Merseyside. Has the area lost out, or what do you think
could be done?
Mr Scales: We think that because
of our unique arrangements on Merseyside with MerseyRail Electrics
we could do a more effective job at controlling the track and
the stations, and we spent a lot of time and effort in putting
a business case together on that. Of course we were not successful,
but it was because of the unique arrangements that we have—and
Anton Valk has mentioned how we have the framework and the partnership—but
we also have a 25-year concession, which is pretty unique and
that allows our private sector Serco-Ned partners here to invest
in the network. I will give you an example that is happening now,
they are investing over £2 million on a wheel lathe, which
is a specialist piece of kit to turn the steel tyres round, and
that has taken our colleagues here—despite the fact that
they are Dutch and move really quickly—three years to put
in. If it were a seven or eight-year franchise they just would
not be able to make that investment and get a return back. So
I think because we are faster on our feet, because we have more
direct control we could have made some real savings, but because
MerseyRail Electrics is the second most intense service in the
UK—it is more intense anywhere apart from London Underground—we
think we could have shown benefits to our colleagues in Network
Rail which then could have been rolled out across the rest of
the UK for the benefits of UK plc. So we were very disappointed.
But we are working very closely with our colleagues, and Mr Coucher
will also be able to bear that out. We are just opening a new
state of the art £32 million interchange on Friday on Merseyside,
and that was with Network Rail's help; and this morning we opened
a refurbished station at Hoylake for the golf. So we are still
working in partnership with them; we just think that if we had
detached them from the process we would have been even faster
on our feet and delivered more benefits.
Q178 Mrs Ellman: Mr Coucher, Network
Rail has been blamed for impeding progress, and you have heard
the Merseyside issue, and it has also been said that Network Rail
are interested in punctuality but not in innovation and looking
at passenger needs beyond punctuality. Do you have anything to
say on that?
Mr Coucher: If I can stand back
slightly? The position of Network Rail is that we take a lot of
decisions, not only on a daily basis when we are operating trains
and seeing the need for trains, but we take decisions which are
in the medium term and the very long-term when we invest in railways,
and our decisions last for 40, 50, 60, 80 years. A new bridge,
for example, would have to last 100 years and a new station 50
years. So the decisions we take have to be in the long-term and
we have to really think about passenger needs in the very long-term,
and we genuinely believe that by having a strong central national
infrastructure management looking at all parts of the infrastructure
we can bring greater economies of scale and efficiencies at that
level, whilst allowing at the passenger franchise level to do
what they do best, which is to run trains, to respond to the needs
of passengers in the short-term. So we think that the long-term
stability of Network Rail, coupled with the nimbleness of the
franchises serves passengers best, and that is our position.
Q179 Mrs Ellman: Did you dispute
the savings on the economies of scale that MerseyRail said they
could make, or was it to do with the impact on MerseyRail?
Mr Coucher: There was a disagreement
about the level of efficiencies. There was a figure that has been
quoted, about £33 million saving. There are two points about
that. First of all, that was a projected saving until the year
2028, so a very long-term saving over 25 years. Secondly, it was
against Merseytravel's estimates of what our costs were, and we
said our costs were a lot lower to start with. Our costs are projected
to go down over time; we work under a regulatory framework and
the regulator every year insists that the costs come down, and
we have taken 20% out of the costs of running a railway in the
last three years, and that is about £1 million every day,
and we are projected to make a similar saving over the next two
or three years as well. So there was a disagreement about the
quantum of savings. But, more importantly, in the Mersey area
we want to work much more closely with MerseyRail and Merseytravel
and we have proposed new arrangements with them, which involves
the introduction of a new integrated control centre, which we
have elsewhere in the country, and drives performance; and we
have the proposal of the introduction of joint performance improvement
plans, which is a methodology we use elsewhere in the country,
which has not yet been introduced into Merseytravel. So we think
that all of those will result in a better performing railway,
although Merseytravel already operates at the highest levels in
the country anyway, and at lower cost as well.
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