Examination of Witnesses (Questions 20320
- 20339)
20320. Then there is the question of the £X
and that, when costed out initially, came to £45 million,
which we can see at the bottom of column 2, and therefore gives
rise to a total figure of £117.4 million.
(Mr Smith) That is correct.
20321. It was because you were aware that that
was rather a large sum and because you knew of constraints on
Crossrail that there was a further scoping exercise done, which
is column 3, to see if the costs at North Pole could be reduced
while still rendering it suitable for your occupation?
(Mr Smith) Yes, we met the Promoters and discussed
these costs with them and the Promoters said, "This is expensive.
We still believe we ought to move you to North Pole, but to do
that we need to see whether the costs can be reduced", so,
as we did before, we jointly retained consultants to review the
costs and the scope of the work. Our consultants did take a view
that perhaps some of the estimates prepared by EC Harris and Mott
MacDonald were a little full-side, but we concentrated our efforts
on descoping what we had previously assumed, and the Promoters
had assumed, would be the necessary works on the site. What we
did was we went through each of the items, looking in particular
at the connections of the Great Western mainline facing London.
The original work had two connections, one facing London and one
facing away from London. We consulted our depot manager and our
local operations people and they advised us that they felt that
North Pole could operate functionally for EWS with the connection
facing the country end away from London. That is because the layout
of the railway at that part of the world means you can leave there,
run past Acton, go round the loop and come back into London, so
you do not really need a connection. Therefore, we descoped all
the works associated with the connection and, because the connection
broke into some of the buildings on the North Pole site, by not
having the connection we also did not have to knock down those
buildings. Our advisers came up with a revised scope and with
a revised pricing, but based on the principles that were in the
original pricing work by Messrs Harris and Messrs Mott MacDonald,
and they came up with the revised sums which you see in column
3. Because those sums were reduced, for example, the depot costs
estimated by Messrs Harris went down from £6.3 million to
£2.9 million, their project management costs, which are a
standard percentage uplift, and the contingency, which is also
a standard percentage uplift, came down as well. Then we applied
the same philosophy to the signalling work which had been estimated
by Messrs Mott MacDonald and came up with the lower numbers there.
As far as the small numbers that we had worked on were concerned,
we kept those the same because they were not affected by the fact
that we were taking out the connection to the Great Western mainline
and they were not affected by the fact that we were no longer
having to do things with the fuel point and crane siding.
20322. That is how we come down to the £58.7
million which plays against the previous figure of £72.3
million or the £73 million?
(Mr Smith) Yes, I suppose I am not surprised
because we are the one who have got to actually operate and use
the site, so yes, I suppose Crossrail's estimate of £73 million
was being done, as it were, on a slightly theoretical basis, and
we went in and said, "No, you work the site this way",
and that enabled us to bring the construction costs down from
roundly £73 million to roundly £59 million.
20323. These are still using this 50% contingency,
and the Department want a high contingency built in, so it is
built in, but would you hope to be able to deliver at a lower
figure than the £58.7 million?
(Mr Smith) I believe that is possible, looking
at the way in which Network Rail have costed it, and a lot of
these costs would be incurred by Network Rail in building the
connection and mending the signalling. The unit costs of Network
Rail`s schemes are reducing and the regulator's review of Network
Rail's costs and charges for the next control period from 2009
to 2014, I think, anticipate a significant improvement in Network
Rail's efficiency, including its major project work, so I would
suggest that these figures are rather full compared with what
would actually happen in practice.
20324. Then could we just look at the ongoing
costs. You have managed to reduce the previous estimate of £45
million down to £24 million and again can you comment on
how that has been done?
(Mr Smith) Yes, there are two mechanisms that
are available to us, and let me deal with the issue of rates first.
I referred earlier to the fact that at Old Oak Common the rates
are paid by Network Rail as part of something called the `cumulo'
rate where the entirety of Network Rail's landholding is assessed
for rates and is paid centrally. On the other hand, North Pole
sits outside of that arrangement. In discussions with Network
Rail, we believe that the site at North Pole could be brought
into those arrangements, and clearly there is more discussion
to go, and Network Rail would require a rent from us to offset
their increased exposure to rates, but the net effect would be
to reduce the rates liability that would be incurred by EWS by
around about 50 %. In addition, we had another look at the operating
costs, given the descoping and given the Promoters' views to us
that this was a high number and that, if we were to go to North
Pole, it would be extremely helpful if we could see ways of reducing
those costs. This we did and, through our advisers working through
the operating costs that we had previously assumed, we were able
to make reductions to their estimates of the consumption of water,
the amount of electricity we would use and the amount of gas,
the maintenance of the site and the track within the site, the
maintenance of plant and signalling, the net effect being that,
whereas we had previously assumed around about £1.5 million
a year for these operating costs, we now came to the view that
it would amount to about £829,000. Therefore, we were able
to make a significant reduction in the utility costs that we believe
would be necessary for North Pole to be an operational depot.
20325. As far as these ongoing costs are concerned,
you are looking at a 30-year period and then they have been discounted
back to 2002, so they are on a common base with the other figures?
(Mr Smith) They are absolutely on the same
base.
20326. Mr George: And capitalised. Sir,
would that be a convenient point?
20327. Chairman: We will break now until
11.45.
After a short break
20328. Mr George: Could we have back
up on the screen please the tab we were on which was tab 7 of
EWS/47.[30]
You have been dealing with the reduction of the ongoing costs,
Mr Smith, so finally we have got the cumulative figure, the £83.2
million which, as it were, `plays' the original deposited Bill
estimate of £73 million, but which does now allow for the
£X for ongoing costs?
(Mr Smith) That is correct.
20329. What is your comment then about the position,
that is, if you are able to justify to the Crossrail team the
figures in column 3?
(Mr Smith) Well, it seems to me that there
is an awful lot of contingency still in these numbers and, therefore,
if one compares the £83.2 million with the original £73
million, that is an increase of around about 14 %. If we think
that within that £83.2 million we have still got a contingency
of the 50 % which contains contingencies, such as 53.7 % for the
service works, 47.7 % for systems, as well as this uplift of 27
% for project management costs, it seems to me that it is actually
only the £X that Mr George referred to which is the difference
between us. We are well within the contingency and, if one were
to take a different view of the contingency when the work was
actually carried out, then I think we are pretty near to Crossrail's
original estimate that was contained in the £105 million
benefit of the revised Depot Strategy.
20330. Leaving that matter altogether, can we
turn to the subject of safeguarding and could we please have on
the overhead AP3-43 04-034, the one which Mr Elvin put up.[31]
In the bundle it is page 34 of 64. That, as we can see from the
bottom right-hand corner, has a date of February 2005 and that,
therefore, is related to the time of the deposit of the Bill,
or around about then, and that shows that now a very large part
of the site is safeguarded. If we can just identify the turntable,
is that the sort of St Catherine's wheel which we can see in the
middle of the plan?
(Mr Smith) That is correct.
20331. We need to keep our attention on that
because, if we could now please look at 04-029 of the Promoters'
exhibits, which is about six pages before it, I cannot scrub my
eyes and see the date, but I believe it is 1990, is it not, in
the bottom right—I do not know whether that is confirmed
by everyone—and we can there see what was the original safeguarding.[32]
If we look at the St Catherine's wheel, the turntable, can we
see there that the only bit that was then safeguarded was the
area north of the turntable?
(Mr Smith) That is correct, a
very thin site, the safeguarded area, which was that shape and
size really to accommodate railway lines because my understanding
is that the safeguarding in 1990 which took a very small sliver
of the northern part of the Old Oak Common site was to allow for
the possibility of the Crossrail project having lines connected
with the Chiltern lines which are sort of top left, way beyond
the screen here, and that back in the 1990s the idea was that
the connection to the Chiltern lines would run through this part
of the very top sliver of the Old Oak site, perhaps with the lines
actually coming out of the tunnel somewhere on the site we are
looking at at the moment, so it was just for railway lines rather
than anything else. Yes, we were aware upon privatisation that
this part of the site was safeguarded, but it was a sliver which
did not affect the integrity of the operation of the site.
20332. And it was put in the Promoters' response
to our Petition and by Mr Elvin this morning in opening that,
because of the safeguarding, you knew in effect that you were
going to be displaced from the site, but, given the smaller safeguarding,
the 1990 safeguarding, is there any validity in that statement?
(Mr Smith) Not really because
the only part of the site that this would have eliminated was
the factory where we do the heavy lifting which, with the rest
of the site remaining in our ownership, could have been relocated,
but really a very small effect on the overall operation of the
Old Oak Common site, from our perspective.
20333. Could we turn to the pie chart which
Mr Elvin referred to, and that is 04A-027.[33]
What he said there is that, so far as EWS are concerned, it does
not really show up at all because it is simply a single line,
and I think that you have an observation about that pie chart.
(Mr Smith) I think this relates
to the anticipated movements on and off the Old Oak site at some
point in the future of Crossrail's operation, and I think the
implication is that the busyness of a site is measured by the
number of trains which move on and off that site. Now, that might
be relevant if it was a railway station or if it was a freight
marshalling yard, but, as I said earlier on, our primary use of
Old Oak Common is stabling, marshalling, maintenance, and the
locomotive that the Committee saw last week will be on Old Oak
Common for three days, which is the length of time it takes to
inspect and change the bogeys underneath a Class 66 locomotive,
and clearly that would register as one movement on a Monday and
then a movement off on the Thursday. Now, if we had more rail
freight activity on the Old Oak Common site, then I think this
pie chart would be different, but I can understand that the Promoters
have so far dismissed this on the basis of the data they have
gathered from Network Rail. I am really not convinced that this
is completely relevant for measuring the busyness of a site which
is primarily used for maintenance and servicing.
20334. Can we now turn to the question of alternative
sites because, in some correspondence, the Promoters suggested
that EWS should look at the possibility of relocating some, or
all, of their activities to other alternative sites. Have you
looked at some alternative sites?
(Mr Smith) We did look at
alternative sites, ones that the Promoters had suggested, and
they were found not to be suitable. They did not have the connectivity
or we would not be able to fit our activities on to those sites,
and one of the sites we looked at was subsequently found to have
been earmarked for another use and, therefore, we have not progressed
any further other sites. As I said earlier on, the number of sites
in and around London that give the functionality that Old Oak
Common or North Pole could provide are very thin on the ground
indeed.
20335. Are you aware of any other site to which
you could relocate in the first place all of your activities?
(Mr Smith) There is no other site to which
we could relocate all of our activities.
20336. Or which is available if you were to
relocate all the passenger train activities?
(Mr Smith) There is no other
site.
20337. Can we then turn to the question of extinguishment
and we can recall the undertaking which in effect says they will
only relocate you if that is a cheaper cost than extinguishing
you. I think you have some observations on that matter?
(Mr Smith) I suppose, as
the Committee will have heard, if there is a small business that
cannot be relocated then it will be extinguished but, as I tried
to draw out, there are really two issues for EWS: one is that
to continue with the activities we do and anticipate doing at
Old Oak Common we need to be close to the railway line, next to
the railway line; and we need to be in a part of London where
you have the connectivity that we demonstrated earlier on. Both
Old Oak Common and North Pole Depot fit the bill, so to speak;
other sites do not exist. Really a rail freight facility, whether
at Old Oak or North Pole, is of great importance to us. The Committee
heard evidence in July 2006 from ourselves and other rail freight
operators and representatives of our customers about the importance
of rail freight facilities, rail facilities and network capacity
towards achieving the Government's rail freight growth policies
and since that time, as I mentioned earlier on, the arrival of
Eddington and the Stern Report reinforce that. Extinguishment
really fails to deliver public policy and would prevent us from
playing our part in meeting the Government's objectives and our
own objectives on rail. We believe the Promoter did recognise
this, both the wider public benefit and the strategic importance,
by providing for Old Oak Common's replacement by North Pole in
AP3, but we recognise there are budgetary constraints, and we
have responded, we think, actively and with a lot of commitment
of resource and our time to the Promoter's concerns about the
original cost estimates, including £X, the original operating
costs. What we have produced is a lower cost within the contingency
margin. By moving to North Pole we can continue all the activities
we have talked about today. So we really do not want the Promoter
going back on his word to relocate us to North Pole; that is not
ideal but it is at least in the right part of the railway network;
it does have the connectivity; we have worked with the Promoters
to identify how we can make it work for us at a cost within the
estimates that were previously assumed. The loss of Old Oak Common
really within a guarantee for replacement should not be contemplated.
It would not be in our interests but I think, even more importantly,
it would not be in the public interest either.
20338. Can we then turn to the final tab, tab
8, which is the undertaking which you seek, and which you asked
the Committee to obtain from the Promoters that, "Before
permanently displacing EWS from the land it owns at Old Oak Common
Depot, the Promoter shall, unless otherwise agreed with EWS: 1.
transfer to EWS the Promoter's freehold interest in the North
Pole Depot".[34]
That is at present owned by the Department for Transport, is it
not?
(Mr Smith) That is correct.
20339. Is there any significant difference between
the value of a freehold and a long leasehold?
(Mr Smith) By the all standard
valuation methods the value is very similar.
30 Committee Ref: A231, Comparison of Costs for Old
Oak Common Relocation to North Pole Depot (LINEWD-AP3-43-05-016). Back
31
Committee Ref: P144, Crossrail Safeguarding Directions Sheet
No. 304 (LINEWD-AP3-43-04-034). Back
32
Committee Ref: P144, Crossrail Safeguarding Directions Sheet
2 (LINEWD-AP3-43-04-029). Back
33
Committee Ref: P144, Comparative usage of Old Oak Common/North
Pole between EWS and Crossrail activity (LINEWD-AP3-43-04A-027). Back
34
Committee Ref: P144, Proposed Undertaking by the Promoter to
the Committee or to EWS (LINEWD-AP3-43-05-017). Back
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