Examination of Witnesses (Questions 20400
- 20419)
20400. The point I want to get from you, Mr
Smith—and I confirmed with Mr George my understanding was
right as the tea break was ending—we have yet to see the
detail that backs up your new cost estimates. That is going to
be provided to us at the meeting of the 8th?
(Mr Smith) Yes, we have been focusing up to
now on a report which we produced that demonstrated that the contingency
assumptions which you have got in your original costs might be
regarded as rather full. We have been advised that information
has been found very useful by the Promoters who believe there
may be some scope for variation even though they are obliged to
have very high contingencies in their costs as they have with
the rest of the project, so, yes, we have done a number of reports.
20401. I understand there have been a lot of
discussions. Clearly, there has been an attempt to reach some
form of compromise and that is continuing, but the point is we
have not yet seen the backup to this table. Even the explanation
that you have put in comes out as of yesterday. The critical point
in this is the ongoing costs, is it not? It is the penultimate
line, "EWS's ongoing cost". You say they can be reduced
to £24 million, that is entirely dependent on how the rating
issue is handled. If it remains at £45 million, or the original
£48.5 million, we are still looking at costs in the order
of £105 or £107 million total.
(Mr Smith) That is not correct.
Only part of that reduction is due to the reduction in rates,
part is also due to the introduction in operating expenses I described
while George was on the stand.
20402. But the rating liability, your reduction
in expenses was from about 1.5 to about half of that per year,
was it not?
(Mr Smith) That is correct.
20403. The rating, however, is in the order
of over £3 million per year, is it not?
(Mr Smith) The rating is
£3 million a year which we would anticipate would reduce
to the equivalent of 1.5.
20404. That is on the basis that you would have
a freehold and Network Rail would then charge you a rent and you
would pay as part of the pro rata of the national network,
is it?
(Mr Smith) Yes, that is
correct.
20405. Network Rail have told us that they would
expect you to defray either through rates or rent any increased
liability on them to pay for North Pole. They would not bear the
costs on your behalf. They might be the mechanism, but if you
were charged, say, £3 million rates a year, Network Rail
would seek to recover that either through rent or rates, so all
it is doing is passing it through a different funnel.
(Mr Smith) That is not correct.
20406. That is what they have told us.
(Mr Smith) I would like
to see that correspondence because I think you will find your
clients are well aware that is not the way in which this would
work.
20407. Network Rail are not expecting their
total hereditaments for the country to be revalued as a result
of adding North Pole, if that were the course of action. The rating
value that exists at the moment is not going to change as a result
of your occupation of North Pole, is it? The valuation officers
are not likely to say the swapping of Eurostar to another rail
operator is going to reduce the rates?
(Mr Smith) There are a number
of mechanisms available to us which we had understood the Promoters
were very keen to explore with us as a mechanism for reducing
the ongoing cost. We remain more than happy to have a detailed
discussion with them and with Network Rail. This is a mechanism
with which we are familiar, with which the Promoters are familiar
and we would not have put it in if we did not think it was possible
to achieve.
20408. We think you are far too cavalier, if
you do not mind me saying so, in your approach to that. Can I
have this document already in.[40]
This is an email from Bob Yorke from Network Rail which suggests
that—it is at the bottom of the email—if you did try
the freehold and then lease back that might be seen as a device
to remove a rateable value of £3 million from the list. Clearly,
Network Rail do not share your confidence.
(Mr Smith) There is, however,
a small risk that this might trigger a revaluation.
20409. You are reading the middle of the paragraph:
" ... if the freehold was transferred to Network Rail and
leased to EWS then Network Rail could include it in the cumulo
list and have it removed from the ordinary rating list. This will
be the case whether or not the sale site is transferred for £1
or full value. There is, however, a small risk that this might
trigger a revaluation of the Network Rail cumulo portfolio. If
the freehold was transferred to a third party and them (sic)
leased to NR and EWS there is a far greater risk that this would
trigger an investigation of the cumulo portfolio and a possible
revaluation as this may be seen as nothing more than a device
to remove a rateable value of £3 million from the list".
(Mr Smith) Where are you
looking at?
20410. Mr Elvin: The last part of the
email.
20411. Mr George: I hesitate to interrupt
my friend, but it seems to me there are two different concepts
in that last paragraph. The first and second sentence are dealing
with the situation if you transfer the freehold to Network Rail
if they are there, and the last sentence is concerned if there
are third parties involved. I am not aware there is any suggestion
of a third party being involved.
20412. Mr Elvin: In any event, are you
suggesting that somehow the £3 million rating bill would
just vanish because that seems to me to be unreal, Mr Smith?
(Mr Smith) The rating responsibility
would pass to Network Rail and Network Rail would charge us a
rental.
20413. Can you show me a letter from Network
Rail that says they would take £3 million on the chin?
(Mr Smith) I cannot show
you the letter because the Promoters have asked that we do not
discuss this with Network Rail.
20414. Do you think it is realistic to expect
Network Rail to pay all or a significant proportion of a £3
million rate bill? It seems to me to be highly unlikely.
(Mr Smith) We believe what
we proposed here can be given effect and I believe various correspondence
that you have put into your evidence and the conversations we
have had with the Promoters in our meetings, including the last
one on 21 February, the Promoter said they continue to explore
the way of doing this. We have not been told, "This is impossible,
it cannot be done".
20415. We have looked very carefully at the
rating situation. We think there remains a significant risk that
the £3 million rating would simply not evaporate. The valuation
officers would be unlikely to allow that, and one way or another,
whether it was through rent or some other means, Network Rail
would still charge you for the cost to them of taking the freehold
of North Pole.
(Mr Smith) We believe the
solution is as we described.
20416. As I have said, you are aware that our
base position is we will continue to work with you. We are not
trying to remove you from the location, but we see difficulties
in retaining you at the moment, you understand that. It is not
our desire that you be removed from this location. If North Pole
could be made to work and made to work at a reasonable cost proportionate
to what was going to be achieved that would be satisfactory to
the Department, but at the moment we have not seen the background
to your latest figures and there is a very real risk that this
turns on your optimistic assumptions that someone would be willing
to write off a £3 million a year rating bill. It is true,
is it not?
(Mr Smith) We disagree with
your assumptions, but I am pleased that the Promoters are willing
to continue talking to us.
20417. There are a couple of other points I
need to touch on and I can leave the rest to Mr Berryman. In terms
of alternative facilities, if you were looking to expand some
sort of rail freight terminal rather than the freight maintenance
or the charter business, such as the illustration shows, or provide
some other facilities, are there not options at West Drayton and
Acton Yard?
(Mr Smith) Acton Yard is
fully occupied with rail freight services. We looked at West Drayton,
as requested by the Promoters, and we found this site was not
suitable for the kind of activity that we do at Old Oak Common.
20418. Why is it not suitable?
(Mr Smith) The layout of
the site and the inability to provide the appropriate rail lines
and connections.
20419. In terms of a freight terminal though,
we have not talked about North Pole in this respect. North Pole
would not be particularly attractive as a freight interchange,
an inter-modal depot, would it?
(Mr Smith) It is not ideal
because the road access is quite constrained. I do not know if
you have visited the site?
40 Committee Ref: P144, Correspondence from Network
Rail and Crossrail, Crossrail: EWS Rates, 22 February 2007 (LINEWD-AP3-43-04A-013). Back
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