The Severn Crossings Toll - Welsh Affairs Committee Contents

Examination of Witnesses (Questions 111-226)



  Q111   Chair: Good morning, everyone. Thank you, Mr Clune, for coming in again today. Some of the questions that we ask you will be similar to the ones that we asked at the informal meeting that we had at the Severn bridge. We are asking them again because your answers will be recorded as part of the official record.

  Even though we all know who you are, could you please introduce yourself and your colleague for the record?

  Jim Clune: My name is Jim Clune and I am the general manager of Severn River Crossing plc. My colleague is James Rawle, who is the deputy general manager.

  Q112   Chair: Thank you, and welcome. We have a number of questions to ask you over the next half hour, and I will ask the first question. Could you outline the terms of the concession? My understanding—and I will put it in very simple terms—is that you took on the debt of the existing bridge of £122 million. You built the new bridge, the cost of which came to about £330 million. The total is therefore about £450 million. You were told that, in return, you would be able to collect up to just under £1 billion in revenue, and, once that money had been collected, that would be the end of the agreement. In broad terms, is that the agreement?

  Jim Clune: Yes, that is correct. I will just clarify that the cost of the second crossing, including VAT, was £390 million. The net cost, exclusive of VAT, was £330 million.

  Q113   Chair: You got the VAT back, presumably.

  James Rawle: No, we did not.

  Q114   Chair: Oh, I see. So, your outlay for this was £510 million.

  Jim Clune: Expressed in 1990 prices, yes.

  Q115   Chair: For a return of £1 billion.

  Jim Clune: Yes, and the approximately £1 billion tolling revenue is a sum that is expressed in 1989 prices.

  Q116   Chair: I understand that, so the real-terms figure will be higher than that.

  Jim Clune: Yes.

  Q117   Chair: Okay. What, roughly, do you have to spend on maintenance each year?

  Jim Clune: The best way that I can express that is to say that, in 2010 prices, we are spending approximately £12 million a year on operating costs. That includes the costs of inspecting and maintaining both of the crossings, but also of collecting the tolls, so it is a total operating cost in 2010 prices.

  Q118   Chair: What do you estimate that that would be in 1992 prices, that is, the prices that we are using to calculate the £1 billion?

  Jim Clune: I would have to do a mathematical calculation to arrive at that figure.

  Q119   Chair: It would be significantly less, would it not? It would be about half of that figure.

  Jim Clune: It might be—I could not say for certain.

  Q120  Geraint Davies: So, if we add all that up, it gives you a gross profit of around £0.5 billion, less the ongoing £12 million a year. How much profit, therefore, will you have made out of this venture?

  Jim Clune: It is not just a question of the construction cost and the ongoing maintenance cost. There has been, and continues to be, a very considerable cost associated with the financing. At the beginning of the concession we took out a considerable amount of debt financing to finance the project, and those costs continue to accrue. So, it is not just the second crossing construction cost.

  Q121  Geraint Davies: Right. Presumably, given that the Bank of England's independence has brought down long-term interest rates, you have been able to restructure your debt to reduce your debt costs and make more, rather than less, money. In that case, how much money did you make?

  Jim Clune: Again, it is not as simple as that. Some of the outstanding debt instruments that we have at present are not linked to the Bank of England base rate. We have a debenture stock financing that is more than 6% payable, so it is not linked to the Bank of England base rate.

  Q122  Geraint Davies: Fair enough, but, in the round, just so that we have a basic idea, as the Chair said, we are looking at revenue of around £1 billion and half of that will go on various debt costs that have been re-managed. Are you able to say, ultimately, how much money you have made?

  Jim Clune: We cannot say at the moment, and I will explain that by saying that the way in which the project finance agreements are written means that the company and its shareholder investors are not entitled to take any profit or dividend until the very end of the concession. So, it is a 25-year or 26-year investment period. If we have done our sums correctly with regard to the construction cost and the maintenance cost, there may be a profit. We are still seven years away from that, and we cannot say at the moment what that profit will be.

  Q123  Geraint Davies: I would not have had the money, but if I was an organisation and had put in £10 million, say, into this, I would have no idea what my return would be in seven years' time, is that right?

  Jim Clune: It is very uncertain. Traffic volumes and revenues have been badly affected by the recession. We hope that that will improve over the next few years, but it is not certain at present that there will be a profit.

  Q124   Jonathan Edwards: I was going to come at this from a slightly different angle, but you have started to cover it already. I want to probe a bit more, following Geraint's question, what profits were you projecting to make at the beginning, because you had to make a case to get the money in the first place.

  Jim Clune: If you look at the concession agreement that we signed with the Secretary of State for Transport in 1990, there is a notional sum in that of £51 million. That was a target or an expectation.

  Q125  Chair: That was expressed in 1992 prices, was it?

  Jim Clune: It was expressed in 1989 prices. It was never guaranteed. It was a target, and our revenues have been significantly affected in recent years.

  Q126  Owen Smith: Nice to meet you again, Mr Clune. As you have gone through the various processes of refinancing, with subsequent prospectuses produced and subsequent projections produced by the company for shareholders in order to give them some certainty about the sort of returns that they might get, have you not got some further idea about this? I think that we have all found it slightly surprising that there is no notion—which is what you seem to be suggesting—of how much money you might expect back at the end of all this.

  Jim Clune: When VAT was introduced on tolls in 2002, following a judgment of the European Court of Justice, with the agreement of the Secretary of State for Transport at the time, there was a refinancing to enable the financing of the VAT. If you recall, the Government made a commitment at that time that the customer would not pay the VAT, hence the toll rates had to be deemed to be VAT-inclusive from 1 February 2003. To accommodate that finance, the Secretary of State and the company agreed a refinancing. Part of the result of that was that an interim dividend of £12 million was paid at the time. In 2002, there was an expectation, even then, that there would be a further dividend. However, at this point in time, that is not certain.

  Q127  Owen Smith: So, at that point, was it not identified what the subsequent further dividend might be expected to be?

  Jim Clune: It was. The target was something like £32 million. Again, it was a target, an expectation, but not a guarantee.

  Q128  Owen Smith: Did the agreement between the Secretary of State and the company originally stipulate that there would not be a projected sum, or, rather, that the company would not take any profits during the period of the concession? Or was that a decision made by the company with regard to the way that it structured its finances?

  Jim Clune: That was not contained in the concession agreement. I believe that that was more a product of the finance agreements.

  James Rawle: It was more a product of the debt finance agreements, yes. Clearly, the lenders did not want shareholders taking money out that could be used to pay debt.

  Jim Clune: Given that the project was heavily debt-financed, as James has said, the lenders wanted confidence that their loans would be repaid before any dividend was payable to the company. The very last of the debt instruments to be repaid is the Government debt.

  Q129  Chair: I have just been scribbling things down here as you have been speaking, and, based on your figures of costs of £510 million in 1989 prices to begin with, and on an average figure of, say, £6 million at 1989 prices for maintenance, by 2017, you will have accrued costs of around £660 million in 1989 prices. If your figures are accurate and you finish collecting the £1 billion in revenue by then, you will have made a profit of around £440 million in 1989 prices, which will, of course, be significantly higher in 2017 prices. That is obviously a rough estimate, but does that sound wildly inaccurate to you?

  Jim Clune: I think that that does not take account of the considerable costs of financing the debt.

  James Rawle: The financing costs are very significant. If you look at the accounts for the past few years, you will see that we are talking about mid-£30 millions per year in financing costs.

  Q130  Chair: In 1989 prices or current prices?

  James Rawle: No, no, obviously, it depends how much you are borrowing at any point in time.

  Q131  Jessica Morden: With regard to current toll prices, under the Severn Bridges Act 1992, the Secretary of State cannot set the tolls below the level set by the retail prices index without your agreement as the concessionaire. In the current economic climate, lots of people are calling for a toll freeze. Is that something that you would consider?

  Jim Clune: As you probably know, each year, we get an Order from the Secretary of State fixing the toll prices for the following year. We expect to get that in early December this year. The finance agreements that we have with all our lenders oblige us to charge the toll calculated under the Severn Bridges Act.

  Q132  Jessica Morden: Is there an argument for saying that you could collect the tolls over a longer period and that you could, therefore, reduce the tolls and the burden on commuters and business by extending the tolls further into the future?

  Jim Clune: It is probably a mathematical possibility, but it would have to be the Secretary of State who would agree to a longer toll-collection period. We do not have the facility to decide on that. It would be a matter for the Secretary of State.

  Q133  Chair: To be clear, you mean the Secretary of State for Transport rather than the Secretary of State for Wales, do you not?

  Jim Clune: Yes, that is right.

  Q134  Jessica Morden: Do you hear the concerns of business and local commuters about the steady increases in the tolls?

  Jim Clune: We are certainly made aware of those concerns from time to time.

  Q135  Jessica Morden: Has there been an economic impact on the scale of toll traffic?

  Jim Clune: We do not actively survey that. Like all businesses, our business has suffered during the recession. Heavy goods traffic is down by up to 15% year on year. We are seeing levels of heavy goods traffic that are the same as 1998 levels. Like all businesses, crossings have suffered during the recession, though I cannot quote any surveys or detail on that.

  Q136  Owen Smith: I would like to come in on that point. You brought the issue of reduced heavy goods traffic volume to people's attention a few weeks ago. Have you done any analysis on whether that is to do with the toll and the costs that it brings, or whether it is to do with better stock management, different logistics and modes of operation by the companies? I believe that there is reduced heavy goods traffic across the road network in the UK.

  Jim Clune: We keep in close contact with other toll operators in the UK and in Euroland. Very similar figures are being quoted from elsewhere; this is a universal trend, and it has been for the last two or three years. Anecdotally, we believe that hauliers are being more efficient in managing their loads, which I am sure they have to be. The percentage reductions in traffic that we are quoting are universal, both in this country and further afield.

  Q137  Geraint Davies: We are interested in freezing the toll and extending the franchise to reduce the economic burden on trade to Wales. If the franchise were to be extended by five years by the Secretary of State, do you know by how much the toll could be reduced?

  Jim Clune: We have not carried out that kind of analysis.

  Q138  Geraint Davies: Do you have any idea of what the price elasticity of demand is for using the bridge? In other words, if the price was halved, would that significantly increase the traffic?

  Jim Clune: It is very difficult to say. When the second crossing was completed in 1996, there was a step change in the volume of traffic. Clearly, additional demand existed at that time. We do not have any statistical data at the moment regarding price elasticity of demand.

  Q139  Geraint Davies: If you have a new bridge, you have more people coming over. The big question is whether more people would come over if you reduced the price. However, you have no idea how this would vary.

  Jim Clune: Both crossings do not operate at maximum capacity all the time. On bank holidays or at other busy holiday periods, we achieve maximum capacity on one or two days of the week. However, much of the time, both crossings do not operate at maximum demand.

   Chair: We are going to need to speed through this now.

  Q140  Guto Bebb: In terms of the current legislation, what flexibility do you have to offer differential pricing, such as off-peak or frequent-use concessions?

  Jim Clune: Within the legislation and the concession agreement with the Secretary of State for Transport, we are required to offer discounts. At the end of the session, I would like an opportunity to clarify a point of evidence from a previous session. The electronic tag system that we operate offers significant discounts to regular users. Beyond that, we do not have any more flexibility within the legislation and the concession agreement. However, we offer discounts through our electronic toll-collection system.

  Q141  Chair: Anyone using the toll system more than 20 times a month under one of the tag schemes would get a discount, would they not?

  Jim Clune: I think that it is 22 crossings. Fleet operators and haulage associations use our season tag very efficiently.

  Q142  Jessica Morden: What do you anticipate the tolls will be in January?

  Jim Clune: The answer is that we do not know. We are waiting for an order from the Secretary of State. We would normally expect to receive it at the end of November or in the first week of December, but at this point in time, we do not have that information.

  Q143  Jessica Morden: Would you anticipate that it will be the normal increase?

  Jim Clune: If it were to follow the pattern of previous years, it would be a retail price index increase. However, that is a matter for the Secretary of State for Transport.

  Q144  Jessica Morden: Is it quite late for you to be hearing about this?

  Jim Clune: No, this is about the normal time.

  Q145  Jessica Morden: What do you anticipate will happen with the increase in VAT?

  Jim Clune: Our understanding is that a ministerial statement was made in the past few months that said that, as in 2003, the additional VAT would not be passed on to the customer. You would need to check that with the Highways Agency, but that is my understanding.

  Q146  Jessica Morden: Have you not had any indication from the Department for Transport on that?

  Jim Clune: No, nothing official.

  Q147  Guto Bebb: The last time that we met, we discussed the fact that you were going to introduce credit card payment facilities during the Ryder Cup. Was that a success?

  Jim Clune: It was a success in the sense that we had the system in place in time for the Ryder Cup, which was a commitment that was given by the Highways Agency and us. It was a temporary system. It caused a longer transaction time than we would have liked, but it worked.

   Chair: I would like to bring in Nia Griffith on credit card payments.

  Q148  Nia Griffith: There has been an enormous amount of discussion in the press on this issue. Perhaps we could look at the reasons why it took so long to bring in the credit cards, in the first place, and why we had the extraordinary situation where it was decided that the red carpet would be put down for the Ryder Cup and rolled up again once it was over, and that the system would be reintroduced later. How has it come about that you have gone through that kind of flip-flop so many times, and what do you think will happen with this in the future?

  Jim Clune: I will explain the background to the credit card issue. The Severn Bridges Act 1992 precluded card payments. It mandated that payments would only be made by cash or the electronic toll collection system. The Highways Agency and the Department for Transport changed the legislation earlier this year—in March, I believe—to permit the use of credit cards. We have been planning to put the system in place since then. We had a number of difficulties in putting the temporary system in place for the Ryder Cup. Subsequent to the Ryder Cup, we have suspended the system temporarily so that we can refine our process, try to improve the traffic throughput times and improve the system generally. We will have a full, permanent system in place in the first quarter of next year. In the meantime, the 'temporary system', as we call it, will be back in place shortly.

  Q149  Nia Griffith: Did you push for that change in the legislation in March 2010 or was it entirely down to the public?

  Jim Clune: We were aware of advances in customer complaints about credit cards, which we and the Highways Agency received. I would not say that there was a huge incidence of complaints, but this clearly needed to happen to modernise the system.

  Q150  Nia Griffith: As it was a short period, it was difficult to judge usage. However, based on the evidence that you have received to date, what percentage of people would you anticipate would use credit cards?

  Jim Clune: It is interesting, even though the week of the Ryder Cup was a snapshot and cannot be indicative. We were surprised that take-up during that week was only about 2% of our total traffic. I am aware that we and the Highways Agency had given people notice that it would take longer to pay by credit, and people might have been influenced by that. I am not able to say what take-up would be in the future.

  Q151  Nia Griffith: Chair, I think that that is an important point. I am not terribly surprised by that, because most people would pay by cash if they had the change. Having said that, it is vitally important that the facilities are there, however small the percentage may be. We all have been in the situation when, thank goodness, we have been a bit untidy and found some coins on the floor of the car. It is the only way to avoid the embarrassment of being accompanied by the police to a cash point. Therefore, even if it is a very small percentage, will you undertake to keep that facility there, because it does save embarrassment?

  Jim Clune: We will be keeping the facility in place.

  Q152  Chair: I would like to add to this. When we had the informal meeting, a few weeks ago, my understanding was that this system would stay in place in some form. Then, we read that it has been removed and will be introduced by the first quarter of the year.

  Jim Clune: It will be back in place in a matter of days. This is a continuation of the temporary system. It will be replaced by a permanent system in the first quarter of next year, but in the meantime we will keep the temporary system running.

   Chair: That is great.

  Jim Clune: It was always our intention to have a temporary suspension to improve staff training and to try to refine the system and improve the throughput time.

  Q153  Chair: We thank you for that. In some ways it must be advantageous to you, because there must be quite a significant cost in dealing with all of that cash with the funding of security vans and so on.

  Jim Clune: There is an associated cost. Once again, if there is an opportunity at the end of the session, I would like to correct a matter of detail from some previous evidence that we received.

   Chair: If it is quick, please feel free to do so now and it will be on the record.

  Jim Clune: I read in a transcript of evidence recently that a figure of £90 million was quoted as being our revenues. The £90 million includes approximately £12 million or £13 million of VAT, which we pay on to Her Majesty's Revenue and Customs. Therefore, our actual net revenue is approximately £77 million in 2010 prices. There was also reference to £90 million in cash, collected in coinage, which is not correct. Of the £70 million or so in revenue that we currently collect, approximately 30% is collected through our electronic automatic vehicle identification system, which involves direct debit. It is cashless. The balance is not all coinage; a significant percentage of that is in the form of notes.

  Q154  Chair: I suppose that that would still incur a cost.

  Jim Clune: There is a cost. It is not a huge cost; it is managed very efficiently.

  Q155  Chair: Have you ever considered using a company—I am not advocating any particular company, but some have written to us; one is well known for operating car parks at railway stations—that has a system where you simply pay by credit card before you undertake your journey? You could then just drive straight through, because the camera would recognise the car. Companies have told us that they would be willing to install all of this for free.

  Jim Clune: We have very much considered that in the past, and the linkage with automatic number plate recognition technology. The difficulty that we have is that vehicle toll classifications on the Severn crossings do not lend themselves to automatic number plate recognition. The best example that I can give is that of a Vauxhall Corsa private car and a Vauxhall Corsa commercial van, both of which return an identical footprint from the Driver and Vehicle Licensing Agency. We could not distinguish between the categories. In addition, our investigations have revealed that the DVLA database is not 100% accurate. People make modifications to vehicles and they do not necessarily tell the DVLA. Therefore, we have investigated the issue of automatic number plate recognition. It would need, primarily, a change in the toll classifications that were established in the Seven Bridges Act.

  Q156  Chair: Is that something that we should be considering?

  Jim Clune: One of the additional difficulties is that if you look at all tolling operations within England and Wales—Scotland does not now have tolling—you will see that, at each of those operations, the toll vehicle classifications are different. There is no commonality between operations. In theory, it would be possible to change the classifications, but that would need a change to primary legislation, which is the Severn Bridges Act.

  Q157  Nia Griffith: How big are the attempts to implement that uniformity across all of the different tolls? Are you saying that, because of the legislation, you are not in a position even to open discussions with other toll bridges?

  Jim Clune: I am aware that the European Union has published a model library of toll classifications for use by member states, but it has produced a model that contains approximately 36 different vehicle classifications. It would not be within our powers to change that; it would have to be a matter for the Secretary of State for Transport in discussion with all of the operators, possibly based on this EU model.

  Q158  Owen Smith: Very briefly, I noticed that Theresa Villiers said that she thought that temporary card payments would be back in place this Friday. You said that it would be back in place in a couple of days.

  Jim Clune: I am aware that a statement was made that it would be back in place by tomorrow. As we sit here, we are still working towards that, but it may take a few additional days.

  Q159  Owen Smith: Therefore it will be back in place next week.

  Jim Clune: Yes; next week.

  Q160  Jonathan Edwards: I wish to discuss other technologies. You talked about some of the difficulties. How does Transport for London get over those difficulties in relation to the congestion charge? Is there anything that can be learned from how it adopts that system?

  Jim Clune: I am not completely familiar with the Transport for London model. I am aware that it uses automatic number plate recognition technology and DVLA linkage. I would guess that there must be a significant amount of what we would call violations arising from that, but I do not know what the percentage is.

  Q161   Jonathan Edwards: Under the terms of the concession agreement, who would be responsible for adopting some of those new technologies? Would it be the Department for Transport or Severn River Crossing Plc?

  Jim Clune: We are governed by the Severn Bridges Act 1992 and the concession agreement, which, as currently envisaged, has seven years to run. We have a toll plaza on each crossing and that is the technology that we currently have. It would not be within our remit to change that technology, particularly given the relatively short time left in our concession agreement. That would be something for the Government to consider for a future regime.

  Q162   Jonathan Edwards: So, new technology may be something to look at following the handover.

  Jim Clune: I think that that would be the case.

  Q163   Jonathan Edwards: Under the concession agreement, how is responsibility for the maintenance of the two crossings divided between Severn River Crossing Plc and the Highways Agency?

  Jim Clune: The core responsibility for the inspection and maintenance of both crossings is with our company. However, there is a provision with regard to the original crossing, whereby if something was discovered that could not have been anticipated when we took over the project, and if a significant cost were to be associated with that, then that risk would remain with the Secretary of State for Transport.

  Q164   Jonathan Edwards: Does the Highways Agency undertake any inspections and, if so, how frequently?

  Jim Clune: All our inspections are governed by the Department for Transport and the Highways Agency's regime for the inspection of principal structures. We are governed by their regulations. We also have bespoke manuals for inspecting both crossings.

  Q165   Jonathan Edwards: Are the maintenance needs for both bridges similar, or are there any differences?

  Jim Clune: Both bridges are governed by the DFT principal and general inspection requirements.

  Q166  Chair: There is an issue, is there not, with the pylons on the old bridge?

  Jim Clune: There is an issue with the main cables on that bridge.

  Q167  Chair: Has that issue now been resolved fully, Mr Clune?

  Jim Clune: It has been resolved to the extent that the problem has been identified. There have been two significant inspections in the past six years, and remedial measures are now in place to arrest the problem.

  Q168  Chair: Are those remedial measures expensive and will they be on an ongoing annual basis, or was the expense a one-off hit that has now been taken care of?

  Jim Clune: They are relatively expensive measures, and, in accordance with the standard that has now been accepted for this work, a special inspection will take place approximately every five years inside the cables on the Severn bridge, which will be an ongoing project.

  Q169  Chair: Who will pay those costs?

  Jim Clune: Given that it is classified as a latent defect under the concession agreement, then it is the responsibility of the Secretary of State for Transport.

  Q170  Owen Smith: I seem to recall from our informal discussion that there was a fairly important inspection due to be undertaken shortly after we last spoke. Did that inspection take place and what can you tell us about what was discovered?

  Jim Clune: The inspection into the main cables on the Severn bridge has taken place. It started in March/April this year, and the physical inspection has just been completed. The report on that inspection by the specialist engineers will not be available until about February/March next year.

  Q171  Owen Smith: Are you able to give us any indication as to what it will say?

  Jim Clune: The indication that we have had is that the condition of the cable is certainly not worse than it was when the first inspection took place four years ago. So, at the very least, the condition has stabilised.

  Q172  Geraint Davies: The technology for a more sophisticated system is clearly available, as we see in London with the congestion charge, but there seems to be a lack of appetite from your side to introduce it, in the knowledge that your concession is coming to an end. Is that a fair summary?

  Jim Clune: Given that we have a toll plaza on each crossing, it would be difficult and very expensive to dismantle the existing technology and replace it with some kind of free-flow or GPS technology. That would be very difficult.

  Q173  Geraint Davies: Do you accept that that should happen in the future? Do you also accept that people coming into Wales from, say, London, which has a modern system, being faced with an antiquated system, with not even the modern technology to use credit cards, which means that people have to scratch around for coins, is a problem for Wales, given that the bridge is the gateway to the Welsh economy?

  Jim Clune: If you look at the technology used in other countries, such as the USA and elsewhere in Euroland, you will see that either free-flow technology or GPS collection are the technologies of the future.

  Q174  Geraint Davies: So, what would need to happen for you to have an incentive to bring that forward now, or is it impossible and we will just have to wait until 2017?

  Jim Clune: It would mean physically dismantling two significant toll plazas, which would be a significant amount of civil engineering work.

  Q175  Geraint Davies: However, that will happen, will it not? Given that it will happen at some point, surely it should happen now from a consumer point of view. What would need to happen? Is it not possible from your perspective because you are running the old contract until it ends, so that it is a case of seeing what happens?

  Jim Clune: We are continuing to operate the technology that we have, and given that the end of our concession is now seven years away, the expense and the difficulty of converting at this stage would be totally disproportionate to the benefit.

  Q176  Geraint Davies: Finally, you say that it is only seven years, but in terms of other technology, such as mobile phones, people think, 'I had better not have a mobile phone for more than 12 months, because there'll be a new innovation'. Yet you are saying that for simple things, such as free-flow technology, which already exists in London, let alone Singapore and elsewhere, we will have to wait around seven years with this cart-and-horse system because, in your terms, it is not a very long time. However, for consumers in a modern economy, that is nearly a lifetime and it gives the wrong impression of Wales, does it not?

  Jim Clune: I can only say that we are continuing to operate the technology that we have and that is operated by all the other tolling operations in England and Wales—

  Q177  Geraint Davies: However, it is not used for the London congestion charge.

  Jim Clune: No.

   Chair: Thank you; we had better keep moving forward.

  Q178  Guto Bebb: I want to take you back to maintenance. How many staff members do you have working on the routine maintenance of the bridges?

  Jim Clune: On the inspection and maintenance side of the business, we have about 80 to 90 people.

  Q179  Guto Bebb: What would be the routine maintenance that you undertake on a regular basis? What would be the normal, routine maintenance for the bridges in question?

  Jim Clune: It is a complete raft of items. The Department for Transport regime dictates that you carry out a special principal inspection of the crossings every six years. We have an in-house team of inspectors, so we undertake a rolling inspection. So, we are doing something like a sixth of that every year. A principal inspection involves inspecting every component part of the bridge within touching distance, so it is everything from the cables to the pylons, and from the surfacing to the movement joints. It is every component part of the crossings.

  Q180  Guto Bebb: What is your health and safety record in relation to the maintenance work that you undertake? How does it compare with the Highways Agency's, for example? Is it better or is it worse?

  Jim Clune: I cannot quote statistics for the safety record of the Highways Agency, but in the time that we have been operating, since 1992, our safety record is excellent.

  Q181  Owen Smith: I have a few more questions on finance. Picking up on the points that Mr Geraint Davies made a moment ago, how often do you talk to the department about the financing deal and the sorts of technological innovations that could be implemented?

  Jim Clune: We have a regular dialogue with the Highways Agency on a whole range of issues, and it has copies of our annual and semi-annual accounts.

  Q182  Owen Smith: What would it take under the terms of the agreement for the Secretary of State to stipulate that he wanted you to look at introducing new technology on the bridge?

  Jim Clune: It would probably require an instruction from the Secretary of State for Transport under our concession agreement, and there are provisions for instructions to be made to look at additional works, new projects or new technology.

  Q183  Owen Smith: What provision is there under the terms of the agreement for the Government to get some insight into the anticipated revenues that you might receive at the end and therefore test the ability of the company to withstand some of the costs of implementing new technology?

  Jim Clune: The department and the Highways Agency are fully au fait with the information on our revenue stream and our projections.

  Q184  Owen Smith: Who are the principal shareholders in the company?

  Jim Clune: The principal shareholders are John Laing plc, VINCI plc, a multinational construction group, Barclays Capital and Bank of America.

  Q185  Owen Smith: So, effectively, there are four shareholders.

  Jim Clune: There are four equity shareholders in the company.

  Q186  Owen Smith: You mentioned the debenture loan, and the debenture shareholders that you have subsequently. Is that separate?

  Jim Clune: It is separate. It is stock that was issued in 1992.

  James Rawle: Yes, £131 million-worth of stock was issued in 1992. There are about 250 debenture stockholders, and the larger holders tend to be the pension schemes, but there are a few smaller stockholders as well.

  Q187  Owen Smith: Individuals?

  James Rawle: Yes.

  Q188  Chair: One of the things that I hear bandied around the shops and hostelries of Chepstow is that it is all owned 'by the French'. Perhaps we can put that one to rest now.

  Jim Clune: I am happy to put that one to rest. VINCI, the French and multinational construction group, holds 35% of the equity of Severn River Crossing plc; however, Severn River Crossing is a 100% UK-registered company.

  Q189  Chair: Going back a little bit, presumably the bid that was put together by those four companies was chosen purely on the grounds of cost.

  Jim Clune: The initial bid was chosen on the grounds of cost for the financing, design and construction of the second crossing. It was always the understanding that the winner would then negotiate a concession with the Secretary of State for Transport.

  Q190  Chair: So, it is reasonable to assume that, had it gone to a different organisation, it would have been more expensive, because yours was the cheapest bid. Therefore, the tolls would either have continued for longer or at a higher price.

  Jim Clune: That is quite possible. The bid was won as a result of a competitive tender.

  Q191  Chair: Just out of interest, we all keep talking about 2017/18 as the cut-off date, but the law allows for tolls to be collected for another five years. Is it not quite likely that you will be asked to continue collecting them rather than the Government coming in and starting again with a different toll collector?

  Jim Clune: The Severn Bridges Act contains a maximum period of 30 years for our concession to operate and, as you say, beyond that, there is provision for a further five years, where the Secretary of State could ask us to collect tolls on his behalf. The Secretary of State for Transport has incurred expense on his account during the period, including the work that you mentioned on the main cables, so there is a facility for that to be collected back through extra tolling revenue during this additional, notional five-year period.

  Q192  Chair: However, we are getting close to the end of this period, so you must have had discussions with the Department for Transport about what will happen when that £1 billion is collected.

  Jim Clune: Actually, we have not had those discussions.

  Q193  Chair: I will continue as we have a minute or two. The day will come when you collect the £1 billion and, as I understand the Act, if you reach £1 billion first thing in the morning, at 9 a.m., you can continue to collect tolls for the rest of the day. That could amount to quite a bit. What do you actually get in a day?

  Jim Clune: We get £77 million divided by 365—I cannot calculate the answer.

   Chair: I cannot quite do it myself off the top of my head.

  James Rawle: It depends on the day of the week as well.

  Q194  Chair: It is a couple of hundred thousand pounds. So the difference between reaching your £1 billion at 9 a.m. or 11.59 p.m. could be a couple of hundred thousand pounds of profit.

  James Rawle: I think that our entitlement ends when what is known as the ACRR equals the RCRR. So, when the revenue target is reached, that is the end of our entitlement, as we understand it.

  Q195  Chair: I may have misunderstood, but I was looking through the finer points of the Act and it looked to me as if it stipulated the money taken on the day.

  Jim Clune: It may well do so.

  Q196  Chair: I just wondered if there was a possibility of a big donation to a Welsh charity, perhaps.

  Jim Clune: I would have thought that if the revenue target is achieved at lunch time on a particular day and we continue tolling for the rest of that day, then the rest of those tolls go to the Secretary of State for Transport.

   Chair: Right—we shall clarify.

  Q197  Owen Smith: To go back to the shares—although that was an entertaining aside—VINCI owns 35% of the shares; could you give us the breakdown for the other three principal shareholders and the proportion that the debenture shareholders have?

  Jim Clune: John Laing also has 35% of the equity shareholding, Barclays Capital has 15%, and Bank of America UK has 15%.

  Q198  Owen Smith: You were also going to explain the debenture share.

  James Rawle: A debenture is not equity stock; it is a form of debt.

  Q199  Owen Smith: What was that raised for?

  James Rawle: It was to finance the project. Of the £131 million that was raised in April 1992, £62 million was used to pay half of the Government debt on day one and the balance was used for the ongoing financing of the construction.

  Q200  Owen Smith: The debenture stockholders are not paid a dividend either—apart from the one-off dividend that you mentioned earlier.

  James Rawle: They are paid a coupon; they get interest payments on 30 June and 31 December every year.

  Q201  Owen Smith: I have one further question. I understand that none of the major shareholders takes anything at all on an annual basis, and that they will be paid their proportion of the profit that is made at the end of the whole project. So, what happens with the moneys that are made in profits each year? If your operating cost is £12 million and you are taking £77 million, what happens to the remainder? Is it sitting in a bank account somewhere?

  James Rawle: It is sitting in a bank account and it is accumulating to pay down the next tranche of debt.

  Jim Clune: It certainly is not the difference between £77 million and £12 million. There have been years when, on paper, we have declared a small profit and there have been years when our accounts show losses.

  James Rawle: Broadly speaking, the senior debt of the project is now repaid. The bank debt was repaid in 2007 and the European Investment Bank debt was repaid in 2009. Now, it is an accumulation of cash to pay off the debenture in 2013.

  Jim Clune: As well as the balance of the Government loan.

  Q202  Geraint Davies: To return to the previous theme about the introduction of certain technology and your answer that it is not worth introducing this technology because the shop will be closed in 2017, if you knew now that you would be given a fresh franchise to run the Severn crossing beyond 2017, would you introduce that technology now?

  Jim Clune: We would certainly commence to build a business case on that basis.

  Q203  Geraint Davies: So, are you in discussions with the Government about the possibility of your continuing that? Are you doing that work to build that business case to say, 'Hold on, the world will not end in 2017; if we knew what was happening, this is the sort of the thing that we would want to do.' Although you might not have all of the numbers, you could ask for a signal.

  Jim Clune: We are not having that kind of discussion with the Secretary of State for Transport at this time. We are focusing on the fact that, under the Severn Bridges Act 1992, our concession will end in, let us say, 2017.

  Q204  Geraint Davies: However, do you not think that, from the point of view of Wales and the Government, you and the Secretary of State—or the Government—should be having that discussion? We need the technology to be in place sooner rather than later for the good of customers and the Welsh economy.

  Jim Clune: That really is a matter for the Secretary of State for Transport.

   Chair: I sense some recommendations coming up here.

  Q205  Geraint Davies: Are you ready for those discussions? Is it not incumbent upon you to realise that the world will not end in 2017, that we need new technology, and that parameters are needed to invest that rationally from the point of view of your shareholders and debenture holders, and that you should make the case? Have you not made a case at all? Do you have a business plan for that eventuality, or are you waiting for the phone call and then you will not be prepared for the response?

  Jim Clune: If the Secretary of State required our input on that business case, we would certainly be ready to provide it. We would obtain the data.

  Q206  Geraint Davies: So, if the Secretary of State phoned you and asked you to come along the following week to submit recommendations for technological investment, if he were to extend the franchise, you would know what to say, would you? What would you say?

  Jim Clune: We would certainly have access to the expertise that is necessary to build a business case on new technology.

  Q207  Geraint Davies: In short, if you knew that there was to be an extension, and that the concession would not come to an end in 2017, you would invest in technology now. If it were to run 10 years longer, you would start the ball rolling now rather than leaving the old booths in place with people taking the money?

  Jim Clune: If there was a possibility of an extra franchise, we would speak to our shareholder companies and make a decision on building a business case and assessing the appetite for investment.

   Chair: Thank you, Mr Clune; that is most helpful.

  Q208  Owen Smith: What is the minimum toll that you could charge in order to cover the maintenance and operation costs of the bridge?

  Jim Clune: Given that the project finance agreements require us to charge the—

  Q209  Owen Smith: I understand that. I am sorry, but you have misunderstood me. Were you not financing the debt, using your experience to advise the Government, which will be taking ownership of the bridge in 2017, what is the minimum that it could charge, if it were running the bridge as a not-for-profit concern, in order to maintain it?

  Jim Clune: That is not a calculation that I have to hand at this point.

  Q210  Owen Smith: Could you give us an estimate?

  Jim Clune: We could make an estimate, but it would need to be after the hearing.

  Q211  Chair: You spend £6 million a year on maintenance.

  Jim Clune: Yes, it is approximately half of the £12 million operating expense cost in 2010 prices.

  Q212  Chair: How much a day do you normally take in tolls?

  Jim Clune: We take about £6 million plus a month.

  Q213  Chair: So, two months would cover the current maintenance cost of the bridge, minus whatever the Highways Agency is putting in on top.

  Jim Clune: It does not take account of the ongoing cost associated with financing the remaining debt.

  Q214  Chair: No, but that will be wiped clear by 2017—that will not be the Government's problem. The Government's problem will be the £6 million per year that you currently have to spend plus whatever the Highways Agency is spending on top of that.

  Jim Clune: The total operating cost, including the toll collection infrastructure, is £12 million a year—it is maintenance and toll collection.

  Q215  Owen Smith: How is that £6 million split between the two bridges? What proportion is spent on the new bridge and what is spent on the old bridge?

  Jim Clune: It is not a calculation that I have immediately to hand, because the inspection and maintenance requirements vary between the two bridges. So, I cannot provide you with that information as we sit here.

  Q216  Chair: Before I bring in Jonathan, do you have any idea how much the Highways Agency has to spend in addition to the amount that you are spending on the maintenance of the bridge?

  Jim Clune: I believe that the figure published for work on the main cables to this point—the work is ongoing—is in the region of £18 million.

  Q217  Chair: Is that over a period of three or four years?

  Jim Clune: It started in 2004.

  Q218  Chair: So, the Highways Agency is spending around £3 million a year.

  Jim Clune: That would be the average over that period of time, but the work will continue. The standard that is now accepted as being the requirement for looking at this will continue.

  Q219  Chair: I am scribbling on the paper, and I realise that you do not have the figures, but it looks to me that it is costing about £15 million a year to maintain the bridge.

  Jim Clune: Yes, that is the operating cost together with the contribution from the Highways Agency, excluding debt finance.

  Q220  Chair: Six million pounds a month comes in in the form of revenue.

  Jim Clune: In 2010 prices, yes.

  Q221  Chair: That means that the Government could make a significant cut to the toll and still have more than enough money to maintain both bridges at the current required level.

  Jim Clune: That would be a matter for the Secretary of State in the future.

  Q222   Jonathan Edwards: Does the maintenance bill, and the operational costs, include routine maintenance and also larger maintenance projects?

  Jim Clune: It includes large maintenance projects as well.

  Q223   Jonathan Edwards: Do you have any large maintenance projects planned before the end of the concession that need to be undertaken?

  Jim Clune: Yes, we do.

  Q224   Jonathan Edwards: Can you give us some detail on that?

  Jim Clune: I can give some examples. We have embarked on a project of repainting the underside of the second crossing—the main cable-stayed bridge. That painting project will probably continue until 2015. We will be carrying out some resurfacing on the second crossing between now and the end of the concession. Those are the two most significant projects that immediately come to mind.

  Q225  Chair: Thank you. I will allow one more question, and then we will bring this part of the meeting to a close.

   Geraint Davies: To sum up, you are basically taking £72 million a year and it is only costing £15 million a year, so on my calculation the Government could reduce the tolls to 20% of what they are now, or something of that order. Assuming that your business comes to an end in 2017, we are interested in the economic possibilities of the Government reducing the toll to cover the maintenance costs. What you are implying in your figures is that we could charge something in the order of 20 to 30% of the current charge and cover all of our maintenance costs, which might create a massive stimulus for the Welsh economy.

  Jim Clune: Once the remaining outstanding debt is cleared, you are just looking at the ongoing maintenance costs.

   Geraint Davies: That is very helpful.

  Q226  Chair: Thank you, Mr Clune; that is most helpful. We will adjourn for four minutes or so and return to take evidence from the Minister.

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