Select Committee on the Crossrail Bill Minutes of Evidence


Examination of Witnesses (Questions 8720 - 8739)

  8720. Just one last question on it before we move to how it all gets paid for. I am sure the Committee has been well aware of the blockages on the West Coast main line over Christmas and the New Year and which has continued thereon. One of the things which is a recurring problem for rail freight is what happens when a line gets blocked. (I do not think you can put freight on buses very easily.) How do you look at the question of diversion routes?

   (Mr Bennett) My apologies, I did not mention resilience. In effect, resilience or diversionary routes means that between each major pair of traffic origins and destinations ideally there should be more than one route of the right technical capability. So, for example, if one route is blocked for engineering purposes then that train can operate via another route without any significant penalty in terms of transit time or payload. To give an example of how significant this is, I think I could mention the train that is run by DRS and Eddie Stobart for Tesco. The technical characteristics of that train are designed to give it maximum flexibility to run between the East Midlands and Scotland via a very large number of routes, so that it offers the client a sort of 24/7 capability. The resilience that we are looking for is that sort of 24/7 capability between the major ports and the major centres of economic activity in the UK.

  8721. This will come out, my Lord Chairman, with subsequent witnesses when we talk about the diversion route or alternative route between the haven ports and the West Midlands. Thank you, Mr Bennett. Just one last question, really, which is the second half of your slide: who is going to pay for all this and how is it going to get done?

   (Mr Bennett) There is a significant amount of funding by the Government and Network Rail already being put into the rail network. The Government has committed over £150 million in the Transport Innovation Fund to five specific projects to upgrade rail freight routes to major ports. In its White Paper in July 2007, it announced that it would commit to funding £200 million worth of investment in rail infrastructure by 2014-15 as the first stage of the development of the Strategic Freight Network. The Strategic Freight Network would be a set of routes that would have the freight-friendliness that I described earlier, in terms of allowing maximum weight, maximum length trains operating at relatively high commercial speeds. So there is very significant government funding, but the Government has made clear and Network Rail has made clear that has to be matched; (and this is Lord James's question again) there is no public funding envisaged for future investment in freight rolling stock, in freight terminals, in general, and indeed the Government and Network Rail have also said that they would be looking to third parties also to contribute to upgrading freight infrastructure as part of the Strategic Freight Network, and in other specific cases.

  8722. What criteria does the private sector need in order to get the comfort that their investment would be able to be used?

   (Mr Bennett) We are talking about relatively long-asset-life, capital-intensive projects. A locomotive can cost £1.5 million; a gantry crane at a container terminal can cost £1 million to £1.5 million with a 20-year asset life. Potential investors will want to understand market risks, and that is part of the reason that we have been involved in helping to provide long-term rail freight traffic forecasts, but they will also want to be assured that their assessment of market risks does not have to take account of problems exacerbated by government intervention—political risk, if you like. They will want, therefore, confidence that established industry processes will be respected in the case of Crossrail during the development and construction period, and that these processes will not be retrospectively brought into question after the beginning of the operation of Crossrail. So, in a sense, it is confidence in the durability and integrity of established rail industry processes of the sort I have mentioned at the outset of my presentation.

  8723. LORD BERKELEY: Thank you, Mr Bennett. That concludes my examination.

  8724. LORD JAMES OF BLACKHEATH: Apart from loops and maintenance, pretty well everything that Mr Bennett has said otherwise sounds as though it is the normal tool of the trade, and you do not expect the Government to buy your aircraft if you want to run an airline. So, surely, all the rest of the things are quite normal things to be invested in by the shareholders in whatever business it is in order to conduct their trade. Where is the difference here?

  8725. LORD BERKELEY: Mr Bennett, I think it would be helpful to Lord James if you could explain the difference between the financing of infrastructure enhancements, which are normally done by Network Rail but not necessarily financed by Network Rail, and the things that move—the locomotives, rolling stock etc—and private terminals which, as Lord James has inferred, of course, are funded in the private sector.

   (Mr Bennett) Thank you, my Lord. The industry model in the United Kingdom is that the infrastructure maintenance and investment is funded by the infrastructure manager, who in return receives its financial resources from payments made by users and payments made directly or indirectly by government. Rail freight operators are, in general, privately-owned; they fund investment in rolling stock from their own internal resources or through specialised rolling stock leasing companies, for example, who will be prepared to enter into fixed term leasing arrangements for locomotives and rolling stock. So, for example, if a freight operating company were to bid to carry coal from a port to a power station for five years it could then go and talk to a leasing company to obtain a locomotive and freight wagons to allow it to operate those services, on the basis of the contractual assurance that it had. In the case of terminals and offline infrastructure it is a commercial decision. In Scotland there has been limited public funding of freight terminals, but, in general, freight terminals are provided on a private, commercial basis. The sponsor of the terminal takes a view about the levels of traffic that are available, about the revenue he will derive from handling that traffic and makes his investment decisions accordingly.

  8726. So, basically, what you are saying is that apart from the Network Rail access and Network Rail capacity, and the problems of increasing capacity on the network, which is through Network Rail, possibly with some state funding or its own funding, the rest of it is all in the private sector.

   (Mr Bennett) I am, my Lord. I think what I am also trying to say is that in a sense the committed investment in rolling stock is of limited use without some assurance that it can be operated on the network. So the two elements of the financial equation need to be brought into play.

  8727. This is different from, of course, the passenger rolling stock market, which some of us occasionally have a view on; it seems to be controlled down to the nearest penny by the Government and, also, effectively, funded by them or guarantee-funded by them. It is completely different. Is that correct?

   (Mr Bennett) There are significant differences in some aspects.

  8728. LORD JAMES OF BLACKHEATH: I was going to say, at the present moment, as I will undoubtedly say when we come to consider our decision later, that I think that everything that Mr Bennett has said describes conventional business and strategic issues and not issues for public subsidy requirement.

  8729. LORD BERKELEY: I would not disagree with you, my Lord. That is part of the reason for bringing him here, because that is exactly what rail freight operates as. One of the challenges is operating rail freight, as you say, in the normal business environment using the same track and infrastructure as a publicly subsidised and managed passenger service, and that is the challenge.

  8730. LORD JAMES OF BLACKHEATH: No further questions. Thank you.

  8731. CHAIRMAN: Mr Elvin?

Cross-examined by MR ELVIN

  8732. MR ELVIN: Mr Bennett, you say the freight industry is anxious to protect its investment. It is also reasonable, is it not, that appropriate steps be taken to protect the investment of £16 billion which is what Crossrail is going to cost. That is an investment not simply coming from public funds but it will be financed in part from the private sector, and from a new levy, I understand, which will be introduced in the London area. That investment also requires to be protected?

   (Mr Bennett): Yes, that is reasonable and, as was described, both freight activities and the operation of Crossrail services will generate direct and indirect benefits to the United Kingdom economy.

  8733. MR ELVIN: Indeed, and both have to be balanced, and we are in agreement, are we not, that the method by which those interests are balanced are the normal industry regulatory processes under the Railways Act and the access regulations?

   (Mr Bennett): We are.

  8734. So we are in complete agreement that the balance between the investment in Crossrail and the investment in the freight industry is struck by the normal industry processes. What that comes down to, and I take entirely Lord James' point, is that a lot of what you are talking about is standard investment, you are looking for confidence that you can make that investment, and what that came down to—because this issue was debated in front of the ORR was it not --

   (Mr Bennett): Yes.

  8735. -- what it came down to is essentially ensuring there was sufficient capacity within the network so that legitimate freight growth could be accommodated, notwithstanding Crossrail? I am simplifying it, but that is the essential issue.

   (Mr Bennett): That is correct, provided that we agree that the definition of capacity must be looked at quite hard, so yes.

  8736. And technical evidence was given to the ORR; technical witnesses asked and answered questions; those were matters which were fully debated by the Regulator?

   (Mr Bennett): Those were matters which were considered by the Regulator at the time but not all the detailed technical issues pertaining to the timetable were, in fact, discussed at the hearing.

  8737. No, but there were lots of written representations prior to the hearing as well, were there not?

   (Mr Bennett): And subsequent.

  8738. Well, I am going to come to that in a moment. So what it came down to, bearing in mind we are not talking about Crossrail funding general growth in freight capacity, that is not the role of this Bill, as Lord James has pointed out, is a question of what number of paths is Crossrail going to get under the access option and what are the implications of that in terms of timetabling having regard to other passenger services, freight requirements and freight capacity growth, and also the infrastructure that may be necessary to deliver that. That is what it comes down to, cutting to the bone—paths, timetabling, growth and infrastructure.

   (Mr Bennett): My Lords, those are the key elements to be discussed, and the rail freight sector's assurance of continued quiet and peaceful enjoyment of that infrastructure.

  8739. Yes, within the normal industry mechanisms.

   (Mr Bennett): Within the normal industry mechanisms.



 
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