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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