Examination of Witnesses (Questions 40
WEDNESDAY 5 JULY 2000
40. That is why you picked up such a very large
(Mr Middleton) The performance regime was always set
up to incentivise Railtrack to perform and if Railtrack performed
it was going to earn a big bonus.
41. But you were not incentivised enough just
on the basis of earning a lot of money?
(Mr Middleton) The architecture of privatisation was
not designed for a growing network.
42. Where did it say that in the contracts that
were signed by Railtrack?
(Mr Corbett) It did not say that in the contracts.
There are three big problems. One is our access charges are fixed,
so there is no incentive to grow and
43. Mr Corbett, we are not going off on to this
again, we will come back to this. What I am saying to you is we
are talking about the code of conduct and you are saying "the
problem was we did not really know who did what and it was all
very difficult, we have therefore decided we are going to suggest
to people they have a code of conduct and they are all going to
agree it because then it will be much clearer to them than it
was under their existing contractual obligations". Firstly,
I think it is interesting that the code of conduct is clearer
than a contractual obligation, but let us put that aside. Are
you telling us that the train operating companies are prepared
to enter into a code of conduct with you on the basis of being
clearer about what it is that you will do and what they will do?
(Mr Corbett) What we are saying is that at privatisation,
which was done in a hurry, there were things that were not appropriate
for aligning us with our customers. One was investment incentives,
another was growth incentives and another, I guess, was also the
way the different parties behaved upon privatisation when the
industry was divorced from each other. As part of an attempt to
address some of those issues, the subject of the code of practice
is now being addressed by the parties. What is really going to
make it better is just basically people working with each other
in the way that they always used to and there has been a lot of
progress in the last year on that.
44. That is nice. How many years has that taken?
When were you privatised?
(Mr Corbett) 1996.
Chairman: It is nice to know there is a rapid
sense of response.
45. You state that you spent £2 billion
more than allowed in the current track access charges in your
memorandum and you also state that to carry on with the investment,
to maintain the serviceability of the existing network with higher
expected traffic volumes and delivering improved outputs you will
require a substantial increase in track access charges. Has that
(Mr Corbett) No, that has not yet been agreed. When
we were set up the Regulator made an assessment of how much we
would need to spend on renewing the network. Because of the growth
in the network we have, in fact, spent £2 billion more than
that assessment. The Regulator is in the process of setting the
track access charges for the next five years. We hope that he
will take into account the actual costs that we have incurred
in the last five years in renewing the network and then, of course,
he will take into account the further increase in renewals that
there will have to be as the network continues to grow. The bottom
line of all of that does mean that there will have to be a substantial
46. Can we conclude from that that if there
is no substantial increase you cannot carry on investing to the
same extent that you have been?
(Mr Corbett) That is correct, and I am afraid the
way the numbers work is if there is no increase in the access
charges and we continue with the investment programme at the current
level then we will be in breach of our banking covenants by next
Miss McIntosh: Chairman, as you know I have
a particular interest in the East Coast rail route.
Chairman: Especially the refreshment department.
47. Free coffees, yes. I should declare an interest
in free coffees on the journey en route. Could I just ask what
the total expenditure over the next year to 18 months is currently?
(Mr Corbett) On the East Coast?
48. On the East Coast.
(Mr Corbett) Leeds is 170 and then there is all the
preliminary work on the rest of it. About £200 million this
49. In your view is that going to be enough
to overcome the capacity problem if both more passengers trains
and more freight trains are going to operate on that route, particularly
on the bottleneck north of Newcastle?
(Mr Middleton) No, the East Coast project is a major
upgrade of route. We are currently discussing with SRA as to the
total investment needed to provide all the capacity going forward
for the next ten to 20 years. That is investment which is currently
estimated to be between £1.8 and £2 billion.
50. Can I ask what bearing it is going to have
on the renewal of the franchises for competing carriers on that
(Mr Middleton) The SRA will obviously have to deal
with the question of the franchises. We have worked with the SRA
to look at what sort of project you need to have on the East Coast
Main Line to provide the sort of capacity we think needs to be
provided, that is to provide more Intercity trains, more suburban
trains serving King's Cross up to Peterborough, and more freight,
and we have come to a view that is going to cost between £1.8
and £2 billion. The franchise bidders are looking at what
they need to put into their bids to get the franchise and that
is a slightly different question than we have done on the upgrade.
51. With respect, I would like to know for sure
because presumably if new technology as part of the one franchise
has been looked and the state of the track would have enormous
implications for whichever franchise was going to be chosen.
(Mr Middleton) The two companies who are bidding have
got quite different approaches as to how they see the East Coast
Main Line delivering the growth in the longer term. It really
is for the SRA to make the decision as to how they think those
two bids should be handled. The work we have done looks at the
core capacity requirement on the East Coast corridor as it is
built and the infrastructure enhancements needed on that to cater
52. Why was it necessary for the Regulator to
become involved in the whole question of the programme around
the West Coast Main Line?
(Mr Corbett) That is a question, I guess, to put to
the Regulator. From our perspective when we realised in 1998 that
we had potentially a big problem if we pressed ahead with the
moving block signalling
(Mr Corbett) Yes. We became unhappy with the rate
of progress on delivery of the project and we changed the management
and instigated a review of the whole thing and the alternatives
and I think the Regulator was getting pressurised by some of the
operators of the route to ensure that our plans were made public
so that they could plan and that is why he came up with his enforcement
order. His enforcement order is about the provision of information
and by the 24 July (this was confirmed in our board meeting this
morning) all the information that he has asked for will be provided.
54. You are pretty confident, are you, that
the deadlines you have set and which have been set for you of
May 2002 and 2005 for completing the first and second stages will
be honoured by you?
(Mr Corbett) Yes. We have let £1.2 billion of
contracts for phase one which is on track. Those of you who have
been on the West Coast Main Line in the last couple of weeks will
know that three-quarters of it is currently being dug up. There
is a huge £150 million investment at Euston Throat at the
moment, which is causing some delay problems I am afraid. All
the work on phase one is on track. Two key deadlines are the new
tilting trains which arrive on track next May and the 125-mile-an-hour
running and reduced journey times for the summer of 2002. On the
one hand we have been concentrating on getting ahead and delivering
that whilst re-configuring phase two and coming off the moving
block system which we thought was too risky.
55. What was that? You always thought it was
(Mr Corbett) We concluded that it was too risky.
Chairman: But only in 1998? I shall give myself
the pleasure, Mr Corbett, of going back over the evidence which
has been given by Railtrack to this Committee on the whole question
of moving block technology because I do not quite remember it
in the same way you have presented it this afternoon. Mr Donohoe?
56. Is that the main reason that the actual
investment costs of this project have risen from £2.3 to
(Mr Corbett) That is the main reason because the moving
block is the computer in the train and one control centre, whereas
more conventional signalling is thousands of line side signals
which will have got to be renewed.
57. Who is going to bear the costs of this change?
(Mr Corbett) 80 per cent of the West Coast upgrade
is renewals and under our current structure renewals are considered
every five years as part of the regulatory review. The Regulator
has considered renewals planned for the West Coast going forward
and he is also considering the renewals plans for the rest of
58. On a different subject, how much would you
estimate it costs Railtrack to deal with vandalism?
(Mr Corbett) It is difficult to put a precise number
on it. We have a huge trespass and vandalism programme. This year
we are spending more than £20 million on fencing. We have
a series of videos. We have a liaison with Charlton Football Club,
a whole series of local programmes in place. In the North East
they have a special play which they take out round the schools,
a whole host of activities. Perhaps you would like a note presented
to the Committee on the programme in detail.
59. What evaluation has been made of the de-manning
of your railway stations? What cost factor has that led to?
(Mr Corbett) As Mr Middleton said earlier, we operate
14 of the stations. The other 2,450 are run by the train operators.