Select Committee on Environment, Transport and Regional Affairs Minutes of Evidence

Examination of Witness (Questions 300 - 319)



  300. I hope I am right.
  (Mr Winsor) I work out what things cost and the Strategic Rail Authority makes the decisions as to how to use public money. I do not decide how public money will be spent, that is a matter for them because it is their money.

  301. Forgive me, that is not what I said. I am seeking your patience here. It is not how much public money, because clearly that is a judgement for other people, but given that you accept there will be public money, do you take that factor into account when you are reaching your decisions on access charges because access charges are another important element in the whole investment scenario?
  (Mr Winsor) Yes, I have to take it into account because I have to take a view of the overall finances of the railway and I have to work out how much money Railtrack needs in order to finance its programme.

  302. Do you in your considerations, because this is public money we are talking about, give any attention at all to how the public interest is to be protected? For example, do you take into account the essential need that this public money just does not find its way into shareholders' dividends and profits?
  (Mr Winsor) Yes. My only criteria, set out in section 4 of the Railways Act, to be amended by the Transport Bill, are all public interest criteria.

  303. Do you agree or otherwise or have some comment to make on evidence given to us by Mr Corbett on 5 July, question 46, when he was asked, ". . . if there is no substantial increase you cannot carry on investing to the same extent". He said, "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 April". Do you accept that, or do you reject it? Do you have any comment on it at all?
  (Mr Winsor) I do accept that access charges are likely to go up because the level of activity on the network, the outputs, the additional capacity, the traffic which is being run on the network, is increasing and we hope increasing substantially. People want to buy this product. If activity levels go up, then the amount of money going in by way of access charges will go up, but that does not mean to say that they go up to whatever Railtrack want them to be, because I also have to take a view as to the efficiency of Railtrack and I must make decisions on year-on-year efficiency, what the figure ought to be. In December 1999 I announced provisional conclusions that Railtrack should be subject to an annual efficiency target year-on-year of between 3 and 5 per cent. That is what I announced in December. I shall be announcing in two or three weeks' time what figure I have decided upon. It is wrong to confuse increased access charges with efficiency. We are going to make Railtrack be an efficient company, a more efficient company than they are at the moment, but of course they must have enough money in order to finance the programme. Nobody seriously disputes that.


  304. There is also a difference between receipt of access charges and the level of access charges, is there not?
  (Mr Winsor) The decisions I need to make are about the structure of access charges, what incentives will be built into the system, and the levels of access charging.

Mr Donohoe

  305. Are you going to gauge this efficiency because Railtrack have not been all that efficient, have they? They have not made any great efficiency trends apparent.
  (Mr Winsor) Yes, I am going to decide how efficient Railtrack can reasonably be expected to be and I shall announce that at the end of July. The events in this morning's paper about the West Coast upgrade and the possible action by Virgin against Railtrack showed that it is perfectly possible to be quite inefficient in managing possessions. The Chairman was subjected to some pretty unpleasant experiences and being thrown off the train at Watford some time ago because of Railtrack.


  306. They try it every week. Do not imagine it is only once. They really have it in for me.
  (Mr Winsor) My information is that on four successive weekends Railtrack has made very serious errors in the management of the possessions at Euston with the result that Virgin's performance to its passengers has been very seriously damaged. Virgin gets all the blame, even though Virgin is not to blame, because Virgin is the guy who sold you the ticket. That is poor. The steps which Virgin announced today show that the company is prepared to stand up for its rights. They talk about difficulties caused by Railtrack's contractors severing signal cables—that takes six hours out of the trains altogether; shortage of key components; overrunning of work; equipment failures at key bottlenecks. That is not an efficient organisation. Railtrack have offered a 30 point action plan in order to remedy that within 28 days and Virgin have accepted that.

Mr Donohoe

  307. You have just said that the efficiency should lead to a situation between 2 and 3 per cent, if I have got it right.
  (Mr Winsor) Three to 5 per cent I said.

  308. Surely it should be higher than that.
  (Mr Winsor) That is every year.

  309. Surely it should be higher than that given the intercontinental trends there are. In the railway industry in America for instance, it is growing at a fairly substantially higher rate than that.
  (Mr Winsor) The efficiency targets which I shall set for Railtrack are not connected to how much activity is taking place: in relation to the increased amount of activity, how should Railtrack's charges move for that higher level of activity over time to take into account the efficiency with which they carry out that higher level of activity? So the amount of activity may be going up and therefore the amount of money going into the industry may be going up, but the efficiency must improve as well, so it pulls in the other direction.

  310. What international benchmarking do you involve yourself in in terms of looking at this? You just do not operate in isolation, you must look at what is going on in Germany, Italy, Spain, France.
  (Mr Winsor) There are limited lessons to be learned from other railways because of course there are very different circumstances at that time. We do look at international best practice. We look at America, we look at European railways, we look in other places. We also look at the other privatised utilities and what efficiency gains they were able to make in the years after privatisation. Remember this is Railtrack's first periodic review after privatisation. We have looked at the electricity companies, we have looked at the water companies, we looked at telecommunications, we looked at gas. We looked at all the other privatised utilities and we make judgements about all of them.

  311. That is fine, but it cannot be done in real terms because you are not comparing like with like because the only maintained monopoly is within the railways.
  (Mr Winsor) There is only one Railtrack and that does give me a considerable difficulty. The water regulator has the advantage of 12 companies to look at, the electricity regulator has the advantage of 14 companies to look at. I only have one company to look at and that makes my job harder, but I must do it.

  312. Surely that is when it becomes even more important, does it not, for you to look more closely at what is going on across the globe?
  (Mr Winsor) We are looking closely at them. I did not mean to imply we were not. We are looking very closely at what is happening in other countries but we also must temper that examination with an acknowledgement of the different circumstances. In other words, we have to get rid of the diverting factors and try to compare like with like as much as we possibly can. We are doing that and we have done it.

Mr Bennett

  313. In their evidence to us Railtrack were whingeing a little bit that they think you are putting disproportionate emphasis on enforcement action. Is that fair on their part?
  (Mr Winsor) No. I wrote it down as well, because I found that pretty remarkable as well. What they said was ". . . a disproportionate emphasis on enforcement action" and "No other regulated utility has had an enforcement order". That is quite wrong. There is not an enforcement culture except if you compare my record with the record of my predecessors who never issued a single enforcement order against Railtrack. That was their decision not mine. I have issued two enforcement orders in 12 months. That is hardly a ticker tape parade of enforcement orders. I am also putting significant regulatory pressure on Railtrack in terms of track quality, network stewardship, broken rails and many other things, vehicle and route acceptance rolling stock approvals. You may wish to discuss those things. I am taking steps to incentivise Railtrack and to move to incentive regulation with clarity and stability. It was wrong for Mr Corbett to say last week that no other privatised utility has ever had an enforcement order: the telecommunications regulator has issued 16 enforcement orders, almost all of them against BT, and the gas regulator has issued five. At the hearing we held with Railtrack on 28 June 2000 in relation to the periodic review Mr Corbett said, and I quote him exactly, "Regulatory pressure has got out of us investment and performance which was not expected 18 months ago". I welcome his endorsement of my action.

  Mr Bennett: I do not think I need to ask any more questions on that.


  314. That is fun. There are advantages to having people listen to our evidence sessions, do you not think, Mr Winsor?
  (Mr Winsor) I found it an enormously useful session.

  315. I want to ask you about the problems with the delays in the introduction of new trains. What is the most significant cause? People say there are various ones. Is it the new rolling stock acceptance or is it Railtrack's limited knowledge of the gauge of its railway?
  (Mr Winsor) The most significant single factor is the lack of information about the railway. This is information which Railtrack should have. It is actually information Railtrack does have; it just does not have it in a very accessible form. That is one of the reasons why the asset register which I am going to get them to establish is going to establish the gauge of the railway, the electro-magnetic compatibility of the railway, one asset with another and many other things, things which rolling stock manufacturers, train operators and others desperately need to know in order to design new rolling stock. It goes further than that because Railtrack must improve the efficiency and sufficiency of its procedures for rolling stock acceptance. They must be consistent. The same guys must turn up to the meetings or must at least read the notes of the last meeting, things of that kind. There have been many alleged shortcomings by Railtrack in this area since June 1996 when they obtained a report from Imperial College in relation to the sufficiency of their procedures. That said that they were poor and they promised to mend their ways.

  316. What date was that?
  (Mr Winsor) June 1996; four years ago.

  317. You do not want to push them too hard.
  (Mr Winsor) I am pushing them hard but I only took over 12 months ago, as you know. In March 1997 they trotted out a new procedure which was fundamentally flawed in a number of respects. They took it off the table before it came into force. In late 1997 they offered a new procedure which was again inadequate and so the saga went on. There has been insufficient progress—I do not say no progress, there has been some—in relation to vehicle and route acceptance since then. The industry has lost its patience. In October last year I received a formal complaint from Adtranz and Alstom in relation to the sufficiency and efficiency of Railtrack's procedures for vehicle and route acceptance. We put the matter to Railtrack. Railtrack replied in February. We held a hearing on 11 May 2000 and I shall shortly be announcing my conclusions. The allegation by the two rolling stock manufacturers was that Railtrack was in breach of Condition 3 of its network licence because it failed to have efficient and sufficient procedures. I shall not announce my conclusions now, but they will be coming pretty soon. When we announce those conclusions, I shall then go out to industry-wide consultation in relation to reform of the system for vehicle and route acceptance. It is telling, however, that Virgin, facing the introduction of £1.2 billion of new trains, decided that the existing procedures for vehicle and route acceptance were inadequate. They also made a decision that the stance of the previous Regulator in meeting their pleas for assistance was not going to be enough to bank, on and they did need to raise a lot of money in order to finance these new trains. So they devised a contract called the vehicle and route acceptance contract between themselves and Railtrack, requiring Railtrack to provide very substantial information, everything they needed to know about the network in order to design the trains and how they would behave with the network, how they would behave with other trains on the network, stationary, moving, etcetera—requiring Railtrack to follow the necessary procedures in accordance with best practice, with a degree of skill, diligence, prudence and foresight which should be exercised by a competent and experienced infrastructure operator and many other things, to give them advice, assistance and so on. Those contracts were signed on 1 May 1998, one for Cross-Country Trains and one for West Coast Trains, both Virgin subsidiary companies. My information is that those contracts have worked extremely well in getting those trains—and they are not through the process yet—in getting Railtrack to run the process correctly. The question must be asked: if Railtrack can do it for the Virgin trains, why can they not do it for everybody else's trains? I have done presentations to several parts of the industry in relation to these contracts and not one has chosen to pick up this contract. You have to ask yourself why, because if Railtrack will not give them the contract then I have the powers under section 17 of the Railways Act to require Railtrack to sign up to these contracts.

  318. Are you telling us that the train operating companies are not looking for these contracts?
  (Mr Winsor) The train operating companies were quite excited about these new contracts once they were established by Virgin, because, because they are track access contracts, because they deal with test paths, they are regulated contracts, therefore the Regulator can force Railtrack to sign them up. The other feature is that under section 72 of the Railways Act they therefore had to be published. They are on my public register, in fact I am going to put them on my website because I get asked so often for them. What 16 of the train operating companies did, was they took the Virgin vehicle and route acceptance contracts and refashioned them into a multilateral code which could be retrofitted into the central commercial code for the railway industry called the Track Access Conditions. All they needed to do was vote that through; six votes out of eight was all that was needed. All the train operators needed to stick together and vote this through, Railtrack would use its two votes probably to vote against it, but as long as they got six votes out of eight they got it.

  319. And?
  (Mr Winsor) They took fright. They did not put it to the vote because the train operators were not sufficiently together. Those sponsoring the proposal realised that they would not get six votes out of eight. Railtrack only had to have one company side with them or even abstain and the vote would be lost, so there was no vote. You may say it is pretty breathtaking. I do too. Nevertheless that is what happened. There was great disappointment in the rail industry that they came so close and then snatched defeat from the jaws of victory. Nevertheless, after I have dealt with the Alstom/Adtranz complaint I shall be going out to industry-wide and public consultation on whether or not this regime, the Virgin regime, is fit for purpose for the industry, whether there are improvements to that, whether that is the right solution for the whole industry or whether adjustments are needed. Then when we have had the decisions or the representations from interested parties, I shall make a decision. If it is that Railtrack should have these rules retrofitted into the central commercial code for the railway industry, then I expect the railway industry will retrofit it by vote. If they do not do it by vote, then I shall impose it.

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