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


Examination of Witnesses (Questions 460 - 479)

WEDNESDAY 15 NOVEMBER 2000

MR RICHARD BROWN, MR GEORGE MUIR AND MR KEITH LUDEMAN

Chairman

  460. It is, of course, the ROSCOs that are taking these decisions, is it not, Mr Brown?
  (Mr Brown) The ROSCOs are closely involved in the process. They are financing the trains.

  461. It is their bankers that are taking the decisions, is it not?
  (Mr Brown) I am not quite sure what decisions you are talking about. They are a key party in the process, that is absolutely right. To answer the first part of the question. The working group that has been set up under the overall auspices of Sir Alistair Morton and the SRA is due to report to John Prescott next month, so it is very imminent. The purpose is to highlight some of the key issues that we can then deliver over the coming months in terms of changing the performance of these trains. I do think it is a question, when further train orders are placed, we get those contracts right in association with the companies, as you say, that we actually set out in advance what performance we are expecting from the trains, and how those manufacturers deliver that, and we give them proper opportunity to ensure that they can deliver that before the trains come into service. We must not rush into new contracts. We have to get those new contracts right.

  462. Forgive me, I think that is a load of rubbish. You know the real thing, Mr Brown, is that what is happening is that the train companies want to run the trains, you are being asked to do so but the ROSCOs are in the middle and having problems with the people who are financing the deals, because they will not take control of the trains until every single problem has been ironed out of it.
  (Mr Brown) What is happening between the ROSCOs and their financiers I cannot comment on because I am not aware of the detail.

  463. Surely the train operating companies have an interest in that? Do you not ever ask them, "Why is it that we are sitting here waiting for these new trains that we need so desperately?"
  (Mr Brown) What we are working with is both manufacturers and the ROSCOs as the owners of the train to actually find out what it is that is causing the unreliability and what we can do working together to put all those things right as far as possible.

Mr Donohoe

  464. Are you getting compensation for trains lying around doing nothing? What is the level of compensation? Is it higher than it would be for the operating costs?
  (Mr Brown) I wish I were about able to say that is the case. It is not the case. By keeping older trains in service—as very many train companies are having to do, whilst they wait for new trains to arrive—the costs are actually rather higher than they would be with the new trains arriving. I think everybody is incentivised to get new trains in service. It is a practical real issue of getting what in some cases are actually complex new trains to operate reliably. I think we were wrong as an industry, to be quite open, in not building enough time into the procurement, manufacturing and testing process with the contracts that have been in place for the last three or four years.

Dr Ladyman

  465. How much have your members lost in the last few weeks as a result of the disruptions?
  (Mr Brown) We honestly do not know the answer to that question yet, because we do not yet have the revenue results for the previous accounting period. It only ended last weekend. Every company is looking very closely to work out what the position is.

  466. Is it going to be millions or tens of millions?
  (Mr Brown) I think you can be assured that because of the disruptions from weather and the line speed reductions following Hatfield, it has caused a very substantial reduction in passenger numbers for a number of companies. So we are talking about a lot of money, and it is very important to us to get the system back up and running as fast as we can. We are putting a lot of pressure on Railtrack to recover the situation as fast as possible.

  467. Assuming we blame the big man up-stairs for the floods, who is responsible for the other disruptions? Do you blame Railtrack for that?
  (Mr Brown) We hold Railtrack responsible for both Hatfield—and they have admitted responsibility for what happened at Hatfield—and also for the speed restrictions that have come on in wide parts of the network since then. It is their responsibility to manage that and sort that problem out. We cannot do that for them.

  468. Let me just play back to you the evidence we have heard from you so far today. We have a company that is costing its major customers, the train operating companies, a fortune in an industry which is fragmented, wrongly structured, chaotic, needs to be completely reformed. Given this scenario, what are the chances that Railtrack are going to be able to borrow the £8 billion over the next five years that they have to?
  (Mr Brown) I am honestly not sure that I can answer that question. I think they do have to improve their performance quite substantially and quite extensively to be able to go forward successfully.

  469. Without that £8 billion does the 10 year plan that the Government has put forward work or not?
  (Mr Brown) I think there are a considerable number of elements to the 10 year plan, and I think one of the strengths of it must be that given those number of elements, if one element does not come fully through there is enough there in the rest to see success coming forward. It is clearly important that that is funded and financed, and I think that it is in the industry's rather than the passengers' interest that we work with Railtrack to help that through.

  470. The Government has talked about a railway modernisation fund of £7 billion and the DETR has said that is the most innovative and efficient way of directing money in to efficiency. Do you think that is correct?
  (Mr Muir) May I add an answer to your previous question? These are black days for the industry. There is no doubt about this. These are unparalled circumstances and the points you are making are well understood. The key that we have to see is how do we dig ourselves out of this? Of course it calls into question how things have been managed in the past, but we will take encouragement from how we move forward in the next three to six months. If Railtrack, the train operators and the industry pull things together well and effectively in the next six months, then we can come out of this having won something.

Chairman

  471. Mr Muir, if you do not, you might as well say goodbye to your companies, because already large numbers of people are deserting the railways, large numbers of people who are forced to use it are going through even worse trauma than they do normally, and the ill will and general irritation with the rail companies must be reaching an unprecedented high. So, frankly, to come here and say, "If we pull together it will all be much better in three or six months" is a waste of breath, because you have a major task in re-establishing some form of dialogue, any form of dialogue, with your customers, do you not?
  (Mr Muir) That is true, but it still comes to how do we respond to the present crisis and we recover from it, how we recover the track—

  Chairman: I agree with that. Did you want to go on, Dr Ladyman?

Dr Ladyman

  472. Let me come back to the modernisation. Given all the chaos we are experiencing, I can understand why you are sitting here saying we have all got to pull together and get ourselves out of this now, I think you have no choice but to take that positive view of looking forward, but if you were being asked to put £7 billion into a modernisation fund, which is effectively what the Government is saying it is prepared to do, would you not be asking for guarantees in return for that £7 billion? Would you not, perhaps, as Mr Knapp told us in his evidence earlier, be saying, "We are not prepared as a Government to hand over £7 billion to an industry which has so lamentably failed, and we are going to take a share in the industry back for that £7 billion"? Given that Railtrack, for example, has capitalised—I think it is £5.25 billion—a £7 billion investment, therefore, should get the Government more than half of Railtrack if it wanted to take that back. Do you not think that the Government ought to be looking positively at what it is getting now in return for further investments in the railway industry?
  (Mr Muir) It certainly should. The £7 billion rail modernisation fund has not been committed yet. It will only be committed in bits and the SRA will only commit it in exchange for guarantees for what it will get for that money. It is not presently committed. Personally I would not use the money to buy back shares in Railtrack. I would use it as seedcorn to lever in much larger sums of money in exchange for guaranteed investment programmes.

  473. So you are effectively saying a continuation of the existing arrangements that appear so badly to have failed?
  (Mr Brown) I think, if I can support Mr Muir, the £7 billion Modernisation Fund is an entirely new fund and new mechanism within the 10-year transport plan. It has a number of advantages in our view, one being that it actually allows the Strategic Rail Authority, which is a government agency, to choose what it wishes to invest in. As Mr Muir has said, it will not invest unless it is satisfied that what Railtrack will deliver for that is what it wants as specified outputs. Secondly, it allows the Strategic Rail Authority to channel investment alongside the replacement franchises as they come on, so that you can see route by route a mixture of public and private investment going forward, and it allows the investment to be much more closely targeted on outputs that the Strategic Rail Authority overall is looking together to achieve.

  474. One final question, and it may be unfair to ask it of you, but I will ask it any way. Given that dire position that your companies are now in—not entirely your own responsibility, but largely the responsibility of another company, that is Railtrack—do you come to this Committee to tell us that the Railtrack Board were right or wrong not to accept Mr Corbett's resignation?
  (Mr Brown) I think we come to you, as we have said, saying that we do believe that there needs to be change in the structures within Railtrack, particularly around the way it manages its maintenance, and that is how it manages it assets, understanding what it has out there. We have said for several years that there needs to be an asset register. The Rail Regulator fully recognised that as part of the new settlement. So, it understands the condition of the track and signalling out there, and it has a planned renewals programme. Those things clearly have not been happening adequately and we believe there does need to be change. What that change is has to be a matter for Railtrack, but there has to be change to improve their delivery.

  475. So a change in structure rather than a change in management? You said to us earlier that you had 24 years in the rail industry, and as I said in the previous evidence, Railtrack has only two people on its board that have experience of the rail industry before they joined the board, and I am not sure either of those would extend to 24 years.
  (Mr Brown) I think one of them does.

Chairman

  476. One of them does, one of them does not.
  (Mr Brown) The point we are making is that it actually goes further than just a change in management. A change in management may well be required, but we would not wish to think that that is the solution to some of the problems. Another point we have made to Railtrack is that we believe they need to substantially strengthen their engineering and technical resource. We believe that they should have an engineering director on their board, somebody who really understands how the track and signalling out there work, who will be setting the standards and setting the processes. The fact that they have not is a major weakness, and their technical experts are fairly low down the organisation. That is a fundamental flaw. That is not just achieved by management changes, it is achieved by rather more substantive changes right across Railtrack as an organisation.

  477. Have you made that clear to them?
  (Mr Brown) We have made that clear to them, Madam Chairman, yes.

  478. Did you express support for Mr Corbett immediately after the crash when he offered to resign?
  (Mr Brown) We said immediately after the Hatfield crash that we did not think that management changes at that time would be helpful. There was a far bigger task to be got on with.

  Chairman: I would not have interpreted what you said at the time quite like that.

Mr Donaldson

  479. Earlier in the question Mr Knapp said it was his opinion that pressures of deadlines and penalties led to companies taking risks and short cuts with safety in order to escape penalties. What is your view on that?
  (Mr Brown) Speaking from the train companies' point of view, we do not accept that position, because a significant source of delays to trains—trains that arrive late—is quite often where there is some doubt about the safety system on a train or the method of dispatch of the train from the station, which causes delays to trains, and that is because companies put safety first rather than punctuality first. We see absolutely no conflict between safety and punctuality, they are both similar sides of the same coin, because passengers rightly expect both a safe and punctual service, and an unsafe service, or one where you are concerned about the safety systems on a train or at a station, is not one that you can deliver a punctual service with. We do not agree with that viewpoint.



 
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