Select Committee on Public Accounts Minutes of Evidence

Examination of Witnesses (Questions 180-199)



  180. Can I take it as read, and I understand, I think, the business about not wanting it in that form, but are you telling us, therefore, that the Department was aware of the situation but did not want to present it in written form because of the effect?
  (Sir Richard Mottram) The Department was aware of the state of the project, it was not monitoring it in great depth, requiring written reports of the kind that it would have to pass to the banks. In other words, the Department was trying to build confidence in the project while not putting the banks at risk. They were not at risk because the Government eventually guaranteed their lending.

  181. Let us talk about risk and move on to the restructured deal. It seems that there is quite a lot of emphasise on the restructured deal, for example on that aspect of the debt which the government guarantees in the form of bonds. I think you said earlier to the Chairman that it was the Department's view at the time that the risk in this respect was low. Is that still the Department's view?
  (Sir Richard Mottram) That is our view, yes.

  182. That has not changed at all?
  (Sir Richard Mottram) No.

  183. There is also quite a lot of direct lending by the Department to LCR, is there not?
  (Sir Richard Mottram) There are grants.

  184. Direct grants from the taxpayer, but also direct lending by the Department.
  (Sir Richard Mottram) There is one proposition, which is for the access charge loan.

  185. What would happen to those monies, both the guaranteed bonds—sorry if this is too simple a question—and the grants if LCR failed to meet its targets or, heaven forbid, it collapsed?
  (Sir Richard Mottram) In circumstances where LCR collapsed, effectively, these assets would come back to the Government. The forecasts that we are making, which, as I say, are quite cautious about the growth in passenger numbers and in revenue do not lead us into any of these scenarios. We have looked at the revenue cum passenger number risk, we have looked at the construction risk, we are satisfied that the construction risk is under control and we are satisfied we now have realistic forecasts about likely passenger number growth and likely revenue growth. We do not foresee a likely scenario where the guarantee on the bond would be called.

  186. Mr Marshall, that is a reasonably optimistic view of the future from Sir Richard, I am not going to ask you to answer this as Chief Executive of Railtrack at this point but I see from your biography that you have been the finance director and held senior finance positions in a number of very important institutions and firms. If those firms, Thorn and Grand Metropolitan, had been put at risk in the way the taxpayer's money is possibly at risk here, what would your shareholders and directors have said then?
  (Mr Marshall) I do not think that is a question I can possibly answer in any helpful way. You are starting from a premises that I have a particular view on how taxpayer's money is applied. That is not my remit and it is not appropriate for me to do so. I am very happy to share my views and perspectives on the Channel Tunnel project, and happy to do so.

  187. If we were able, for some reason, to take the taxpayer and the government out of the equation and bring in any private sector firm with the resources large enough to cope, using your experience from the private sector do you think this would be a normal state of affairs or is this a risk that would be too far for such a company?
  (Mr Marshall) You have to recognise that there is an asymmetry of how risk and benefit are calculated from the taxpayer's side, the social benefits have to be included and the project has to be looked at on a broader basis. As a private concern, as indeed Railtrack were looking at due diligence for Section 2, you are obviously taking a pure financial perspective to it and looking at the returns against the risk on that basis. There is an asymmetry as to how you could come at something like that.

  188. I am not sure you answered my question.
  (Mr Marshall) I am trying, give me a prod and I will try again.

  189. What you are saying is there are wider interests for the Government in this than simply a financial one—
  (Mr Marshall) Rightly so.

  190. —which the private sector would be more concerned with. I understand that, I think. Mr Steinberg referred earlier to the Channel Tunnel Act of 1987, which required British Rail to prepare plans for an international rail service to and from various parts of the United Kingdom. Earlier you said no decision had been reached, is such a decision, I think I know the answer before I ask this, likely in the near future?
  (Sir Richard Mottram) I do not think so. We went through this in the context of the work done by Arthur D. Little and the remit is now with the Strategic Rail Authority. I would not want to leave the Committee with the impression these services are likely to start quite soon.

  191. When an analysis is made of whether or not those services should be extended to the regions, will it be a full analysis, not just in terms of the likely take-up in terms of passenger numbers, but also in terms of the regeneration benefit for the regions?
  (Sir Richard Mottram) Could I take that away and check the basis on which we have done those assessments thus far and give you some advice? We think we did look at them. Can I double check the basis on which they were looked at[5]?

  192. I am asking the question because I am concerned in terms of passenger numbers. You seem to have moved away from passenger numbers into a wider definition and why it is necessary to continue with the project in terms of a wider regeneration benefit. I am concerned for the regions that it will simply come down to passenger numbers. I would remind you that if there is any risk in cost for the taxpayer we also pay tax in the north of England.
  (Sir Richard Mottram) I am well aware that people in the north of England pay tax. Let me go away and look at the basis on which the economic impact in the regional case was assessed.

  Mr Campbell: Thank you, Chairman.

Mr Rendel

  193. Since we are talking about regional matters, can I ask a bit more about page 43 of the Report, paragraph 25, Appendix 3. It talks about the regional sets. I am not sure if this question goes to Mr Holden or Sir Richard, what plans are there to use those four sets?
  (Mr Holden) In the short-term they will be used extensively in testing and commissioning the new Channel Tunnel Rail Link.

  194. If they had not been there what would have been used for the testing?
  (Mr Holden) They have always been there, but sets would have been selected from regional or international sets.

  195. If they had not been available to do the testing what plans did you have to do the testing? Had you been using those seven sets originally all on regional work for which you were preparing?
  (Mr Holden) The whole fleet is not used to maximum capacity and is not planned to be until post the inception of the Channel Tunnel Rail Link. There has always been capacity. What I am saying is that specifically we are now calculating some of regional sets to be involved in that work.

  196. Did you have other sets you could have used? You happen to be using them for a purpose. It is not a very valuable use for them, it seems to me.
  (Mr Holden) They would have contributed to the completion.

  197. They are not being properly made use of at present.
  (Mr Holden) The fleet at the moment is greater than we need but again the size of the fleet was determined to cover the volumes of passengers estimated post completion of the Channel Tunnel Rail Link.

  198. Now you know that volume is not covered, what plans do you have to make proper use of those?
  (Mr Holden) We are in continued negotiations with the TOCs, of which GNER as one has taken lease on three sets. There is a possibility we can increase the size of fleet leased to GNER. There are also several other TOCs which are expressing an interest.

  199. Do you expect you will have any real prospect of bringing them back into use?
  (Mr Holden) We will have to continue to review the development of the Eurostar business. Certainly it has not been ruled out but, as has been said, a positive decision has not been taken yet to introduce them.


5   Note: See Evidence, Appendix 2, page 16 (PAC 00-01/164). Back

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