Examination of Witnesses (Questions 200-219)|
WEDNESDAY 24 OCTOBER 2001
R KILEY AND
200. Could I just ask though, there seems to
be some concern being expressed privately by Train Operating Companies,
who have been offered, apparently, under the new arrangements
for Railtrack, that they can take over part of Railtrack's network;
in those circumstances, who do you believe would be held responsible
for an accident on part of that network, would it be the new Railtrack,
or would it be the Train Operating Companies?
(Mr Kiley) I think, if Train Operating Companies are
perhaps in some consolidated form to take broader and deeper responsibility
for train operations, so that you have got truly integrated operations,
then the accountability will be clear in the case of anything
that goes wrong, including safety issues. I think it is the fact
that that has been missing for the last five or six years that
gets to the root of the problem.
201. Are you concerned at all about the funds
that are being made available by the Government for the ten-year
plan, over the next period; the money that the Government has
given, the £30 billion?
(Mr Kiley) To the national rail system?
(Mr Kiley) I am one who believes that we do not know
what the cost of bringing the whole network to a state of good
repair really is.
203. Why do you not know that then, Mr Kiley?
(Mr Kiley) Because there has never really been a thorough-going,
stem-to-stern, asset assessment. These are expensive to do, it
will take time to do them; but, once and for all, we need to get
a real cash value attached to what it is we are going to be doing,
and out of that kind of assessment will come, I think, a new sense
of priorities, what needs to happen first, second, third, and
204. So how much is it in London?
(Mr Kiley) I have no idea what it is in London.
205. Are you doing any work to find out?
(Mr Kiley) I am going to guess, fromdo you
want to take a stab at this?
(Mr Brown) Yes. To get at that, we formed the London
Programme Committee, jointly with the SRA, actually to map everybody's
scheme and asset condition down as a base; it is a big exercise
just to get that base established.
206. So where did the £64 billion come
from, as far as the Government's ten-year plan is concerned?
(Mr Kiley) My memory of the plan is that roughly half
was to come from the public sector and another half was to be
raised from the private sector.
207. Yes, but I think the particular point that
Mr Donohoe was making is, how do we get a sum if you do not feel
that there is any sensible basis on which such an estimate can
(Mr Kiley) I think we have to be smart about this,
do the assessment and then do the sums, and there will be a credible
business case for what it is that we are doing. £64 billion
sounds like a very large amount of money, and it is, but a fair
amount of that money has already gone into an unexpected series
of what turned out to be black holes in Railtrack, and that has
compromised the ability, for the time being, to bring money in
from the private sector. So that that number has probably shrunk
at this very moment to something about a fifth of the size that
it was just 14 months ago.
208. Do you think, given Railtrack has been
taken into administration, that will allow the private money in
that formula to come about; do you think that investors are going
to run a successor company and hand money to them?
(Mr Kiley) It all depends on how the financing is
done, and what the risk is that will be assumed in the private
sector, if we continue to go to the private sector, which I believe
we should do. There are many ways that you can get private money
into a rail operation and give a reasonable expectation to the
lenders, or the investors, that there will be a return on that
investment. And some of what the Secretary of State was talking
about yesterday makes some sense along those lines, that you can
securitise revenue streams, access charges, for example, or fares,
to use two obvious ones, but once you do that you give the lenders
an absolute pledge that they will have first call on that source
of revenue if something really goes wrong. If there were something
approaching a default, let us say, in the area, that appears to
have happened with Railtrack, then the lenders, the investors,
if you will, will be at the front of the queue, because these
revenue streams, arguably, will continue, unless we just abandon
rail altogether. So that is the kind of commitment Government
would have to make to the private sector in order to get them
re-engaged in the investing process. It is not that difficult
to do, it is a different form of security, it is often referred
to as bonds. I know it is a four-letter word that should not be
used in polite circles, but it is possible to do. And a company
limited by guarantee is a vehicle through which you can do that.
209. How long are you going to be around to
influence that decision?
(Mr Kiley) I hope so, too; do you know something I
do not know?
210. But you have not said that you are going
to resign at any point, have you?
(Mr Kiley) No.
211. And your contract lasts, how long?
(Mr Kiley) I am here for the duration. I signed up
for a four-year hitch, and I see no reason why that should change.
Chairman: We are very glad to hear that. I always
remember the Indian Minister who said to me, "Never, never
resign, always let them chuck you out."
212. If Railtrack were to be split up into a
series of regional Railtracks, as you advocate, exactly how would
national inter-city services run; would this be more or less likely
to be effective in the eyes of the public?
(Mr Kiley) I think that ends up being, quite frankly,
a timetabling and despatching challenge, which train operators
all over the world have been able to master. And, yes, there will
be some political and policy considerations that go into that
equation, because, depending on which way you go, it affects the
frequency of train movements, and there is always going to be
someone, maybe everyone, who will complain that they are not getting
frequent enough moves, and will probably change, the rush hour
will have one set of schedules, off-peak will have another, in
the major metropolitan areas. And scheduling the inter-urban or
national trains in that environment will be a challenge, but it
is very do'able.
213. You say in your evidence that operators
should have some ownership of Railtrack. How do you envisage that
(Mr Kiley) One vehicle for doing that, one way to
go would be actually to get the Train Operating Companies into
an integrated ownership position that has control over both rail
and operations, over both maintenance and operations. Another
way to do it is to examine closely something like the company
limited by guarantee model, to see if that is not a way of getting
the Train Operating Companies involved. Because the key to this
working is that it remain a private entity, because we are all
dedicated to the notion that none of this should fall on to the
Government's balance sheet. And if that is the case then there
is a role in this entity for the Train Operating Companies, on
the board, being part of the majority that must be private.
214. And would you see them involved in a regional
company and a national company?
(Mr Kiley) They could be involved either in a regional
operating entity or oversight entity, or if we decided to stay
with the national model, that I think has been somewhat discredited
recently, they could be part of the national model. You need operating
input into this at the highest possible level of ownership, wherever
it is, there is just no getting around that, and I think it was
so fragmented and unclear about that, over this last experiment
that we have had, that it all just fell apart.
215. Whose job should it be to find a way forward
(Mr Kiley) I think the Government is in the lead,
I think there is little question about that, but the other stake-holders
need to be standing there shoulder to shoulder with the Government
at every step along the way. That includes the Train Operating
Companies, I think it includes the major metropolitan areas, important
passenger groups, the trade unions, and the sooner that starts
the better; let us have the wrangling now, not after a model has
been precipitated that we will all be arguing about later on when
it is too late.
216. Would you envisage a change in role for
the Strategic Rail Authority?
(Mr Kiley) We have a good working relationship right
now with the Strategic Rail Authority, and I am not sure I want
to abuse it by suggesting a different way to do it; it is a little
bit beyond my ken anyway. I think I would rather take a pass on
that. I do think that the idea of having a relatively autonomous
corporation that is taking major responsibility for enhancements
all the way forward makes a lot of sense, and we like what we
have seen of SRA so far on that side of the house, and we have
been inattentive to that, in recent years, here in London, and
I think that is a good role for SRA to be playing. The role that
it has been trying to play in overseeing the franchising process
has obviously turned out to be far more complex than anyone anticipated,
and, as Sir Alistair Morton has opined,
Chairman: Sir Alistair is very good at giving
us his own views, if you do not mind, Mr Kiley.
217. The financial integrity of the successor
to Railtrack, which you referred to in answer to questions from
my colleagues; is it not a fact though, Mr Kiley, that, although
the money, up to yet, does not appear on the Government's books,
in some way or other, a point you made, Government is paying for
it? And, that being the case, could I ask how you envisage the
successor company in getting the sort of financial credibility
it would require, if, as we understand it, the Treasury have ruled
out providing guarantees for the debt or otherwise making it part
of a public sector borrowing requirement; is not the private sector
going to be very wary about entering into any deals with such
a company in that context?
(Mr Kiley) I think your question is right on, I think
there is going to be extreme wariness in the investment community,
particularly in difficult economic times, in the early going.
But I think the remedy lies somewhere in the following, that if
we can get a structure to succeed Railtrack, whether it has regional
components or is still national, if we can make it transparent,
if the question of risk sharing is clear, then I think we can
get back into business with the private sector. To do that though
we will have to have a plan that is probably less than ten years
in length, five or seven years, that everyone signs up for, and
where we will have done the asset assessment as best we can, that
will undergird the plan, and the plan basically will be the first
and most important priorities that must be addressed by everyone.
I think, at some point Government has got to be willing to make
a long-term commitment, as they have in the past, and at that
stage it is reasonable to expect that the private capital will
218. Private capital will flow?
(Mr Kiley) It may not flow the way it flowed in the
past, because you are going to have to be able to give them a
gilt-edged, not a Government guarantee but gilt-edged securities,
where if all goes wrong they will know where to go, which will
be to the Government.
219. In that context, forgive my ignorance,
but you did mention other countries and sister countries, cities,
and so on, in the context of risk sharing and the amount of risk
that should be attributed to the private sector, can you name
any single railway operation that has successfully transferred
reasonable risk to the private sector?
(Mr Kiley) I think, if you looked at the half-dozen,
or so, metropolitan areas that I mentioned, you would find risk
transferred in varying degrees to the private sector. Let me use
the example I know best, which is New York, where the private
sector did not play an ownership role in the transport system
itself, but what it did do was play the overriding role in the
reconstruction of the network, which it continues to do this day.
And they have been the source of all the bonding capital that
is going into that system, and it is close to $25 billion of bonding
capital itself, and they have made profit out of that, they have
taken some risk and, in the end, it is the Government that has
to deliver if, in fact, there is a default.