Select Committee on Transport, Local Government and the Regions Minutes of Evidence


Examination of Witnesses (Questions 343 - 359)

WEDNESDAY 31 OCTOBER 2001

MR STEVE MARSHALL, MR DAVID HARDING, MR ALAN BLOOM AND MR MICHAEL ROLLINGS

  Chairman: Good afternoon, gentlemen. Before we begin may I just make a formal declaration. I am a member of the Rail, Maritime and Transport Committee. Does anyone else have any declarations?

  Mr Stevenson: Transport and General Workers' Union.

  Chairman: Any other members?

  Mrs Ellman: Transport and General Workers' Union.

  Miss McIntosh: I have a shareholding in Railtrack First Group and Eurotunnel.

  Helen Jackson: Transport and General Workers' Union.

  Mr Donohoe: Transport and General Workers' Union.

  Chairman: Two Transport and General Workers' Union, fine.

  Mr Donohoe: Four.

Chairman

  343. Gentlemen, you now know where we come from, we would be grateful if you would just identify yourselves, please.

  (Mr Marshall) I am Steve Marshall, Chief Executive of Railtrack.
  (Mr Harding) David Harding, Finance Director of Railtrack.
  (Mr Bloom) Alan Bloom, Special Railway Administrator of Railtrack.
  (Mr Rollings) Mike Rollings, Special Railway Administrator.

  344. Gentlemen, ground rules. If you agree with one another, please do not repeat what has been said. Do you wish to say anything to open this session?
  (Mr Marshall) With your agreement, I would certainly like to, yes.

  345. Please, Mr Marshall.
  (Mr Marshall) Okay. It will be a very short statement. I will do it in my normal direct style if that is acceptable. Railtrack plc was not insolvent until the Government decided to make it so by its actions on Friday 5 October. It did so by firstly withdrawing future financial support from Railtrack and that included reneging on a £450 million transaction, the payment of which was due on 1st October and subsequent payments thereafter. It secondly did that, and most remarkably, by telling the Rail Regulator, and telling us as well, that he would be prevented from exercising his statutory right to provide the company with any relief if he chose to do so and that, if necessary, would be achieved by draft legislation being pushed through Parliament on an emergency basis. Stepping back I think whatever one's views about Railtrack's failings—and I yield to no-one in highlighting Railtrack's failings because I have spent the last two years trying to do some things about that—whatever one's view on that, the prospect of levering in £34 billion of private sector finance over the next ten years is simply not credible if the Government is prepared to deal with investors in this way. Railtrack was meant to raise half of that £34 billion, the cash is needed, where is it going to come from now? However, now that Railtrack is in administration the whole industry, all of us, are presented with some additional challenges and I would just like to briefly comment on those. We, in Railtrack, and in the industry, have made some real progress over the last six months from a very difficult period that we all know about on infrastructure performance, which is now back to pre-Hatfield levels, on broken rails, which have further reduced, they are now 40 per cent down on two years ago, we have tripled train protection warning system commissioning and the trend on temporary speed restrictions is firmly and continuously down, with a year end target of getting them below 500. Today, our organisation now has some very significant rail problems. Over 90 per cent of our employees, as has been publicised, were shareholders in Railtrack, and indeed are. They have all lost money, some of them have actually lost their life savings. With an uncertain future, our ability to recruit has already been severely impaired and we are very concerned about our ability to retain people in this industry and in Railtrack in particular. Those of us who carry responsibility for maintaining safe performance on this network, and particularly the three of us who are personally named on the Railway Safety Case, now that we are in administration, are amazed at the breathtaking lack of interest the Government appears to have taken for the people issues as we go through this difficult time. I and my team have met some ten per cent of the workforce over the last three weeks or so and we are meeting many more over the next couple of weeks. I would strongly suggest to the Secretary of State that he gets out more as well.

  346. As you particularly mentioned the shares, perhaps I could ask you a question. Is it true that you paid all the bonuses owing to your staff in terms of Railtrack shares?
  (Mr Marshall) All bonuses, no. We did have a profit share scheme across the whole company. The maximum earn out for a year of good performance, which clearly is not the year that we have just had, was 750.

  347. The bulk of the shares held by your members would be in that?
  (Mr Marshall) The bulk of the shares would be in that, indeed.

  348. Instead of giving them cash you gave them shares. Is it true that they had to be held for a certain period of time or they would have to pay tax on the sale?
  (Mr Marshall) They would have needed to have owned them in trust for a certain period of time, absolutely.

  349. I see. It was an estimate as to whether or not one should trade on the Stock Exchange for the people concerned?
  (Mr Marshall) They would have needed to have received the money to have owned the shares for a period of time.

  350. Yes. Doubtless there will be some very interesting debates about that. Can I ask you a very simple thing. Do you agree the Secretary of State needs a company which can have the interests of the travelling as its priority, not the need to increase shareholder value?
  (Mr Marshall) I agree that the need for the interests of the travelling public is a priority and I would assert that it indeed was and is the priority within Railtrack. The method of financing, which is the core of you question, can be achieved by a variety of means. Railtrack self-evidently was not following a shareholder agenda because it would not have invested in the way that it did and be as financially stretched as it was if it was choosing to do so.

  351. Not following a shareholder agenda, there were not instances where Railtrack chose to pay shareholders when any other company in the same financial situation might have considered it was not a very good idea?
  (Mr Marshall) I am very happy to address that. I am presuming what you are really talking about is the final dividend that was paid earlier this financial year.

  352. Yes. Are you saying to us that in your view Railtrack put the interests of the travelling public above the interests of shareholders?
  (Mr Marshall) I am telling you that has been our principal interest for some time and my evidence for that, if I can provide some, is the fact that we have been spending money on the network as fast as we humanly know how. We, this year, will spend £3 billion investing in the network. Our biggest problem, and that of our contractors, is attracting the people to enable us to spend the money fast enough. So with respect to all who have commented on this, the payment of the dividend is a total distraction. It did not divert resources at all.

  353. Where does your fiduciary duty lie, Mr Marshall, to your shareholders or to the travelling public?
  (Mr Marshall) Our fiduciary duty, as all here will know, is to the shareholders but the only way you have a business is to deliver your product.

  354. You are not fulfilling your fiduciary duty?
  (Mr Marshall) The fiduciary duty is for long term shareholder value. You self-evidently will not have any long term shareholder value unless you are delivering the product the public wants.

  355. When is Railtrack going to come forth from administration?
  (Mr Bloom) Can I make a couple of introductory comments before I answer that?

  356. Please. I beg your pardon, I assumed that you did not want to, Mr Bloom.
  (Mr Bloom) It is all right. It is just that you have effectively got two teams here. If I can just make a couple of comments and then I will come back to the question. I just thought it would be helpful if I could put the railway administration in context because it is a unique use of this Railway Act procedure. We have two purposes within the railway administration. One, to transfer as a going concern the undertaking of the network sufficient to ensure that the management of the rail network can be properly continued, and to carry on the management of the rail network in the intervening period. With regard to the latter, the management of the rail network, we have retained the board of Railtrack plc who are working very closely with us and who have specific continuing authority for day to day matters. Under the Railway Administration Order, the directors have also retained specific responsibility, as you have heard from Mr Marshall, for all safety related matters. With regard to our duties to transfer the railway network to a new company or companies, it is our responsibility to develop interest amongst those who may want to finance it or buy it but the ultimate approval of any proposal lies with the Secretary of State. Now, to go on to respond to your question. The current anticipation is somewhere between three and six months. I have to say that I think that is —

  357. From the date when you actually took over?
  (Mr Bloom) From the date when we were appointed on October 7th, yes, ie, around about March/April of next year. I have to say from what we have seen in the brief three weeks that we have been involved to date that looks like a tight timetable.

  358. For what reason?
  (Mr Bloom) Because I think in order to achieve a transfer a lot has to be put in place and a lot has to be segmented in order for the finances to be put in place, the sort of things that Mr Marshall has been talking about. I think that will take a good deal of time. Preparing a business for sale or investment takes a considerable amount of time. I am not saying six months is impossible, I am just saying it takes time.

  359. You are not saying it is impossible. Could I just ask, what is the estimated total cost of the fees that will be incurred as a consequence of placing Railtrack plc into rail administration?
  (Mr Bloom) We have not made an estimate for the entire duration because, by definition, we do not know how long the thing is going to last.


 
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