Examination of Witnesses (Questions 481
WEDNESDAY 31 OCTOBER 2001
481. Gentlemen, I am sorry to have kept you
waiting a little time. Would you be kind enough to identify yourselves.
(Mr Green) Chris Green, Chief Executive of Virgin
(Mr Garnett) Christopher Garnett, Chief Executive,
482. Do either or both of you have any remarks
that you would like to begin with?
(Mr Garnett) We would just like to make the point
that we are very pleased to be here for your inquiry. The timing
could not be more appropriate given what is going on. GNER has
had unhappy experiences at the hands of both of the things you
are looking atfranchise replacement and Railtrack. Our
20-year franchise disappeared from 20 years to two years. We also
had four passengers tragically killed at Hatfield just over a
year ago directly as a result of the interface between Railtrack
and its contractors. We still to this day do not know where responsibility
lies. For these reasons, perhaps more than any other TOC ,we desperately
need a period of stability and certainty in the rail industry
and we are particularly worried about the state of Railtrack at
the moment in terms of how long that goes on and what it is to
do. We want to work with the Government on developing the East
Coast Main Line. We need to work with the Government and the SRA
to sort out a proper structure and take the opportunity of what
has happened to Railtrack to get something better in its place
and, therefore, we are very keen to play our full role in that.
483. Thank you, Mr Garnett. Is that a statement
on behalf of you both?
(Mr Green) Yes it is.
484. Thank you very much. Can I then ask you
where you agree not to respond in the same way but where you have
differences to indicate that you would like to make some comment.
Could the not-for-profit proposals prove to be a poor option for
Railtrack's successor, combining the worst of privatisation and
(Mr Garnett) I think there is a serious risk of that.
The first issue we have got to discover is how much does it cost
to run Railtrack. Railtrack on operation, maintenance and renewal,
as it is going to become, nobody knows what it costs to run. They
have gone bust, and whatever replaces Railtrack, there has got
to be a knowledge of what it is going to cost to run it. Whether
it is a company limited by guarantee or somebody else that buys
it, we have to start off by knowing what it is going to cost and
what its responsibilities are going to be. Whether the company
limited by guarantee can really raise the capital that this industry
needs is one question. The second question is how is this board
made up of so many disparate parties, as we understand from the
Secretary of State's statement, going to make decisions? It may
not be the most efficient solution.
485. Are you suggesting that Railtrack being
in administration ought to be a reason to restructure the company
(Mr Garnett) We know there were faults in the way
Railtrack operated. They were not customer focused, they did not
look after the interests of the train operating companies and
our job then of looking after the passengers. Railtrack's ability
to forecast costs was legendary. So there were a lot of things
that were wrong and we need to get those things right in the new
company. We must not therefore rush to get the wrong solution;
we need to get this right. We are not going to get a second chance.
486. Is there a consensus amongst the train
operating companies on what should be proposed?
(Mr Garnett) I think that we feel that we have got
to create the new Railtrack. Whether there is then a case for
vertical integration, which has been spoken about, we believe
there is probably a case for a trial. The first thing is to get
the new Railtrack set up, get it costed properly and get its funding
in place, and then we may well try in one part of the country
a trial on how you put together Railtrack, the infrastructure
and the train operating company.
487. Surely it is rather a fundamental decision,
is it not? If the train operating companies think that vertical
integration would be suitable, presumably they would want that
to form part of the new successor to Railtrack?
(Mr Garnett) I do not think we know if vertical integration
is going to work. There is an argument that says let's try it
in one part of the country. We do not have a view that that is
necessarily the right way to go.
488. Is there a difference between the large
and small train operating companies in that view?
(Mr Green) If I could come in there. There is not
going to be one solution which fits all the TOCs across the country.
It will never be vertically integrated across six Railtrack zones
and using every route of the country.
489. So we are talking about more fragmentation?
(Mr Green) I think there will be exceptions to the
rule. Cross-country freight will always be buying in their services.
If you are a self-contained regional TOC like South West Trains
it probably makes good sense.
490. I just want to be clear. You are saying
that the train operating companies would accept some vertical
integration for some companies in some areas after a trial? Is
that what you are saying?
(Mr Green) Yes, Scotland would be a natural one.
491. So there would be increased fragmentation?
(Mr Green) You would want to be pretty certain it
was working, I suggest, before you make another big change.
492. I have a point on that which very much
relates to the cross-country franchise, to freight, and to some
of the initiatives to pull trains from East Anglia into Basingstoke
and so forth. If you have got fragmentation of the network, if
you have got integrated companies operating in individual geographic
areas, how are you going to create the opportunity for innovation
in long distance cross-country services?
(Mr Green) You have got to buy in. Eurostar, for example,
buys into Eurotunnel every day of the week and Eurotunnel is a
vertically integrated company.
493. Does it have alternatives? Does Eurotunnel
(Mr Green) There is no reason why another freight
operator should not buy access through the Tunnel.
494. Does it?
(Mr Green) I would suggest you are looking for a model
where there is flexibility for experimenting and changing. If
you are a local suburban train operating company why not have
your own infrastructure?
495. Could I first of all put a question or
two to GNER. In the memorandum you very kindly submitted to the
Committee you referred to the 21-month competition for the original
20-year franchise. Are you able to put a cost onand I hope
this is not commercially sensitivethe work you prepared?
(Mr Garnett) The cost was between £2 and £4
million to do that in straight costs. Costs in terms of disruption
to the business, things that we deferred doing because we kept
saying "When we get the franchise we will do this ",
were very much higher. There is no doubt that the business suffered
because of the amount of attention that was being given to the
whole disruptive process of doing the bid.
496. Is that cost recoverable?
(Mr Garnett) Not at this stage, it is not recoverable.
497. Are you surprised that the present Secretary
of State never actually sought or met with the present Chairman
of the Strategic Rail Authority prior to putting Railtrack into
(Mr Garnett) I was surprised that there had been no
dialogue between the two of them. But we now have a new Chairman
of the Strategic Rail Authority appointed and clearly there must
have been some dialogue going on between the new Chairman and
the Secretary of State, so we have to look forward.
498. You may have heard me put a question to
the previous witness about the Strategic Rail Authority recruiting
consultants to look at the alternative lines to the line that
you presently operate. Do you think that might jeopardise the
investment you are making in improving the services?
(Mr Garnett) I think the Strategic Rail Authority
is in a slight time warp at the moment. They are pursuing a number
of activities which I do not think recognise the reality of the
financial state that the industry is in, where the money is not
there. There is not the money, in my view, to see something like
a new East Coast Main Line for a very long time and I believe
this money would be far better spent saying how do we upgrade
the existing route. We have got enough problems with the railways
in the UK delivering what we are trying do today before we start
looking at great new plans.
499. My last question is to both GNER and Virgin.
Are you convinced that the new Chairman of the Strategic Rail
Authority will be completely impartial in reaching his decision
as to who the new franchise on the East Coast Line bid should
(Mr Green) We will perhaps answer this together.