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


Examination of Witness (Questions 780 - 799)

WEDNESDAY 7 NOVEMBER 2001

MR TOM WINSOR

  780. That would be a decision Parliament would make.
  (Mr Winsor) It is for Parliament to take that decision, not the Secretary of State.

  781. Did you feel that your position had been undermined when the Secretary of State indicated to you, as your contemporaneous notes have indicated, that he had these powers?
  (Mr Winsor) I do not think I felt it had been undermined at that time. Clearly there was a prospect that if the steps he indicated he would be prepared to take were carried out, then my position would be undermined when Parliament had decided that it should be.

Mr Donohoe

  782. Would you have resigned then?
  (Mr Winsor) If Parliament had taken away my independence, then I would have given very serious consideration to resigning.

Miss McIntosh

  783. Parliament was not given the opportunity. Did you back off because the Secretary of State threatened to introduce these emergency powers?
  (Mr Winsor) No.

  784. Why did you not apply for an interim review?
  (Mr Winsor) It is not for me to apply for an interim review. It is for Railtrack to apply for an interim review.

  785. They asked for an interim review. Why did you not process it?
  (Mr Winsor) No, they did not ask for an interim review. They said if they asked for one could I do it by Sunday night. I said on the basis of the information they gave me—and I do not think they gave me all the information I needed—I could not do an interim review which would lead to the result they needed by the Sunday night.

Chairman

  786. So you thought it was not a very serious comment.
  (Mr Winsor) I was surprised at how sketchy the information was that a company facing administration late that Saturday night could give me when I was, I believe, the only available remedy. But there you are. It was for them to make their case. They made no case for an interim review. They said they were nowhere near being able to do so. They said the only review which would be worthwhile would be a review in relation to the regulatory gap and the consequences of Hatfield—which are enormous pieces of work—a review which was carried out, completed and implemented by Monday so they had the cash on Monday. It is a completely remarkable state of affairs that the company had kept this information from me for so long and then gave me an impossibly short time over a weekend to do an interim review. It would have been perverse—and this is the answer to your question—for me to commence a review which Railtrack had told me would be pointless.

Miss McIntosh

  787. Why?
  (Mr Winsor) Because they said that the only review which was of any use to them was one that led to them getting an unspecified number of hundreds of millions of pounds—

  788. Four hundred and fifty-five million.
  (Mr Winsor)—in cash on Monday.

  789. It was due to be paid on 1 October. They gave you six days. They only had six days to put together the package.
  (Mr Winsor) There were going into administration.

  790. They were solvent if the Government had paid that money.
  (Mr Winsor) No, there were not six days. There was one day and it was a Sunday. They phoned me on the Saturday night and they said that the Government was going to court on Sunday afternoon and they needed a review completed in order to prevent that happening. That is what they said to me; not six days, one day.

  791. I am sorry to be so pedantic, but had the £445 million been paid on 1 October, do you accept that the company would still have been solvent?
  (Mr Winsor) Yes, I believe that the company on 5 October, on the facts available to me, was solvent. But Railtrack failed to disclose to me their true position and instead they pursued their policy of talking only to the Government and not to me. I know that Mr Marshall has said that as far as he was concerned the company was solvent on 5 October. On the information available to me, as I virtually disclosed to the Secretary of State, I agreed, but what was it that happened on or just around 5 October which meant that a company which was solvent on 5 October was insolvent on 7 October?

  792. Because the £445 million had not been paid.
  (Mr Winsor) But they did not tell me that.

  793. You must have known because you were invited in by the Secretary of State on the evening before. He must have put to you how serious the situation was.
  (Mr Winsor) No, he did not mention figures. He said that the company had a yawning gap in terms of the consequences of Hatfield, West Coast and other matters, that the financial position of the company had been very closely looked into over a period by the Government's financial advisers and they were satisfied that the company was insolvent. That really surprised me, of course it did, but it is for the court to make a determination as to whether or not the company is insolvent and the High Court decided, on the basis of the information given to it on Sunday afternoon, that the company was insolvent. It is a question for the directors as to how the company could be insolvent on the Sunday, when it was not insolvent according to their evidence on the Friday.

  It appears to me from an examination of the papers lodged with the High Court and the transcript of the oral proceedings that afternoon and the skeleton arguments which I have seen prepared by leading counsel that Railtrack thought—and this is the thing which swung them from being solvent to insolvent—that because the Secretary of State had made a policy decision that he was not going to provide any more money to the company above the regulatory settlement—and the £445 million is part of the regulatory settlement—and had effectively neutralised the Regulator—and it had not happened and it still has not happened—because of those two factors, Railtrack could not get a bond issue away. If it could not do that, it could not draw on its existing undrawn and committed banking facilities, and as a result of that it was insolvent. The papers provided to the court proceed on the assumption that regulation had been or was inevitably to be neutralised, when it was not, and it still has not been. It seems to me that at no point during the court proceedings was the possibility of an interim review even mentioned. Indeed the court appears to have been satisfied that Railtrack had no alternative sources of funding. It seems to me that those engaged in this process at the time—and this was the board of Railtrack who, in my view, made this material error—seem to have regarded a statement by the Secretary of State that he would be willing to introduce a Bill into Parliament as equivalent in effect in all material respects to a statute already enacted and brought into force.

  794. With the greatest respect, when has the present Government been outvoted?
  (Mr Winsor) Well, you are a parliamentarian and I am not. I am afraid I do not know. You will correct me.

Chairman

  795. The reality is that they did not discuss it with you and they had been given clear advice that they could not get the bond away because they could not give the written undertaking that was required of them.
  (Mr Winsor) The more remarkable thing is what could Railtrack have done to prevent insolvency? Having been faced with the statement by the Secretary of State to the Chairman of Railtrack—I was not present and do not know what happened—there are several things Railtrack could have done at least to buy itself more time. It could have enforced the legally binding contract with the Strategic Rail Authority which provides that the company, if the Renewco arrangements are not set up—and the £445 million comes under Renewco—would have 21 days (paragraph 3.3) in which to find an alternative structure and then it would have a right to apply for an interim review.

  796. And they did not.
  (Mr Winsor) And they did not exercise that contractual right. I do not know why. Under the Railway Administration Rules 2001, Railtrack also had a right, as I understand it, to two days' notice of the petition. They waived that right.

Mr Donohoe

  797. Why?
  (Mr Winsor) I do not know. They did not oppose the petition for administration and they made a statement to the court, which I believe was likely to be—but I was not present, I do not know—that in light of the circumstances they had no credible alternative to administration. I do not know why they did that. I do not know why they did not oppose the petition and I believe that is a matter for the company not for me. I am genuinely surprised and puzzled.

Mrs Ellman

  798. What is your assessment of Railtrack's commercial and managerial competence?
  (Mr Winsor) Its commercial competence is diminished because it has now gone into administration. I do not think that is what you mean. How good are they at their job?

  799. Given the events and circumstances you have described to us, how good were Railtrack at their job and did they act in such a way that would attract commercial confidence?
  (Mr Winsor) I believe that they are the authors of their own misfortune. When I was asked by the present Secretary of State for my opinion of Railtrack at my first meeting with the Secretary of State shortly after the election this year, I said that I believed that the core problem with the railway industry was the competence of the management of the company. I still believe that. I believe that the company spent too long complaining about multiple stakeholder pressures and interfaces and failed to understand the simple realities of its business which are this: you do not neglect your assets and you are not hostile to your customers. The company had, as I said in my speech in June, almost a policy, certainly latterly, of neglecting their assets. They have been trying very hard to get on top of that now, but the legacy of that policy was very severe and they are still feeling it, and their hostility to their customers. Dealing with Railtrack is a very, very difficult and unpromising process.

  What I have said to Railtrack over and over again, both publicly, but particularly privately, is that Railtrack should not complain about multiple stakeholders pulling them in different directions; they should just realise that they have one person to satisfy, only one, and that is the customer. If they deliver to the customer a quality service at a fair price in a timely, competent and efficient way, with skill, diligence, prudence and foresight—which are standards which are across the board in the commercial world—then the customer will be happy. The result is that the Strategic Rail Authority, which is a very important quasi-customer, will be happy, the HSE will be happy, because the operations will be safe, the PTEs will be happy, the local authorities, the other stakeholders and the Regulator will be happy. John Robinson told me shortly after he was appointed that when he got into Railtrack House he wondered why there were so many people dealing with regulatory affairs. I said I thought there were too many people dealing with regulatory affairs, the interface facing the Regulator. It was as though the company only wanted to please the Regulator. Why was that? Because the position, the empowerment, the accountability to the customer, was woefully weak. What I said to John Robinson was that I did not want his guys to be thinking about how to please the Regulator or get the Regulator of their back. I wanted them to think only one thing: customer. The Regulator should recede into the background. That is not to say he should lose his powers or his jurisdiction or anything like that, far from it. The ORR and the other regulatory authorities, the HSE and so on, should recede into the background because we are not needed to take a high profile forward-looking, proactive view with the company. I believe John Robinson understood that message and he accepted that message. The company's rhetoric, other than with John Robinson, was inconsistent with that because they still went on complaining about too many people pulling them in different directions. I think the simple commercial reality was: you serve your customer, you look after your assets—this is an asset-intensive company, it has to know what it has got, what condition they are in and what it takes to look after them. Look after your assets, look after your customers and you will be a success.


 
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Prepared 7 December 2001