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


Examination of Witness (Questions 800 - 811)

WEDNESDAY 7 NOVEMBER 2001

MR TOM WINSOR

Chairman

  800. Would it surprise you to know that they are still saying that even though they might actually get a register at the time you wanted them to get it, it will still not give you any indication of the quality of any of those assets?
  (Mr Winsor) It would surprise me if they said it would never give an indication of the quality.

  801. I did not say "never", but they said "it would not give".
  (Mr Winsor) It will not give that immediately. Railtrack had three goes at establishing an asset register. You would think that a company which was dependent for everything on the quality and performance and capability of their assets would know what they are and the condition they are in and so on. After three aborted attempts, I had to take steps, which I explained to the Committee last time I was here, to establish an obligation on Railtrack to establish such an asset register. That obligation is now in place; it is part of their network licence and the process contemplates the setting up of an asset register according to a timetable which I will dictate and they will not. Having left it to the commercial discretion of the company and it having failed, we realised that we could not leave it that way any longer. What they cannot do is create an asset register overnight. Therefore there is a staged programme which I supervise for the establishment and building up of the asset register. Railtrack put to me proposals in relation to the asset register earlier this year; they were unsatisfactory. They have made significant improvements in them and I believe that we are going in the right direction on that.

Mrs Ellman

  802. Why do you think it is that Railtrack, a private company, failed to look at the needs of its customers? Would you say that they gave any thought at all to the needs of the travelling public?
  (Mr Winsor) I do not know why they neglected that. There are two sets of customers: there is the immediate customer, the train operator, freight and passenger; then there is the ultimate customer, the travelling public and the freight customer. Why did they neglect their customers? I do not know. I know they did it. I have been working with Railtrack or facing Railtrack since 1993, first as legal adviser to the first Rail Regulator, and then four years in private practice as a lawyer, and now the last two and a half years as Regulator. It has puzzled me as to why the company cannot get the simple commercial truth of serving your customer understood and implemented in the proper and competent way. I do not know the answer to your question: why did they neglect their customers? I know they did.

  803. One of the consequences of what has happened is that we are told Virgin may be seeking compensation because of Railtrack's failure to deliver West Coast Main Line modernisation. It is also alleged that Virgin may be considering increasing their fares, possibly by up to 30 per cent, partly as a way of receiving that compensation. Do you have sufficient powers to investigate and rule on an action of that sort?
  (Mr Winsor) The fares increases?

  804. Yes.
  (Mr Winsor) I have powers under the Competition Act 1998, because I am one of the competition authorities with jurisdiction on the railway, to consider whether or not the company is abusing its dominant position. I have had complaints in relation to Virgin's fares on the West Coast Main Line which I have given very anxious and careful consideration to. There were 34 complaints in all. If Railtrack had not been in administration I would by now—because we have been slightly deflected by this state of affairs—have announced my decision on that matter. I have not yet announced my decision on that matter. The answer is yes, in some instances I have jurisdiction. The question is on the particular facts. I shall be announcing my decision on the Virgin fares cases quite soon. In relation to Virgin seeking compensation for Railtrack's failure to deliver on phase two of the West Coast Main Line upgrade, I do not know how much compensation they are seeking, but I assume that the company seeks compensation because they expect that Railtrack is not going to honour their contract, which was signed on 8 June 1998. That contract contains carefully designed compensation mechanisms, and if a supplier breaks its contract with its customer the customer will make an appropriate claim for breach of contract. I believe that is what is going to happen. That is commercial life. Railtrack being in administration does provide a rather awkward state of affairs, because administration means that you have protection from your creditors and Virgin, if the Secretary of State does not alter the position, would have a right to compensation against Railtrack in administration. But if Railtrack PLC, once the assets are taken out to the company limited by guarantee or whatever comes next, goes into insolvent liquidation, then Virgin's claim will not be met in full. However, I believe that the Secretary of State has said that all creditors of Railtrack PLC will be paid. I do not know whether he means just trade creditors or whether he means people who have illiquid claims for compensation. I simply do not know.

  805. Would you have powers to investigate whether the public were being asked to pay higher fares to pay for Railtrack's incompetence? Would that be an issue for you? Would you have sufficient powers to look at that?
  (Mr Winsor) I can assess whether or not an operator is charging fares which are too high in certain limited circumstances, but to determine whether or not those fares are higher because of Railtrack's failures, may very well be part of the investigation. It would be unlikely that I would be able to take action against Railtrack in that respect, but I would really need to consider that question once the application was made. It is very complicated.

  806. The previous complaints made to you about Virgin's increase in fares was made some 17 months ago and I have a letter from you dated 17 months ago after I had complained about Virgin's very high fares increases on trains between Liverpool and London. You told me then, 17 months ago, that you were considering using your powers to look at possible abuse of monopoly power. In October of this year you gave me a whole complicated list of reasons why you had not reached the decision and you were going to do so soon, but now you say that decision would have been announced had it not been for what has happened recently. That enormous time lapse, 17 months, and the complexity which you spell out in your letter to me of October this year suggest to me that you might not have the powers you need to regulate fares in the public's interest. Would I be right in saying that?
  (Mr Winsor) Yes, you would. I must, as every public authority must, only act within my powers. Parliament, in passing the Competition Act 1998, has conferred powers and jurisdiction on me in this respect. I must assess first whether I have jurisdiction to deal with the complaint as it has been presented to me, and only if I have jurisdiction can I proceed then to a decision. When I announce my decision on the complaint, I shall explain to all those who have complained to me, including yourself of course, the basis of my decision. I may say that it is not an easy read.

Chris Grayling

  807. May I get a point of clarification from you on the sums of money you allocated to Railtrack in your most recent allocation of funding to them? Would it be correct to say that in period one the figure for spending on renewals, maintenance and operational expenses was £12.9 billion and that you were only offering an increase from £12.9 billion to £13.3 billion in your most recent calculation for the next five years?
  (Mr Winsor) I do not have the figures in my head. I shall have to let you have a note on that I am afraid.

Chairman

  808. You will let us have a note on that.
  (Mr Winsor) Yes.

Chris Grayling

  809. Is it the case that Railtrack approached you during the summer to express concern that some of your public pronouncements about them were affecting perceptions amongst the bond lending community and indeed they substantiated that complaint with written evidence from a major financial institution? If that is the case, how did you respond?
  (Mr Winsor) I do not recall the written evidence from the financial institution, but my memory may be failing me. They did write to me saying that the statement I made in June that they should put away their begging bowl and stop hawking themselves unwanted round Whitehall—I think that is the one you are mentioning—was having an adverse effect. How did I respond to that? I met the Chief Executive, Mr Marshall, at one of our regular meetings and I explained to him that the company should get on and concentrate on the recovery of the network, which was still very fragile, concentrate on that. They had enough money to get by until the application for the interim review as a result of Hatfield and I did not want the company—this was the motive behind their statement—expending very scarce senior management time preparing for an interim review instead of getting back the services to passengers and to freight customers which were in a very serious and adverse state. That was the explanation I made.

  I may say, though, that the financial markets, in relation to the statements and actions which I have taken in my period as Regulator, have responded with, you may think, an extraordinary degree of uniformity in regarding the steps I have taken as being positive in relation to the company. I shall make the point very briefly. That is because when I have pressed the company—for example in relation to having proper and sound asset knowledge or being responsive and competent in relation to its costing projects and its dealings with customers—the financial community have realised that if Railtrack does do these things it will become a stronger, more competent and more successful company. I once said in exasperation to Mr Gerald Corbett, the previous Chief Executive of Railtrack, that it was a source of some surprise and disappointment to me and my colleagues that Railtrack sometimes appeared to be a company which would only be successful if it were compelled to be successful.

  810. If the Secretary of State had pressed ahead with the emergency legislation described to you on that Friday afternoon, would you have resigned?
  (Mr Winsor) I answered that question earlier.

Chairman

  811. We have gone round that one once or twice already. Finally, are you really saying to us that this was a company which was not capable of doing what it was supposed to be doing, but had a means of applying to you, but did not do so and that as far as you were aware had not supplied you with sufficient accurate information which would enable you to assess whether they were or were not insolvent?
  (Mr Winsor) Broadly, yes.

  Chairman: I am very grateful to you and we are very impressed by the quality of your evidence. Thank you.





 
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