Examination of Witness (Questions 840
- 859)
WEDNESDAY 14 NOVEMBER 2001
MR STEPHEN
BYERS, MP
Chris Grayling
840. Can I start, Mr Byers, with franchising.
You will be aware that from October 1999 onwards the industry
was very focused on 10 and 20-year franchises. When you took over
as Secretary of State you said on June 18, "I am not going
to embark on any big structural changes. What the industry needs
now is a period of stability and certainty." What happened
between the 18 June and 16 July to change your mind on that and
to make you press ahead with two-year franchises? Was it your
idea or the Department's idea or did the idea come from 10 Downing
Street?
(Mr Byers) I think the idea was mine as Secretary
of State and the Department's. It would be inaccurate to present
the policy as being one which was in favour of two-year franchises.
What I wanted to move to was a situation where there was a greater
degree of flexibility in terms of the type of franchise to be
awarded in particular cases. In the way in which the regime was
operating when I came in there was almost a presumption in favour
of long-term franchises, 15 or 20 years. That may be appropriate
in certain situations. I think I indicated to the Committee in
my opening remarks that it may well be the case that the East
Coast Main Line is a good example of where a long-term franchise
will be appropriate because of the upgrade that is necessary and
the long-term investment.
841. That has already been recommended by the
SRA.
(Mr Byers) It was recommended by the SRA on balance.
It was a close run thing as far as the SRA were concerned. However,
in terms of other franchises there may well be benefits that can
be achieved by either a short-term extension, if that is deemed
to be appropriate, or where a shorter period of franchise may
be regarded as necessary in the particular circumstance. What
I was trying to do was a change of policy but it was almost "horses
for courses", what type of franchise is best in the circumstance
of each case and let's judge.
842. With the finances for the modernisation
of the network, the Regulator's most recent announcement shifted
the funds available for renewal, maintenance and operational expenses
for Railtrack (excluding the West Coast Main Line) by a very small
amount, from £12.9 billion to £13.3 billion. Railtrack's
recommendation was that a total of £17.1 billion should be
spent. Was that sum correct? Will you be making that sum available
to the successor body or will you only be making available to
the successor body the £13.3 billion available to Railtrack?
(Mr Byers) Our proposal at the moment is that the
successor body should be operating within the financial framework
within which Railtrack was operating and should not cost any more,
so it will be within the remit established by the Rail Regulator.
843. When you met on June 25 the Chairman of
Railtrack did Railtrack actually ask you for more money and, if
they did, how much did they ask you for and when?
(Mr Byers) There was no meeting on June 25.
844. I beg your pardon, July 25.
(Mr Byers) On July 25 there was a meeting with the
Chairman of Railtrack, as I said to the House yesterday. He outlined
to me the particularly difficult financial circumstances that
Railtrack were facing. He did not go into detailed figures but
as a result of that meeting my officials met his advisers over
the next few weeks to discuss the detail of the position as Railtrack
faced it at that particular time.
845. Did they actually ask you for more money?
(Mr Byers) On 25 July Mr Robinson discussed a range
of issues. He outlined to me in general terms the seriousness
of Railtrack's financial situation, making clear that the position
was far worse than he first thought. He spoke to me about needing
a soft letter of comfort from the Government by the autumn before
being able to access existing banking facilities. If Railtrack
were unable to access these facilities or receive extra financial
assistance from Government it was clear that on 8 November, when
Railtrack was due to give its interim results, it would be unable
to make a critical statement that it was a going concern. That
was the conversation.
846. We know Railtrack's business plan involved
them seeking first of all to draw down funds that had already
made available to them as credit facilities from the banks and
subsequently to launch a bond issue which is where the cash for
the next few months was coming from. My question to you again
is did they actually ask the Government for more money or did
they simply ask the Government for a letter of comfort which would
enable them to proceed with that business plan?
(Mr Byers) The conversation was if Railtrack were
unable to access these facilities or receive extra financial assistance
from Government —
847. So they did not actually ask you for more
money?
(Mr Byers) The conversation was in relation to the
need for a soft letter of comfort to be able to access existing
banking facilities. The important point was from that meeting
(because it was in outline only) detailed conversations then took
place between his advisers and my officials in the Department.
848. Let's be clear; there was never a specific
request from Railtrack for additional Government funds over and
above what was already being provided to them?
(Mr Byers) On 25 July Mr Robinson came to me and said
they had real difficulties.
849. But he did not ask for a specific amount
of money?
(Mr Byers) What he did ask for was for a soft letter
of comfort from the Government by the autumn before being able
to access existing banking facilities. If Railtrack were unable
to access these facilities, in other words if we did not give
a soft letter of comfort, or if they did not or receive extra
financial assistance from Government it was clear that on 8 November
he would have difficulties when it came to him giving his interim
results. But that was the first meeting of a number of meetings.
Arising from that we then had, at Mr Robinson's request, a number
of meetings between my officials and the advisers who were being
employed by Railtrack.
Chairman
850. Because he was asking you for vast sums
of money? He was asking for moneys to be brought forward?
(Mr Byers) On 25 July that was not the detail of the
conversation. 25 July was the first opportunity Mr Robinson had
to alert me to the looming financial crisis faced by Railtrack.
Following on from that there was a series of detailed conversations
taking place between his advisers and my officials.
Chris Grayling
851. There is an important point here from the
Chief Executive of Railtrack and indeed from the Rail Regulator
who called into question the Department's statement that Railtrack
was insolvent on October 5. There are two possible avenues here.
If it is the case that Railtrack had come to you looking for a
letter of comfort and they were then seeking to launch a bond
issue and draw down capital facilities, was it the case that you
ever received from any of your advisors professional advice that
had they been able to do those two things they would still have
been facing insolvency as a company?
(Mr Byers) The situation was that there was a series
of meetings between officials and advisers for Railtrack, and
on my behalf, following on from our meeting of 25 July. That led
in due course to a situation where I then had to consider whether
or not additional government money over and above the business
plan that had already been agreed, over and above all of the financing
arrangements which had been put in place, more money was needed
by Railtrack, which is why on 5 October I had to take a decision
whether to allow more Government money to go to Railtrack, additional
Government money, or not.
852. I am interpreting from the fact that you
have not given me a direct answer to my question—at no point
between 25 July and 5 October did Railtrack specifically ask you
for an additional sum of money beyond that already committed?
(Mr Byers) They did and that was part of what was
called "Project Rainbow" which was their new restructuring
proposals. As the Committee may know, when their advisers came
to meet my officials there were three options which their advisers
put to my officials. They were restructuring, renationalisation
or receivership, as they put it. The restructuring option was
the one that was worked on in some detail. This was to see what
regime we could put in place that would be of benefit to Railtrack.
That regime would have meant unspecified additional government
money going into Railtrack.
853. That was what your advisers said, but Railtrack
itself never asked you for more money. What they asked you for
was for Government backing to ensure that they could pursue their
plan of raising capital in the markets and drawing down banks
assets. I am referring to your statement to the Commons yesterday.
(Mr Byers) No, that was in relation to the meeting
on 25 July. As I think I said to the Committee earlier, that was
the first of a series of meetings. It was a meeting where Mr Robinson
outlined to me the financial difficulties that had been identified.
He was a new Chairman of Railtrack. He had appointed new advisers.
They had come to him and said, "We have had a very close
look at the position of Railtrack and it is worse than we expected."
Mr Robinson then came to see me on 25 July, outlined in broad
terms the problems that he was facing, and said in the light of
this could I agree that my officials would meet his advisers to
go through the detail and I, of course, said yes. What then happened
throughout August and September was a series of very detailed
meetings about the financial situation that Railtrack faced. Arising
from that there was a proposal—in fact there were separate
proposals—which would have meant significant sums of additional
Government money being provided to Railtrack and that was the
consequence of those discussions.
854. The situation over discussions with the
Treasury which has been highlighted in the last few days, can
we clarify that point; did you ever enquire about the possibility
of extending public funds for Railtrack and, if so, what was the
response?
(Mr Byers) The Treasury, like other government departments,
were involved throughout as we were working up the two programmes
of work, if you like. Throughout August and September what we
were doing, to begin with we were looking at the proposals that
were being put to us by Railtrack for restructuring and the details
contained within it. Towards the end of August I was concerned
that we needed a fall-back, as it were, in case we decided that
no extra government money should be made available, so we had
two programmes of work going alongside each other. Of course,
as is the very nature of the government, the Department will be
working with the Treasury in working up those proposals and from
time to time I had reports about the progress of those programmes
of work. In the end it was on 5 October that I had all of the
relevant advice and I took my decision.
855. A very brief final point; did your Department
in any way intervene with the Strategic Rail Authority over the
Renewco issue and the repayment of £162 million which has
been a matter of some dispute. I ask that because I know that
the SRA has now offered that sum to Railtrack in receivership
some three or four months after it was first due to be paid and
Renewco was supposed to be set in play.
(Mr Byers) That was a matter between the Strategic
Rail Authority and Railtrack in line with the agreement that was
entered into in April. My understanding, which is the understanding
I reported to the House yesterday, was that the conditions that
were attached to that, bearing in mind the agreement was to use
best endeavours to achieve this particular outcome, the conditions
were not met on 1 October and therefore the payment was not made.
It is worth reminding the Committee, of course, that in the course
of those discussions in August and September Railtrack indicated
that even if Renewco, for which the £162 million was put
in place, Railtrack would still need additional government support
over and above that. I think if the Committee considers the £162
million in the context of the £700 million deficit which
Railtrack would have had on 8 December, then one can see that
there would still have been great difficulties as far as Railtrack
was concerned.
856. So your Government had no involvement in
delaying or intervening in any way in that payment?
(Mr Byers) We certainly did not block any payment
of £162 million to Railtrack.
857. Was there any discussion, theoretical or
otherwise, in your Department before 25 July about the possibility
of a future change in status for Railtrack, whether nationalisation,
the move into a company limited by guarantee, or whatever?
(Mr Byers) Not that I am aware of.
Miss McIntosh
858. Mr Byers, you said in your evidence to
us this afternoon that the Strategic Rail Authority will be the
principal delivery agent. Why did you never meet Sir Alistair
Morton as Chairman of that Authority?
(Mr Byers) I did meet him.
859. That is contradictory to the evidence we
have taken, that up to the time that he resigned he said that
he had asked for meetings with you and never had a meeting. I
put a question to David Jamieson of the Department about what
meetings Ministers had had with the SRA and the written answer
came back that officials had met the Authority, but no minister
(by implication) had met.
(Mr Byers) I do not know about the details of that
parliamentary reply but I do know because if you have a meeting
with Sir Alastair Morton it is not something you forget, and I
have certainly met Sir Alastair to discuss these matters.
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