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


Further memorandum by The Railway Forum (PRF 20A)

INTRODUCTION

  You recall that when The Railway Forum last submitted comments on Passenger Franchise Policy (AL/HP/0157 dated 17 September 2001) we stated:

    —  Specific concern about the short-termism implicit in the DTLR consultation document on Passenger Franchise Policy and that it seemed to discourage longer-term commitment by franchisees.

    —  Our concerns that the DTLR's draft Directions and Guidance did not adequately cover the issue of investment in the railways. We were particularly disappointed that SPV procedures were becoming extremely convoluted and as such promised little chance of success. Furthermore the Rail Modernisation Fund, which seemed such a promising initiative in the 10-Year Plan, has still not been created.

    —  That Britain's railways faced the very difficult prospect of implementing very demanding and costly outcomes of major legislation. This is an area where the regulators, as a group, have yet to develop strategies with which we can be entirely confident.

  Since then, of course, the "landscape" in the railway industry has changed fundamentally. In such circumstances the success of any franchising policy, in a situation of so much financial and organisational uncertainty, must remain a matter of considerable concern. We must now move on as quickly as possible if we are to sustain the confidence of our customers and keep the momentum of improving and expanding the railway on anything like an even course.

  Turning to specific questions you raise.

THE IMPACT OF RAILTRACK PLC BEING PLACED IN RAILWAY ADMINISTRATION ON THE GOVERNMENT'S FRANCHISING POLICY

  At the immediate level the placing of Railtrack plc in administration has caused a potential hiatus in the new re-franchising processes that affects the industry as a whole. The most positive outcome is that it presents an opportunity to look at ways of re-incentivising the franchise process and assessing the possibility of vertical integration and maintenance special purpose vehicle solutions.

THE FINANCIAL STRUCTURE OF RAILTRACK'S SUCCESSOR

  In general terms the proposals for a company limited by guarantee (CLG) is considered workable by the industry with the essential proviso that the nature and extent of Government financial support needs to be clarified. The key issue is that the CLG places the Government in the position where it has to guarantee the financial viability of the company. We remain concerned that the size and scope of this commitment is not yet clear. Until it is there will be a natural reluctance for commercial lenders to commit themselves further to the industry. It will take a very considerable amount of time for the CLG to build up sufficient reserves to provide a security against borrowing and, in any event, such a process will largely remove the prospect of the CLG's operating surplus being returned to new investment for many years to come.

THE RELATIONSHIP OF RAILTRACK'S SUCCESSOR TO THE TRAIN OPERATING COMPANIES AND THE RAILWAY REGULATORY BODIES AND THE STRATEGIC RAIL AUTHORITY

  Assuming a CLG is created the structure of a professional executive board, overseen by a committee of members drawn from groups both inside and outside the industry, both provide a much better basis to ensure that there is a closer understanding of industry-wide problems. Furthermore, if there is a concentration on solutions that meet specific conditions and circumstances across the network (we believe that there is no case where one size fits all) a much more flexible system can be developed. The key requirements are that the network operator CLG should be the freeholder and that there needs to be a mechanism for setting clear and precise standards across an infrastructure that can handle diversity.

  Turning to the issue of the regulatory bodies, we support the principles that were laid out by the Secretary of State DTLR in his statement to the House of Commons on 15 October, and further amplified by his written response to Mr Mark Hendrick MP of 23 October. There is clearly a case for regulation to be reviewed.

THE ALLOCATION OF THE RISK BETWEEN THE NEW COMPANY AND THE GOVERNMENT

  Our key point has always been that public money should be used to lever in the best deal from the private markets. We remain concerned that the sheer scale of undefined risk in the infrastructure and the risks and costs inherent in infrastructure enhancement are not yet clear and, until they are, it is extremely difficult to identify how best we can deal with them. We anticipate the SRA's Strategic Plan in November will begin to clarify the issues. Once we have a better understanding of what is required we would strongly support an open and robust debate as to how risk is to be allocated and managed.

26 October 2001


 
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