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


Further memorandum by the Strategic Rail Authority (PRF 39A)

INTRODUCTION

  1.  This memorandum is a response to the Sub-Committee's extension of the scope of its inquiry into Passenger Rail Franchising to cover the placing of Railtrack PLC into Railway Administration.

  2.  The Strategic Rail Authority is a non-departmental public body under the sponsorship of the Department of Transport, Local Government and the Regions and subject to Directions and Guidance from the Secretary of State under the Transport Act 2000. The design and development of a successor to Railtrack PLC are being taken forward as a matter of Government policy for which Ministers are primarily answerable. The Authority is involved in the discussions about a successor to Railtrack PLC and offers the following brief comments in the hope that they may assist the Sub-Committee.

IMPACT OF RAILTRACK-IN-ADMINISTRATION ON FRANCHISING POLICY

  3.  The Secretary of State's franchising policy statement of 16 July stressed the need to seek early as well as long-term benefits for passengers and, correspondingly, for benefits in some cases to be pursued through existing franchises, short extensions or early replacement of franchises while others, notably those depending on major infrastructure improvements, were pursued through longer term franchise replacement as for Chiltern, South Central and South West Trains. The placing of Railtrack in Railway Administration should not affect the Authority's ability to take forward a franchise replacement programme on this basis but progress with elements of the replacement programme may be delayed while a successor body is established.

  4.  Benefits such as improvements to rolling stock and improvements in the resilience of Train Operating Companies enabling, in turn, better performance, are independent of infrastructure network ownership. Where major infrastructure improvements are necessary, the Authority considers that long-term franchise replacement is not the only delivery mechanism. The programme of long-term franchise replacement had made slower progress than hoped largely because of Railtrack PLC's inability to develop and implement infrastructure enhancements on the contractor model by which it would provide initial capital and be remunerated through access charges after completion of the new asset. This was recognised in the Statement of Principles entered into between Government and Railtrack in April 2001 under which Railtrack was to concentrate on operations, maintenance and renewals and co-operate with the Authority and Government in devising an alternative framework for the procurement of enhancements.

  5.  The method which we envisage for major enhancement projects is, as explained in our original memorandum, Special Purpose Vehicles—bespoke joint venture companies. These would have been largely separate from Railtrack PLC and the Government has confirmed that this separate approach will be pursued when the successor to Railtrack in Railway Administration is established.

THE FINANCIAL STRUCTURE OF RAILTRACK'S SUCCESSOR

  6.  This has been outlined in the Secretary of State's statement to Parliament on 23 October.

THE RELATIONSHIP OF RAILTRACK'S SUCCESSOR TO THE TRAIN OPERATING COMPANIES, THE RAILWAY REGULATORY BODIES AND THE SRA

  7.  No decisions have been made on the final form of the successor body and the Secretary of State will look to the Administrator for recommendations. However, subject to that advice, the Secretary of State in his statement of 23 October indicated that the Authority was likely to be the founder member of a Company Limited by Guarantee (CLG) successor to Railtrack in Railway Administration. Once the company is established, the Authority would be able to nominate one of the directors. It is also understood that the Authority would provide the standby, subordinated loan facility by contract with the CLG. The Authority is involved in discussions with Government about developing proposals in more detail and will be concerned to ensure that the needs of the rail industry are taken into account and reflected in the successor arrangements.

THE ALLOCATION OF RISK BETWEEN THE NEW COMPANY AND THE GOVERNMENT

  8.  The Government's intention in setting up a CLG is understood to be for that new private sector company to bear similar risk to that which Railtrack PLC would have faced had the new procurement and funding framework referred to in the Joint Statement of Principles come into effect.

CONCLUSION

  9.  The Authority's primary concern is that the successor to Railtrack in Railway Administration should be capable of providing stability in the provision and upkeep of the existing rail network; that it will attract private debt finance and accumulate cash reserves to that end; and that it will interface co-peratively and constructively with SPVs engaged in expanding the existing network.


 
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