Examination of Witnesses (Questions 780
WEDNESDAY 16 JANUARY 2002
MP AND SIR
780. Are you saying to the Committee today,
Sir Richard, that the agreement that was made in April to use
Renewco as a vehicle was doomed from the start?
(Sir Richard Mottram) No. I am not saying that, no.
781. It does seem extraordinarily that for a
six month period Railtrack and its shareholders were led to believe
that there was going to be a vehicle coming into place that would
not have public sector borrowing or spending requirements, and
then the rug was pulled from under their carpet on 1 October?
(Sir Richard Mottram) I do not think that is the description
of what happened. What happened wasI am not an expert on
these vehicleswe agreed with Railtrack that we would give
them more money, and what we were then discussing was could a
vehicle be created which would enable Railtrack to add to its
cashflow, over and above that money, through such a financing
vehicle. These things are very, very complicated. At the beginning
of April everyone was using their best endeavours and throughout
the process everyone was using their best endeavours but they
are, however, very complicated, otherwise it would not have taken
that many months for that to be done. Everyone behaved in good
782. I was fortunate enough to secure an adjournment
debate in December on Railtrack and in that the Minister, David
Jamieson, replied and seemed to indicate that the Office of Independent
Rail Regulators and the Strategic Rail Authority were going to
be merged. Subsequently he had the courtesy to write to me to
correct that position. If the two are, indeed, going to continue
separately, SRA and the Rail Regulator, can we have an assurance
from you, Secretary of State, should Railtrack emerge from administration
in private sector hands that you would not in future give a power
of direction over the Rail Regulator.
(Mr Byers) Those matters are matters not for the Secretary
of State but for the House of Commons and the House of Lords.
The Rail Regulator is independent and his functions and responsibilities
can only be changed by both Houses.
783. Can I talk a little bit about the funding
plans for investment in the infrastructure? There have been a
number of questions raised about the amount of money that has
been set out for investment, firstly by Railtrack and then by
its successor in the network over the next five years. Railtrack
itself said that there was a shortfall of about £3.5 billion
over what was required. Swift Rail has estimated that there is
a shortfall of £6.8 billion. It certainly appears to be a
question about whether the potential shortfall must be provided
for. Is that shortfall reflected in the funding that has been
allocated to the 10 Year Plan or is there a potential issue that
is as yet unfunded?
(Mr Byers) We are confident that adequate funding
can be found within the 10 Year Plan. It is also just worth stressing
to the Committee, as we said at the time the 10 Year Plan was
published, the 10 Year Plan is a flexible framework and during
the period of the 10 Year Plan there will be three Spending Reviews.
Those Spending Reviews will need to identify the priorities of
the government at those particular times.
784. You have not specifically budgeted for
a potential gap in the projection?
(Mr Byers) The Administrator is still doing his work,
it would be premature because that work has not been completed.
785. In relation to the funding that you are
paying over to the Administrator to support the organisation in
administration there is a potential debt there of up to £2
billion. Can you give us some clarification about how that money
will be repaid? Is it your expectation there will need to be an
asset sale of some sort to the organisation that takes over the
Railtrack assets in order to enable the Administrator to repay
funds to the government?
(Mr Byers) There are a number of avenues that the
Administrator is giving consideration to. He has not decided who
will take Railtrack out of administration, who will be the successive
body and there are one or two options about how that might be
achieved. It will really be for the Administrator under one of
those options to make recommendations to me under the Railways
Act. As I say, the Administrator is still doing his work.
786. There have been a number of questions raised,
not least by Railtrack itself, its previous Chief Executive Stephen
Marshall in evidence to this Committee, about the solvency of
Railtrack on the date you chose to push it into administration.
There are two issues that have arisen as a result of that, first
of all, the publication of Railtrack's results and, secondly,
the discussion over whether the Administrator has or has not undercovered
a significantly worse financial position than had previously been
identified. In the terms of the agreement that you have with the
Railtrack Administrator, and they are providing you with regular
management accounts, can you give the Committee an indication
as to what in those management accounts have identified significant
shortfalls in Railtrack's financial position? Can you confirm
to us that it is still your view that Railtrack was insolvent
on the date you pushed it into administration?
(Mr Byers) To say I pushed it into administration
is a judgmental view. What happened was I petitioned the High
Court and the High Court decided on 7 October that Railtrack was
insolvent. Indeed the High Court judge, Lightham J. made it very
clear he would grant the order immediately because of the evidence
that was put to him.
787. Could you tell us why, since they have
been squealing like stuffed pigs ever since that date, Railtrack
did not oppose that if they were so convinced of the security
of their existing financial position?
(Mr Byers) That is a question for Railtrack. Railtrack
did attend court and they had counsel present and they did not
object to the petition and did not raise a word against it. I
know some people have drawn attention to the fact that Railtrack
made a profit in the last six monthly report, but to announce
a profit in no way reflects on whether or not a company is solvent
or insolvent, because one has to look in relation to the profit
that has been made over the six month period with the debt which
has been incurred over a lengthier period. The directors of Railtrack
will, as they have to do under legislation, have to make a statement
of affairs. That statement of affairs will need to disclose the
level of the debt that Railtrack have to service. I think when
people see the level of debt, coupled with our projections of
a £700 million deficit by December of last area, rising to
£1.7 billion by the end of March this year, they will understand
why the High Court judge, Lightman J., took the decision which
788. Can I just press you on the issue of the
management accounts. Have the accounts the Administrator submitted
to you revealed significant discrepancies, significant gaps, between
the budgeted amounts for the year and the actual out-turns?
(Mr Byers) That is still work the Administrator is
doing. When he has completed his work all of that information
will be made public and people will be able to see them.
789. Are those accounts being submitted to you
on a weekly basis? The Prime Minister has made a statement in
the Commons to say that those gaps have been there.
(Mr Byers) The Committee and the public would not
see the whole picture. It is far better if people can see the
whole picture. It is far better to publish by the Administrator
at the end of the exercise rather than to take a weekly snapshot
of what is a changing picture. As the work goes on the Administrator
is discovering more about the true position of Railtrack, about
its major projects, like the West Coast mainline, and so on. Let
us get the whole picture at the end of the exercise, it is far
better than to get odd little briefings from certain people we
see in the press, and so on. Let us get the Administrator to make
his report and then we can all see the situation.
790. It would be premature to say that significant
gaps have been unveiled?
(Mr Byers) It would be true to say the Administrator
is discovering things like, for example, on the West Coast Mainline,
which people did not expect. Let us see what the Administrator
comes up when he has completed his work.
791. When do you expect that to be?
(Mr Byers) He has legal obligations he has to meet.
The important thing is that we use this period of administration
to do two things really, one is to make sure that the successor
to Railtrack does not have the baggage which has been left behind
by Railtrack and begins with a clean sheet so it can get on with
the job. Secondly, that we use this period to make sure that there
is good management to run Railtrack Plc. For understandable reasons
the Chief Executive who was there, Steve Marshall, wanted to argue
the case for the shareholders. It is a very good example of the
difficulty that Railtrack always had between trying to serve two
masters, the shareholders and the travelling public. In the end,
of course, their legal obligations by statute are to the shareholders
and not to the travelling public. They were concentrating on arguing
the case for the shareholders and were not concentrating on reliability
and punctuality within the network. We have new people in, John
Armit as Acting Chief Executive and Jim Cornell, engineers and
railway men, and they are now committed, really focussed, on improving
the way in which the licence is operating. That is important because,
obviously, we do not want to see the situation worsen during this
period of administration.
792. What is the latest estimate of when Railtrack
will emerge from administration?
(Mr Byers) That is a matter for the Administrator,
it would be improper for me to put pressure on the Administrator
when he has his legal obligations.
793. What is your hope?
(Mr Byers) He shares my objectives that the sooner
it can be done the better. The sooner it can be done the greater
the value there will be in Railtrack.
794. Can it be done this year?
(Mr Byers) I hope and I am confident it will be done
795. Why was no contingency plan been prepared
to cover for the possibility of Railtrack being put into administration?
(Mr Byers) No contingency plan in what way?
796. Within the Department. I know there has
been discussion within the Committee that that decision happened
in a very rushed way. As you look through all of the issues that
faced the industry in the past 12 months why did the Department
never factor-in the possibility of a Railtrack administration
and prepare an advanced contingency for that?
(Mr Byers) In evidence I have given to this Committee
before there were basically two options that were being looked
at, one was to provide more money to Railtrack and, secondly,
if we did not provide more money to Railtrack what would be the
consequence of that. The consequence was that Railtrack would
go into administration. Under the Railways Act there has to be
an administrator appointed and there will then need to be a successor
to Railtrack. I think the Committee, and the honourable member
in particular, would have had a lot to say if on the Monday, after
the administration had been granted on the Sunday, there had been
a blueprint that somehow we had imposed it on the industry. That
would have been improper.
797. Taking you back to the issue of investment
in industry. There are a number of factors that are effecting
investment in the industry, most notably the Disability and Discrimination
Act and the Automatic Train Protection System. Taking each of
those in turn, there has been an estimate it could cost £3
billion to implement the DDA on the network. Is there a case for
looking at the timing of that, given the current situation, and
saying that, perhaps, is set after some of the short term priorities
you outlined this week?
(Mr Byers) I think the strategic plan makes it very
clear that access for people with disabilities is a very important
thing to deliver on, not just for the individuals but for the
industry itself. I am pleased that there is an assurance and a
commitment in the strategic plan that a person in a wheelchair
will no longer have to travel in the guard's van by the end of
2004. I have to say I would like to see it brought forward, I
said this to the House on Monday, sooner. As far as I understand
it, there are no difficulties in terms of delivering on the disability
and discrimination commitment.
798. In terms of the detail of the SRA plan
a number of the forecasts for the timing of individual projects
that are contained in the SRA plan are based on what are set out
in the original heads of agreement between the SRA and the franchising
industry. The plan does not appear to take into account, for example,
any time factors encompassed by delays in the issuing of franchisesthe
Chief Executive of the SRA told us that those delays were likely
to happennor does there appear to be any allowance made
in timing as a result of the Railtrack situation. I can give you
two very specific examples of that, the timing of the South Central
upgrade and the South West Trains upgrade, where both companies
say they are not going to happen in the time frame the SRA suggests,
can you explain why the SRA plan contains those ambitious timetables?
(Mr Byers) I think we need to be aware in one of the
situations that you have mentioned that although heads of agreement
have been arrived at there are still very detailed negotiations
going on. What we might be seeing here, certainly for understandable
commercial reasons, are people putting forward a particular situation
because they want to secure the best deal they can for themselves.
We should be cautious about people with an understandable commercial
interest because they are involved, as we speak, in very detailed
commercial negotiations with the SRA about the details of those
799. From what you said at the beginning, Minister,
that you were planning to spend £180 billion over the next
10 years and that total Railtrack debt was something in the region
of £1.7 billion
(Mr Byers) I was not referring to debt. I said that
there will be a deficit of 1.7 billion by March this year.