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


Examination of Witnesses (Questions 20 - 39)

WEDNESDAY 21 NOVEMBER 2001

MR DEREK SMITH, MR MARTIN CALLAGHAN, MR MIKE STRZELECKI AND MR TONY POULTER

  20. We will talk to you about the detail of them; but you are really saying it is complicated, there are a lot of factors, but `we have already looked at these factors and we can assess them accurately'?
  (Mr Poulter) Yes.

  21. Mr Smith, in case I should be misunderstood, you will give me a little note on how much money you intend to use to control this, will you not?
  (Mr Smith) Certainly, Chairman.

  Chairman: Thank you very much.

Miss McIntosh

  22. Mr Smith, you said financed by the private sector over 30 years; in your opinion, will it be easier or harder to raise money in the private sector, after Railtrack was put into administration, for your PPP?
  (Mr Smith) I think that the Railtrack position is very different; and, while we are told that the City has become more nervous, as a consequence of the Railtrack decision, we do know that the banks are still engaged with our bidders, and with us, in discussing this particular proposition. So it does seem to us that the thing is bankable and can be done.

  23. And what do you think the extra risk factor is going to be, in the assessment by the banks and financial institutions, to want to submit to the PPP?
  (Mr Smith) I think that they will judge this on the basis of the amount of risk that is around and whether, if anything were to happen to this deal, they would be able to get their money out. My colleagues may want to comment on this a little further.

Chairman

  24. Would they not have done that kind of estimation anyway, or are you assuming that they would have been so content, they were convinced that the taxpayer was always going to underwrite the deal, that they would not even have bothered to assess that risk? I only ask?
  (Mr Smith) I do believe, Chairman, that they will have made that risk at each stage.

  25. I rather think they might, yes. Who else; Mr Callaghan was going to comment?
  (Mr Callaghan) Thank you, Chairman. My comment is, to back up what Derek was saying, I think the Public Private Partnership is not the same as Railtrack, and the banks are quite happy to evaluate this on its own merits, which are quite distinct from the proposition that they were lending to with Railtrack, and that has been our experience.

Miss McIntosh

  26. And Mr Poulter?
  (Mr Poulter) I would agree with that.

  27. So, your potential investors, you would not see any threat from the Secretary of State assuming powers of direction over your PPP, in a similar way to he assumed powers over the administration of Railtrack?
  (Mr Smith) As was emphasised, this is a different arrangement, and the banks, undoubtedly, will want to be clear about the seven and a half year review periods that are inside this deal, and about any matters that there are around termination, and there are several bases on which this contract might or might not be terminated, but they are built into the contract, and therefore understood.

  28. Just to be absolutely clear, what is the difference?
  (Mr Smith) The fundamental difference is that the Railtrack arrangements were in a national railway system which was privatised completely; here we have got a public sector organisation delivering the train and station services to London, managing the safety and being responsible for it, and then managing the contract with the private sector. The contract that we have with the private sector is therefore very different, and the private sector is delivering infrastructure services to the public sector operator.

Helen Jackson

  29. Why is no other country operating a comparable underground system, gone down this type of route?
  (Mr Smith) There are very different funding systems in different countries; there are very few, for example, that are funded by the fare box to the extent that the London system happens to be. In other countries, there appears to be a different sort of commitment to funding public infrastructure; that appears not to have been the case in this country and in relation to the underground. Which is why, four years ago, this matter was examined very carefully and a different way forward was sought.

  30. Would it not be the case that other countries that have got significant urban underground systems have also looked at the public sector costs and this type of model but have chosen to stay with public sector administration?
  (Mr Smith) I think Mr Poulter may be able to help you better with an answer to this question, since he does international work.
  (Mr Poulter) I am not aware of any other government or metropolitan authority which has looked at a model like this and rejected it. There are organisations of that nature that are looking at it now.

Chairman

  31. Where?
  (Mr Poulter) I am aware of one, very recently, in Poland, for example, but there are others.

Helen Jackson

  32. (Just that, ?) in Poland? Are you sure that no other country with an underground system has considered privatising it into a Public Private Partnership type of operation and decided not to do that; is that what you are saying?
  (Mr Poulter) I cannot say I am sure, because—

  33. But you are the international expert?
  (Mr Poulter) I do a lot of work in this area, I cannot say I am familiar with every country.

  34. Can I follow it up then and ask you, or Mr Smith, whichever of you wants to answer, what it is, what specific factors it is, that has persuaded you that the management scheme proposed by Transport for London will be poorer value for money than the PPP, which you are backing?
  (Mr Smith) My first response would be to say that it is impossible to assess the value for money of the proposals of the Transport for London scheme, because it is insufficiently detailed, it is a fairly generalised proposal. It is based upon the idea that the money can be raised through bonds, and, of course, money for the Public Private Partnership will be raised by the private sector through bonds as well, but applied to the rail network in a different way. We will, of course, have to apply as many tests as we can at the stage of judging value for money, to satisfy ourselves that, in fact, this offers better value than other options. But, to answer your specific question, we are unable to assess the TfL scheme—

Chairman

  35. I want, therefore, to bring you to the National Audit Office, because they have said that what it is important to understand is that they need some supplementary analysis which would include "factors which are either difficult or impossible to quantify in financial terms, and which could impact directly on the value of the different options." That is why they are saying this is difficult; do you agree with that?
  (Mr Smith) Yes, we do. The National Audit Office came to our Board and gave a detailed presentation on their thinking, which we thought was helpful.

  36. You thought it was helpful, and you agree with it, but you rather gave the impression that, nevertheless, you thought you had sufficient detail to make an assessment?
  (Mr Smith) We will be able to make an assessment, and, of course, that assessment will be audited.

  Helen Jackson: But you are getting near the end of the process, are you not? If making the assessment is still in the future, I do not know but I may be dreaming, but I thought that the public generally thought that London Underground had made their assessment and made their decision.

Chairman

  37. And how have you dealt with this business of subjective judgement?
  (Mr Smith) Chairman, first of all, we are unable to make the final assessment of value for money until such time as we receive the final bids.

  38. But you are confident that you will be able to come up with accurate assessments, even though the subjective nature of the value for money assessment under this is not always clear enough to decide conclusively on the position of the contractual arrangements?
  (Mr Smith) Chairman, yes, we can; and, again, I would like to ask Mr Poulter to help the Committee with the detail of this.

  39. You are very confident, Mr Poulter, that in spite of what the National Audit Office says, in spite of what Ernst & Young are worried about, you are absolutely certain that your conclusions are going to be based on an assessment of a range of factors which will not be subjective; is that what you are telling us?
  (Mr Poulter) What I was saying was that we are confident we will be able to do a good assessment.


 
previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 21 December 2001