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

Examination of Witnesses (Questions 300 - 319)



Mr Stevenson

  300. In the Strategic Rail Authority Plan recently published there were a number of schemes that were deferred until 2015. The Great Western upgrade was one of them and there were a number of others. I would like to ask a few questions about the West Coast Mainline which is another extremely important project in terms of the 10 Year Plan. When we questioned Mr Bowker, the Chair of the Strategic Rail Authority, he was not able to be definitive about phase two of the West Coast Mainline. I would like to ask you, Mr Armitt, whether you would care to comment on the likelihood of the West Coast Mainline phase two being completed.
  (Mr Armitt) At the moment we are focused on phase one. Phase two is a subject of discussion between ourselves and the SRA and the train operating companies and there is a negotiation, which is incomplete at the moment, with regard to precisely what happens on the West Coast Mainline going forward to the degree to which to which the original scope of works is included in the new agreement. It is still something which is open to discussion.

  301. Would you say that these are matters of important detail rather than the principle of the phase two going ahead?
  (Mr Armitt) Important detail, yes, very important detail. You will get to a point where somebody might say, "This phase two is not the phase two that we originally envisaged because of the adjustments which have been made".

  302. I see, so the negotiations that you referred to include the prospect of a fundamental change in what was envisaged in phase two originally of the West Coast Mainline operating?
  (Mr Armitt) I would say that we are not seeking to reduce phase two and it is a commercial issue as to the affordability at the end of the day.

  303. I understand that, but you are not seeking fundamental changes to the ingredients of phase two?
  (Mr Armitt) No.

  304. You talked about a case being made to the regulator for a review on more resources. Does that include the anticipated cost of the phase two West Coast Mainline upgrade?
  (Mr Armitt) Not specifically. I will ask Mr Smith to comment in detail.

  305. Not specifically. That was a very brief answer which I welcome. If they do not how can we have any confidence at all in the West Coast Mainline phase two going ahead if Railtrack Plc, in their case to the regulator for a review, which you hope will produce more resources, does not include that in there at all?
  (Mr Smith) Can I answer that? Any applications to the regulator for review will be across the network and will include West Coast and the rest of the network. The bulk of expenditure on phase two is renewal expenditure and so will be part of the new plans. Yes, there will be remuneration issues associated with West Coast, but that will be once the negotiations that John has described have been completed, together with any consequences for the specification and outputs of that work.

  306. That sounds very interesting. What I want to get at is, are you building into your case to the regulator phase two of the West Coast Mainline as you understand the costs of that, albeit a renewal or whatever it may be described as?
  (Mr Armitt) The interim review fundamentally focuses on the issues arising from Hatfield and the consequences of Hatfield on the rest of the network which clearly in part would include West Coast Mainline, so to the extent that we can demonstrate that the consequences of Hatfield have influenced the cost of West Coast mainline then that would be party to that.

  307. Including phase two?
  (Mr Armitt) Yes.

  308. So it will be part of your submission?
  (Mr Armitt) Yes.

  309. Mr Hill, you said there were difficulties in the West Coast Mainline negotiations. I wrote it down. Without breaching confidences—we would not expect you to do that—would you care to identify what the main elements of those difficulties are?
  (Mr Hill) I did not intend to say that there were difficulties with the West Coast Mainline negotiations. What I was trying to get across was that there are a number of issues within Railtrack that, in preparing the company for a transfer, we would seek to be de-risked as far as possible.


  310. De-risked? That is an interesting word.
  (Mr Hill) By de-risking I am referring to reaching a state of greater certainty for a potential purchaser coming into the business. With West Coast Mainline we get to the situation where it is agreed with the other contracting parties the precise way forward. That will mean that a purchaser will be bidding on the basis of a state of greater certainty in the process and therefore offer a greater amount in principle for the Railtrack business. I was not referring to a difficulty in particular with those negotiations.

Mr Stevenson

  311. Are you seeking to create a package so that a a potential bidder would have the certainty that you refer to in terms of this project, and I am using this project as a very important example of our concerns, of phase two being completed, paid for by the public purse and therefore no risk in that sense would be attributed to a potential bidder?
  (Mr Bloom) When we talk about de-risking what we are endeavouring to do in the transfer process is to present the company in the best way it can be presented in the light of what it has achieved to date and, much more importantly, what it can achieve going forward. The reason for supporting John and his team in the business planning process in their review of the major projects is to be able to take what we have got today, improve upon it and get the business to the best possible state that it can be in, at the highest level of performance and the highest level of achievement immediately prior to transfer. The less uncertainty there is, not just with regard to the West Coast Mainline which you have used as an example but also with other examples (of which there are a lot, and one was quoted earlier about the asset register), the more one can do to improve the position of Railtrack in the period up to the date of transfer, the better the condition of the company in absolute terms on transfer.

  312. Can I ask a final question about freight specifically to Railtrack because there are concerns about the West Coast Mainline freight capacity, as you know. Did Railtrack approach Consignia to buy out their rail contract for the West Coast Mainline and transfer it to road vehicles?
  (Mr Armitt) Absolutely not.

Mrs Ellman

  313. What criteria are being used to assess affordability on phase two of the West Coast Mainline?
  (Mr Armitt) Phase two of the West Coast Mainline modernisation is in a sense tied to a series of deliverables which clearly Virgin and others have taken into account when negotiating their franchises. To the extent that a franchise cannot be met, in part because of an agreed change, then there is a financial consequence to that being negotiated.

  314. Does that mean that the adjustment is made on what Virgin consider is affordable to them, not looking at issues of impact in the regions?
  (Mr Armitt) It is certainly not Virgin alone. There are the other train operating companies, whether it is freight or whatever. The train operating companies are the ones who have the contractual obligations. At the end of the day I have no doubt the rail regulator and the SRA will also want to understand and, if necessary, make their own inputs into the final decisions which are made, which can take into account the wider considerations.

  315. Is it then the judgement about what train operators want, or will it be in a sense delivering the targets of the 10 Year Plan?
  (Mr Armitt) It is very much, I am sure, a sense of delivering the targets. What we want to do is deliver a better rail service to the north west. A better rail service to the north west will enhance the north west and—

  316. Who will judge what is good enough? You keep using the word "better". Who will judge what is good enough to come under that heading of "better"?
  (Mr Armitt) At the end of the day the decision about whether an investment is made must be based on people saying, "What values are we going to get from this?" If the values are more train paths with more frequent services, more reliable services, then those are clear benefits which can be set against the cost of—

  317. Who will take the decision in the end about what is affordable?
  (Mr Armitt) The decision as to what is a sensible agreement will in the first place be made between ourselves and those we are negotiating with, which are the train operating companies. Having concluded those negotiations, I am sure we will be asked to present the outcome of those to the SRA who will then take a view, as will the rail regulator, on whether they believe that is a sensible deal which is being done.

  318. How public would this process be?
  (Mr Armitt) The negotiations will certainly not be public because they are commercial negotiations between Railtrack and the train operating companies.

  319. What about the decision taking?
  (Mr Armitt) I cannot answer for the SRA as to the extent to which they would wish to get involved at the end of the day or how they would explain any views they had to a wider audience.

  Mrs Ellman: Do you see any major differences between the 10 Year Plan and the Strategic Plan?

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