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

Examination of Witnesses (Questions 280 - 299)



  280. So there is nothing new uncovered which has represented a much worse financial position than your initial desk work, your initial impressions?
  (Mr Bloom) It will come inside our initial desk work.


  281. Oh, you are answering the question, Mr Bloom. You will forgive me. What you are saying is that you came in with no exact figures. You then were presented with information which allowed you to ask for a sum of money and you are staying within that budget. The question that Mr Grayling is anxious to elicit is something different. Were you surprised and were the budgets materially different from those that you had been told at the beginning of your work?
  (Mr Bloom) There is only the one budget we had and that is the one that we presented to the department for the funding for the first six months of the administration.

Chris Grayling

  282. Can I phrase it differently then? You have been submitting management accounts to the Government under the commercial loan agreement. You would have been able to judge whether those management accounts were significantly out of line with Railtrack's internal budget planning for the year. Have you unveiled significant discrepancies between the two or is the organisation operating roughly in line with its budgets?
  (Mr Hill) It is operating roughly in line with the budgets. Those budgets were used as the basis for part of our cash flow forecast for the first six months of the administration which, as Mr Bloom mentioned, we believe we will meet.

  283. So there have been no hidden nasties?
  (Mr Hill) No. The situation is that there are clearly a number of challenges in the administration to bring the company into its most saleable state, which is our responsibility as administrators. Clearly there are a number of risk areas in the business, for example, on the West Coast negotiations which are still at large and hopefully we will know more about shortly.

  284. Can I touch, Mr Bloom, on the legal aspects of the process that you have to go through in selecting a preferred buyer at the end of the administration process? At the moment there is a bid team putting together a company limited by guarantee which is being funded by the Strategic Rail Authority and through the SRA by Government, yet ultimately it is Government who have the final right to setting the parameters to work within and indeed ultimate to affect your final decision. Is there, either in legal terms or, from your perspective, in professional terms a conflict of interest between those two roles of Government, as both proxy bidder and final arbiter?
  (Mr Bloom) It is not for me to provide you with the Government's or the company limited by guarantee's legal advice. They will have taken advice. As administrator the important thing as far as we are concerned is to make sure that there is proper demarcation between the responsibilities and that is a responsibility that we have taken very seriously.

  285. Can you tell us a little bit about how you try to ensure that?
  (Mr Bloom) Yes. We have ensured, for example, that there are completely different teams dealing with this, that the team from the department that deals with the regular reporting from the administrators to its funders is different in every respect from the team from the department that has any liaison with the company limited by guarantee. We have also sought and received those representations from the Strategic Rail Authority. We have also sought and received those representations from all other parties that are connected with the company limited by guarantee, so in every respect we are treating the company limited by guarantee in exactly the same way as we are treating any other interested party, that is to say, for example, to date we have given no interested parties any information whatsoever.

  286. Does the same apply in financial terms because clearly the company limited by guarantee is receiving public subsidy whereas none of the other bidders is?
  (Mr Bloom) As far as the company limited by guarantee is concerned, if it is receiving funding for its bid, that is the business of the company limited by guarantee and its funders. Other funders will take a view as to the level of commitment that they are prepared to take to the bidding process.


  287. You are saying in effect that as far as you are concerned you give totally the same treatment to anyone, whether it is the company limited by guarantee or anybody else who wants to make a bid? They will get exactly the same treatment?
  (Mr Bloom) Indeed.

Chris Grayling

  288. Does that mean that the company limited by guarantee has to fight on equal terms with other bidders?
  (Mr Bloom) Absolutely.

  289. So there is no pre-ordained outcome to the process?
  (Mr Bloom) There is no pre-ordained outcome to the process, no.

  290. Mr Armitt, the investment in the network under the 10 Year Plan and under the SRA Plan depends in huge measure upon the ability of the industry to get Special Purpose Vehicles up and running and working. Based on the experience you have so far of Railtrack, and indeed on your experience of the industry, how viable is it to assume that those Special Purpose Vehicles will be set up and will work, and will work most particularly within the time frame set out in the SRA's Strategic Plan, given the fact that some of the projects in that plan will come to fruition very quickly and perhaps unrealistically quickly?
  (Mr Armitt) The Special Purpose Vehicles seem to me to be a variant on PFI. When you are putting those sorts of things together the fundamental driver for the private sector is what return are they getting for the risks that they are taking. That eventually becomes, in all PFI schemes which involve Government and the Treasury, a trade-off in risks, so at the end of the day the private sector will put money into something where it believes it is getting a sensible return for the risks that it is being asked to take. The issue then for Government is, is it prepared to take the risks that the private sector is saying it thinks are for Government to take? It is a negotiation at the end of the day. I do not see why they should be doomed to failure. They can take a reasonable length of time, there is no doubt about that. On Thameslink 2000, for example, which is being discussed at the moment, I am getting an SPV going for that. It would be wrong to suggest that they are anything other than complex.

Mr Donohoe

  291. Mr Bloom, of the £2.9 billion that you require for the next six months, how much of that is private money?
  (Mr Bloom) None of that is private money.

  292. So in addition how much private money is to be keyed in over the next six months?
  (Mr Bloom) None. I mentioned this at the last hearing. I do not regard there as being any prospect of raising private sector funding during the administration period. The £2.9 billion that we referred to is the facility that the department put up for the first six months.
  (Mr Hill) Would it help if I explained what that Government funding covered and the rationale for it?


  293. Yes, Mr Hill, we would like a breakdown, but very briefly.
  (Mr Hill) Railtrack spends money very broadly speaking on maintenance and repair of the railway network and on enhancement projects. Enhancement projects in the past have been funded from the debt capital markets. With the onset of administration that source of finance was cut off and therefore it was necessary for us to have a funding line from Government to cover both the day to day operations and the funding of the enhancement projects, as well as to pay creditors that arose prior to the date of administration.

Mr Donohoe

  294. When you sell the company on are you going to sell it as one or is it possible that it will be broken up and sold as several parts?
  (Mr Bloom) That is something that we need to continue to keep under review in our discussions with Deutsche Bank. What I am confident about is that to the extent that we present a solution to the Secretary of State it is going to have to be a complete solution rather than a partial solution.

  295. Is one of the options for the Government to maintain its ownership of Railtrack?
  (Mr Bloom) It does not own Railtrack now.

  296. But could it? Could that be an option that you would consider?
  (Mr Hill) It is not an option that would be put to us because as administrators of Railtrack Plc we do not control the shares in any event.

  297. Who gets the money from the sale?
  (Mr Bloom) The creditors and the shareholders to the extent that there is sufficient arising from the bidding process for there to be enough.

  298. And the money that the Government is giving over the next six months is not taken into that equation? They do not get given that back?
  (Mr Bloom) Clearly any bidder coming in—this is for any bidder—under the Secretary of State's guidelines is going to need to cater for the debt that has been built up during the administration as well as the debt that was in existence at the date of administration. That is part of his guidelines.

  299. Is there not the potential then that it is possible that the amount of debt that is built up and the Government has been paying for and will pay for over the next six months will be more than the possible saleable value of Railtrack?
  (Mr Bloom) Clearly, as time goes on and the funding increases, you are right to say that as it were the crossbar that needs to be jumped by any interested party rises; that is true. We need to keep under review the timescale of the administration sale process in the context of that debt building up, but we are confident that there will be bidders out there that will be prepared at the very least to come up with a proposal that creates value for creditors. The issue is the extent to which there will be value above and beyond that.

  Chairman: I must remind Committee members that they are questioning Railtrack on the 10 Year Plan. I know it is a strange idea.

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