Examination of Witnesses (Questions 280
WEDNESDAY 6 FEBRUARY 2002
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.
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.
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
(Mr Bloom) There is no pre-ordained outcome to the
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.
291. Mr Bloom, of the £2.9 billion that
you require for the next six months, how much of that is private
(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.
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 inthis
is for any bidderunder 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.