Examination of Witness (Questions 20-39)|
WEDNESDAY 10 APRIL 2002
20. I think we are all willing to accept that
as a theory but, of course, if you do not have sanctions that
are effective, if that is not the case then it will not be just
Arriva that you have problems with, it will be other companies.
I think Mr O'Brien's question is a very valid one. Are we to assume
that your new franchise contracts will be not only tougher but
clearer and carry quite positive sanctions if the conditions are
broken, otherwise you are selling our passengers short?
(Mr Bowker) It will be all those things.
21. We have your word for that, Mr Bowker, because
you will remember that you will be coming back to see us again.
(Mr Bowker) I do. The contracts will be all those
things. I would also say that I am trying to get, and the evidence
is we will succeed in this, a spirit or relationship with the
franchisee where they actually want to be
22. I am not too hot on spiritual relationships.
I have enough trouble with spiritual relationships with any men.
(Mr Bowker) I think you misheard me. To try to get
one where it is win-win.
Chairman: Now you have got Ms Jackson and Mr
Bennett both wanting to ask you about Arriva.
23. Arriva are also involved in the Trans-Pennine
franchise bid, which could have been linked with the Northern
franchise but the decision was taken not to. My question is are
all the bids now with you for the Trans-Pennine franchise and
in what specific ways are you going to look at those bids in the
light of the failure of Arriva to deliver on its present franchise
(Mr Bowker) The bids are in.
24. How many have you had?
(Mr Bowker) That is a matter that is commercially
confidential because I do not want bidders to know what their
competition is at the moment, there is still negotiation to be
had. It would be wrong to prejudice the analysis of the bids on
the basis of one specific issue for one specific franchisee. However,
we will take into account all the matters that we think are relevant
and clearly past performance and what they are saying about delivering
future performance will be important factors in assessing the
25. Many of those bidders have raised with us
and other MPs from the northern area, like Mr O'Brien, the fact
that delivering satisfactorily on that franchise relies on a higher
standard of investment for upgrading the track, etc., vis a
vis the south east and they have made that point quite strongly
to us. How are you in practice going to ensure that you use the
franchise bid process in order to redress the balance, which you
say you are keen to do?
(Mr Bowker) In redressing the balance you mean between
26. The south and the north.
(Mr Bowker) I am not sure where the statement necessarily
comes from that the bids for the Northern Rail franchise, for
example, means that there is more infrastructure investment required
to address the infrastructure. I do not think that we would necessarily
accept that as the position. We think that what we have done with
Northern, or what we will be doing with Northern because we have
not started the tender process yet, is we will be setting a core
specification for what we want out of Northern, it will be done
in consultation with the PTEs because they have rights and we
have begun that process already. That will set the core specification
and it is against that specification that they will bid. What
we are doing in the process, however, is ensuring that bidders
have the opportunity to offer more than the core specification
so we can see what the incremental cost and benefit is of doing
more than what is in the core.
Chairman: I do not want to get stuck for too
long on Arriva. Mr Bennett.
27. You have just told us finally that Arriva
is not a very satisfactory way and in the new contracts you want
to avoid that and put in other mechanisms. Really that fine on
Arriva means that passengers are paying twice, are they not? They
got poor service and they in one way or another are going to pay
the fine, are they not, because if it is possible the trains will
be cleaned even less, there will be shorter trains and they will
make savings in other ways? Is there not some way in which you
can make sure that the shareholders of Arriva actually pay the
fine rather than the passengers suffering twice?
(Mr Bowker) Because Arriva Trains North is on a final
year contract now we have seen the budget for Arriva Trains and
there is no evidence that what you suggest will happen. They are
under obligations to carry on delivering the service notwithstanding
the fine that has been imposed upon them. If I may go back to
the first thing you said, I did not say that I want to get rid
of fines, I want to find another way. Going back to the earlier
point, it is important that these contracts are tough and that
we are prepared to be tough if we need to be. Both those things
will happen but I want to add a new dimension which is to make
sure we do not end up in this position, that the contract, the
relationship, is such that performing and delivering service is
by far the best solution for them and us.
28. Can I just be indulged on one question on
the Northern Spirit. You did say when you last gave evidence to
this Committee that Arriva or any other company that were subject
to strikes would not be penalised. Can you give a guarantee that
is still the same as the strike is ongoing, two more days have
been announced. Arriva are caught by train drivers and now guards
want the same as drivers. Do you see any way you can improve this
(Mr Bowker) The negotiations between Arriva and its
management are and must remain a matter for the company and their
staff and their union representatives. We have made available
some limited relief in their performance regimes. That is done
because not to do so would actually cause an imbalance in the
playing field between the two sides and we do not want to create
a situation which prolongs any industrial dispute, so we have
done that. The resolution of that is a matter for Arriva and its
29. Could you be more specific giving a broader
split between the three areas in compromise negotiations between
the split of private sector contributions, train operators, rolling
stock leasing companies and infrastructure investment?
(Mr Bowker) On Arriva or generally?
30. This is a general question.
(Mr Bowker) I do beg your pardon, is that in terms
of the amount of the investment or the amount of competition for
31. I think it is the amount of investment over
the length of the franchise. You are probably aware that the Freight
Transport Association told us that their members will only invest
where they can see certainty. What I am asking you is can you
provide clearer details of what the financing of individual projects
will be to help project certainty?
(Mr Bowker) I think on Northern, until we finalise
the core specification, what the franchise will be, and until
we finish the consultation with the PTEs it is difficult to do
that. There will be investment in all those areas because that
is necessary to deliver a core requirement. We are in the process
of discussions around what can be done in terms of the longer
term investment. I think it was clear in the Strategic Plan that
there is not significant capital investment assumed in the Northern
Rail franchise but there is substantial investment in terms of
continuation and improvement, where we can, of the service that
we currently have today. The franchising process is designed to
isolate opportunities where the costs and benefits represent value
for money and if we can justify those then those are things we
can take forward.
32. When you gave evidence last time this question
was asked: what is the ball park figure in terms of investment
from the private sector vis a vis the 10 Year Plan. If
memory serves me correctly you stated, and I think the Secretary
of State confirmed, a figure. I cannot remember what that figure
was but it was significant. You may recall it. The question was
asked "Yes, but how does that figure break down in terms
of rolling stock, the train operating companies and so on and
actual infrastructure investment" and I think your response
was you were not prepared to talk about that really because it
might compromise negotiations. Could you remind the Committee
what the overall figure of private investment is to date and would
you be prepared to consider the same question again, how much
of that is infrastructure investment and how much of it is rolling
stock, leasing companies and so on?
(Mr Bowker) The numbers in the Strategic Plan are
£33.5 billion of public expenditure over ten years, over
the 10 Year Plan horizon. In terms of the private sector investment,
and it is dependent upon the assumptions that are used to support
the calculations because cost of finance, interest rates, etc.,
are all part of that, is a number broadly around £30 billion.
The difficulty of breaking it down further than that is because
a lot of the financing that we get in that £33.5 billion
is actually a revenue support to underpin borrowing by the infrastructure
operator, so it is not very easy to say out of that number exactly
how it is split.
33. I am happy with that. Can you remind the
Committee of that £34 billion of private sector investment
that the 10 Year Plan envisages, how much to date has come from
the private sector?
(Mr Bowker) So far we have secured private sector
investment totalling around £370 million for the Chiltern
franchise and roundly £100 million for the GNER two year
34. So as we sit here today, out of that 34
billion we have got half a billion?
(Mr Bowker) In terms of what is actually contracted
for since last December that is what we have got secured.
35. Half a billion.
(Mr Bowker) Sorry, if I may, my apologies. We have
also now secured the GoVia contract for additional rolling stock
for South Central, that is another roundly 450 vehicles, so that
is about £600 million. That is in addition to the amount
36. So that is a billion.
(Mr Bowker) Yes.
37. And all that is rolling stock basically.
(Mr Bowker) No. In the case of Chiltern some of it
relates to, for example, station improvements and track doubling.
38. I do not wish to press you on these figures,
that is not what we are here for, we understand there are difficulties,
but it is extremely important. Of the figures that you have just
given us, which is roughly about £1.1 billion of the £34
billion that is required, the majority of it is rolling stock,
leasing and so on, there is this element of it that is infrastructure
that concerns one area and a number of stations. Are you able
to give the Committee some sort of general figure of how much
that infrastructure investment is that relates to the stations?
(Mr Bowker) From memory, although if you will forgive
me I will come back to you and confirm it, it is in the order
of 150 million. Can I just make one point, if I may. The rolling
stock investment is quite a mature market and it has now been
developed over four, five, six years, so rolling stock leasing,
the techniques for it are quite well developed. The other thing
is with things like Mk I replacement rolling stock, that is quite
front-ended in the plan anyway. The infrastructure investment
which will come through on the upgrades and enhancement and through
techniques around SPVs, for example, is more further down the
plan. The work is going on but securing financial closure for
these things will come later, so the split at the moment is not
Mr Stevenson: I do not want to prejudge the
Committee's questions but I wanted to get on to SPVs.
Chairman: I think we can move on to that, particularly
as you mentioned GoVia.
39. How many Special Purpose Vehicle negotiations
have you got on the go at the moment?
(Mr Bowker) There are discussions under way on South
Central on GoVia which at the moment are primarily related towards
finalising what we call a functional specification for South Central.
That will lead into detailed SPV discussions in due course. There
are discussions under way at the moment on Thameslink 2000 and
there are discussions under way, at least at a preliminary stage,
on the East Coast Main Line upgrade. Both of those latter two
are inextricably linked with the detailed design and feasibility
and business case work that is also going on. Really the SPV closure
is the last thing you do before you start the construction period,
so these are parallel processes that are under way at the moment.