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

Memorandum by T Martin Blaiklock (NAT 5)


  1.1  The Chairman of the Transport Sub-Committee may recall that in October 1999 I wrote to her suggesting that the NavCanada-type trust company structure might provide a suitable model for the proposed NATS privatisation at the time**. The Chairman kindly passed my letter to the DETR, and on 8 November, 1999 John Prescott, Deputy Prime Minister and Minister for the Department of the Environment, Transport and the Regions, replied that, whereas the Government had studied a range of options including NavCanada, "there is no UK equivalent to the NavCanada legal structure". He added that: "NavCanada's entire capital base is sourced from external financing—the vast majority is via long term bonds secured against the future revenue of the company".

    [**:I also suggested at the time that such a structure could similarly apply to Railtract,. . . and three years on we have the Network Rail CLG!!!].

  1.2.  Notwithstanding the additional comment by the Deputy Prime Minister that NavCanada was: "strictly speaking a private sector body", a criterion which should stand in its favour in any privatisation exercise, I let the matter rest as it was clear that Government (and CAA) preferred a conventional privatisation which presented the prospect of bringing in £800 million to HM Treasury in 2001. The NavCanada solution would not have brought such monies to the Treasury at "sale", as the ATC assets would have just been transferred to the new not-for-profit trust company for minimal consideration. Additionally, I also felt unable to challenge the somewhat dubious argument that there was no UK legal equivalent to NavCanada, albeit that any such privatisation would have required approval by Act of Parliament, and through such Act, which of necessity have to be prepared by lawyers (the highest paid professionals in the land and the best to be found in London) it should have been possible to create the appropriate corporate vehicle at the same time!!


  2.1.  We now learn that TAG, the owners of newly-privatised NATS, has a cash-flow shortfall due to an unforeseen down-turn in air traffic. Reports (FT Dec 2001) suggest that TAG really needs £100-200 million additional capital injection. Other reports (ref. PFI Feb 20, 2002) suggest that TAG and the Government will inject £30 million each as an interim measure, whilst TAG seeks an early approval of CAA to a five per cent increase in tariffs. It had been anticipated that tariffs would not be formally reviewed before 2005.

  2.2.  The problem facing TAG (which to a certain extent could be mirrored by Railtrack plc (RIP) and, in future, LUL/TfL PPP) is that Government controls tariffs and, therefore, the revenues of these private sector monopolies. TAG on the other hand, notwithstanding any comment as to its business intentions to be "not-for-profit", is structured precisely to be a profit-generating venture. Further, the business regulatory regime is confrontational, bolstered by a misplaced notion perceived in Whitehall that it is imperative to preserve an element of competition in all PPPs at whatever cost. (How one can preserve competition in what, in effect, is a private sector monopoly is rather beyond me at times!!).

  2.3.  The NavCanada trust structure is not faced with such problems as NavCanada adjusts and sets its own tariffs as required to meet shortfalls or in the event of gains, albeit it operates under an admittedly benign, but no less effective, regulatory regime,—but then is not the intention of any PPP as well? The UK PPP culture of risk transfer and allocation,—as opposed to sharing the upsides and downsides,—combined with the institutional desire to maintain competition is not necessarily conducive on occasion to optimal public-private co-operation, particularly for monopoly services.

  2.4.  These conclusions are best exemplified by the supposed reluctance of Government/Treasury to support any bail-out of TAG/NATS to the tune of £30-60 million, notwithstanding that Government had received £800 million in the privatisation a few months earlier!! Whereas it was right to question why TAGS wanted this specific amount and the impact of September 11, etc, on their business plan, the bail-out consideration seems minor in contrast to the overall consideration of the transaction.

  2.5.  Overall, I have to question whether the Government and their advisers (CSFB?) for the NATS privatisation in the first place chose the best and most flexible corporate structure for a "NATS PPP". Some alternatives, such as NavCanada, could have avoided the recent conflicts and perhaps better served the public interest (notwithstanding leaving the Exchequer a bit poorer in the short-term).

T M Blaiklock

27 March 2002

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