Supplementary memorandum by the Department
for Transport, Local Government and the Regions
Is it possible that the board of the Strategic
Rail Authority might include nobody from Wales?
Under section 202(3) of the Transport Act 2000,
among the members of the Strategic Rail Authority, who are appointed
by the Secretary of State, must be one person appointed by him
after consultation with the National Assembly for Wales. There
is no obligation for the person so appointed to have been born
in, or currently to be resident in, Wales. But under section 202(5)
of that Act, in making any such appointment after consultation
with the National Assembly, the Secretary of State shall also
have regard to the desirability of appointing a person who is
familiar with the special requirements and circumstances of Wales.
The National Assembly has called for a strong
voice in the new body which succeeds Railtrack. How will Wales
be represented on that body? Should the National Assembly be included
in work in progress?
It is for the Administrator to put a proposal
for a transfer scheme before the Secretary of State based on propositions
he, the Administrator, has received and evaluated.
The Government has already made clear that a
Company Limited by Guarantee (CLG) could be an attractive successor
to Railtrack plc. The outline of a possible CLG was announced
on 23 Octobera copy is attached for information. The SRA
recently announced its sponsorship of a separate team, which will
construct a robust proposal around the CLG model to take over
Railtrack plc's railway assets and its role as Network Operator,
and which will put the proposal to the Administrator. It is envisaged
that a CLG would have a highly professional management board responsible
for running the company. It would also have a membershipwith
a governance role equivalent to that of shareholdersmade
up of a broad cross-section of key industry stakeholders. The
majority of members would be from the private sector, although
representatives from other bodies such as regional agencies might
also be included. The precise arrangements are for the CLG bid
team to develop.
There has also been third party interest in
taking over the rail network. The Government has welcomed this
interest and has published guidelines to assist bidders in the
formulation of their proposals. It will be for the Administrator
to judge a proposal for a CLG alongside any other serious bids
that are made.
Can you give us an idea of what you see as the
advantages and disadvantages of a not-for-profit company?
A CLG would be a private company without shareholders.
It would operate on a commercial basis but would invest any operating
surpluses back into the network. A CLG would have the interests
of the travelling public as its priority, not the need to increase
shareholder value. It would have the management, board and independence
of a conventional PLC, including strong financial and other incentives
for directors to achieve demanding performance targets. The board
would be accountable to members representing the key interests
in the rail industry, including passenger groups and TOCs. It
would be able to promote collaboration around the wheel/rail interface,
the absence of which has been one of Railtrack's weaknesses. Some
90 per cent of the company's income would be covered by stable
long-term contracts. We would expect a CLG to have a solid investment-grade
credit rating and anticipate that the cost of capital would be
lower than it would have been for Railtrack. A CLG would also
operate with much lower risks than Railtrack, concentrating on
the operation, maintenance and smaller-scale renewals of the infrastructure
whilst major enhancement projects would be undertaken by Special
It is for the CLG bid team to develop a robust
proposal based around this framework to put to the Administrator.
Does the department have in place a system for
manning any potential conflict of interest then as the department
that is developing the proposal and the department that ultimately
has ministerial responsibility for choosing the successful business?
The formation and sponsorship of the CLG bid
team is the responsibility of the SRA. The team will be at arm's
length from the Government and the department. It will be led
by Ian McAllister, Chairman and Chief Executive for Ford Motor
Company Ltd, and will be supported by its own financial, legal
and technical advisers. Arrangements will be put in place to ensure
the most appropriate demarcation between those involved in preparing
the CLG bid and those advising on the appraisal of a transfer
scheme put forward by the Administrator. Appropriate mechanisms
will also be set up to regulate the flow of information between
the department and prospective bidders to ensure that no single
bidder gains an unfair advantage.
Mr Mark Coulshed
Head of Railways Sponsorship Division
19 December 2001