Select Committee on Welsh Affairs Minutes of Evidence

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 October—a 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 membership—with a governance role equivalent to that of shareholders—made 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 Purpose Vehicles.

  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

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