Examination of Witness (Questions 60 -
79)
TUESDAY 26 NOVEMBER 2002
RICHARD BOWKER
60. So it would not have been taken on that
basis because you wanted to prop up, say, Stagecoach, who were
having an AGM very rapidly after this discussion took place?
(Mr Bowker) The timing of Stagecoach's results announcement
was important, but—
61. Why; it is not really your responsibility
to protect the share price of a particular company, is it?
(Mr Bowker) No, it is not our responsibility to do
any such thing. But the task of putting in place a stabilisation
package with Virgin Trains was time-critical, it needed to be
done quickly in any event.
62. But why were you so determined that it was
only this way of stabilising the behaviour of both these companies?
What efforts did you make to find out whether anybody in the industry
would be prepared to take the franchise over if, in fact, the
companies were unable to do so?
(Mr Bowker) It was our view at the time—
63. Based on what?
(Mr Bowker) Principally based on the fact that we
were developing a document, which we had not yet then published,
which was a major revision, in fact I think a major revision probably
would be unfair. We produced on 9 October a West Coast Strategy,
which explained what would be delivered, what would be available
and when it would be available by, and any bidder for West Coast
Trains would have needed that to have been able to put forward
any meaningful proposal for a new franchise. That document was
not available, the work was not complete and it would have been
irresponsible to have tried to go to a market without being able
to explain what was going to be delivered on the West Coast and
when.
64. But you have told us consistently this afternoon
that the arrangement was basically to stabilise the companies
concerned?
(Mr Bowker) Correct.
65. And that as far as you were concerned the
sums of money—because we are not talking about small amounts
of money, are we—were because Virgin had lost so much money
it was not going to be able to continue without this agreement?
(Mr Bowker) The view that was taken by the Authority
at the time was that this was the appropriate thing to do.
66. But you have the right to take back the
franchise, do you not?
(Mr Bowker) We do; if the franchise defaults then
yes.
67. So what is the difference between what you
do now, when you give people a management fee and get them to
run a company, in the way that you are increasingly doing, and
the sort of deal you would have to do to keep Virgin and Stagecoach
dealing with this particular franchise?
(Mr Bowker) The arrangement with Virgin means that
if the renegotiation of the franchise cannot be concluded to our
satisfaction, we have the right to impose a management contract,
on indeed the basis you have said.
68. I am asking you. I have a letter from the
Minister that says: "These issues were brought to a head
by the risk that Stagecoach's auditors would issue an unfavourable
statement about the company's 49 per cent shareholding in Virgin
Trains . . ." Now was that the basis on which you took your
decision?
(Mr Bowker) That was a relevant factor in terms of—
69. A relevant factor?
(Mr Bowker) Yes; in terms of the timing of the need
to get this sorted. I do not believe, Madam Chairman, in allowing
any of these issues to be unresolved any longer than it takes
to resolve them. And with the question of West Coast Trains and
with Cross Country we decided that the most appropriate thing
to do, to protect both passengers and the taxpayer, was to carry
out this stabilisation package, publish our West Coast Strategy,
receive response and feedback from that, seek to negotiate with
Virgin Trains on both franchises, seek to understand the commercial
implications of Railtrack's non-delivery of the West Coast Mainline
upgrade and then make the appropriate decisions calmly and rationally
and not in any sort of rushed way. I felt it was the right thing
to do it in a structured, professional way.
70. How much notice did you give your board
of this particular set of circumstances before you required them
to take a decision, on what was really quite a large amount of
money, by a conference call?
(Mr Bowker) The board had been aware of the discussions
that have been going on with Virgin for quite some months.
71. So they knew every detail of the sorts of
problems, and you had taken soundings throughout the industry
which proved to you that no-one would be capable of stepping in
and running this franchise?
(Mr Bowker) I think, Madam Chairman, with respect,
if we had said to the industry, "Would you like the opportunity
to come and do something on the West Coast?" we probably
would have been told, "Yes, of course," but I think
that was not appropriate at the time. We had to put in place something
at reasonably short measure which would ensure that that business
kept on delivering service to its customers. There were other
relevant factors, which were to ensure that the new rolling-stock,
for example, which Virgin Trains had the expertise and the relevant
knowledge to ensure was brought into service, we ran the risk
of putting that back.
72. They had not run them though, had they,
Mr Bowker, these are trains which had not been run in this country?
(Mr Bowker) No, that is not true. In terms of the
Voyager trains on Cross Country, because, of course, we are looking
at these two things together, the Voyager trains are going through
quite an intensive period of introduction to service at this very
moment.
Mr Stevenson
73. Could I ask two quick questions on this,
because clearly it is extremely important. How much did Virgin
ask for in compensation?
(Mr Bowker) This is not a debate about compensation.
74. I am sorry, I will not use that term. How
much did they ask for, for stabilisation?
(Mr Bowker) £106 million.
75. So they got every penny they asked for?
(Mr Bowker) The analysis that we did, we took a view
at the time that it was an appropriate number to put in, as an
overall number. Let me be very clear about this. Virgin has not
received any money in compensation nor has the money gone out
of the franchise companies, the Train Operating Companies, to
the shareholders of that company; that is extremely important.
Chairman: To stop them going bankrupt, you mean.
Mr Stevenson
76. I apologise, through the Chair, for using
that term, I will try not to, and also I will try to remember
that you have no responsibility for the share value of Train Operating
Companies. I really will remember that. Just remind the Committee,
Mr Bowker, am I correct in recalling that, mainly due, if not
entirely due, to the problems with the West Coast Mainline, Virgin
had something like £300 million awarded to them in stabilisation,
whatever you like to call it, some months ago. Can you help me
with this?
(Mr Bowker) I am afraid I cannot, no.
Mr Stevenson: You cannot; well somebody will,
because I remember—
Chairman
77. It is obviously not true they wrote off
the amount of money that they were due to pay to the Treasury
on the original franchise agreements?
(Mr Bowker) The money that they have had, in order
to ensure that they can continue to run the franchises and deliver
services, amounts to a provision of up to £106 million, which
we did, and the abatement, the deferral, if you like, of a track
access payment to Railtrack, now Network Rail.
Mr Stevenson
78. How much was that?
(Mr Bowker) £91 million.
79. I have a different figure in my head, but
I will not labour you with that, but I will check that later.
So this stabilisation amount of up to £106 million paid to
Virgin is due to the West Coast Mainline situation?
(Mr Bowker) It is due to the situations that those
two franchisees now find themselves in, yes.
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