Supplementary memorandum submitted by
Comptroller and Auditor General (PAC2000-2001/11)
UNDERTAKING MADE BY THE FRANCHISING DIRECTOR
The purpose of this letter is to comment on
the statutory contingent liability, which the Franchising Director
of the Shadow Strategic Rail Authority (SSRA), Mike Grant has
entered into with the franchisee Midland Main Line Limitedhis
letter of 10 August to the Chairman refers.
The guarantee has been entered into an order
to secure investment in franchise assets necessary to enable the
current train operator to meet their obligations under their franchise
agreement. It is in the nature of this investment in station improvements
that it will also contribute to the continued operation of the
franchise in the future, beyond the term of the current franchise.
As such the investment will form part of the "designated
assets" of the franchise which the franchising arrangements
require to be owned by the franchise operator. If Midland Main
Line Limited lost the franchise when it comes up for renewal the
benefit of their investment would be transferred to the new franchisee.
The guarantee entered into by the Franchising Director secures
Midland Main Line Limited's investment against this risk.
Whilst the maximum value of the guarantee has
been set at £19 million, any amount payable would be based
on the unpredicted value of the assets at the time the guarantee
All statutory contingent liabilities exceeding
£100,000 must follow the parliamentary reporting rules agreed
with the PAC and covered by Government Accounting.
Under the requirements of Government Accounting
(chapter 26), after obtaining Treasury approval, a department
must lay before the House of Commons a Minute describing the amount
and duration of the guarantee and the body or bodies involved,
and any other relevant information. The department should also
send copies of the Minute to both the PAC and the relevant departmental
Select Committee. The Minute provided by Mike Grant via the PAC
complies with these requirements to the extent immediately possible
while the House was in recess in August. The Minute was subsequently
laid before the House of Commons on 3 November.
During the course of our audit of OPRAF's appropriation
account we obtain assurance on the regularity of transactions
with train operators, but there is no separate disclosure of contingencies
in these accounts. Outstanding contingencies across all departments
are however, set out in the Supplementary Statements in the Consolidated
Fund and National Loans Fund Accounts. Subsequently, the accounts
of the Strategic Rail Authority, into which OPRAF is to be subsumed,
will require disclosure of contingent liabilities and the relevant
note to the accounts will be covered by the audit opinion.
No action is required, however, on Mike Grant's
letter or the Minute that he has now laid.
Comptroller and Auditor General
4 December 2000