Examination of Witness (Questions 800
WEDNESDAY 7 NOVEMBER 2001
800. Would it surprise you to know that they
are still saying that even though they might actually get a register
at the time you wanted them to get it, it will still not give
you any indication of the quality of any of those assets?
(Mr Winsor) It would surprise me if they said it would
never give an indication of the quality.
801. I did not say "never", but they
said "it would not give".
(Mr Winsor) It will not give that immediately. Railtrack
had three goes at establishing an asset register. You would think
that a company which was dependent for everything on the quality
and performance and capability of their assets would know what
they are and the condition they are in and so on. After three
aborted attempts, I had to take steps, which I explained to the
Committee last time I was here, to establish an obligation on
Railtrack to establish such an asset register. That obligation
is now in place; it is part of their network licence and the process
contemplates the setting up of an asset register according to
a timetable which I will dictate and they will not. Having left
it to the commercial discretion of the company and it having failed,
we realised that we could not leave it that way any longer. What
they cannot do is create an asset register overnight. Therefore
there is a staged programme which I supervise for the establishment
and building up of the asset register. Railtrack put to me proposals
in relation to the asset register earlier this year; they were
unsatisfactory. They have made significant improvements in them
and I believe that we are going in the right direction on that.
802. Why do you think it is that Railtrack,
a private company, failed to look at the needs of its customers?
Would you say that they gave any thought at all to the needs of
the travelling public?
(Mr Winsor) I do not know why they neglected that.
There are two sets of customers: there is the immediate customer,
the train operator, freight and passenger; then there is the ultimate
customer, the travelling public and the freight customer. Why
did they neglect their customers? I do not know. I know they did
it. I have been working with Railtrack or facing Railtrack since
1993, first as legal adviser to the first Rail Regulator, and
then four years in private practice as a lawyer, and now the last
two and a half years as Regulator. It has puzzled me as to why
the company cannot get the simple commercial truth of serving
your customer understood and implemented in the proper and competent
way. I do not know the answer to your question: why did they neglect
their customers? I know they did.
803. One of the consequences of what has happened
is that we are told Virgin may be seeking compensation because
of Railtrack's failure to deliver West Coast Main Line modernisation.
It is also alleged that Virgin may be considering increasing their
fares, possibly by up to 30 per cent, partly as a way of receiving
that compensation. Do you have sufficient powers to investigate
and rule on an action of that sort?
(Mr Winsor) The fares increases?
(Mr Winsor) I have powers under the Competition Act
1998, because I am one of the competition authorities with jurisdiction
on the railway, to consider whether or not the company is abusing
its dominant position. I have had complaints in relation to Virgin's
fares on the West Coast Main Line which I have given very anxious
and careful consideration to. There were 34 complaints in all.
If Railtrack had not been in administration I would by nowbecause
we have been slightly deflected by this state of affairshave
announced my decision on that matter. I have not yet announced
my decision on that matter. The answer is yes, in some instances
I have jurisdiction. The question is on the particular facts.
I shall be announcing my decision on the Virgin fares cases quite
soon. In relation to Virgin seeking compensation for Railtrack's
failure to deliver on phase two of the West Coast Main Line upgrade,
I do not know how much compensation they are seeking, but I assume
that the company seeks compensation because they expect that Railtrack
is not going to honour their contract, which was signed on 8 June
1998. That contract contains carefully designed compensation mechanisms,
and if a supplier breaks its contract with its customer the customer
will make an appropriate claim for breach of contract. I believe
that is what is going to happen. That is commercial life. Railtrack
being in administration does provide a rather awkward state of
affairs, because administration means that you have protection
from your creditors and Virgin, if the Secretary of State does
not alter the position, would have a right to compensation against
Railtrack in administration. But if Railtrack PLC, once the assets
are taken out to the company limited by guarantee or whatever
comes next, goes into insolvent liquidation, then Virgin's claim
will not be met in full. However, I believe that the Secretary
of State has said that all creditors of Railtrack PLC will be
paid. I do not know whether he means just trade creditors or whether
he means people who have illiquid claims for compensation. I simply
do not know.
805. Would you have powers to investigate whether
the public were being asked to pay higher fares to pay for Railtrack's
incompetence? Would that be an issue for you? Would you have sufficient
powers to look at that?
(Mr Winsor) I can assess whether or not an operator
is charging fares which are too high in certain limited circumstances,
but to determine whether or not those fares are higher because
of Railtrack's failures, may very well be part of the investigation.
It would be unlikely that I would be able to take action against
Railtrack in that respect, but I would really need to consider
that question once the application was made. It is very complicated.
806. The previous complaints made to you about
Virgin's increase in fares was made some 17 months ago and I have
a letter from you dated 17 months ago after I had complained about
Virgin's very high fares increases on trains between Liverpool
and London. You told me then, 17 months ago, that you were considering
using your powers to look at possible abuse of monopoly power.
In October of this year you gave me a whole complicated list of
reasons why you had not reached the decision and you were going
to do so soon, but now you say that decision would have been announced
had it not been for what has happened recently. That enormous
time lapse, 17 months, and the complexity which you spell out
in your letter to me of October this year suggest to me that you
might not have the powers you need to regulate fares in the public's
interest. Would I be right in saying that?
(Mr Winsor) Yes, you would. I must, as every public
authority must, only act within my powers. Parliament, in passing
the Competition Act 1998, has conferred powers and jurisdiction
on me in this respect. I must assess first whether I have jurisdiction
to deal with the complaint as it has been presented to me, and
only if I have jurisdiction can I proceed then to a decision.
When I announce my decision on the complaint, I shall explain
to all those who have complained to me, including yourself of
course, the basis of my decision. I may say that it is not an
807. May I get a point of clarification from
you on the sums of money you allocated to Railtrack in your most
recent allocation of funding to them? Would it be correct to say
that in period one the figure for spending on renewals, maintenance
and operational expenses was £12.9 billion and that you were
only offering an increase from £12.9 billion to £13.3
billion in your most recent calculation for the next five years?
(Mr Winsor) I do not have the figures in my head.
I shall have to let you have a note on that I am afraid.
808. You will let us have a note on that.
(Mr Winsor) Yes.
809. Is it the case that Railtrack approached
you during the summer to express concern that some of your public
pronouncements about them were affecting perceptions amongst the
bond lending community and indeed they substantiated that complaint
with written evidence from a major financial institution? If that
is the case, how did you respond?
(Mr Winsor) I do not recall the written evidence from
the financial institution, but my memory may be failing me. They
did write to me saying that the statement I made in June that
they should put away their begging bowl and stop hawking themselves
unwanted round WhitehallI think that is the one you are
mentioningwas having an adverse effect. How did I respond
to that? I met the Chief Executive, Mr Marshall, at one of our
regular meetings and I explained to him that the company should
get on and concentrate on the recovery of the network, which was
still very fragile, concentrate on that. They had enough money
to get by until the application for the interim review as a result
of Hatfield and I did not want the companythis was the
motive behind their statementexpending very scarce senior
management time preparing for an interim review instead of getting
back the services to passengers and to freight customers which
were in a very serious and adverse state. That was the explanation
I may say, though, that the financial markets,
in relation to the statements and actions which I have taken in
my period as Regulator, have responded with, you may think, an
extraordinary degree of uniformity in regarding the steps I have
taken as being positive in relation to the company. I shall make
the point very briefly. That is because when I have pressed the
companyfor example in relation to having proper and sound
asset knowledge or being responsive and competent in relation
to its costing projects and its dealings with customersthe
financial community have realised that if Railtrack does do these
things it will become a stronger, more competent and more successful
company. I once said in exasperation to Mr Gerald Corbett, the
previous Chief Executive of Railtrack, that it was a source of
some surprise and disappointment to me and my colleagues that
Railtrack sometimes appeared to be a company which would only
be successful if it were compelled to be successful.
810. If the Secretary of State had pressed ahead
with the emergency legislation described to you on that Friday
afternoon, would you have resigned?
(Mr Winsor) I answered that question earlier.
811. We have gone round that one once or twice
already. Finally, are you really saying to us that this was a
company which was not capable of doing what it was supposed to
be doing, but had a means of applying to you, but did not do so
and that as far as you were aware had not supplied you with sufficient
accurate information which would enable you to assess whether
they were or were not insolvent?
(Mr Winsor) Broadly, yes.
Chairman: I am very grateful to you and we are
very impressed by the quality of your evidence. Thank you.