Further memorandum by The Railway Forum
You recall that when The Railway Forum last
submitted comments on Passenger Franchise Policy (AL/HP/0157 dated
17 September 2001) we stated:
Specific concern about the short-termism
implicit in the DTLR consultation document on Passenger Franchise
Policy and that it seemed to discourage longer-term commitment
Our concerns that the DTLR's draft
Directions and Guidance did not adequately cover the issue of
investment in the railways. We were particularly disappointed
that SPV procedures were becoming extremely convoluted and as
such promised little chance of success. Furthermore the Rail Modernisation
Fund, which seemed such a promising initiative in the 10-Year
Plan, has still not been created.
That Britain's railways faced the
very difficult prospect of implementing very demanding and costly
outcomes of major legislation. This is an area where the regulators,
as a group, have yet to develop strategies with which we can be
Since then, of course, the "landscape"
in the railway industry has changed fundamentally. In such circumstances
the success of any franchising policy, in a situation of so much
financial and organisational uncertainty, must remain a matter
of considerable concern. We must now move on as quickly as possible
if we are to sustain the confidence of our customers and keep
the momentum of improving and expanding the railway on anything
like an even course.
Turning to specific questions you raise.
PLC BEING PLACED
At the immediate level the placing of Railtrack
plc in administration has caused a potential hiatus in the new
re-franchising processes that affects the industry as a whole.
The most positive outcome is that it presents an opportunity to
look at ways of re-incentivising the franchise process and assessing
the possibility of vertical integration and maintenance special
purpose vehicle solutions.
In general terms the proposals for a company
limited by guarantee (CLG) is considered workable by the industry
with the essential proviso that the nature and extent of Government
financial support needs to be clarified. The key issue is that
the CLG places the Government in the position where it has to
guarantee the financial viability of the company. We remain concerned
that the size and scope of this commitment is not yet clear. Until
it is there will be a natural reluctance for commercial lenders
to commit themselves further to the industry. It will take a very
considerable amount of time for the CLG to build up sufficient
reserves to provide a security against borrowing and, in any event,
such a process will largely remove the prospect of the CLG's operating
surplus being returned to new investment for many years to come.
Assuming a CLG is created the structure of a
professional executive board, overseen by a committee of members
drawn from groups both inside and outside the industry, both provide
a much better basis to ensure that there is a closer understanding
of industry-wide problems. Furthermore, if there is a concentration
on solutions that meet specific conditions and circumstances across
the network (we believe that there is no case where one size fits
all) a much more flexible system can be developed. The key requirements
are that the network operator CLG should be the freeholder and
that there needs to be a mechanism for setting clear and precise
standards across an infrastructure that can handle diversity.
Turning to the issue of the regulatory bodies,
we support the principles that were laid out by the Secretary
of State DTLR in his statement to the House of Commons on 15 October,
and further amplified by his written response to Mr Mark Hendrick
MP of 23 October. There is clearly a case for regulation to be
Our key point has always been that public money
should be used to lever in the best deal from the private markets.
We remain concerned that the sheer scale of undefined risk in
the infrastructure and the risks and costs inherent in infrastructure
enhancement are not yet clear and, until they are, it is extremely
difficult to identify how best we can deal with them. We anticipate
the SRA's Strategic Plan in November will begin to clarify the
issues. Once we have a better understanding of what is required
we would strongly support an open and robust debate as to how
risk is to be allocated and managed.
26 October 2001