Examination of Witnesses (Questions 300
WEDNESDAY 6 FEBRUARY 2002
300. In the Strategic Rail Authority Plan recently
published there were a number of schemes that were deferred until
2015. The Great Western upgrade was one of them and there were
a number of others. I would like to ask a few questions about
the West Coast Mainline which is another extremely important project
in terms of the 10 Year Plan. When we questioned Mr Bowker, the
Chair of the Strategic Rail Authority, he was not able to be definitive
about phase two of the West Coast Mainline. I would like to ask
you, Mr Armitt, whether you would care to comment on the likelihood
of the West Coast Mainline phase two being completed.
(Mr Armitt) At the moment we are focused on phase
one. Phase two is a subject of discussion between ourselves and
the SRA and the train operating companies and there is a negotiation,
which is incomplete at the moment, with regard to precisely what
happens on the West Coast Mainline going forward to the degree
to which to which the original scope of works is included in the
new agreement. It is still something which is open to discussion.
301. Would you say that these are matters of
important detail rather than the principle of the phase two going
(Mr Armitt) Important detail, yes, very important
detail. You will get to a point where somebody might say, "This
phase two is not the phase two that we originally envisaged because
of the adjustments which have been made".
302. I see, so the negotiations that you referred
to include the prospect of a fundamental change in what was envisaged
in phase two originally of the West Coast Mainline operating?
(Mr Armitt) I would say that we are not seeking to
reduce phase two and it is a commercial issue as to the affordability
at the end of the day.
303. I understand that, but you are not seeking
fundamental changes to the ingredients of phase two?
(Mr Armitt) No.
304. You talked about a case being made to the
regulator for a review on more resources. Does that include the
anticipated cost of the phase two West Coast Mainline upgrade?
(Mr Armitt) Not specifically. I will ask Mr Smith
to comment in detail.
305. Not specifically. That was a very brief
answer which I welcome. If they do not how can we have any confidence
at all in the West Coast Mainline phase two going ahead if Railtrack
Plc, in their case to the regulator for a review, which you hope
will produce more resources, does not include that in there at
(Mr Smith) Can I answer that? Any applications to
the regulator for review will be across the network and will include
West Coast and the rest of the network. The bulk of expenditure
on phase two is renewal expenditure and so will be part of the
new plans. Yes, there will be remuneration issues associated with
West Coast, but that will be once the negotiations that John has
described have been completed, together with any consequences
for the specification and outputs of that work.
306. That sounds very interesting. What I want
to get at is, are you building into your case to the regulator
phase two of the West Coast Mainline as you understand the costs
of that, albeit a renewal or whatever it may be described as?
(Mr Armitt) The interim review fundamentally focuses
on the issues arising from Hatfield and the consequences of Hatfield
on the rest of the network which clearly in part would include
West Coast Mainline, so to the extent that we can demonstrate
that the consequences of Hatfield have influenced the cost of
West Coast mainline then that would be party to that.
307. Including phase two?
(Mr Armitt) Yes.
308. So it will be part of your submission?
(Mr Armitt) Yes.
309. Mr Hill, you said there were difficulties
in the West Coast Mainline negotiations. I wrote it down. Without
breaching confidenceswe would not expect you to do thatwould
you care to identify what the main elements of those difficulties
(Mr Hill) I did not intend to say that there were
difficulties with the West Coast Mainline negotiations. What I
was trying to get across was that there are a number of issues
within Railtrack that, in preparing the company for a transfer,
we would seek to be de-risked as far as possible.
310. De-risked? That is an interesting word.
(Mr Hill) By de-risking I am referring to reaching
a state of greater certainty for a potential purchaser coming
into the business. With West Coast Mainline we get to the situation
where it is agreed with the other contracting parties the precise
way forward. That will mean that a purchaser will be bidding on
the basis of a state of greater certainty in the process and therefore
offer a greater amount in principle for the Railtrack business.
I was not referring to a difficulty in particular with those negotiations.
311. Are you seeking to create a package so
that a a potential bidder would have the certainty that you refer
to in terms of this project, and I am using this project as a
very important example of our concerns, of phase two being completed,
paid for by the public purse and therefore no risk in that sense
would be attributed to a potential bidder?
(Mr Bloom) When we talk about de-risking what we are
endeavouring to do in the transfer process is to present the company
in the best way it can be presented in the light of what it has
achieved to date and, much more importantly, what it can achieve
going forward. The reason for supporting John and his team in
the business planning process in their review of the major projects
is to be able to take what we have got today, improve upon it
and get the business to the best possible state that it can be
in, at the highest level of performance and the highest level
of achievement immediately prior to transfer. The less uncertainty
there is, not just with regard to the West Coast Mainline which
you have used as an example but also with other examples (of which
there are a lot, and one was quoted earlier about the asset register),
the more one can do to improve the position of Railtrack in the
period up to the date of transfer, the better the condition of
the company in absolute terms on transfer.
312. Can I ask a final question about freight
specifically to Railtrack because there are concerns about the
West Coast Mainline freight capacity, as you know. Did Railtrack
approach Consignia to buy out their rail contract for the West
Coast Mainline and transfer it to road vehicles?
(Mr Armitt) Absolutely not.
313. What criteria are being used to assess
affordability on phase two of the West Coast Mainline?
(Mr Armitt) Phase two of the West Coast Mainline modernisation
is in a sense tied to a series of deliverables which clearly Virgin
and others have taken into account when negotiating their franchises.
To the extent that a franchise cannot be met, in part because
of an agreed change, then there is a financial consequence to
that being negotiated.
314. Does that mean that the adjustment is made
on what Virgin consider is affordable to them, not looking at
issues of impact in the regions?
(Mr Armitt) It is certainly not Virgin alone. There
are the other train operating companies, whether it is freight
or whatever. The train operating companies are the ones who have
the contractual obligations. At the end of the day I have no doubt
the rail regulator and the SRA will also want to understand and,
if necessary, make their own inputs into the final decisions which
are made, which can take into account the wider considerations.
315. Is it then the judgement about what train
operators want, or will it be in a sense delivering the targets
of the 10 Year Plan?
(Mr Armitt) It is very much, I am sure, a sense of
delivering the targets. What we want to do is deliver a better
rail service to the north west. A better rail service to the north
west will enhance the north west and
316. Who will judge what is good enough? You
keep using the word "better". Who will judge what is
good enough to come under that heading of "better"?
(Mr Armitt) At the end of the day the decision about
whether an investment is made must be based on people saying,
"What values are we going to get from this?" If the
values are more train paths with more frequent services, more
reliable services, then those are clear benefits which can be
set against the cost of
317. Who will take the decision in the end about
what is affordable?
(Mr Armitt) The decision as to what is a sensible
agreement will in the first place be made between ourselves and
those we are negotiating with, which are the train operating companies.
Having concluded those negotiations, I am sure we will be asked
to present the outcome of those to the SRA who will then take
a view, as will the rail regulator, on whether they believe that
is a sensible deal which is being done.
318. How public would this process be?
(Mr Armitt) The negotiations will certainly not be
public because they are commercial negotiations between Railtrack
and the train operating companies.
319. What about the decision taking?
(Mr Armitt) I cannot answer for the SRA as to the
extent to which they would wish to get involved at the end of
the day or how they would explain any views they had to a wider
Mrs Ellman: Do you see any major differences
between the 10 Year Plan and the Strategic Plan?