Strategic Rail Authority: Improving passenger rail services through new trains (HC 408-i) Public Accounts Committee 1 Mar 2004

Evidence given by Mr Richard Bowker, Chairman and Chief Executive and Ms Nicola Shaw, Managing Director, Operations, Strategic Rail Authority (SRA), Ms Vivien Bodnar, Director of Rail Performance, Department for Transport, Mr John Armitt CBE, Chief Executive, Network Rail, Dr Timothy Walker CB, Director General, Health and Safety Executive and Mr George Muir, Director General, Association of Train Operating Companies (ATOC).

Q50 Mr. Gerry Steinberg (City of Durham): What effect has the fact that franchises have not been renewed had on companies ordering new stock?

Ms Shaw: On the whole we are talking about two different things. In franchising we specify what we want to buy and that includes, on occasion, new stock.

Q51 Mr. Gerry Steinberg (City of Durham): I think you misunderstand me. I mean the fact that you have not given out franchises or have been late in giving them has prevented certain companies from investing in new stock. I talk, for example, about GNER, whose chief executive has openly said to me that they were not prepared to invest in new stock until they knew who was going to get the franchise. Is that generally the policy of the TOCs?

Ms Shaw: Train operators do have to be, as you would expect, sensible and pragmatic about their investments. We are looking to re-let the GNER franchise in particular from next year and that will be a franchise let ---

Q52 Is that not three years late?

Ms Shaw: It is the time we think is best in order to get the best out of the market.

Q53 Mr. Gerry Steinberg (City of Durham): But because it is three years late, that means they get no new stock on the East Coast main line.

Ms Shaw: Rolling stock has a very long life and in relation to replacement of it, we need to think ahead, I absolutely agree. That means we need to take a long view both about when we replace franchises and when we start the process for acquiring new rolling stock. The two things have to be done in concert and we have to make that clear both to different bits of the rolling stock market and to the train operators. I do think we are doing that now, because we do have this longer-term look at how we replace franchises and how they acquire new rolling stock.

Q54 Mr. Gerry Steinberg (City of Durham): Is there any way of saying how much more new stock there would have been on our railways if the franchise had been given out a lot sooner and not, for example, three years late as far as the East Coast main line is concerned? If the franchise had been given out two years ago on the East Coast main line when it should have been, presumably an order would have been put in for new stock by now and they may well even have it. The fact is that they still have the old stock, because they are not prepared to invest. I think they are wrong, because I cannot understand why they cannot invest. I cannot remember who answered the question, but he said that it was advantageous to them to lease anyway. Presumably whoever got the new franchise would just take over the lease, so I cannot understand why they give this argument, but they do give this argument. How much rolling stock has not been on our railways, simply because the franchises are late?

Mr Bowker: Very little, is the answer I would say. If you take the example of GNER, it is a very good perspective on where we have come from. Two or three years ago there was a view that it would be invest, invest, invest, without sufficient effort being put into really understanding the business case, the transport case and the financial case for new stock. The situation on the East Coast is actually a good case in point. What they have done there is to refurbish the existing trains without a new franchise. So you will see now that all the IC225s are being fully refurbished without the benefit of a new franchise.

Q55 Mr. Gerry Steinberg (City of Durham): One.

Mr Bowker: It is the first one delivered, but unfortunately you cannot take too many out of service because people want to use them. We can only do one at a time, but more are coming into Traffic and will do. Better planning, which we have been able to take a lead on, will actually save us money downstream.

Q56 Mr. Gerry Steinberg (City of Durham): I still do not really think I have had an answer but perhaps I should ask a different question. Why have the franchises been so late? Why have they dragged their feet with the franchises?

Mr Bowker: As a general point ---

Q57 Mr. Gerry Steinberg (City of Durham): Was it because Railtrack was so useless?

Mr Bowker: No.

Q58 Mr. Gerry Steinberg (City of Durham): Yes, it was.

Mr Bowker: I do not think it was.

Q59 Mr. Gerry Steinberg (City of Durham): That is what they told me.

Mr Bowker: It is probably, if I were putting my hand up, that the SRA has not actually been as good in terms of putting together its overall franchising.

Q60 Mr. Gerry Steinberg (City of Durham): I was told it was because Railtrack were so useless they had nothing to invest and therefore no franchises were going to be given out until they knew who was going to invest.

Mr Bowker: Are we talking specifically about the East Coast?

Q61 Mr. Gerry Steinberg (City of Durham): Oh, yes.

Mr Bowker: On the East Coast two or three years ago there was a view that the only way to sort the East Coast out was to throw about £3 or £4 billion at a major route upgrade. With the benefit of all the analysis I have seen, I genuinely cannot think of a better way to waste money. What we have done is work with Network Rail to develop a specification for the East Coast which will deliver real value, services to passengers and value to the taxpayer. It does not need to be as big.

Q62 Mr. Gerry Steinberg (City of Durham): Will you declare an interest?

Mr Bowker: Me personally?

Q63 Mr. Gerry Steinberg (City of Durham): Yes; when the franchises are given out.

Mr Bowker: In what respect?

Q64 Mr. Gerry Steinberg (City of Durham): You worked for Virgin, did you not?

Mr Bowker: I do not believe that is relevant. I did work for Virgin, past tense, yes.

Q65 Mr. Gerry Steinberg (City of Durham): I went further down the line than I intended to there. Can you turn to page 27? If we look at paragraph 3.5, from the very beginning of the paragraph, right down to where it says "There was insufficient manufacturing and managerial expertise, however, to handle these orders", I got the impression that basically it was blaming privatisation for the fact that no orders for rolling stock were put in for the years 1994 and 1995; and very few in 1996. It was because the industry knew that privatisation was going to come along and therefore, as one would expect, orders were not placed. Why is it that since 1988 right until 1993 there was a huge decline in the ordering of new stock? Why?

Mr Bowker: Referring to the figure on page 13, I am not entirely sure I would agree that it is a huge decline. There is evidence of ---

Q66 Mr. Gerry Steinberg (City of Durham): In 1988 527, down to nought in 1994 seems to me to be a decline. Clearly it is not in your view.

Mr Bowker: No; no. I think the point you made around privatisation is absolutely right.

Q67 Mr. Gerry Steinberg (City of Durham): I am accepting that, but I am asking why there was such a decline from 1988 when privatisation was not on the cards.

Mr Bowker: From memory, I think privatisation was openly talked about from 1991 onwards. If you look at the cyclical nature of rolling stock ordering, actually up until 1992, yes, it is true 1991 was a slightly lower year but broadly on average around the 400 mark if you take an average. It is clear that there was a hiatus in that period, which is shown very clearly on this graph and then we see this position, immediately afterwards, when people rushed to buy new trains. At one level, that was a tremendous thing, because people were really keen to invest, get new trains, deliver to customers.

Q68 Mr. Gerry Steinberg (City of Durham): How much has been invested since 1997?

Mr Bowker: The total amount in capital terms on new rolling stock is around the £4.2 billion mark.

Q69 Mr. Gerry Steinberg (City of Durham): Why have there been blips in 2000 and 2003, why has there not been a continuous rise?

Mr Bowker: Part of the answer to that is because of the nature of the orders which are placed. If you place an order, for example for South West Trains, you will almost certainly place that order for all the rolling stock, because it is broadly of the same age, it is all about 30 years' old and that is around 700 vehicles. If one of the smaller train operating companies places an order it will be for far fewer vehicles. There is an element of phasing, which historically comes from when they were last replaced. I do not look at that and think something went really wrong in 2000. You do have to take a view of three or four or five years and look at what the average trend is roughly.

Q70 Mr. Gerry Steinberg (City of Durham): I think it was the last time that Railtrack appeared in front of us that we were astounded to learn that they did not know what they owned, in terms of line, they did not know what they owned in terms of infrastructure, they did not know what they owned in terms of land, they had no idea what the state of the infrastructure was, they had no idea what the state of the tunnels was, the points, in fact it was a complete and utter mess. The track had deteriorated since they took over, the track was in a worse condition than it was before privatisation and they were all unaware of this. If I am exaggerating this, I would hope that the NAO would step in now and say I have my facts wrong, but I seem to remember that was the picture which was painted for us the last time they were here. What has changed?

Mr Armitt: There is a very significant database which is now in existence, which has been built up over recent years. There are two aspects to this: one is knowing what you have and the other is knowing what its condition is. I made the point earlier on that I did not think the railways were unique at that stage of privatisation in not having a good picture of what they owned; the same probably applies to the water industry. On the railways, first it is a matter of knowing what we have and we do know what we have. We know what the scale of the network is and we know our land ownership, we know our building ownership. The next question is: what state is it in? What is its condition? When is it going to need replacing? We are growing our database on that daily and by the middle of 2005 we expect to have a very good understanding of the state of the network.

Q71 Mr. Gerry Steinberg (City of Durham): That sounds good and that sounds excellent, but if you actually turn to page 17, paragraph 2.9, that is not what it says, is it? It says "The SRA told us that action had not been taken sooner because Railtrack did not have comprehensive or reliable information on the condition of its infrastructure, including the available power supply". Are you saying that has changed now?

Mr Armitt: I am saying it has changed very significantly and in the case of the Southern Region it was an issue around the power supply. The power supply was known, what was there was known. The question was how compatible it was going to be with the new trains. That is the issue which has in a sense dogged everybody on the Southern power upgrade.

Q72 Mr. Gerry Steinberg (City of Durham): Is it fair to say that you now have all the information which is required?

Mr Armitt: We are building up the information all the time and we will have it completed by mid 2005.

Q73 Mr. Gerry Steinberg (City of Durham): Railtrack were incompetent and they were unhelpful and until Byers made that brave decision to get rid of them, as far as I am concerned anyway things were never going to improve. Have things improved now?

Mr Armitt: I think things have improved. As a company we have made a lot of changes in the last two years. We have taken some serious decisions in that time and the largest of course was to take maintenance back in house under our own control so that we had direct control of one of the core activities of the business. Our relationships with the other members of the industry are a lot better than two or three years ago and we are working very closely, for example on operational control aspects on the railway, with train operating companies today in order to improve performance.

Q74 Mr. Gerry Steinberg (City of Durham): I shall hold you to that. I have criticised Railtrack and Network Rail, but frankly one has to look at the train operating companies as well. If you look at page 28, paragraph 3.9, there are three bullet points. The second and third bullet points clearly seem to say that when trains were developed by the train companies they never consulted Railtrack or Network Rail to find out whether the infrastructure needed to be altered to accommodate new trains; they did not inquire who would pay for any infrastructure work required. In other words, we have an organisation which has been split off and sold, with six bosses we can see here, but clearly another 106 out there somewhere and nobody seems to know what is going on, nobody seems to liaise. How can you build a new train or new rolling stock and not enquire whether it will actually work on the network and who will pay for the infrastructure work? How can you do that?

Mr Muir: All the new train orders which we placed were going back to a period in the mid 1990s when there was, in my view, a very poor level of strategic thinking in the procurement of the new trains. Through the procurement exercise at the beginning of train franchising there was a huge demand on the train operators to introduce new trains, as it says in this report and is evident from the ---

Q75 Mr. Gerry Steinberg (City of Durham): What is the point of introducing new trains if you do not know whether they are going to work on the line, on the infrastructure?

Mr Muir: There was a degree of optimism about the reliability which could be achieved, which was wrong. The trains should have been introduced, the orders should have been slower; we should not have ordered this large quantity so quickly.

Q76 Mr. Gerry Steinberg (City of Durham): That does not really answer the question on why you did not consult. You could have ordered thousands if you had wanted to and consulted and everybody would have been delighted. Mr Bowker, will you ensure that liaison becomes important and this can never happen again?

Mr Bowker: We are certainly taking steps in that area. We will ensure that in the new franchise agreement there are quite clear obligations in terms of new rolling stock, what it has to achieve, when it has to be delivered and so on. That is something where the past is unacceptable and we have to get it right in the future.

Mr Muir: The issues became evidently dreadful in 1999 and a lot of people got together at that time and realised this was intolerable and had to be sorted out. A group was formed called the train acceptance group, promoted by the ROSCOs, the train operators, but under the auspices of the SRA which worked very seriously to try to improve the handling of new train delivery. The most recent large new order for new trains, in particular the Siemens new trains for South West Trains, has been handled in a much better way than was done in the past. The people who are running it for the train operators are complimentary about Network Rail and about the acceptance process. It is much more defined than it was before, the criteria are much better and the trains are coming in in a much more reliable way than was achieved in the past. In the last three years the industry has done a massive amount to improve its internal exchange of information and organisation.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.