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Railwatch 076 - July 1998

Westminster Watch

Eurostar link

A crucial statement on the Channel Tunnel rail link was made by Transport Secretary John Prescott on 3 June.

He briefly gave an account of how the original agreement between London and Continental Railways and the previous Government had been based on an over-optimistic forecast of Eurostar revenues, without commissioning independent forecasts to confirm LCR's figures.

"A failing we have now put right," he said.

In order to conceal public subsidy for Channel Tunnel financing, Eurostar had to pay for train paths it was not using.

"Even this week I was asked to find £100 million to pay for specially designed sleeper trains which do not work, have never been used, and are now lying idle in a field."

In January of this year the agreement nearly collapsed with LCR requiring an extra £1.2 billion of taxpayers' money for building to proceed. Mr Prescott said he could have abandoned the deal with LCR which would have meant a further delay of two years while an alternative consortium could be found to construct the link. Also "the equivalent of two thirds of the grant would have to be spent on Eurostar's debts and continuing losses with nothing to show for it. Eurostar is losing £150 million a year. If we multiply that by four or five years compensation, it is clear that I would have had to pay an amount almost equivalent to the grant for the project, but would have got nothing in return."

He therefore asked the company to reconsider its financing and come forward with proposals to meet its original obligations.

Stressing the importance of the project to all sides of the House, Mr Prescott had signed with LCR and Railtrack a statement of principles which meets all requirements.

"Under this public-private partnership, LCR has been strengthened. A new management team is in place, and LCR has agreed to raise more equity to support the project. Railtrack has agreed to take a key role in building the link. It will manage construction for the railway to north Kent, and will commit to purchase it upon completion. Railtrack will have an option to build and buy the remainder of the link."

The Secretary of State said LCR was under an obligation to build the entire 68 miles of railway from the tunnel to St Pancras on the same route, and to the same specification as originally agreed.

New consortium

The extra burden on the taxpayer would be £140 million and construction would begin "towards the end of this year". A new consortium had been formed to partner LCR in operating Eurostar, consisting of BA, National Express Group, SNCF and SNCB.

The section to North Kent should be completed by 2003 and construction of the section through Ebbsfleet and Stratford to St Pancras is expected to start in 2001, to be completed by 2007.

On the future of regional Eurostars Mr Prescott assured the House that LCR were still under an obligation to provide the infrastructure for these services. "The trains for those services are currently lying idle." He has asked for an urgent review of the situation, and for proposals to be put to him before the end of the year.

He also told the House that the consortium proposes to establish a service from Heathrow to Paris as early as 2001. This should, in time, "establish Heathrow airport as an integrated transport interchange of international importance."

£3.7 bn of bonds

Some details of the financial package are:-

  • The Government's credit will stand behind £3.7 billion of bonds issued by LCR privately in the City to fund the project.
  • The debt will be repaid out of the proceeds of the sale of the completed link. The risk of the Government incurring liabilities under the guarantees is therefore remote.
  • The Government will take a public stakeholder share in LCR, yielding a 35% share of the company's pre-tax surplus after 2020.
  • The Government will have a 5% stake in the Eurostar management company.
  • The parties have agreed to reduce the concession from 999 years to 90 years. "In 2086 the railway and the Eurostar service will revert to public ownership."

In general the statement was welcomed on all sides of the House but several members were sceptical that phase 2, from north Kent to St Pancras would ever be built.

Gillian Shephard (Con, S W Norfolk): "What guarantees can Mr Prescott give that phase 2 will be completed , and can he give us a timetable?"

Matthew Taylor (Lib Dem, Truro and St Austell): "....the agreement has not secured a guarantee of the completion of phase 2."

Chris Pond (Lab, Gravesham): "Will the Deputy Prime Minister give us a clear assurance that the second stage will proceed as quickly as possible?" MPs were also concerned about the effect on commuter services in the interval between phases 1 and 2 being completed since CTRL traffic would be pushed on to the already saturated tracks of south London.

Regional links

Mr Prescott replied that having got the finance for CTRL in place he would now turn his mind to alleviating those problems.

Some MPs were worried about the prospects for regional links.

Sir Brian Mawhinney (Con, NW Cambs) wanted some estimate of when regional services down the east and west coast main lines would start.

John Gunnell (Lab, Morley and Rothwell): " ...will Mr Prescott ensure that he has raised with those responsible the question of the direct link to the north of England?" and again from Hugh Bayley (Lab, York): "Is it not important that the committee looks at regional services before the new line is completed?"

Mr Prescott replied that he had asked, "whether if there are spare sets there now, we can do something about starting some useful services right away."

And "I have been looking at the sort of stock provided for the Channel Tunnel service, and at the sleeper stock, for which the taxpayers now have to fork out £100 million because it cannot be used.

"It is important to try to get the rolling stock working. I am doing all I can, and perhaps I shall be able by the end of the year to give a more appropriate and informed answer than I can give today."

Sir Robert Smith (Lib Dem, W Aberdeenshire and Kincardine), Mike Gapes (Lab, Ilford S) and Alan Clark (Con, Kensington and Chelsea) all expressed doubts about further aspects of the agreement. What if Railtrack decided not to buy the completed link? What happens if LCR fails to raise the additional equity in the financial markets? What penalties can be imposed on LCR in 2001 if it fails to begin construction of phase 2?

Robust response

To the latter point Mr Prescott said he had shown he was quite prepared to act robustly if anyone is in breach of contract. "Mr Clark can expect me to ensure that LCR fulfils its obligations."

One of the difficulties with private companies is that they can go bust and say: "We are not going to do it." However the Government has international agreements and obligations.

As for raising the necessary finance in the markets, the Government has made judgements about guarantees involved in raising money.

"Those guarantees, we have been assured, are sufficient to guarantee the borrowing requirements and the stability and credibility of this company." Previously LCR had said that in order to raise the £1 billion it needed, it wanted another £1.2 billion sweetener to attract the market to put in the equity.

"I am not doing that, because it is too expensive. I have found a better way which is better for the taxpayer."

Train operators

A debate on the train operating companies was initiated on 1 April by Rhodri Morgan (Lab, Cardiff W) chiefly concerning the problems of Great Western Trains and its takeover by FirstGroup (formerly FirstBus). He was very critical of the way the franchise had been awarded initially to a management buyout team, and the huge sums the Great Western directors had gained from operating a dreadful service.

He said some MPs had a meeting with the head of FirstGroup who had told them it was better for FirstBus to take over GW Holdings as it was a plc whereas GW Holdings was only a limited company. It was easier for a plc to build itself up into a powerful operator to do good deals with the rolling stock companies and raise money on the stock exchange. Mr Morgan wondered why, then, had the franchise been offered to a limited company in the first place. It seemed to indicate to Mr Morgan that the franchise director knew all along that the management buyout team was just a front organisation which would not last long but was more politically acceptable in the run up to a general election.

Julia Drown (Lab, S Swindon) intervened to ask how it could be that directors were getting millions of pounds as a result of the takeover when constituents from Cardiff to Swindon are waiting for better services, improved safety and cheaper fares.

Responsibility

Mr Morgan implied that the original directors had an incentive to run down the service as it would then give a good reason for the franchising director to approve the takeover.

Sir Michael Spicer (Con, W Worcestershire) said Mr Morgan was implying almost a conspiracy to let the services deteriorate when it was more likely to be "some fluke". Mr Morgan questioned the extra trains promised as the price of the takeover, the so-called "extracted passenger dividend" saying these had already been planned for since last autumn.

Mr Morgan was also concerned that the crashes at Newton Abbot and Southall had left Great Western two trains short with no surplus cover available. Also he was worried that the management at the time of these crashes, having sold out with great financial packages, would not be held accountable if found guilty of errors at the end of the enquiries.

He was also concerned that in the timetable a further five minutes has been added to the schedules between South Wales and London making the journey 20 minutes longer than 20 years ago.

Matthew Taylor (Lib Dem, Truro and St Austell) expressed concern that despite a doubling of public subsidy since privatisation, passengers have not yet seen the return.

"On the contrary, the franchise agreements and allowances have delivered fare increases this year on several of the worst performing lines." Complaints were up 96% and on Connex South Central they were up a whopping 158%.

He also criticised the speed with which the Regulator approved the takeover of Great Western.

"The Regulator first met FirstGroup on 4 March and by 6 March, the deal was announced." He agreed with Mr Morgan that the benefits the Regulator said had been gained by the takeover "had already been advertised and the processes were already under way."

He said the penalties to be imposed for late running, etc. were a joke. "Whatever the ultimate benefits or the quality of the companies may be, the Great Western takeover has shown the regulatory system failing to deliver the benefits it should deliver.

"It has failed to deliver passenger consultation and it has left Ministers powerless."

Traffic reduction

The ironically named Road Traffic Reduction (National Targets) Bill had its third reading in the Commons on 28 April, moved by Cynog Dafis (Lab, Ceredigion). Ironic because it transpired during the debate that the Government would allow the Bill to proceed only if no targets were set! Mr Dafis gave as reasons for having such a Bill as helping to save a significant number of lives, significantly reducing ill health, thus saving money, improving the quality of social life which is seriously disrupted by heavy traffic, and improving the environment. All of which, suggested Sir Nicholas Lyell (Con, N E Bedfordshire) were good reasons why many more new roads and by passes should be built.

Mr Dafis said the Bill as drafted proposed a 10% reduction in traffic at 1990 levels by 2010.

He felt targets would emerge as a consequence of the strategies the Bill would engender.

Edward Garnier(Con, Harborough) said it was unclear whether the Secretary of State was to publish and report targets and if there was going to be an element of local targeting. Mr Dafis replied that local authorities already had the power to set targets. This Bill referred to national targets for Wales, Scotland and England.

He further suggested that a 10% reduction would be needed to meet the 20% reduction in carbon dioxide emissions by 2010 that the Government had agreed to.

Road pricing

As to how the reductions would come about he reiterated suggestions by transport consultant John Whitelegg of land use and planning policies, parking policies, bus promotion policies, travelcards, cycle facilities and traffic management. Professor Whitelegg had emphasised that it could all be achieved without significant increases in fuel prices.

Owen Paterson (Con, N Shropshire) said the only mechanism that would work would be the price mechanism.

Mr Dafis disagreed, saying this would result in a loss of public support for traffic reduction measures.

Eric Forth (Con, Bromley and Chislehurst) doubted if there was public support anyway. He felt this was another example of a phenomenon which was becoming more common, namely the "single interest group" Bill.

He thought the whole thing was a conspiracy by Friends of the Earth to hoodwink MPs into voting for traffic reduction when most people didn't want it.

"Over the last two or three weeks there has been a well-organised phone-in campaign in my constituency about the Bill." Beware of MPs like Mr Forth. If he gets only a couple of letters about a subject he ignores it because it indicates very little concern, and if he gets hundreds he ignores it as being an organised campaign. Perhaps the Tory party organised a campaign to get him elected.

Limousines

Tom Brake (Lib Dem, Carshalton and Wallington) was disappointed with the Government's actions to date in relation to road traffic reduction and CO² emission reductions. He referred to the situation where foreign transport ministers were ferried from Manchester airport to a green transport conference in Chester in a fleet of 60 limousines instead of by train.

Patrick Nicholls (Con, Teignbridge) said he had had several letters from constituents supporting a Bill on traffic reduction, but unfortunately this Bill was not it!

People wanted substantial traffic reductions but this legislation would have no effect. He wondered if Ministers would forsake their ministerial cars for bikes.

Electrification programme stalls

Transport Minister Glenda Jackson supplied the following details when asked by Gareth R. Thomas about the progress of electrification over the past 10 years.

YearRoute miles electrified¹Region²
1988/89105n/a
1989/90106n/a
1990/91227n/a
1991/92-16n/a
1992/9315n/a
1993/9436n/a
1994/950n/a
1995/9643London North Eastern
1996/9718North West/East Anglia
1997/9812Great Western
1998/99 (to date)4Great Western

¹ The figures between 1988/89 and 1993/94 refer to the net change in the electrified network i.e. changes are net of any closures of any electrified routes.

² Information broken down by region is not readily available for the years between 1988/89 and 1993/94.

CrossRail delay

A report on the prospects for building London's CrossRail should be published later this year - a year late - Transport Minister Glenda Jackson told the Commons on 7 May.

Note: contact details (postal and email addresses, along with telephone numbers) in old editions of Railwatch out of date. Click CONTACT US for latest contact details.


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