Despite the highly publicised appointment of a new Chairman, Railtrack is effectively a spent force, and there’s no point either trying to revive it by financial force-feeding or badgering it with enforcement orders it cannot possibly meet. What is needed, contends CHRISTIAN WOLMAR, is a root-and-branch re-examination of the structure of the industry by the new Government after the election.
So the railways are getting back to normal. Well, if having eight out of ten trains running on time and 700 temporary speed restrictions across the network is normal, it shows how far we have to go before we get a ‘world-class railway’, the favourite expression of the new Railtrack Chairman, John Robinson.
In fact, all the news about Railtrack during the past few weeks backs up one of the regular themes of this column: that the company is not viable in its present structure and that Labour will have to re-examine the structure of the industry once it is re-elected.
Let’s start with the appointment of the new Chairman. While I wish him the best of British in his new rôle – he will certainly need it – it’s deeply disappointing that no-one with any experience of the railways could be found to do the job and, even more important, that his rôle is a part time, non-executive one. Heading Railtrack is an incredibly onerous job and, as Gerald Corbett found, it is impossible for one person to do.
So, while Corbett’s successor, Steve Marshall, the Chief Executive, can run the company, deal with the Regulator and try to win back shareholders’ confidence, he really needs the support of a Chairman who can take on the tasks of appearing on radio and TV, talking to politicians and government, promoting the company publicly and so on. A part-time chair who lives outside London, even though he is paid a staggering £300,000 a year, is just not enough to provide Steve Marshall with what his predecessor used to call ‘air cover’. If Railtrack had really wanted to show the City that it was determined to regain the confidence of investors, then it would have appointed a full-time executive Chairman to lead the company out of the mire.
Just how deeply Railtrack has sunk into that mire was demonstrated by Sir Alastair Morton’s evidence to the Commons Transport Sub-Committee on May 1, when he told the MPs that there was a ‘fair old hole’ in the middle of the industry’s finances left by the ‘very damaged and sick’ Railtrack’s collapse. The company had been expected to raise some £8bn towards the ten-year transport plan announced by the Government last year, but he accepted now that this money would not be forthcoming.
The enormity of this has not yet been understood by many in the industry, politicians or, indeed, the Regulator Tom Winsor who intends to keep pressure on Railtrack over the next year (RAIL 409): “This is certainly no time for slackening off,” said Mr Winsor. But he has failed to understand that we are in a completely new ball game.
This column was highly critical of Mr Winsor’s review of access charges which gave Railtrack virtually everything it had sought during the protracted negotiations. But Hatfield changed all that. Now that you can buy a Railtrack share for about the same as the price of an all-zones Travelcard on the Tube and there is no prospect of a significant rise in the share price, Railtrack is a different beastie altogether. It is no longer seen as the engine for investment in the network but is, instead, what Mr Winsor’s temporary predecessor, Chris Bolt, called a ‘boring utility’. It no longer needs the fat rates of return guaranteed by the access charge review but, also, paradoxically, it does not need Mr Winsor breathing down its neck and throwing out enforcement orders with which it cannot possibly comply.
Therefore memo to Tom: “Railtrack is already dead and there’s no point kicking it any more. But nor is there any point trying to revive the deceased by forcefeeding it with pound coins like a goose being fattened up to create foie gras.”
If Railtrack were not already dead, the company’s board demonstrated its suicidal tendencies when leaks to the Sunday newspapers suggested it was going to pay a dividend to shareholders while simultaneously announcing that it had lost £300m in the last financial year. (This is being written before the official announcement and neither the precise figure, nor the level of any dividend, is yet known.)
So let’s just recap for a moment. Here we have a company bankrupted by its own incompetence, which has just negotiated for a £1.5bn Government grant to be paid five years in advance and now it wants to reward its shareholders for the terrible risks they have undertaken by paying out a dividend. Pinch me and tell me this is not true.
One of the first statements uttered by Mr Robinson was that the Government would have to pay more money to achieve the aim of a world-class railway. Everyone agrees with that, but the Treasury is becoming wary of funding even the present levels of commitment under the ten-year plan – some £26bn over the next decade, of which just over half is subsidy for services. While the Treasury is no-one’s favourite organisation, there is some justification to its scepticism given what has happened to the West Coast Main Line project, which makes the railway look like the same bottomless pit that used to worry governments during the life of BR.
Savour this for a moment. The West Coast upgrade – new electrification, new signalling, and extensive trackwork – is costing a staggering £6.3bn: that’s £100 for every man, woman and child in this country, a figure that may still rise. As a rail industry insider put it, “How can they spend that much without using £20 notes to fuel the welding equipment?”
In its recent pamphlet, Building the railway for the future, the Railway Forum reckons there will be £25bn of investment in the railways between 1996 and 2003, 85% of it by the private sector. Yet it is difficult to observe the fruits of that spending, which suggests that much of it has been wasted. While obviously more rolling stock has been ordered than under BR (though partly to make up a three-year hiatus during privatisation), in other respects we are merely paying more for the same output. Contrast, for example, the cost of the East Coast Main Line, refurbished and electrified by BR in the late 1980s for around £600m at today’s prices, with that of the West Coast project today. Or the fact that station reopenings are so much more expensive now than they were under BR. Moreover, much of what gets counted as investment today – such as compensation payments to train operators due to possessions, profit margins, station refurbishment, maintenance of rolling stock and even some track work – would either not have existed under BR or not been counted as investment in those days.
This extra may well have been worth paying in the days when Railtrack could raise most of the money it needed for investment. But now, instead, Railtrack is a black hole. Lord Berkeley of the Rail Freight Group has calculated that in the next five years about £18bn, or 70% of Railtrack’s income in that period, will come from the Government either directly or through access charges. Currently the company’s shareholders hold about £2.5bn of stock. Can there conceivably be any financial, practical or economic justification for those shareholders to retain control of the company – and, as we have seen, even earn dividends in bad years like 2000/01. (Answers on a postcard or e-mail, please.) They are not just pocketing taxpayers’ money but since they are the only block to a major restructuring of the industry, they are holding back a rational reorganisation that would deliver a cheaper and more efficient railway.
Even Railtrack’s new Chairman, John Robinson, agrees. When he was appointed, he said the railways had not been privatised in a very sensible manner, given the separation between operators and the infrastructure provider, but – and I paraphrase my hated phrase – “we are where we are”.
You don’t hear the Chairman of Nestlé’s or Coca- Cola saying anything like that about their own companies. Let’s hope that Mr Robinson, after a few weeks in the job, will realise that Railtrack has to work with the rest of the industry towards the creation of a more rational structure. Otherwise, he will not get his ‘world-class railway’.
Eurostar’s stellar prices
A family of friends who were staying with me wanted to go to Paris for a couple of days and, being environmentally conscious, wanted to travel on Eurostar. They were staggered to find that the only fare available to them, since they were not staying over a Saturday night and had not planned their trip weeks in advance, was an amazing £300 return, much more than several airline deals available.
Now remember this is a service whose creation was largely funded by public money. The £1bn-worth of trains was simply given to Eurostar, and BR/Railtrack spent hundreds of millions of public money on improving the track in the South East to increase capacity and line speed for the trains. And now only the affluent and tourists on pre-booked tours are able to use the service which, presumably, will become even more expensive once the first section of the Channel Tunnel Rail Link is opened in two years’ time.
This raises questions about why the Government is spending £1.8bn on subsiding the CTRL, which is for a service that few of us can afford to use. It should be a condition of providing this money that cheap tickets are available, possibly through a system which charges higher fares for early-morning and evening peak travel.