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Railtrack had to be put down sooner or later, but Byers botched it
Just over a century ago Orville and Wilbur decided that to build a wide body jet was a bit too ambitious for their first attempt at manned flight and instead the aviation industry progressed from their one man Flyer in tiny increments.
Thus with privatisation. We have spent the last nine years living with the evolution of the system. Even now I would hesitate to claim familiarity with the various contractual relationships, but I do have a grasp of the basic framework and, of course, there is a network of Informed Sources who can explain anything I need to know in the most arcane detail.
Which brings us to Railtrack Chairman John Robinson who joined Railtrack in June this year. Robinson is stereotypically the blunt Yorkshireman. He soon saw that the problem of the railways was the bureaucracy, such as all those people dealing with regulatory issues instead of running trains. A chum actually heard him say that the industry wasn't complex.
Well if you walk round a wide body jet, it doesn't look all that complex either, a long tube for the people to sit in, couple of engines to push it along and a couple of wings to lift it into the air. But this simple sculpture with its infinitely subtle curves represents the pinnacle of a century of progress, much of it learned the hard way.
So when, John Robinson did his ‘You run the shop, Steve, I'll sort out t' Government' bit, someone should have taken him on one side and explained that politicians are the sworn enemies of railways and on no account should be trusted, and that if he was going to talk to them he should take someone with more than a few weeks experience of what the privatised railway was all about. But they didn't and Robinson went off to see Stephen Byers and his pack of weasels in Eland House on his own.
As Tom Winsor put it to the Select Committee, Railtrack was going behind his back in search of more money and release from regulatory control. Did Robinson not realise that the regulator had the power to make the government give Railtrack more money? That one of the Regulator's duties was to protect the railway industry from a capricious government?
Apparently not. So off he wandered down the metaphorical dark alleys with his bulging wallet sticking out of his back pocket and his gold Rolex glinting in the light from an occasional window.
Of course, Railtrack will say that Winsor was antipathetic, quoting his (prophetic) phrase about ‘hawking begging bowls round Whitehall ' in support. And as Steve ‘the man' Marshall subsequently revealed, in private conversation with Railtrack Winsor had said that compulsory receivership might be in the company's best interests. This sounds like something from a slight tiff, as in ‘If you don't buy me that diamond ring I'll run off with the lodger', ‘That might be in your best interest, Darling'.
But as far as Winsor knew, his periodic review, which Railtrack had accepted in January, was enough to keep Railtrack going. That more would be needed because of the accelerated renewals after Hatfield was accepted and Winsor was expecting a proposal for an interim review in the new year.
Meanwhile Robinson and Byers are arguing over what Robinson said he wanted. at their first meeting. Byers says he was offered the three ‘Rs' – restructuring, renationalisation or receivership and that Robinson claimed that without more money Railtrack would be unable to make a ‘going concern' statement when it released its interim results on 8 November. Robinson says it was just restructuring and he wasn't seeking squillions of pounds and that Railtrack would not have been insolvent if the Government hadn't chose to make it so.
Unfortunately at the crucial meetings, including Black Friday, Robinson was on his own. He says his notes of these meeting will go to the Financial Services Authority which Railtrack wants to hold an inquiry.
For heaven's sake, John, unless you were scribbling as you talked, it is your word against the contemporary note written by that retiring young man or woman in the corner. John, they even have a note taker when I meet ministers for get-to-know-you chat.
Of course, the big argument is whether the Government had decided to go for administration before ‘Black Friday' 5 October. Byers says that while Winsor and Robinson were asked on 4 October to attend meetings, at 16.00 and 16.45 respectively, the next day, he didn't decide, no doubt with a heavy heart, to pull the plug until the afternoon of the 5 th .
But the documentation putting Railtrack into Adminstration was dated 28 September. So the government had already decided? Not at all, according to Byers. It takes time to produce a 71 page legal document and having it ready a week in advance was just prudent contingency planning since ‘it could not be drawn up overnight once a decision had been taken'. Robinson had a different view. ‘I tell you, he (Byers) says it was a contingency plan. If you were at the receiving end of it like I was it felt like a military operation. That was no contingency plan'.
But it is unfair to finger the Chairman for Railtrack's demise. Corporately, the board didn't understand the rules of the game they were playing. I mean, if you were a heavily regulated business like Railtrack, wouldn't you have your own Tom Winsor-clone who understood the legal powers and obligations, the ins and outs of the Railways Act?
Much has been made of the revelation (well, you read it here a month ago) that before giving Robinson the bad news Byers called in Tom Winsor and told him that if Railtrack sought an interim review to restore its position he would introduce legislation to curb the Rail Regulator.
Is that a threat or a promise?‘In terms of threats, there was no threat. In terms of the use of the regulator or denying the regulator his position, I was clear that the first people to raise the issue of suspending the regime of regulation were the advisers to Railtrack. Of course, in my conversations with the chairman of Railtrack on October 5, we covered the issue of how the regulator would deal with those matters, but the position was made clear at that time'. Stephen Byers, asked in the House to confirm that the Government threatened the regulator with legislation if he used his powers to intervene. ‘Mrs Byers said… he had the necessary authority immediately to introduce emergency legislation for the Secretary of State to give instructions to the Regulator. After pausing to consider whether I had really heard what I had just heard, I asked whether that would be to over-rule me in an interim review or in relation to all my functions. Mr Byers said that it would cover everything but its first use would be an interim review which the government did not want to proceed' Tom Winsor giving evidence to the Transport Select Committee on his meeting with the Transport Secretary on 5 October. ‘The Secretary of State' had ‘told the Chairman of Railtrack that he had decided….to introduce a Bill at the earliest opportunity giving him the power to direct the Rail Regulator'
Letter from Schroder Salomon Smith Barney, the Government's advisors to Railtrack
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Railtrack were told this too, but on the evening of 6 October, Marshall and Robinson called Winsor at home and rather half heartedly asked for an interim review. How much did they want? Hundreds of millions. When did they want it? In cash on Monday. And what was the justification? The gap between the Periodic review and the extra expenditure on the WCRM and post Hatfield.
Railtrack said it was a due diligence exercise, ‘because we knew he (Winsor) had already been neutered by the Government'. Not so, the Regulator couldn't do anything because Railtrack had waived two days precious notice in the Adminstration procedure, admitted to being insolvent when they weren't and hadn't got the wit to work out what grounds for an interim review would have got Tom Winsor up and running.
Simply, they didn't understand the detail of their own industry.
For example, some of the extra £1.5billion in SRA grants brought forward in the April interim review would not be available until the last three years of the Control Period. But Railtrack needed it yesterday.
So Railtrack and the SRA proposed setting up a company called Renewco which would be promised the grants in 2003-2005. On the strength of this guaranteed future cash it could borrow money which it would make available to Railtrack this year.
It was the Renewco money (£445m) which Byers told the SRA to withhold that blew the hold in Railtrack's budget threatening insolvency. But the renewco deal included a 21 day period of grace when, if the company was not set up, Railtrack could go to the nasty regulator and seek to have the financial hole filled with an interim review.
Why didn't Railtrack do this? Why did Railtrack waive its right to the two days grace in the Adminstration petition process? Why didn't it oppose the petition. Why, as Dylan Thomas put, Did Railtrack go gently into that dark corporate night?
Quite simply Railtrack seems to have given up. Subsequently, Steve Marshall has been a doughty fighter for his shareholders but over that weekend the Railtrack Board was in shock. They didn't even know what type of interim review to ask for.
Give us more money for the West Coast, when the West Coast cost overrun had been covered in the Periodic Review was never going to work. But ‘We need an interim review to restore the financial integrity of the Periodic Review since the Government has reneged on Renewco', was a simple request that could have been implemented equally simply.
Of course, as the Hartwell Accord showed, Railtrack was unlikely to fly again, but having shot the lame duck, the government found that the blood and feathers landed on its head.
Meanwhile here's some mental arithmetic. Ernst & Young, the Adminstrators for Railtrack, charge £250/hour for their rank and file staff. If they have 40 staff on the Railtrack account, each working 50 hours a week, how long would it take for the same expenditure to buy a 9 car Pendolino at £11million each.