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When you read what the Treasury really thinks about franchisees and shareholders, it's pretty clear who's next against the wall
For readers with the time, inclination and bandwidth, can I commend the Railtrack Private Shareholders Action Group website, www.rpsag.org.uk? There you will find evidence released by Government for the case RPSAG is hoping to bring over the Railtrack affaire.
In addition to briefing documents and internal memoranda, the evidence includes photocopies of hand written notes taken at meeting and, above all, internal email traffic. Since this column is all about today and tomorrow, I don't intended to go back to something covered extensively at the time. But the evidence does have some important lessons for today.
One of the things I learned in business was that there were letters written in the heat of the moment which were best put in a drawer and reconsidered the next day. On top of which, before emails, letters had to be dictated, typed, corrected, retyped: a process conducive to mature reflection.
But emails are instant and, unlike phone calls, provide an unambiguous permanent contemporary record. They accelerate the pace of business and, above all, they are personal.
This column has been saying for some time that the Treasury is seriously displeased with having to underwrite the support for the railway in the Interim Review. This displeasure extends to the Department for Transport, which had the chance to cut back Network Rail's income by reducing service levels, but bottled it. Hence, DfT civil servants have ensured that the 2005 Railways Act requires ministers to say how much money they have and how much railway they want to buy with it.
Now one of Chancellor Gordon Brown's economic adviser at the Treasury is Shriti Vadera, a former Banker. She joined the Treasury's grandly named ‘Council of Economic Advisers' in February 1999 from Warburg Dillon Read where she had been an Executive Director in Corporate Finance, latterly advising on and structuring public private partnerships.
Shriti figures large in the e-mail traffic between special advisors in the 10 Downing Street Policy Unit and the Department of Transport plus the civil servants who do the grunt work. And because e-mails are immediate and personal they give us a unique insight into the Treasury's views of the privatisated railway.
For example, on 28 August 2001 Ms Vadera e-mailed Andrew Adonis, Head of the No 10 Policy Unit (now Lord Adonis) and Dan Corry, Stephen Byers' special adviser, ‘I hear the mercer report is going to contain good things on vertical integration, so the message seems to have got through'.
In reply the next day, Mr Adonis, mused on the future of Ariel, the code name for Railtrack. ‘The more I think about it, the more it seems to me that without some significant measure of vertical integration in the arrangement for the New Ariel, the management (as opposed to the financial) case for such a drastic change is impossible to make. But with it the debate is transformed because a) if we get the New Ariel structure right (a big if) this gives us a credible reason for believing and arguing that we can eliminate the blame culture and improve management radically by givinbg the TOCs and others in the industry a compelling interest in the quality of Ariel's management and performance, b)because it makes it far easier to slim down the regulation significantly and c)because vertical integration is the near universal demand of the serious critics (who can't be all wrong'.
He continued, ‘but of course we need a credible New Ariel which the TOCs are prepared to buy into – without being able to negotiate with them in advance. My instinct is that we could get away with announcing “a significant (or controlling?? – a v. important issue) stake for the TOCs in the management and governance of New Ariel on which we will conduct intensive consultantion with them in the coming weeks” – but only if we have a working model of our own which we are satisfied with.
I'm also worried about the shareholder compensation issue. Whatever the formal value and the reliability of the procedure for assessing it how realistic in practrice is it to give them nothing, or vituartlly nothing?'
Remember this is the end of August 2001. Railtrack was put, or rather let itself be put, into administration at the beginning of October.
Anyway, next day Shriti replies and the Treasury boot goes in. ‘I'm afraid I totally disagree with Andrew's view on giving control to the TOCs. I think we will go a long weay to meet the fragmentation concerns but giving the TOC's “control” is not in our best interests in terms of service, deliverability or vfm- not to mention it is inconsistent with the not for profit model as TOCs are thinly capitalised equity profiteers of the worst kind'.
So what about Adonis' other point? The Treasury speaks again ‘I think it would be politicaly dreadfu;l to be paying off Ariel sharehgolders and I see absolutely no reason we sould want to…… I do not think this is one for us to wobble on - we have enough things to spend money on in the sector without worrying about bailing out shareholders who added no value to the company'.
So, forget all those press releases issued by the Departments of and for Transport and OPRAF and the SRA eulogising the latest franchise winner. These champions of railway privatisation are nothing but ‘thinly capitalised equity profiteers of the worst kind'. Gosh, what must she be thinking about the back-loading boys from Bermuda?
And what about shareholders who ‘added no value to the company'? Now when I was a GIMechE studying Industrial Admin Part A to move up a grade, I am sure the theory of capitlaism was that shareholders risk the capital they invest and it is the companies that use this capital to add value, from which they pay a dividend. Are my PEPs and ISAs supposed to add value to the companies they are investd in? Still, a Warburgs banker ought to know.
There is, of course, much more of this sort of thing. Private shareholders in Ariel described as ‘grannies' and No 10 proposing a travel pass as possible compensation. But what really matters is the attitude of the advisers to those who tried to make privatisation work, naturally to their own advantage, by getting involved, especially the TOCs.
‘How can we trust these *****' as one senior Informed Source put it? And the answer is to be found in Psalm 146 verse 2. You don't.
Years ago, when John Welsby was British Rail's Chief Executive, I was told that he kept the Department of Transport at arm's length. ‘Why', I asked? ‘So he can get a good swing at them' was the reply.
Wise advice then; even wiser now. And although everyone doing business with Government should be wary, the people in the railway industry who should really worry are the ROSCOs.
Just consider. The ROSCOs are are unpopular within and without the industry, seen as charging squillions for clapped out Pacers while not adding value. So a coup would be popular and free of collateral damage – since there will be no new trains to fund for several years.
In the Future of Rail White Paper, the ROSCOs were singled out as receiving over £1billion a year in rentals and the Government declared its intention to get value for money from this ‘investment.
DfT had already commissioned Accountants Ernst & Young, accountant, to review of the train-leasing market. Early results of that review were presented to the ROSCOs shortly after the White Paper was published.
E&Y said that the ROSCOs lease rental structure might not indeed be delivering value for money. The ROSCOs disagreed volubly.
But the writing is not on the wall but in the White Paper. Privatisation assumed that, in a competitive market, there was a high risk that the ROSCOs would find themselves with rolling stock sitting idle as new stock came into use and risk attracts a premium. ‘However, this is another instance where assumptions made at the time of privatisation have not generally come to pass.
I would not be surprised that even as I write the advisers are plotting the dissolution of the ROSCOs. Psalm 5 Verse 6 refers
Three weeks after Andrew Adonis sent his e-mail, he, together with Brian Hackland, the Traneport wonk in the Policy Unit, was sitting in a meeting room at No 10 getting an ear bashing on the subject from the Marx and Engels of Vertical Integration, otherwise known as Ford and Wolmar.
My only recollection of the session is the rather startled look on the advisers' faces as I cranked up an already passionate advocacy of recreating a proper railway. Still, we tried