Q51 Greg Clark: They are, for the third time.
Mr Fuhr: They will be conducting the review in due course.
Q52 Greg Clark: So they have got it wrong twice before. Why are you confident that they are not going to get it wrong for the third time?
Mr Holden: I am sorry, I think we need to correct an impression there. The increase in revenues relative to the introduction of CTRL on section one of the Booz Allen forecast was very much on line. What they, and everybody else, failed to take into account were the macro events which have occurred since 2000. As Mr Rowlands has said, there was 9/11; and there was also a huge impact in this country through the effects of foot and mouth. They have taken a long time to recover from. If you put those macro things to one side, which I do not believe anybody is capable of getting right, the underlying remaining issues-they have been very close to the mark.
Greg Clark: My time is up but I think chart 9 speaks for itself in terms of their forecasting being inaccurate.
Q53 Mr Davidson: Can I return to this question of the estimates, and looking at the first set of estimates on page 24, chart 8. So far we have had an explanation that it was low-cost airlines which apparently could not have been foreseen; 9/11; and, the one that takes the biscuit, foot and mouth. Basically, the difficulties therefore of this have been caused partly by foot and mouth. Can you clarify for me whether or not there are any other factors that you think made these figures over-optimistic?
Mr Holden: In terms of the current year, 2005, yes, the events of 7 July in this country. Until that point we were experiencing a 15% growth in revenues; since that point in time we have had no growth in revenues over the previous year. These are very significant effects which take an awful long time to recover from.
Q54 Mr Davidson: Of course they are; that is absolutely correct; but a reputable firm like this do not factor in the impact of any possible cataclysmic event, do they not? They work on the basis that everything will be hunky-dory and that nothing wrong will ever happen.
Mr Holden: Cataclysmic effects, as you quite rightly point out, are not factored in on an annual basis; they are factored in throughout-
Q55 Mr Davidson: They are not factored in!
Mr Holden:-what is an 86-year project.
Q56 Mr Davidson: So these sorts of things are factored in. Are there any other cataclysmic events that you think that they did factor in?
Mr Holden: I do not think anybody can specifically specify what they are. One generalises about the impact of-
Q57 Mr Davidson: Right. One generalises about cataclysmic events and one therefore anticipates that something might happen, but why are these estimates all erring on the one side to make the project more viable rather than being more mainstream? It seems to me that the estimates that you are working on are consistently over-optimistic.
Mr Holden: Not for 2004 and 2004. As I said, the uplift from the introduction of CTRL section 1 was exactly as forecast.
Q58 Mr Davidson: So you are quite happy that the 2004 forecasts will be completely in line over a long period and that they will not turn out to be over-optimistic?
Mr Holden: I am confident that over the 80 odd years remaining on this franchise, sufficient revenues will be generated to enable LCR to fulfil its obligations.
Q59 Mr Davidson: The difficulty about working over an 80-year time span is that I am not sure the Committee will be able to call you back at some point! If these estimates turn out to be over-optimistic, what would the effect on LCR financing and the potential recourse to the taxpayer through the access charge loan be?
Mr Holden: We will be drawing down on the access charge loan arrangement, but under the forecast that we have we also envisage being able to repay any drawings from-
Q60 Mr Davidson: I understand you envisage-that is right-but if it does not turn out as planned, what will the consequences be?
Mr Holden: It clearly depends on how bad the situation is. It would have to deteriorate quite considerably before we were in a position where we could not repay any drawings.
Mr Rowlands: The work we are doing at the moment will re-forecast, as best it can on a forecast basis, when we expect London and Continental Railways first to have to draw down under the access charge loan arrangement. Under the development agreement, I believe, from memory, that in net present value terms the total drawing that they can take under that loan agreement is £360 million. If they go beyond £360 million, they will be in breach of their development agreement.