Alistair's keynote speech has set out very clearly the Government's view, and in particular its support for a railway that makes the most of the capacity it has, and has got its own house in order in terms of controlling costs - the costs of operating the network as well as investing in it and delivering performance.

The next two days are billed as a Rail Finance Summit, rather than yet another rail conference, because we will be learning from you as well as sharing with you our own thoughts on how we intend that the railway should develop over the next few years.

So, thank you for joining us this morning, and I give notice that we fully intend to get as much out of this as you do! In particular, Doug Sutherland and I will be here at the final session of the conference tomorrow afternoon to listen to the feedback and to discuss with you the outcomes of the two days.

With this in mind, I shall keep my remarks short for now, focusing on the commercial prospects for rail and the actions we are taking to provide a stable environment for the industry and for its investors. I will then hand over to Doug to take you through in more detail how we are approaching the funding of infrastructure projects.

This is an industry with a future - an industry worth investing in. Alistair has set out a robust context for that. But, collectively, we have to get it right and deliver what passengers, freight customers and Government want and are prepared to pay for.

I am committed to doing this and part of it can only be achieved through private investment. I believe in PPP/PFI, and I believe it works best when the public sector client is:

• absolutely clear about what it wants to buy,
• is professional and robust in its procurement and negotiations,
• and reasonable in subsequent contract management to ensure the services specified are competently and consistently delivered.

This applies as much to risk transfer and allocation as to physical outputs, and all should be clear from the project specification.

There are those who believe the best way to defend and secure public services - which the railway undoubtedly is - is to argue for higher public spending to paper over the cracks of inefficient delivery. There is a place for public investment and a place for private investment and there is a place for them working in harmony. The only mantra is for clarity and certainty which will deliver value for money in delivering this public service.

Funding & Financing

Funding and financing remain one the most misunderstood issues in the railway industry, although the basic equation is very straightforward. Bowker's Law is that cost of operations plus cost of investment MUST equal fares, (and freight charges) plus subsidy. There are opportunities in property development and retailing, but the principal income sources we have are fares and subsidy. So, since we need to maximise the outputs we can buy for those two income streams, it is critical we maximise efficiency on the cost side of the equation - and this we are getting to grips with.

Some of my SRA colleagues served long years in BR under the constraints of public sector borrowing and they know that today we are living with the consequences of that - a railway that has been under-invested for decades, and where funding was inadequate even to manage a coherent approach to renewals.

We have no wish to revert to that, and every intention of working with the private sector to secure project financing and lending structures that are genuinely better value for money, on a risk adjusted basis, than a direct grant funded solution.

Rail Growth Prospects

But what are the prospects for rail growth?

Both passenger and freight traffic have grown strongly since privatisation. Passenger demand has risen by a third and is at its highest level since 1946, and rail freight has risen by a half and its market share compared with road has increased as well. I believe that these rail growth trends will continue for a number of very practical reasons.

Rail demand rises and falls in line with economic growth - and in the case of commuter travel to London - directly in line with Central London employment.

Passenger and freight growth has been driven by increasing road congestion, and by the traffic and parking restraint policies of many local authorities. Delivery schedules are crucial to continuous process industries, and one of the things the railway really can do now is to offer a more reliable transit time than road.

The EU Working Time Directive will increase the unit costs of road transport, particularly if it is properly enforced. It is already starting to focus the minds of logistics managers on the role that rail can play in trunk hauling, encouraged by the intermodal schemes we have been trailing, such as the Blue Circle scheme which begins operations this month.

The increasing frequency of trains has certainly attracted more passengers as has the introduction of new trains - air conditioned, with air suspension and fully accessible for passengers with disabilities, they offer a much better travelling and working environment for business passengers. Yield management techniques have been borrowed from the airline industry.

We intend to ensure that passengers contribute at an appropriate level to the running costs of the railway and the investment required, through our fares policy, on which we concluded consultation last week, and which will inform the development of a new policy next year for implementation from January 2004.

Towards 2004

So, income from the farebox and from freight charges will increase in line with growing demand, driven forward by the rail companies themselves, and by the external factors I have described.

But I believe that we will need more from Government support if we are to sustain the growth and investment we need. However, I also believe that the old game of trying to talk up the resource need on the grounds that 'you know it makes sense' will not wash. We will develop a robust case for further investment. It will be supported on a bedrock of rigorous cost/benefit analysis.

It will demonstrate that we have our own house in order in terms of cost control and performance. It will demonstrate that we have optimised the use of the existing network and that the case for enhancement is justified. In short, it will set out the persuasive case for rail and it will support our submission to DfT in SR 2004.

So, to make sure we can deliver this, we have mapped out the task for the next 18 months - the Route Map to 2004. This slide illustrates the work streams we have in hand. We have started the review of major projects that comes with our role in sponsoring them. We are working on the fares policy, and on a capacity utilisation policy to be able to demonstrate that we are making the best use of the network we have. In particular, we shall be working hard with the industry and its suppliers to get a grip on costs and to control them.

I have outlined some of the threats and opportunities for the railway, and we shall be doing more work in this area to determine the rate of growth and the timing of capacity improvements. And we will of course be carrying out the usual sensitivity tests around our plans, as you would expect us to, in order to establish a robust case for rail development.

Controlling Costs

The spiralling cost of the railway is a real constraint on progress, and we are determined to get it back under control.

Statutory requirements - relating to safety, access for disabled passengers and interoperability - are costs that have to be met.

But some of the increases are driven by unreasonable wage demands - and these cannot continue. Excessive cost in one area simply crowds out investment somewhere else.

Transaction and Project costs remain too high. One of the reasons is the failure to be clear on what is actually required. Projects that work best are those where the client sets out the specification with absolute clarity from Day 1.

The ones that fail are those where no such clarity exists. That is why the West Coast Main Line was fundamentally in trouble: no clear client, no clear specification coupled with pretty awful project management and contracting strategy along the way. Well, that's changed for good. Last Wednesday, we set out clear specifications for the West Coast - practical, affordable and deliverable. We shall be doing the same for all future upgrades and enhancements. In October 2000, Tom Winsor created a regulatory enhancement framework, making clear how the Regulator would treat enhancement costs and revenues (something which Tim Martin is going to talk more about later today) and, as part of that, the SRA has now taken the specification lead.

We also need to address many other issues as well such as standards creep, poor possession management, bad planning and the general industry disease of too much talk not enough action. But specification is at the heart of it and that is what we will put right.

Clear Specification

Central to any partnership between the rail industry and the financial community will be trust and confidence. For the purpose of starting to instil both, the SRA's role as the industry's "strategic specifier" is key.

On projects and on franchising, the SRA is now taking on this role and in future will be setting out to:

• Specify clearly what we want to buy for the public money we are spending whether in terms of services or capital investment;
• Provide the strategic plan within which the rest of the industry can plan their businesses;
• Ensure that what we do spend is value for money and can withstand external and Parliamentary scrutiny.

This is also reflected in the transformation of the SRA organisation with a new approach, a new organisation structure reflecting our new responsibilities and new people.

Not unreasonably, I took the view that we should have a Managing Director for Strategic Planning and in Jim Steer, I have got the best. Nick Newton is Chief Operating Officer - an experienced and tough negotiator with a sharp eye for a deal. And as Managing Director, Finance and Commercial we have an experienced PFI and commercial dealer in Doug Sutherland. Together with other able and experienced colleagues they form a top management team that is second to none and well equipped for the tremendous task of regrouping and leading the industry from the front.

So, why have we not done all this sooner, and why are we only now sharing with you some thoughts on the development of SPVs, rather than announcing the first deals to be concluded?

The principal reason was that until two weeks ago, with Railtrack in Administration, we did not have a competent and engaged infrastructure provider. Now, in Network Rail we have, and Doug will talk about the importance of that, and of the Enhancement Facilitation Agreement that we have concluded with them.

It will be Network Rail's job, together with its partners and other delivery agencies to deliver. Not to specify, not to double guess, not necessarily to offer alternative strategies - but just to deliver.

Coupled with the start of the new company, the Rail Regulator announced an Interim Review of Network Rail's Track Access charges on 25th September. It is absolutely the right thing to do and we will be supporting Tom in this project and providing our own input through the creation of strategies and plans, supporting our role as the Strategic specifier for the rail industry. This will help to get clarity into the basic cost of operating, maintaining and renewing the network, and to end the upward spiral of infrastructure costs.

Private and Public Sector Roles

I want to end this morning by providing some clarity on the respective roles of the public and private sectors.

The railway is a public service delivered by the private sector. The experience of the last five years shows us that public transport doesn't just happen as a consequence of the interaction of markets. It has to be planned. Rail will never be a truly stand alone commercial business in my view since so much will still have to be justified on the grounds of social benefits delivered. But that is perfectly compatible with private sector companies taking a very active role in delivering the services we specify. Whether in terms of infrastructure owned by Network Rail, or private passenger and freight train operators, the railway is delivered by private sector companies.

Our role is to provide the strategic framework, the clarity and leadership for the industry, and the public element of the funding that represents the value of the railway to the community.

The role of the private sector operator is to deliver the service specified, and the role of private investors to raise private capital for appropriate reward remunerated through fares or subsidy.

There are many potential routes to doing this, and we are examining them all. You will all have seen the speculation over the weekend with respect to farebox securitisation. Let's be clear, we have not concluded our thoughts and analysis on this and have certainly not discussed any conclusions with our colleagues in Government. But we are looking at it, along with other options and, should it turn out to be a credible option likely to deliver against value for money and affordability criteria, then we can look at taking it to the next stage. Raising money is one thing - paying for it must also be taken in to consideration.

There have also been claims recently that all that we have been doing over the past few months is some sort of "creeping re-nationalisation." Both words are wrong. What we are doing is not re-nationalisation, and I am sure you will agree that - especially in the last few months - we have been doing anything but quietly creeping around! It is a rapid return to clarity and certainty. Authority means leadership and getting a grip, making decisions which some people will disagree with but which are necessary decisions nonetheless. So a Strategic Rail Authority needs to combine all that and it will. To talk of nationalisation is to miss the point completely.

What we are doing is setting out clearly the specifications for what we need in order to deliver the railway we want whether in terms of projects or services.

Let me be absolutely clear: the private sector is in the rail industry to stay. Its skills and experience have delivered - for example - inspirational customer service by GNER and Chiltern and of developing new markets by GB railways and the Minimodal and piggyback concepts. It would be plain daft to lose those skills - for customers and for the industry itself. What we are starting to get right at the SRA is the sense of where precisely private sector skills can add value to passengers and, equally important, the areas where the train operators are not best placed - for example to stand risk on developing large scale network infrastructure projects. This summit will take that process forward.

Conclusions

This is an industry worth investing in, and we need the financial community to work in partnership with us to ensure we maximise the efficiency of what we have got and plan for the future.

The muddle that has infected the railway over the last few years is being swept away with growing momentum: the government is committed to a safer, bigger, better railway that is expected to play an increasingly important role in delivering the national transport strategy.

The next couple of days is about exchanging ideas and building confidence in this remarkable industry. An industry that is once again lined up and heading in the right direction.

There is a big role for the private sector to play a role in meeting the growth demand in the industry - and to support us in providing a competitive option to road and air - a railway playing its full and effective part in delivering a national, integrated transport system which will itself sustain and drive economic growth. The railway and the City are both going through change. Many certainties are being overturned in both sectors. But innovation, commitment and nerve are constant qualities we share, and that sit side by side at this Rail Finance Summit.

I shall be here at the close tomorrow, to discuss the two days of progress. I look forward to seeing you then and to hearing your responses to our plans. Thank you.