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Pwyllgor yr Economi, Seilwaith a Sgiliau

Economy, Infrastructure and Skills Committee

25/04/2018

Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Adam Price AM
David J Rowlands AM
Hefin David AM
Joyce Watson AM
Lee Waters AM
Mark Isherwood AM
Russell George AM Cadeirydd y Pwyllgor
Committee Chair
Vikki Howells AM

Y rhai eraill a oedd yn bresennol

Others in Attendance

James Price Prif Swyddog Gweithredol, Trafnidiaeth Cymru
Chief Executive Officer, Transport for Wales
Ken Skates AM Ysgrifennydd y Cabinet dros yr Economi a Thrafnidiaeth
Cabinet Secretary for Economy and Transport
Nathan Barnhouse Cyfarwyddwr y Rhaglen Rheilffyrdd, Llywodraeth Cymru
Rail Programme Director, Welsh Government
Rhodri Griffiths Dirprwy Gyfarwyddwr Polisi, Cynllunio a Phartneriaethau Trafnidiaeth, Llywodraeth Cymru
Deputy Director, Transport Policy, Planning and Partnerships, Welsh Government
Roger Lewis Cadeirydd, Maes Awyr Caerdydd
Chairman, Cardiff Airport

Swyddogion Cynulliad Cenedlaethol Cymru a oedd yn bresennol

National Assembly for Wales Officials in Attendance

Abigail Phillips Ail Glerc
Second Clerk
Andrew Minnis Ymchwilydd
Researcher
Gareth Price Clerc
Clerk
Robert Lloyd-Williams Dirprwy Glerc
Deputy Clerk

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Dechreuodd rhan gyhoeddus y cyfarfod am 10:59.

The public part of the meeting began at 10:59.

2. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
2. Introductions, apologies, substitutions and declarations of interest

Bore da. Good morning. I'd like to welcome Members to committee this morning. We move to item 2. We have no apologies or substitutions this morning. Are there any declarations of interest? No, there are none.

3. Papurau i'w nodi
3. Papers to note

I move to item 3 and we've got a number of papers to note. Are Members content to note the papers? Yes.

4. Craffu ar waith Ysgrifennydd y Cabinet dros yr Economi a Thrafnidiaeth—Materion Trafnidiaeth
4. Scrutiny of the Cabinet Secretary for Economy and Transport—Transport issues

In that case, I move to item 4 with regard to our scrutiny of the Cabinet Secretary for Economy and Transport on transport issues. Welcome, again, Cabinet Secretary. I'd be grateful perhaps if your officials could introduce themselves. Perhaps if I go from my left.

11:00

I'm Nathan Barnhouse, rail programme director in the Welsh Government.

James Price, chief executive of Transport for Wales, and it's in that context I'm here today.

Roger Lewis, independent chairman of Cardiff International Airport Limited.

Rhodri Griffiths, head of transport policy for Welsh Government.

Lovely. Thank you. I should have said, perhaps, not Government officials; some of you are here in different capacities as well. And you don't need to press the buttons; they come on as if by magic, Roger.

So, if I can ask the first question, Cabinet Secretary, with regard to the Auditor General for Wales's report with regard to rail infrastructure. He raised concern about value for money, and you in your response to that previously have said that value for money will be demonstrated through the procurement process. Are you still confident that the procurement process will allow you to demonstrate value for money?

Yes, I am. If I may, I'll bring James Price in to talk about the value for money issue. I think it's just worth reiterating that we're at a critical stage now. We'll be awarding the contract for the next Wales and borders franchise and the operator and development partner for the south Wales metro in May. We went through a process of intensive competitive dialogue with four bidders. Three of those bidders then submitted fully specified final tenders and there was competitive tension throughout that stage, and we now have two bidders with global reputations submitting very detailed, very ambitious programmes.

Before James comes in, I suppose what's behind my question is the fact that two of the original bidders have dropped out, so what's behind my question is asking: given that, that 50 per cent of the original bidders have dropped out, is that still—?

What's most important, perhaps, is that those two bidders that dropped out were involved in the competitive dialogue process. So, there was that tension throughout the process involving four rather than two, and although two dropped out, they dropped out after the point of competitive dialogue taking place in the majority, and that resulted in two bids coming forward that have remained, and one bid came forward but then was subsequently withdrawn. That's led to competitive tension throughout the process and therefore the drive for the best possible value for money from all of the bidders.

The only thing I would stress in terms of adding to what the Cabinet Secretary has said is that we've received, as the Cabinet Secretary said, three full-priced bids from three bidders, so in terms of the competition, the two that remain were in a competition with three in terms of what they provided for us. So, I think I could genuinely assure you that we received proper tension there.

The UK Government recently, I think even this week, said in answer to a Commons question that they believed that what we had done was reasonable and had good competitive tension as well. And then the final thing, just in terms of detail, I think—but I might be talking at cross purposes—that the auditor general's report was particularly focusing on infrastructure rather than rail services, and in that regard, we're running, in effect, two different competitions. So, the competition for the ODP, which we've just talked about, does include system design, and includes about £130 million-worth of infrastructure expenditure through its own books. But then the balance of the £738 million is being procured through something called an infrastructure development or delivery partner, which we're currently out to procure for, and there are many more people procuring that. That contract is within a fixed capital envelope to ensure good value for money on that aspect.

Thank you, James. Can I ask what information you will publish following the franchise award—I'm certainly thinking of the agreements on service levels, fares policy and plans for new rolling stock for metro phase 2—and also, specifically, will you be publishing the specifications contract as well, following the announcement of the award? 

11:05

Yes, it's my intention to be able to, in a redacted form, if we need to have agreement from the UK Government in any way on the redactions, for the invitation to submit final tenders and also the ODP agreement contract. Then, we'll seek the agreement from UK Government on redaction, but it's our intention to publish those within a month of the award. I've already instructed officials to begin the process of redacting those documents, but it's our intention to get out as much information as possible at the point of announcement concerning those areas of service delivery that you've touched on. 

That's very good to hear; I'm pleased to hear that. Can I just ask what has now been devolved and, going forward, what's now the role of the Secretary of State? 

So, we're going to be solely responsible for those services that are within Wales. We'll be acting under agency agreement on the cross-border services. There will be an ongoing role for UK Government, and therefore the Secretary of State in terms of being able to hold Transport for Wales to account for the performance of those services. We're also looking at the establishment of a joint supervisory board that can assess the effectiveness of the management of the franchise, but on a day-to-day basis it's going to be Transport for Wales that will be managing the franchise. 

I should say today as well that I'm seeking reciprocal agreements with UK Government on those franchises that they are responsible for, but which also have components operating in Wales. We are looking at a collaboration and co-operation agreement that would see us be able to influence and check the effectiveness and delivery of those franchise operations. 

Okay, thank you. I know some Members have some specific questions on what you've said later on in this session. Can I come to Vikki Howells for your set of questions? 

Thank you, Chair. Cabinet Secretary, I've got some questions around the financial settlement accompanying the devolution of powers, and the progress in transferring ownership of the core Valleys lines. So, firstly, we know that there has been an issue around the revenue funding levels between the Welsh and the UK Governments. How are talks around that progressing? 

So, if we go back to September of last year, I reached agreement with the Secretary of State back then that allowed our procurement exercise to continue. Since then, officials have been in dialogue, not just from transport but also from Treasury, with officials from the UK Government in Treasury and in the Department for Transport on the funding position. I expect to receive a proposition on the proposed funding arrangements shortly. I should say that the relationship between me and the Secretary of State has been a positive relationship, and I think it's also important to reiterate that the rail service's funding issues can be separated from the issues concerning the actual railway asset transfer, so that we can progress those funding issues on revenue more swiftly.  

Okay. Do you think that there'll be any impact upon fares and service levels in the next franchise, based upon what comes out of that agreement? 

I've instructed officials that there should be no adverse impact on services or passenger fares. 

Can I just ask a question? There are specific issues we raise with track access charges and the £1 billion over 10 years, I think it was. Are you close to an agreement on that? Are you likely to have some good news on that?  

I'm pleased to say that we've made excellent progress on that particular issue, and I am very hopeful of a very positive outcome in the coming weeks. I'll be making an announcement on that as soon as possible. 

Yes, please. So, looking at the condition of the core Valleys lines, we know that there's Victorian infrastructure there, really, and I know that Transport for Wales has been working with Network Rail to assess the current condition of the core Valleys network and any future risks associated with it. Can the current condition of the network be fully understood, and what's the likely scale of future risks?  

Okay. Can I just say that there's a balance of risks here? There's a risk in not transferring the asset and there's a risk in maintaining the asset within Network Rail. We believe that it's in our interest to transfer it, the lower risk is. Throughout the process, we've allowed the bidders access to Network Rail's risk details on the asset. Once the award has been made, we'll then be entering into a phase of discovery in order to further inform our partner on the condition of the asset. That will also then enable us to instruct Network Rail in terms of mitigation on how their programme up to 2019 through into 2020 can operate in order to address those risks, and we're further looking at the liability issue over the period immediately after the transfer so that we minimise risk to the public purse in Wales. But we're also looking, in addition to that, to insurance, and how we can ensure that we get the best possible coverage for that particular asset. I think James is probably best placed to bring us up to speed on exactly what assessment of the risk has been made and the quantum that we may be looking at in terms of the insurance and contingencies involved in managing that risk. 

11:10

Okay. So, as the Cabinet Secretary has said, we're looking at all options that are available, and are discussing with Network Rail, obviously, to try and get the best possible outcome that we can for the Welsh Government, as the potential future owner of the asset. I think the really important point that the Cabinet Secretary was talking about is this discovery phase. So, in the technical terminology of the contract, it's described as a design and discovery phase because, depending upon the winning bidder's technical solution, that will require different things of the asset that we will take over. So, depending on how heavy the rolling stock that they will use is, what gauge of electrification is required, what type of signalling, all of that will have different implications in terms of the future maintenance regime of the asset. So, we need to look at the asset through the lens of how we're going to run it in the future, and we've got 18 months to do that before we finally take the asset in terms of the plan. 

So, that's the length of the discovery period—18 months.

So, that's the length of the discovery period. So, in that time, can we fully understand the asset? I would say 'no'. And I wouldn't say 'no' and kind of expect to take a criticism on that, because I don't think anyone, in any asset management, fully understands the quality of their asset, and everyone is striving to get a better understanding. But can we get a good enough understanding that we can get UK Government or Network Rail to fix significant defects, or to agree for us to receive a payment to sort them out ourselves? Yes, I think we can. And can we have enough information to inform a proper decision? Yes, I think we can. 

Thank you. One final question. How much additional funding will the Welsh Government receive from the UK Government following the transfer of ownership, specifically for the operational maintenance and renewal of the network? Would you be able to give us an indication?

I'm going to bring Nathan in on this brief point of financing for the asset. 

Thank you, Cabinet Secretary. So, the agreement we are working on with the UK Government is that the funding that currently goes to Network Rail for the operational maintenance renewal activity will be isolated and then transferred to the Welsh Government for that same activity. So, it's a fiscally neutral transaction. 

I am confident. That's where we bring Transport for Wales in. 

Yes. So, we've got a range of potential figures that we've been looking at, and we will obviously not advise Welsh Government to go ahead if that budget figure isn't sufficient. But at the minute we believe it's sufficient, yes, in terms of the range that we've looked at. 

Cabinet Secretary, can you say any more about what that figure is?

I think, from my perspective—it's up to Welsh Government, but from my perspective, in terms of us being in a negotiation period, I think it probably would be unhelpful for us to say what we think is enough, because, obviously, if we can get more, we'd like to. At a time in the future, possibly not that long in the future, in terms of operating, maintenance and renewals, I think that's a relevant inquiry to look into. 

More than happy to follow it up with a note at the appropriate time, once we're able to share that information. 

We're very grateful. Lee's going to come in and then I'm going to come to Hefin. Lee. 

Just very quickly to clarify the condition of the track and your assumptions about its sustainability in the future. Is it your working assumption that were a decision to be made to run light rail on the heavy rail infrastructure, that would mean the maintenance would be less, and that would therefore be affordable?

So, we—. Sorry, do you want me to take this?

We've worked on assumptions all the way through from light rail through to standard heavy rail, and the range of figures that I was talking about would accommodate all of that. I don't think it's quite as simple as light rail requires less maintenance. Light rail would require different maintenance, and, depending upon how much freight you still have running overnight on a light-rail network, you'd still have to maintain it to a heavy-rail standard. So, we've been planning on worst-case scenario rather than best-case scenario.

11:15

Well, there are—. Do you want me to take that one?

There are various options and I think, as we've gone through the process, the market itself has innovated and changed and I don't think there is anything anymore that could be described as pure light rail and pure heavy rail—

Well, that's why I asked the question. I just want to understand.

So, if you were to go as far towards light rail as you could, it's a tram, and it's line-of-sight signalling, without the electronic signalling and block protection that is provided between heavy rail. As you move towards heavy rail, typically speaking, you get more signalling and more protection in terms of heavy press protection and that's because heavy rail cannot stop as quickly as light rail. But then, increasingly, the line is being blurred through things like tram-trains, which can operate as heavy rail under heavy-rail signalling conditions but then can come off of heavy-rail signalling conditions for an extension.

And all of these things have implications for the terms and conditions of the drivers who drive the trains. If it's a very light rail at the bottom end of that spectrum that you're talking about, then the terms and conditions are somewhat different to a train driver driving a heavy train. Have you agreed that those terms and conditions won't be different when the changes happen? Have you got a cast-iron guarantee that—

The agreement that we reached with the unions was sufficient to cover all of those scenarios. Sorry, I'm just a little bit anxious about delving too far into the possible technical solutions because it could reveal—

Okay. What I want is reassurance—[Interruption.] What I want is reassurances that, over the course of three or five years, you're not going to end up with industrial action because, rightly, unions feel that there's a worse deal for—

So, shall I just talk to the unions very briefly? Because we're meeting with all the main unions frequently, both at regional level and at a national level. Light rail, I think, is a worry for some unions, but the letter that the First Minister sent to all the unions did cover that off and I think the high-level principles here are that we will be employing many more guards and many more drivers than currently are employed, and more generally in the rail industry in Wales. Because of the growth of the services, we will see more people, not fewer people, being employed—

Well, we agreed to protect existing terms and conditions for everyone regardless of what mode comes in.

For a minimum period of five years. And that was a contractual obligation. So, there's a moral obligation to do that, you know, forever, but, contractually, we've underwritten that with five years, which is more than any other part of the UK has ever done—

And—. Sorry, sorry—

You come in Cabinet Secretary, sorry. I've lost my train of thought, that's why.

Yes, and I think the fair answer to give would be that the unions are not ecstatic about where we are, but they are content that we are handling things in a proper way, that staff will be treated completely fairly, no-one will lose out, and there will be more jobs and better jobs in the new franchise than currently.

Hefin, before you go on to your next subject, can I just bring a couple of other people in? Have you finished your line of questioning on this aspect?

Before you come on to that, can I just bring in two others and then I'll come back to you? Adam Price.

Yes, I'm wondering if we could address the issue of the electrification, or non-electrification maybe more properly, of the Ebbw Vale line and the Maesteg line. The original agreement—. Welsh Government made a business case, or—I can't remember the precise terminology—in 2012, and that, if I recall rightly, did include the electrification of the entire Valleys lines network. Then, in November 2014, there was the agreement between the Welsh Government and the UK Government to transfer the sponsorship, the cost risk, for the Valleys lines electrification to the Welsh Government. Did that agreement—did that agreement in November 2014—include the whole of the Valleys lines network? 

11:20

I think I should say here that no potential scheme has been cancelled, but I do believe that there's been a technical briefing for AMs. For the record, I think it's just worth reiterating, though, the points that have already been relayed to Assembly Members. James, can you outline—?

Yes, it's a slightly complicated position, but I will try to.

If we could just take it in bits—. So, just that November 2014 agreement, which referred to the Valleys lines, did it envisage the whole of the Valleys lines being transferred?

Can I answer that with two provisos on it, because I think they're important provisos? I'll bring Nathan in if necessary, because it was Nathan's team's work. 

James, just if I interrupt—. If a 'yes' answer is possible to that, then—.

So, the original business case included a wider area than what we are describing as the core Valleys lines, yes, but that was on the assumption that the UK Government was paying for all of it and that the UK Government was electrifying all the way through to Swansea. When the UK Government declared that they wouldn't pay for all of it, that changes the—

Okay. I'm aware of some of this. I'm just trying to walk us through. So, the original business case included the whole of the Valleys lines. That agreement in November 2014—I realise there may be qualifying statements that explain what happens next, but, just to be clear, that November 2014 agreement was based on the transfer of the whole of the Valleys lines. 

No. The 2014 agreement was for us to spend a minimum of £325 million upgrading the Valleys lines, a certain proportion of which should be spent on electrification. It wasn't specified as to what area that was going to cover. 

Right. It gave you the ability, then, to electrify the entire Valleys lines; it gave you the power to do that. If it helps, I'll read out a written reply:

'The agreement gave the Welsh Government control over the final scope of the scheme'. 

So, it did give you the power to electrify the entire Valleys lines network. 

So, this—. If you want me to continue with this, I will. This is where it does get complicated, because I don't believe it did give us the power to do that because of the way that we don't have powers over Network Rail. So, in theory, you could say, yes, we could come up with a scheme, but, because we haven't got the ability to contract with the deliverer of that scheme, that power—which wasn't a power in governmental sense, because it was just a statement—didn't mean anything. I'm not trying to be obtuse here.

The agreement didn't mean anything between the UK Government and the Welsh Government. 

Well, an agreement that says that you have got the scope to do what you want on an asset that you don't own and don't control—.

But why did the Welsh Government then agree to sign an agreement that didn't mean anything? 

Because the UK Government agreed to fund electrification from Cardiff to Bridgend, which was previously due to be funded by track access charges out of a Welsh franchise and agreed to contribute funding to whatever design of metro solution we wanted—whereas, previously, we were on risk for Cardiff to Bridgend and, how they had reconstituted the Valleys lines, they weren't going to pay anything towards it. I think—

I still don't understand though, because, okay, at the time that that agreement was signed, electrification to Swansea was still going ahead. They signed the agreement, and indeed we've got statements on the floor of the House of Commons from the Secretary of State for Wales saying that, as far as he's concerned, the agreement meant electrification of the entire Valleys lines network. That's what the UK Government said they'd signed up to. And yet, in November 2015, in rolling out our metro, the Welsh Government dropped the electrification of the non-core Valleys lines.

11:25

We haven't dropped any electrification. What we have is a phase 2 metro scheme, which we're describing as 'core Valleys lines'; I think in the future we're going to describe that in a different way. That's a technical railway term, and it doesn't imply what is core Valleys or not core Valleys, but we have that scheme. In the current financial year, we will be remitted by the Welsh Government to explore how we can improve Maesteg and Ebbw lines, but the fundamental issue that we need to get over here is that those two lines are still held by the UK Government, still held by Network Rail. Therefore, Network Rail and the UK Government are controlling what we can and cannot do. The interplay with the main line is important, because both of those lines then feed into the main line, and, as a result of the UK Government cancelling that stretch of the main line, that causes us—particularly for Maesteg, that causes us some problems. But we've absolutely been asked to solve those problems.

Yes. If I may just come in, I think it's also helpful to view where the 2014 agreement sits in part of our transition from a UK Government-driven scheme to change the mode of rolling stock on the Valleys line to the delivery of the metro, which is where we are now. The 2014 agreement allows us to optimise the delivery of a metro system so that the most appropriate type of rolling stock can be deployed on the Valleys to deliver a 'turn up and go' metro service. Under the UK Government's proposals, we couldn't get at a metro-style service. So, it's an agreement that allows us to start optimising the outcomes that we deliver through the metro, working with industry on the most innovative solutions for providing that rolling stock solution.

I mean, it's still, I think—. If you're in Ebbw Vale, with the greatest of respect, saying, 'Well, we haven't dropped you, and other phases in the future may be available and we'll look at other technologies'—. It still feels to me that there was an agreement that was on the basis of the electrification of the entire Valleys lines network. If you're saying that that agreement actually didn't really say that, why did the Welsh Government sign it? It seems quite bizarre and incredibly frustrating for people on those lines.

Minister, if I just focus solely on the Ebbw line, the electrification proposal through the Valleys lines agreement would have enabled, at some point in the future, two services an hour to run from Ebbw. Our metro proposal commits us to four services an hour at some point in the future. Now, to achieve four services an hour on the Ebbw line requires a significant investment, and, if that's delivered through Network Rail solely, it exposes us to substantial cost risks. What we're doing is bringing the ODP into the development proposal, so that they can incorporate a four-services-an-hour pattern on the Ebbw line in the future at a more realistic and value-for-money cost for us. 

And will those four services an hour be achieved within phase 2?

There's an issue here around giving away what might be coming through the bidding process, so I can't answer that.

The Welsh Government hasn't specified that? I mean, you can tell us that; that's a policy issue. That's not a competitive issue. That's whether you've decided that is a policy goal.

I can't answer this, because, if I do, it will reveal the technical solution that's going to be utilised on that particular line.

You will be able to answer it following the awarding of the contract, won't you?

Yes, it will be answered when the contract is awarded.

But we're subcontracting a policy decision, surely, to a company.

With our involvement through competitive dialogue to get the best possible outcome for that particular branch.

Okay. [Inaudible.] Mark Isherwood, what's your question on, sorry?

It was on the light rail/heavy rail point you've made.

Okay, go for that, and then I'll come to Hefin for metro. Mark, yes.

So, coming back to your previous point, in assessing the light rail/heavy rail options, as you've described, what consideration are you giving to the impact on freight capacity? And what dialogue are you having with freight operators accordingly?

Okay. So, 'significant consideration', I think, is a headline answer to that question. Clearly, Welsh Government policy talks about allowing for freight to move on rail where that makes sense, both from an economic and an environmental perspective. There are ways of allowing freight to continue to move, whatever the mode of operation that we conclude very shortly. So, nothing that we would do would, in and of itself, exclude freight from continuing to run. There will, potentially, be a policy decision to be taken on a case-by-case basis that says, 'Do we continue to maintain the track to take freight, even when we can't see any chance in the next 10 or 15 years of freight being used on a particular line?' I think that is a policy decision that will need to be taken. Do we step down the maintenance regime, but make it clear to people that we will increase the maintenance regime at the point at which freight wishes to be used? Or, potentially, on a particular line, do we conclude that, actually, it's very unlikely that freight will ever be used in the future, so we take a more radical conversion approach? But even then, we could still say that if there's a good business case, we would bring freight back into use. But the decisions we are taking on mode of operation and who's going to operate the franchise will not, in and of themselves, dictate the answer to freight or not. It's not that simple. I know there's been quite a lot of narrative saying it is, but there's quite a few examples in the UK where even very light rail solutions have freight running on them at certain times of the day.

11:30

And the second part of my question is: what dialogue are you having with freight operators or their representatives?

Personally, I've not been involved in any of the detail, but I know we've been discussing, with some of the operators and some of our representatives, these issues. There are processes we would have to go through that would force us to discuss these issues anyway, as part of the regulatory process. The other thing that we have committed to do is to work very closely with the unions and the drivers, because there are a lot of drivers who handle heavy freight—not on the Valleys lines actually, but off the Valleys lines and into south-west England—and the unions are very interested as to how we could work with those to retrain any of them. Nothing to do with us, but there are some other freight issues in south-west England and in Wales where people from Wales work, to get those drivers onto our network as we grow.

Okay, and I'll come back to Hefin on the line on metro.

On the south-east Wales metro phase 2, Cabinet Secretary, you've said,

'we have already begun the important planning work for future Metro phases which includes exploring a series of opportunities with the Cardiff Capital Region'.

and you've mentioned strategic park and ride, network extensions and new transport interchange projects. Can you elaborate on some of the things—some more detail around those things?

Yes, sure. And you're right, there is good progress that's been made on the work for future phases and indeed, actually, what could have been considered as part of future phase 3, in some respects, some of the projects could actually be delivered during the phase 2 delivery stage. So, for example, we could be seeing integrated transport hubs, such as the Llanwern steelworks site, delivered before 2023. Work is taking place with Cardiff capital region to identify opportunities for more hubs, more interchanges, projects that can improve bus service delivery and integrate better different modes of transport. Again, which could have been considered part of a future phase, but we're able to bring it forward and potentially deliver it before the end of phase 2.

Can I just understand the nature of that change? So, if you've got a bus service that's running north-south and a rail service running north-south, that doesn't seem to make as much sense as if you've got a bus service that is running to the stations. Is that what you're talking about?

Yes, the full integration of service delivery. So, whilst we plan and deliver phase 2, we're taking full account of the future of local bus services to ensure that there's full integration of rail and bus, so that you don't get that competing mode of transport between bus and train taking place. The buses and rail are joined together in terms of integrated ticketing, in terms of integrated timetables, in terms of integrated routes. And so, the work on the hubs becomes even more important, and in terms of Transport for Wales, it becomes more important that it acts as a co-ordinating body, ensuring that there is integration of those different modes and that we're funnelling the investment into the right areas and to the right hubs.

11:35

So that would partly mean subsidising bus services.

Potentially. Potentially. I mean, we're going to be bringing forward reforms of local bus services and legislation. We've consulted widely on those reforms, paying due regard—as I imagine you'd expect us to—to not just the metro in the south-east, but also to developing the metro in the south-west and also in the north insofar as reforms of local bus services and the use of concessionary fares go, to ensure that we get maximum value for money, but also so that we ensure that bus services are meeting passenger needs and are able to integrate more fully with rail services.

And there are two other areas of the project that I'm interested in. There's strategic park and ride. Where are you thinking of locating that? That would be Taff's Well, would it?

At the moment, I think there are a number of opportunities. The Taff's Well site is certainly one of them. There are also projects that we're looking at, as I've already mentioned, in Llanwern. We're working with the capital region, the Cardiff capital region, ensuring that we identify the best possible locations for those integrated hubs.

Okay. I know that the Cardiff capital region has talked about a heavy maintenance depot for the metro as well and a number of locations for that. Have you decided that or is that in—?

We've not decided yet. I know that there are many interested in this particular facility, both from local authorities—well, the local authority in the area that you represent and another—

I know. And I'm trying not to promise anything that can't be delivered. No decision has been made yet. We are assessing which option is best for the entire region, and once we've assessed that we'll be reaching a decision.

To what extent has the Valleys taskforce been involved in these discussions?

Well, the Valleys taskforce has been involved largely through attendance by me at taskforce meetings and also through officials in Transport for Wales and transport officials within Welsh Government being able to present to the taskforce. It's well recognised that there has to be a greater degree of joined-up work in terms of the development of strategic clustering sites for employment, integrated transport hubs—

You've got quite a disparate set of people involved here—

—but I think there's also far better co-ordination now and collaborative working. If I can—

You say there's co-ordination now. What's caused that? What's caused the better co-ordination?

In part, the Valleys taskforce—bringing the Valleys taskforce into being. Also, Transport for Wales taking on more functions. Transport for Wales, for example, is looking at the moment at delivering on a place-building objective, which will enhance the work that's being carried out by local authorities within the Valleys taskforce region. That will also link with the development of strategic employment sites and clustering sites and also the transport hubs.

I don't know to what extent James is able to talk about the place-building exercise of Transport for Wales—

I can do, yes.

—but it reflects some of the work that's already taken place in Cardiff. After this session, I'll be heading up to the bus station, where, as you're aware, we've got a new partnership in place for the development of that particular facility. What I'm conscious of is that, whilst we have commercial operators in Cardiff that are able to provide some of the place-building vision, we lack that elsewhere, particularly in Valleys communities. So, we've asked Transport for Wales to get involved in that area of work as well, because I fear that, if we don't invite Transport for Wales to do that, nobody will.

Well, Transport for Wales should be the co-ordinating body between the capital region and the Valleys taskforce in some ways, and I think—

In some ways. Insofar as transport's concerned, yes, and also I think—I'm hoping that James can give some details about the place-building exercise, but in terms of enhancing place as well, I think, Transport for Wales has a major role to play. 

I know we've got some further questions on Transport for Wales. Can I just ask Hefin to ask his final question and then we'll come back?

Sorry, Mr Price, you're going to have to wait. [Laughter.] Last question: when are you going to announce plans for phase 3 of the metro?

Phase 3. We're looking at continuation—. It will be a continued programme of upgrading, of extensions. The whole point of the metro, as you know, is that it has extendability built into it, and projects within phase 3 are already being developed.

11:40

Yes. That's fair to say because I didn't believe it made sense to wait until 2023 for projects that are contained within phase 3 to be developed, when we could actually be cracking on with that work now.

So, are we going to emerge into phase 3, and suddenly, 'Oh, wow, we're in phase 3'? How do we know we're in phase 3?

Yes, I guess there will be parallel work. Phase 2 will complete in 2023. Phase 3 projects will be developed during the period up to 2023 and will continue thereafter. But I thought that made more sense than just focusing on phase 2, then we move into the third phase, and rather, we develop a pipeline of projects and continually upgrade and extend the metro system so that we're not wasting time in the next five years.

My question is just referring to the powers under the Wales Act 2017, which we have been taking some evidence on, specifically in terms of your point about the integration with buses. You painted an optimistic picture of the sorts of things you might be able to achieve in terms of buses integrating with trains and their timetables because, as we know, under the current set of arrangements, with commercial operators, that's quite tricky to do. I guess that would require franchising, which you've said you're looking at.

The evidence we had from the Welsh Local Government Association: I think it's fair to say, keen as mustard they were not. They preferred bus partnerships. So I'm just wondering where your discussions and thoughts are at in terms of franchising, and whether or not you can bring people with you on that one.

Okay, I accept what the WLGA have said, but actually, what we want to do is develop a suite of options for local government to be able to select from. And so it could be, okay, they accept franchising, or perhaps not; it could be ownership. Again, I know that there is—

Well, we could do. We could do. And as part of the development of the north-east Wales metro, where actually it's going to be bus services that will be the primary mode of public transport, rather than rail, given the rurality of much of the region, it's something that we'll be considering once we bring forward the White Paper with the reforms that we're going to be proposing for the bus industry.

But if I just go back to that suite of options, I think we need to make sure that our partners are able to select from a number of options, of which franchising is one; ownership is another; partnerships, of course, could continue; also, the open market model—the continuation of that. But it could also be a combination of those options. What I don't want to do is cut off any local authority that wants to be proactive in this regard from having the tools and the powers to be able to take action that would improve local bus services in their area, or indeed in their region.

Can we come back to that? We've got some other questions around this area—

—if we can come back at that point. I do want to bring Mark in because Mark's been waiting for some time with regard to the north Wales vision.

Yes, you just mentioned north-east Wales. In your statement on the transport vision for north Wales last December, you said,

'focus is now shifting from planning and development into delivery'.

So, what projects are being considered for delivery, and over what time frame?

Okay. This is an exciting phase, now, for the north-east Wales metro. I recently announced that a new station would be built on Deeside industrial estate. That's the Deeside Parkway we'll be seeing emerging, and I know that you're familiar with the particular challenges in the area of Shotton higher and Shotton lower station. I've tasked Transport for Wales to set up a north Wales business unit by the summer, to ensure that we have a strong presence in the north. I'm working with the bidders to get the best possible deal in terms of staffing and resources in the north as well, so that we have a good degree of interaction between the operator and development partner and also Transport for Wales in the north, and with the local authorities. We're also looking at the development at the moment, and I'm sure that you're aware of Wrexham Central as a transport interchange. Likewise, we're working with Flintshire County Council on the development of more active travel routes in and around Shotton, Queensferry and Deeside industrial park. Reformed local bus services will enable local authorities and Transport for Wales, potentially, to better integrate, as well, bus services, and to ensure that bus services meet passenger needs over what has been—I think it's fair to say—the striving for greater profits. It's an unstable and unsustainable business model that many bus firms are operating at the moment. Through those reforms, we're going to be addressing that. But, right now, I think the north-east Wales metro has seen considerable progress. What I want to do is now intensify that and get the projects under development. So, for example, with the Shotton higher, Shotton lower Deeside interchange projects, delivery teams are going to be appointed by the summer to draw up detailed designs. Thereafter, we'll be able to move to actually building the facilities and merging the stations as required.

11:45

As you know, I've been working with Wrexham Bidston Rail Users' Association on this, and corresponded with you, and so on, over this over some time. In your previous answer, you said the primary focus will be on bus routes as opposed to rail. I welcome your statements regarding rail transport and hubs, but, nonetheless, it's buses. And it's not just within Deeside, it's how people in the villages—and there's a large population in the villages—get to and from Deeside, or Chester, or the Wirral, or wherever their place of work or public service or recreation might be. In terms of specific projects, are you able to tell us what projects thus far are being considered in that context and in the context of the broader template proposed by the growth bid, which has gone to your Government—

Could I just ask you to be as brief as possible? It's just that we've got a lot to get through and I want time for Roger Lewis to come in.

First of all, I'd like to recognise, actually, Mark, the work that you've done with regard to the Wrexham-Bidston line in promoting the need for investment in that line and in promoting the need for more regular services.

In terms of the projects, we're looking at a series of hubs. I've outlined some of them so far. And in terms of Shotton, Deeside Industrial Park, Wrexham, we're looking at Rhyl, Abergele. We're also looking at St Asaph, and then, by virtue of the cross-border element of commuting, we're also looking at the development of hubs with our partners across the border in Cheshire, Merseyside and the Wirral to ensure that we have that full regional metro vision delivered.

Okay. We'll have to move on to a new subject area now. Adam Price.

Cabinet Secretary, one of the issues that we've touched on in earlier exchanges, really, is the issue of transparency and concerns over the fact that the invitation to tender for the franchise hasn't been published, et cetera. In relation to Transport for Wales, are you ready now to start publishing board minutes?

Yes. Board minutes and remit letters as well.

Right. Great. And the business case as well, or the business plan?

Yes, that as well. The business plan is being finalised at the moment, I believe, so that should be published as well.

And the ITT. As I said at the start, I should be absolutely clear, that will be published, albeit in a redacted form and alongside the contract.

Okay. We'll have lots of reading to do. The board minutes—will they be published from now on in, or have they already been published?

Yes. I think I gave my undertaking, I believe when I appeared last before the committee, to do that. Remit letter, current business plan, they will be published. I'll be publishing documents thereon, including the board minutes.

Just to touch on wider governance issues, you appointed an interim chair for Transport for Wales.

The appointments to the board did go through the public appointments process, but that post didn't. Why?

Because it's only interim, whereas on a permanent basis it will go through the public appointments process. And this isn't unique to this area of work either; this happens in other instances where you need to make an appointment on an interim basis in order to ensure that there is the right governance in place.

Why didn't you advertise for a chair while you advertised for the non-executive directorships?

We felt a need to ensure that there is somebody in place who would be able to do the work immediately. But, as I've said, there will be a public appointments process for a permanent chair.

Why didn't you advertise for a permanent chair immediately when you appointed the board members?

I believe because we were content with the quality of the candidate for the interim chair, who comes with great experience, and, as I say, we will be going out to public appointment for a permanent position. 

11:50

Has the interim chair worked for any of the bidders for the rail franchise?

Shall I cover that?

Just because I know the answer to this. The interim chair, about six or seven years ago, did work for Amey. Amey are part of one of the consortia. However, as part of his good governance and my good governance and the board's governance, we have checked and he has no ongoing involvement with that group whatsoever—no pension, no investments—so there are no conflicts and it has been declared. And he's not involved in the scoring of any of the bids.

Yes, Nick Gregg.

Did he have any previous involvement with any discussion of the franchise or the development of Welsh Government policy in this area?

So, his first involvement, really, was when he was appointed to the board of Transport for Wales. The conflict of interest statement that he has signed—is that also published?

It can be, absolutely. In fact, I think those things are published, yes. But I'll make sure they're properly visible on the website.

That should be published and it will be if it's not yet.

Do you think, in the light of the answers to questions that you've just given, it might have been better to have had a chair appointed through a full public appointments process?

I think it's about to be done now, in fact.

Yes, the appointment process will be happening. Any conflict of interest will have been managed, but the process of appointing a permanent chair is under way and that process will involve a full public appointments procedure.

Good morning, Cabinet Secretary—yes, we're still in the morning. I want to move on now to the approach and development of a ports policy, and I think I qualify, with an awful lot of water in my region, to ask these particular questions. Quite rightly, there is concern about the management of ports post Brexit and also the devolution or the development of the new powers that you might have. So, my first question for you is: how are you going to ensure that you've got the relevant expertise to manage those transitions?

Well, we've already got a good working relationship with the sector. We've established, as you're aware, the dedicated ports team within Government to build on the relationship and to build capacity within Government as well.

And there has been a call for port zones and with a more tailored approach to environmental protection and streamlined development rules. What issues does that raise for environmental protection?

Okay. We're not going to water down any environmental protections that already exist, but I am keen to work with ports to examine how port zones can have any administrative barriers to development removed. But I have to be very clear in this—there will be no reneging on any agreements that we have in terms of environmental protection.

I sat through an evidence session where I was told quite clearly by those seeking this that they could off lay any environmental damage elsewhere. They might not have used those words, but that's exactly what was implied, and they used Scotland as an example. We're not Scotland, and if we look at the Milford Haven waterway and the protection that's currently afforded to an awful lot of marine life there, particularly birds, particularly puffins and razorbills and what have you, they're not going to go anywhere else, because they can't go anywhere else and they've never gone anywhere else. So, I suppose the concern is that, whilst we look at helping ports succeed in their business—and I strongly support that—we don't equally impact on other businesses, like tourism, and also cause environmental negative impacts, which you've just given assurances isn't going to be the case.

11:55

And I think it's fair to say that the Well-being of Future Generations (Wales) Act 2015 demands that we ensure that there is that balance, and, although there will always be tensions between what might be considered commercial interests and what might be considered environmental interests, it's absolutely vital that agreements that we have in place, obligations that we have to meet in terms of environmental protection are not diminished in any way. So, I think the point you make—birds don't know when an agreement is being reached—that environmental protection can be offset to another area, birds will suffer in that area that will be impacted. So, I don't believe that we can compromise in terms of environmental protection within port zones, if we develop them so that there's some relaxation of administration and bureaucracy.

Of course, it goes without saying that ports have raised the issue of Brexit, particularly, as a key concern, and it is a key concern. What work is the Government doing to assess the risks that might come and to minimise any negative impact? It is possible, isn't it, that the border between Ireland and Wales could well be in the sea.

Yes, absolutely. There are many, many issues, many, many concerns that we have with regard to Brexit and ports. You've highlighted the Irish land border as an issue. We're pleased that UK Government has agreed with us that arrangements for the island of Ireland can't result in putting individual UK ports—and, in all probability, Holyhead in primary risk—at risk of disadvantage. So, we expect that this, if you like, no-disadvantage principle will be worked into arrangements for a commonly regulated area. We'll certainly continue to lobby on this particular matter. 

Customs arrangements are a primary concern, as well, of Welsh ports. There are issues concerning or questions concerning whether free zones could be utilised. We've invited one of the enterprise zone boards to look at the potential of free zones in order to inform our position on that. Of course, it's an area that's retained by UK Government.

The key risk, though, particularly for roll-on, roll-off ports concerns customs arrangements, and our position is still clear that we wish to see the UK remain in the customs union. We're in close dialogue with Her Majesty's Revenue and Customs and with Welsh ports on planning, in the event that we are not part of the customs union. But there will be huge implications there. We're working with them to identify their needs for such circumstances and how Welsh Government will be able to support them in meeting those needs. The challenges are very considerable indeed. 

The challenges have got greater, haven't they, because the UK Government have made a very clear statement saying that they don't want to be part of a customs union, that they won't be a part of a customs union, and, following on from that statement, we have to be very prepared for what that will mean for the ports as well as, obviously, much wider areas.

Yes, absolutely. But, at the start of the process of negotiations, UK Government was also opposed to the idea of a transition period and then agreed to it as an implementation period. I would hope they'd consider again the question of a customs union.

I would hope that would happen, but I don't think that it's going to be the case, so I would hope that you will keep us—certainly the Assembly, but this committee as well—updated fairly regularly in terms of the discussions that are happening and any impact that might arrive from that so that we can at least examine, for the major ports in Wales, the impact that that will have back in those communities for those people working there and hoping to work there in the future.

12:00

We are really pressed for time and we've got quite a few subject areas to cover. You've got a very quick question, Mark.

Yes. Clearly, the options for this are currently under discussion with the UK, but what consideration have you given, in this context, to the external affairs committee's report on this issue, to the work of Lars Karlsson, who has given evidence in Westminster, and to the evidence we took from the Irish Maritime Development Office, which has done detailed modelling in this area?

We have a very strong relationship with the Welsh port authorities through the Welsh Ports Group and with the British Ports Association as well. So, we have been considering a number of those issues that have been raised, both independently with ports, because they're obviously commerical entities in themselves, and then as a group.

Very briefly, I want to just ask about buses, because we've already touched on some of it. Next week, you're holding your second bus summit. We took evidence from the Confederation of Passenger Transport, who welcomed the fact that there was going to be a second bus summit. But he said, and I quote:

'we haven't seen the outputs of the last one yet.'

So, I wonder if you could just give an update on the outputs. 

That's quite remarkable, given that he's been part of those outputs, including, for example, consultations that have taken place concerning concessionary travel and concerning the future of planning and delivery of local bus services. So, I'd utterly reject that claim. There was a five-point plan and we're delivering on those five points. You'll be aware as well that, in addition to the five consultations, we've been taking forward work to put bus services in certain parts of Wales on a more sustainable footing by delivering additional resource in Flintshire, Denbighshire and Wrexham where we saw particular challenges with bus companies collapsing. And so, actually, there has been huge progress that's been made in terms of the future of planning and delivering local bus services. And you're right to highlight that the next bus summit is taking place next week, where we'll be able to discuss in some detail some of the proposals that we're going to be bringing forward as part of the White Paper.

You just might want to give them some reassurance that what's going to be decided this time will be delivered, because there's clearly some scepticism in the sector.

Indeed. But the key thing to remember is that now we have an opportunity through legislation, which we haven't had in the past, and that gives us the tools to be able to encourage, before legislation is enacted, and to convince bus companies to work closely together and to convince local authorities to utilise their existing powers and to ensure that they are following guidelines—for example, guidelines that we attach to the funding of local bus services where we provide £25 million through the bus services support grant and the national transport finance plan. It says clearly that we would expect local authorities to provide some element of match funding for that. So, we're in a position now where I think bus services are sufficiently high on the agenda for us to be able to promote them to local authorities in terms of their responsibilities and where the public appreciate that local authorities are also responsible, and to bring forward, via the consultation processes taking place, well-informed proposals in the White Paper.

Can you say when you'll be bringing forward legislation?

I can't give a time frame for the legislation. The White Paper is due to be published certainly within the next three months; I was going to say spring, but that could end up being summer. Certainly within the next three months the White Paper will be published.

Right. Joyce has a very, very quick question. I'm sorry, but it's got to be very quick.

Ken will know what I'm asking, because I've written to him several times on it. It is about the collapse of local bus services and the devastating impact that that has when it happens overnight, not only on the people who work there and whose livelihoods have suddenly disappeared, which is massive, but also the impact that it has in leaving areas isolated, as it did in Gwynedd earlier this year. So—

My question is this—and I would've asked it if you hadn't interrupted—what powers do you have, if any, to immediately take control of a situation like that so that those people aren't left in limbo?

On powers, it's a responsibility in part for local government and it's a responsibility in part for Welsh Government, but through legislation we'll be able to empower local authorities to pre-empt any problems that could arise with commercial operators more fully, and to be able to equip them with the ability to franchise themselves or to operate themselves. So, that will enable us in the future, once the legislation has been passed—that will enable local authorities, particularly in the rural areas that you've highlighted, to actually operate bus services themselves, or certainly to franchise bus service operations so that we can avoid that sort of—. What's happened in some respects is a race to the bottom in terms of costs and contracts, and that's then left many bus companies very vulnerable, and so they've collapsed. Well, that can be changed through legislation, through the powers that will be coming through.

12:05

I do want to allow at least 20 minutes to discuss Cardiff Airport, so we won't go on—. We'll start discussing that, perhaps, at 12:10. So, Mark, you've just got about three or four minutes to cover your area and then we'll move on to Cardiff Airport.

You recently copied Members into your letter to the UK Department for Transport regarding proposals to change the community transport permitting regime. The Community Transport Association has indicated that the financial impact of the proposed changes to the sector in Wales would be £23.2 million, and that 95 per cent of operators here would be affected. Some, like Neath-based DANSA community transport, are saying they've already received fines for delivering section 19 permit contracts, even though this is still permitted under guidance, and many other examples are provided by the sector where misunderstanding and confusion is already impacting on provision here. The majority of operators in Wales are saying they'll be forced to close if the proposals are taken forward. So, in addition to writing to the UK Government, what discussions have you had with them on the changes and the action that Wales needs to see to mitigate them?

We certainly hope that these proposals won't be taken forward by the UK Government. In direct response to the question that you asked, I'm pleased to say that we, just last Friday actually, hosted a consultation event in Pontypridd concerning this very issue. Department for Transport officials were there to hear for themselves the concerns about the impact that the proposals would have on community transport in Wales. We're also working with the CTA, I should say, on potential mitigating measures that Welsh Government could assist with. But I have to be clear: it's my hope that the UK Government will not proceed with the proposals outlined.

In large part you've answered the second part of my question and therefore saved on the ticking clock. Clearly the CTA are keen to develop contingency plans. They've also told me and, no doubt, other Members that they support the principle of changes, they recognise there is some need for change, but the problem is it's being distorted by a bigger debate in England driven by some commercial operators who, in some cases, legitimately feel that they're being undercut on price at a time when local authorities are trying to drive down cost to commission quasi-commercial services in competition with them.

But I understand also there's been little or no equivalent concern raised by operators in Wales—by commercial operators in Wales. So, what discussion have you had, or are you having, with commercial operators in Wales regarding any concerns that they may have about this so that those might also be mitigated?

That comes through as part of the work that we do with the CTA and the work that we do direct with commercial operators. We're able to engage with them over their specific asks in this regard. We're looking at the options, though—specifically, the options for CT operators, and what we can do to potentially mitigate could be that we provide operators with transition funding, it could be that we support operators to identify how they can secure vehicles that have fewer than nine passengers in order to overcome this challenge. Also, we're looking at how we can ensure that operators are able to satisfy the requirement that you mentioned about competition in the local market.

Ongoing engagement with commercial operators, of course, takes place through organisations, one of which was just mentioned a little earlier, and through events such as the consultation that we hosted alongside the Department for Transport last week, and the bus summit that we'll be hosting next week. I don't know whether Rhodri wants to add anything.

12:10

I'm afraid we'll have to—. We've patiently waited for the Cardiff Airport sections on our brief, so we'll have to get to that. So, I'm going to come to David for that. 

Yes, exactly the words I was going to say. You're patiently waiting there, Roger, whether you're relieved or not about the questions with regard to Cardiff Airport. Without sounding too sycophantic, of course, we all know very well the successes of Cardiff Airport to date, and we have to congratulate you on that. But what my questions are now centred around is: where do we go from here? Perhaps the Cabinet Secretary can outline his long-term strategy for the airport, including objectives and targets. I'm sure you're going to answer this question quite happily—but is he satisfied with the airport's operating performance to date, and where could he do better?  

The answer is 'yes'. Where could we do better? Well, if we had control over air passenger duty, we could do much, much more. We could increase passenger numbers by an estimated 500,000 a year. There's potential with the public service obligations. There's potential with connective infrastructure, I think it's fair to say, and we're investing quite heavily in that regard. The airport has performed phenomenally well in recent years since the acquisition, and it's been well recognised as a place that has the highest quality customer service. I think it was recently judged seventh globally on its customer service. It was judged to be the best small airport in the UK. We've seen passenger numbers grow from a base of just under 1 million to 1.5 million. 

Longer term plans are to increase passenger numbers beyond 2 million. We're also going to be looking at bringing forward the master plan for the public to be able to see before the summer recess. And I think it's fair to say that the health of the airport is incredibly good right now. Of course, we've made recent investments in the airport to ensure that it returns to profitability as soon as possible, but if I can just hand over to Roger, who has done a magnificent job heading a team of very, very capable, committed and talented people at the airport.  

Roger, before we pass over to you, I'll just mention the fact that your ambition is to raise the number of passengers from 1.5 million to 2.5 million by 2026. Now, given the performance to date, that seems a fairly modest ambition. So, can you bring that into your discussion now, if you would? 

Thank you, Minister, and thank you, Chair. I'll begin by saying a big thank you to all of the Members from all parties within the Senedd for their support, because, dare I say, to answer your question 'How do we take the airport forward?', it is to continue this unity of purpose—this cross-party unity of purpose—to support what is a national asset for our country. And particularly when you're dealing with large infrastructure projects that have a business model that crosses political cycles, it's so important that the strategy is embraced by all parties within the Senedd and, quite rightly, that we are scrutinised regularly by the Senedd in terms of our business plan. 

As the Minister said, what will take us forward—and I'll answer your specific question in terms of growth—is that we have a programme of continual performance enhancement. I'm not going to take up the time of the committee going through every single area of the business, but that is our culture—how we continually improve the performance of every aspect of our business. But there are certain key strategic items that will help us. The Minister has mentioned air passenger duty, and I thank all parties within the Senedd for their support of air passenger duty being devolved to Wales. I think that will greatly enhance our performance, and thank you for that. 

The Minister mentioned also about the opportunity for PSO routes, which we're in the process at the moment of applying for in the United Kingdom. Alas, what I'm hearing is that we might not be getting the support from London, from the UK, on this, and that is something perhaps that needs to be addressed within the Assembly. 

And a third strategic item, I would say, is that we want the airport to be part of this integrated transport solution for Wales. That is so, so important for us, both east and west, as well as up to the Valleys. Now, in terms of your specific question, in terms of how we get beyond our current numbers, as the Minister mentioned, we're on 1.5 million, we've grown by 50 per cent since 2013—that is a great result by any metric, even though we were in terminal decline, and one mustn't forget that. You could argue that we were coming off a low base, but we really were in terminal decline. We grew our numbers last year by 9 per cent, the year before by 16 per cent, for the financial year that just ended in March, by 10 per cent. I am forecasting a further 10 per cent growth in this coming year. We're achieving just under 2 million by March 2020 at the moment, with that 2.5 million that you mentioned, which is a bit further on. Now, these are numbers based on organic growth. And I've been publicly reported, quite rightly, to say I'm more ambitious than that, and I've thrown down the challenge, the gauntlet, to my colleagues about how we can accelerate that growth. So, this year, as I say, we'll do 10 per cent growth.

And what is going to take us forward? What's going to take us forward of course is, with the announcement next week—well, the launch, I should say, next week, Tuesday, 1 May, of the service between Cardiff and Doha. And this is all about opening up the east of the world to Cardiff. So, this is about going to Pakistan and to India and to Bangladesh. I was with the Wales Bangladesh Chamber of Commerce last week. I spent a day with them and they're so excited about this link, not only from here to Bangladesh, but also from Bangladesh into Wales. 

But then, it's about China, the routes from China. It's about New Zealand, it's about Australia, it's about Japan. And there are 153 destinations that come out of Doha to those destinations around the world. That's just going to drive growth. And it's not just about from Wales going to those destinations. It is about those destinations coming into Wales. As the Minister mentioned, it's 1.5 million at the moment passengers in the airport. Thirty per cent of those are visitors to Wales. That is a fantastic number—30 per cent are visitors to Wales.

Now, what else is going to drive our growth to get to that 2.5 million quicker? It's going to be new airlines. So, we've announced two further new airlines this year—Iberia Express and also Blue Islands. We're also adding further destinations this year. So, we're going to go to Rome, Madrid, Guernsey, Venice. We've then got over 50 destinations to 10 capital cities, 900 destinations via 12 hub airports. 

So, our growth projections are based on organic growth at the moment, but I'm confident we can overachieve on those numbers. We're well in line with our forecast at the moment, and we'll perhaps come on to further metrics. 

The last thing I'd mention, which is so, so important, is what these numbers have delivered for us—it's 2,675 direct and indirect jobs associated now with the airport, with a gross value added well in excess of £100 million. 

12:15

You mentioned APD, which is a very, very important factor, obviously, in this. The argument, I think, has been that devolving it to Wales would impact upon Bristol Airport. Bristol Airport, if anybody tries to use it now, you'd know that it's at overcapacity, if anything. And there's also the argument that Newcastle International Airport is obviously close to Edinburgh—. So, is the argument being used with regard to that, to the UK Government, that it can no longer hold water, this fact that they're holding back?

You're right. It doesn't hold water, and I'd like to see airports within regions work more closely together in this particular area. It's a fact that APD slaps on a £13 charge for passengers in a way that train travel doesn't internally within the UK. And so, immediately, air travel is at a competitive disadvantage compared to rail. That's inhibiting the growth at Cardiff Airport, and, I'm in no doubt, at other airports in the UK. And that's why we've argued for it to be removed. It would lead to something in the region of 500,000 extra passengers a year at Cardiff Airport, which would, in turn, drive up—. Roger's already mentioned jobs figures, but it would drive up employment, it would drive up the contribution to the local economy. 

And one other point, if I may. I do thank all of the parties in the Senedd for their support on APD. I've lobbied the UK Government on this particular point. I've also gone to meet Bristol Airport. I've met the chair of Bristol Airport and the acting chief executive to discuss this specific point. The chair of Bristol Airport actually signed a letter to The Times last year calling for APD to be reviewed. I hope APD is reviewed. What I'd be concerned about is that it doesn't get kicked into the long grass with a review, because, for us, in Wales, I think there's a compelling argument for APD to be devolved to Wales in such a way—and this is the important point—that will not impact negatively on Bristol Airport. One great example would be on long-haul destinations—so, scheduled long-haul destinations that are not provided by Bristol Airport, we could put that onto Wales immediately.

The other option, I've suggested: we could try this for three years—trial it—and have a three-year review moratorium on this and see whether it has negatively impacted on our neighbours. So, it's something that we wish to continue, and I humbly ask you all to work with UK Government to look once more at APD being devolved to Wales.

12:20

Roger's just given a good overview about the airport et cetera, but do we actually have an airport master plan in the same way as has been published by Bristol and Manchester? Are we going to get one of those and is it going to be available to the public?

Thank you, Minister, and thank you for the question. I'm pleased to say that we will be unveiling the master plan publicly for the airport this summer. It is a very, very ambitious plan indeed. We began work on it last year. We've commissioned Arup to lead on this, but most importantly, we're working with our stakeholders. We're working very closely with the Vale of Glamorgan Council. The Vale are part of the master-planning team. The Welsh Government are part of the master-planning team. Our neighbours and our landowners are part of that master-planning team. Education in the area are part of that team.

It is a 25-year plan—I can share this with you now—that'll take us to 2040, which will look completely not only at the airport, as it exists, but surrounding the airport, linking in with the Minister's transport strategy for Wales. But the key thing is that it will be phased, so we'll structure it in such a way that we'll get a benefit as quickly as possible for our passengers, for the people of Wales, and, of course, we will have various iterations on it to make sure that we can adjust as the world adjusts as well. But we will launch this in the summer of this year and it will be a public launch and it will allow the public to look and comment upon our plans.

I'll extend an invitation to the committee for that, or Roger will, I'm sure. And it will demonstrate his heroic ambition for the airport.

One last question on the effectiveness of the Government arrangement, whereby the Welsh Government operates the airport at an arm's length: are you satisfied with the way things are going, Cabinet Secretary?

Yes, I'm satisfied with the governance arrangements. They're robust. I think the way that we've designed the governance arrangements, answering to Holdco really helps to ensure that competitiveness is driven forward, that the airport continues to grow, and that the governance and the checks and balances are correct for this particular organisation. I'm confident that the management and the board are doing an excellent job in delivering continued growth there.

Would you both mind, as we're limited for time, if Lee, who asks this next set of questions, interrupts you for not quite getting to the point of the question? Is that okay with you both? I'm grateful. Lee.

Thank you. Just on the Cabinet Secretary's point about APD and disadvantaging rail and air. It is just worth noting the climate change impacts of air versus rail are profoundly different and there's a wider policy agenda we need to take into account here.

Just on the finances of the airport, if I might—Roger Lewis, you told Assembly Members at a briefing you held recently that you expected the airport to break even during 2018. Is that still the plan and is the Cabinet Secretary confident of that?

Thank you. I'm pleased to say that we're well in line with our forecast for the current year, 2017-18, which has just passed. Most importantly—and this is the point to answer your question—is that on our forecast for 2018-19, so this financial year, which ends in March 2019, I am confident that we will deliver positive earnings before interest, taxes, depreciation and amortisation.

Right. And the first dividend payment back to the Welsh Government?

That's an interesting question and it's one that I've pondered on. Our model is based upon a reinvestment model, so everything we're doing with the airport, we reinvest. You could argue, and you could come up with a statement that it's not for profit, but for passengers and people—to basically reinvest one's profit back into the enterprise to ensure we have the best quality service for the people and businesses of Wales, because at the heart of our business model is value enhancement, because the metric for deciding upon the value of an airport is a multiple of EBITDA—that's the key multiple. So, for instance, London City Airport recently was sold for a multiple in excess of 40. Now, what I'm working on with my business model is to ensure that we have a multiple of EBITDA that reflects not only the acquisition, but the loan agreements that we've entered into with Welsh Government, and also, most important strategically, if the shareholder—the Welsh Government—so wishes, we can look for an equity partner.

I can share with you today, Chair, if I may, in terms of my most recent projections for the enterprise, that I'm looking on our current organic growth to achieve a position with a multiple of only 15 or 20. I'll give you 15 first. Currently, for 2020-21, a key year—2020-21—we will achieve with a multiple of 15 a valuation of some £88 million. With a multiple of 20, we will achieve a valuation of £117 million for the enterprise. Now, they are multiples of 15 to 20 and, dare I say, London City Airport was sold on a multiple of 40. So, what we're creating with this business model is value enhancement that not only is a win-win situation here, not only improves the quality of service for the passengers and people who use the airport, and attracts further activity to the airport, such as Qatar Airways next week, but it gives the shareholder significantly enhanced value, which allows the shareholder, if it so wishes, to enter into a relationship with an equity partner.

I'd strongly urge Government to consider an equity partner that would be along the lines of a pension fund that's looking for a long-term modest return, or a sovereign wealth fund that's looking for a long-term modest return, or a strategic partner, dare I say, such as Qatar Airways, which owns 20 per cent of Heathrow, which owns 20 per cent of the International Airlines Group, which owns 100 per cent of British Airways, which owns all of Iberia, Air Lingus, et cetera.

So, that is the model I'm working to. We could adapt and change that model if we so wish, but that would be simply, if you like, very crudely, driving up prices and cutting costs, and that is a model that led to the decline of the airport. 

12:25

Given that you're looking for equity partners, potentially the private sector, why is it you didn't look to the private sector for a joint venture partner for the additional capital you required? Why is it the Welsh Government that has stumped that up? 

In terms of the additional capital, the injection of £6 million? 

A good point, and absolutely—. Chair, my I address? Sir, yes? 

Okay. If I could take this sequentially—I'm conscious of time—because this is quite a complex position. It's why did we do equity versus debt, because you could be going into a debt position, and what did we do and how did we do it, as it where. We, prior to equity investment—. We're funded solely through Welsh Government loans. Now, given the impact of the block grant in relationship to external funding, the Welsh Government is the only source of investment. So, that is the way, that is the world in which we all operate here within Welsh Government, yes? Now, we negotiate loans with Welsh Government on a commercial basis, but with reference to the European framework to ensure they're compliant with state aid. So, in order for a loan, or extension to the loan, to be negotiated this does take considerable time. Quite rightly, we have to go through a number of lenses and focuses and scrutiny. Under the current funding structure, where we have a loan on commercial terms, for us it's expensive, loans are expensive. But we have taken a view on it, and we have a process in which we're drawing down upon it and which we will pay back.

It's complex, and it takes time to negotiate loans, and also, if you were looking for some other position, that would take a huge amount of time to disentangle the relationship between Welsh Government and the airport to seek private equity. Now, we are a nimble business that is, in fact, in recovery; we've been in recovery mode for the last few years. So, we decided, last year, to look at our strategy for growth—picking up on your point—and we decided there were a number of key things that, if we could invest in them, would not only improve the quality of service at the airport but would drive us commercially—so, improve passenger numbers, attract further things in, but it did need money to achieve it. We put together internally within the airport a robust business plan for this. How can we accelerate growth to enhance value quicker? Again, it's a wonderful virtuous circle here: you enhance value, you improve the passenger experience and you grow.

The way to do this in the time frame we're working to would be to talk to Welsh Government, which we did. We began a discussion with Welsh Government on this—and I can talk further at another stage, Chair, about governance, because I'm very proud of the governance model we've got here with a limited company, a holdco with key performance indicators and certain things that we have to seek approval for before we do it. It's far more robust than a lot of, actually, other commercial companies. So, we put together this plan for growth and we presented it to Welsh Government officials. Welsh Government officials scrutinised it, but then we went external, to Oxera, to independently assess what we were doing to make sure it jumped all the hurdles over state aid, all the European legislation and could allow us to have this equity injection as quickly as possible to accelerate growth. What it achieves for the shareholder is an enhancement of some £12 million to the value, and so the numbers I gave include the enhancement of the £6 million injection—[Interruption.]—just one last point, if I may—so, you have this win-win of enhanced value, enhanced earnings before interest, taxes, depreciation, and amortization, enhanced customer experience and enhanced airlines coming to the airport. 

12:30

That explains, then, why you've been significantly more capital-hungry than the Welsh Government anticipated when the arrangements were first made. I think we were initially expecting £2.7 million external finance and, in fact, the amount has been well over £25 million. 

Thank you for that. We're not only ambitious and hungry, but we've achieved success—exponential achievement in that—and, as I said, the launch of Qatar Airways is going to be transformational for the airport. I described last year as a watershed year. This is going to be a transformational year on which we need to build. 

I think we all acknowledge that. Just in terms of the finances, when is it you expect the Welsh Government will get its full investment back? 

Well, it could, if it so wished, on our current forecasts—if it wanted to sell the enterprise completely—have a value on a multiple of only 15 by 2019 of some £70 million, a multiple of 20, of £93 million, by 2019-20, but then if you're factoring to pay off all the loans so it's completely debt free, you'd be looking only on a multiple of EBITDA of 15 by 2020-21. 

Right. Drawing from your positive analysis, we'd be better off keeping the money in the bank. 

It is a national asset for Wales, which is part of a wider strategic play. The wider strategic play goes beyond—. It's the young family in Cefn Cribwr who wants to go to Majorca on holiday—a young mum and three kids. They're not going to get in a series of convoluted transport solutions to get to Bristol. This is about how you can provide the people of Wales a quality service that they deserve—that's No. 1. Secondly though, expanding, with my business hat on, this becomes a strategic business asset for Wales. We already have the British Airways maintenance centre on site.

Behind the scenes, working with Welsh Government, it took me a good 18 months of work to secure the future of 700 highly skilled jobs at the British Airways maintenance centre. I'm pleased to say that it currently services 747s, and, going forward, it will service 787s—the Dreamliner 787. So, that secures those jobs until at least 2025. We have that skill set there. I've been discussing with British Airways how they do third party work within that facility, so then it's not just about British Airways. We've recently trialled it with Norwegian. So, Norwegian have been using that facility. Now, if we start moving this out, with this asset that we have, what else can we do? We have in Nantgarw the GE Aviation factory. The GE factory at the moment services certain types of engines. I'm talking to GE about whether there is the opportunity to service other types of engine, which could then link in with flying the parts in and out of Cardiff Airport from those facilities.

The next thing that I'm working on is that I've been down to the gulf regularly, talking to major global players in warehousing. And what we're talking about with those warehousing companies is what the possibility is of building facilities in and around Cardiff Airport that can create a warehousing opportunity for Wales. Freight on aircraft is usually driven by two things. One is perishables. Wow—there's a Welsh food play here, for us to export Welsh food to the gulf and beyond. The other aspect of freight is low-density, high-cost items. So, our tech sector, be it wafers—. The high-tech sector here in Wales—. Here's an opportunity for us to export low-density, high-value items. So, we're working on that as well. This is why the asset becomes so important. I could carry on on this, but I'll give you two examples as I'm conscious of time. But this is why it is so important, and this is why I'd strongly urge—. My advice to the Welsh Government would be to retain this asset, but to look for equity investment, and construct a model where Welsh Government has the checks, controls and balances to ensure it doesn't have a situation it encountered last time, where, basically, the asset was sweated to a degree where it was virtually dying, and where it's, as the First Minister said, some sort of golden share arrangement or some sort of check and balance, to ensure its long-term profitable sustainability. Thank you.  

12:35

Thank you, Roger. Do you have any brief questions, Lee? Thank you.

I thought an hour and half would have been ample for what we needed to get through this morning, but it sounds like we needed an hour and a half just on Cardiff Airport, I think, Roger. Can I thank the Cabinet Secretary and colleagues for their time this morning? We're very grateful for that. And that draws our meeting to a close this morning. Thank you.

Daeth y cyfarfod i ben am 12:37.

The meeting ended at 12:37.

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