COMMITTEE FOR REGIONAL DEVELOPMENT

OFFICIAL REPORT
(Hansard)

Review of Northern Ireland Water’s Strategic Business Plan

23 April 2008

Members present for all or part of the proceedings:
Mr Fred Cobain (Chairperson)
Mr Jim Wells (Deputy Chairperson)
Mr Cathal Boylan
Mr Willie Clarke
Mr John Dallat
Mr John McCallister
Mr Raymond McCartney
Mr Stephen Moutray
Mr George Robinson
Mr Brian Wilson

Witnesses:
Ms Jo Aston ) Northern Ireland Authority for Utility Regulation
Mr Iain Osborne )
Mr Sean Lyons )

The Chairperson (Mr Cobain):
Welcome to the Committee.

Mr Iain Osborne ( Northern Ireland Authority for Utility Regulation):
Thank you for the invitation to speak to the Committee again. You will hear less of my voice and more of Jo Aston’s, whom I will hand over to in a moment.

The subject of today’s discussion is the review of Northern Ireland Water’s (NIW) strategic business plan (SBP) for 2007-10, which will be published in the next couple of weeks. We promised to brief the Committee before its publication, and I hope that we can cover the topics that Committee members particularly want to address.

Publishing a review of the SBP is a bit like asking how long a piece of string is. Jo will expand on what we found in the SBP, but most of our presentation concerns what we are doing about it and where we go from here. I wish to leave the Committee with the feeling that we can draw a line under this historical document and a sense of how we can move on. [ Laughter.]

Ms Jo Aston ( Northern Ireland Authority for Utility Regulation):
There is much detail in the presentation, but I will not take too long to go through each point. As well as presenting the Committee with our findings, we felt it important to outline the measures that we are taking to overcome the shortfalls that exist. Those measures will enable us to do our job and establish robust economic regulation, which is important and what everybody wants. We wanted to return to the Committee with timelines, so that we can provide members with more robust performance information, as we intimated previously.

I will recap briefly on the role of the Northern Ireland Authority for Utility Regulation (NIAUR). Our primary duties are, first, to protect the customer and, secondly, to ensure that NIW delivers its functions responsibly, and that those functions are properly financed. Our focus is on service and value for the customer. Therefore, we want to measure the agreed output, which is outlined in the SBP. We benchmark the performance of the company by cost and by services provided. By 2010, we will be responsible for setting prices.

Why should we have a strategic business plan, and why did we review it? The reasons for that may be obvious to most members, but I will deal with that issue briefly. The strategic business plan should be a clear, comprehensive and coherent account of the company’s plans. Joe Public should be able to read it; we should be able to run with it and get everything that we need from it; and stakeholders should derive confidence from it. A robust business plan is fundamental, because it will enable us to discharge our duties. It should define the company’s outputs and its standards of service, and it should link those to the associated costs. The business plan should give a detailed asset strategy as to how it will deliver its outputs. We inherited it when we took up our posts and responsibilities in April 2007.

What does the SBP need to cover? There are management, financial and monitoring aspects. We found the business plan to be lacking from a management point of view. It did not clearly define a strategy to deliver output linked to expenditure. On the standards-of-service side, several key performance indicators (KPIs) are under construction, and quite a lot of data on current performance are missing. I will say more about that later.

We discovered that successive versions of the document lessened in detail rather than fine-tuned and enhanced the plan. We found it increasingly difficult to identify the rationale for setting the existing efficiency targets. We have concerns about the financial sustainability of the company, particularly post-2010. We wonder about the ability of the company to absorb shocks, and we also discovered some issues connected to accounting practices, such as the base maintenance fund — an issue that the Committee has already discussed. The plan does not allow us to monitor outputs at all, because it is not robust enough.

I will now deal with financial sustainability in a little more detail. I have identified the areas of concern. The company currently enjoys a good rate for the cost of borrowing — 5·25 %. That rate is guaranteed up to 2010, but we have no assurance of what the level will be post-2010. As part of our regulatory duties, we look at comparable companies and at the cost of capital that they enjoy — or otherwise. Scottish Water has a fairly favourable overall weighted average, with a cost of capital of 5·92%. Welsh Water, which is a reputable, recognised company, has a rate of 6·5%. We are concerned about what happens after 2010, when the company must obtain get a different cost of capital from the marketplace.

The scale of domestic bad debt that the company must absorb stands at 5%. That does not seem to be too unreasonable when compared with levels in England, Wales and Scotland. Scottish Water absorbs 4·5% of bad debt. Let us move beyond the figure of 5%, because none of us knows what our situation will be. Some 5% to 10% will be rolled on to the following year, and anything beyond 10% will be spread out so that customers pay for it in the future. Our questions are: what scenario analysis was carried out of the scale of debt, and how will that impact on bills? We want to explore those matters further.

That leads on to the company’s ability to absorb any shocks that may come its way as a result of major incidents. We had the issue with the miscalculation and reapportionment, through which we are working. The company has built up liquid reserves, but at a very low level. When Scottish Water was first established, it had reserve funding of £163 million, which it has now built it up to £350 million. Northern Ireland Water has access to reserves of up to £55 million, but is that sufficient? Is the scale right? Again, our questions are around the mechanics and the adequacy of the reserves.

We are also concerned about the fact that the company wrote to us to request a revenue uplift for 2008-09. It is important the company can access such a facility, but, on this occasion, we refused, because not enough of a case had been made for us to entertain it. However, that reinforces the fact that shocks do happen and that the company has access to assistance. Let me assure the Committee that we have the facility to claw back moneys, too, and we will exercise that function, where appropriate.

What are we doing about that issue? We are currently engaging with credit-rating agencies to discuss how they can assess the company’s credit rating. The company’s licence requires it to obtain a shadow credit rating initially, followed a full credit rating by June 2009. The uncertainty around charges will obviously impact on that rating, and that will form part of the discussion with credit-rating agencies.

Monitoring delivery is a major role for us, and we have spent considerable time establishing robust operational baselines. We have established the operational baseline for operations in 2006-07 at £163 million. We did that by reviewing the statutory accounts right back as far as 2000. The company has been undergoing change and reform since 2003, so we wanted to ensure that we identified the trend of operational spend, addressed any anomalies and made adjustments. We wrote to the company and requested extensive information from its nominal ledger to ensure that we understood and were able to adjust the baseline for 2006-07.

I shall now talk about NIW’s opex — operational expenditure — efficiency target. The strategic business plan makes claims about what was delivered before 2003 and what was delivered between 2003 and 2007. Over the three years, we want a delivery of £19·4 million from the strategic business plan. We have carried out analysis of efficiencies, and we do not think that the current figure is adequate. We asked that an additional £3·2 million be delivered, and that has been approved in the scheme of charges for this year.

Efficiencies are important for us all. The Committee will be interested to know how we arrived at that additional figure.

We applied three established methodologies. We applied a top-down approach, comparing with not only the water industry but other regulated utilities. We also applied corrected ordinary least squares (COLS), which does not mean a great deal even to me but is econometrics at its best. It was applied in detail by experts, as were Cubbin adjustment factors. There is a range of results, but we could have set a target of between 5% and 7%. For a number of reasons, we decided to set a target of 5% to deliver the £3·2 million: the data are limited and poor, so we had to take account of that; and we highlighted the increased efficiencies to the company quite late in the day. We were concerned that that, rather than taking a strategic approach, would impact on the service to the customer, and it is very important that that does not happen to us. We are also concerned about the delivery of efficiencies in the business improvement plan, and we will re-examine the efficiencies for 2009-10.

It is a similar story with capital efficiencies. We spent a great deal of time establishing a robust baseline, and we must now tie down the capital works programme with our environmental colleagues to outputs and dates. We must also tie down money and spend. We have established a good template, and a further populated version is required for the company in the middle of May. However, we have difficulty with the rationale behind the 17% target. There are claims that the percentage efficiency post-2010 will be 0·72% per annum. The regulator will be the judge of that when we come to working out our price control in 2010.

We will apply some top-down analysis, which involves making comparisons with other utilities in their delivery of capital efficiencies. However, we will be unable to do the more sophisticated and detailed analysis of cost until we work out the price limits in 2010.

The key performance indicators are missing from the document. In fact, we are very keen on gathering trend information in our analysis. We are finding that the interruptions to supply targets for 2007-08 are worse than the performance delivered in 2006-07. We are focused on the fact that the company is claiming a glide path to meet or exceed the comparator group by 2010. However, we are examining whether everything ties together, and, for some targets, it does not.

We carried out a partial performance assessment on the company and judge it to be about 20% to 30% lower overall in its performance to the customer. The annual information return is the bedrock for our functions, and it is a means of obtaining better information. The company must populate more than 60 tables in the annual information return for us. There are financial and non-financial tables a table on debt and tables on sewerage, among others. By the end of this month, we will issue all our information requirements and guidance notes for those tables to the company. The tables will be returned to us in August, and we will then spend time analysing that information. That information will feed into our operational efficiency analysis, our benchmark service performance, and our financial and cost checks. Our technical auditor will scrutinise the annual information return to ensure that all the data contained in it follow through correctly. We will be transparent, and we will produce a report of our findings in December.

To summarise our overall findings on the review of the strategic business plan, there is a risk of a step change in prices from 2010. The company initially started with the answer, working on the basis that bills would be in line with the average bill in England and Wales. NIW may have taken more of a top-down approach than a bottom-up one, or it may have come at it from both directions.

We are concerned about the ability of the company to absorb the shocks that may come its way from reserves. We are concerned about the delivery of efficiencies. We also feel that the efficiencies target is, perhaps, not as high as it should be. We acknowledge the limited scope and strategic business plan for environmental sustainability.

We have established robust capex — capital expenditure — and opex baselines. We have measures in place to monitor delivery. We are revisiting efficiency targets and have already secured an additional £3·2 million to be delivered in 2008-09. We are developing, and engaging with stakeholders on, an approach for setting prices for 2010. Indeed, we want to set up a workshop with the Committee on the setting of those prices. We are engaging with appropriate stakeholders and credit-rating agencies on the financial-sustainability issues that we have raised during in Committee.

The Chairperson:
Thank you for that comprehensive run-through. I want to ask you about a couple of issues that have been niggling at the Committee for a while. We keep returning to the figure of 5% bad debt that NIW absorbs. Last week, we asked the Department from where the figure of 5% in the strategic business plan came. Officials drew that figure directly from the debt for Scottish Water and water companies in England and Wales. The Committee is dubious about that figure.

Ms Aston:
For the company to absorb 5% of debt is reasonable. However, is it reasonable to perceive that level of debt? I am interested to know whether any scenario analysis was carried out on the debt. If not, I suggest that one be carried out. If we are to go forward, even in the short term, and make decisions for the Executive, all those matters must be brought to the table. If they are not worked through now, they need to be worked through in order that we know what we are talking about, and understand and manage it.

The Chairperson:
Unless I am mistaken, the Committee has not seen any financial models for the 5% debt. That figure was drawn from ones that were produced across the water and extrapolated into the strategic business plan. I do not believe that a specific model for bad debt in Northern Ireland was drawn up. I am aware that reference has been made to the We Won’t Pay campaign. However, no model that is specific to Northern Ireland came up with 5% — the figure was drawn from plans across the water and inserted into the strategic business plan. That is my worry.

Ms Aston:
It seems logical that that is what the Department has done. It has considered what it will do if the figure is between 5% and 10%. If it is 10%, the question is what effect that will have on the next year’s bills. If it is more than 10%, the Department must consider what will be the range, impact and timetable for absorbing that debt.

The Chairperson:
The big worry for us is the credibility of the company. Last week, there was another hike in domestic customers’ bills. The models are not working out.

How much more difficult will it be to borrow during the current credit crunch? At present, even people who are “gold-plated” find it difficult to borrow money.

Ms Aston:
That is from where our discussion with the credit rating agencies emerged. In 2007, we deferred to shadow credit rating because bills would not be introduced. We do not want to do that again. We want to get the professional opinion of a body that can inform us of how the company would be viewed in the marketplace, particularly if we were thinking about a mutual model not too far away even to review it, as the Independent Water Review Panel recommended. That is an important matter for consideration.

Mr Osborne:
To add to Jo’s answer, another of our activities is to preside over the mutualisation of some gas assets, and that involved floating a bond. In the current market, there is a strong disinclination to take up new bonds.

The banks are not awash with cash. When we get to 2010, conditions may have changed. However, in today’s conditions, it may be difficult. There is also a flight to quality: if the credit-rating agencies thought that this was a superbly low-risk bond, they might get a good rate. However, in current circumstances, that is probably optimistic.

Mr Dallat:
I thank the witnesses for their presentation. I have the impression that the authority is almost acting as housemaid to the Water Service, so bad are the house arrangements. Garbage in creates garbage out. You do not have an accurate database from which to work, so your role has sadly diminished as a result.

The Chairman raised the whole issue of debt. The Northern Ireland economy faces crisis, with hardly a cement mixer turning at present. We are heavily dependent on the construction industry. No money is coming in. People were already afraid of water charges.

NIW’s absorbing bad debt will push over the edge of a cliff a large percentage of those people who are struggling. The 5% contingency for bad debt is a recipe for disaster.

The other issue is the reserves. The company has squandered its reserves on trying to bail itself out of the dreadful elementary mistakes that it has made in apportioning water charges to consumers and industry. Last week, I visited a couple of industrialists in Coleraine who employ substantial numbers of workers. Will they be pushed under? That should probably be a statement, rather than a question, because they will be pushed under. Theirs was a cry for help. At some stage, the authority must stop being housemaid to the water company. I mean that in the kindest possible terms — I do not suggest that there has been a cover-up. My goodness, from your presentation today, it is clear that the authority has had to guesstimate everything.

Ms Aston:
I will respond to some of the points that Mr Dallat has made. I understand why he has made them. He has asserted that our role has been diminished because of the poor data provided. I can reassure the Committee that we are required to get to the bottom of the poor data. The company made an annual information return to us for last year, which was not regulated. In setting out our requirements to them for this year, we have ensured that we will get good data from it, in so far as it can deliver. We also must identify what systems shortfalls there are, because there is no point in any of us living in cloud cuckoo land and thinking that everything can be delivered. We must identify problems and know that the company is working on delivering improvements. That is the assurance that the customer wants, and that I want. What the issues are, what is being done about them and what improvements are under way must be made clear.

Our reporter will investigate the annual information return that we receive and scrutinise everything that the company gives us. Where there are poor data, we will ask what systems the company intends to deliver and when they will be delivered. For example, to address the issue of the absent poor-flooding and low-pressure KPIs, the company must provide registers by June, and we should be getting information from the period beginning at the end of last year — or close to that point — onwards.

Mr Osborne:
I was pleased that our presentation includes the graph that shows how we have gone about setting required efficiencies. We have triangulated, using an approach that uses the NIW data, with their weaknesses, but also sources that do not rely on those data. By using that approach, we have deliberately flagged to the company that it can help us monitor with good data, but if we do not get good data, we will continue to regulate it nevertheless. If we do this without good data, it will increase the levels of risk to the company. We are tasked with setting efficiencies, and, from 2010, we trust that the setting of prices will continue, whether or not we are getting sound data.

Mr McCartney:
I thank the witnesses for the presentation. It came at me very quickly. There is much information to absorb. I declare that before I make these observations.

You began by saying that a strategic business plan should be comprehensive, clear, coherent and something that a member of the public should be able to read and understand easily. Although I may not have use your exact words, I shall paraphrase what you said: the management is lacking; there is no rationale in efficiency; financial sustainability is in question post-2010; accounting practices are not up to the expected standards; and there is no robust analysis in monitoring. Am I interpreting correctly what you said?

Ms Aston:
Yes; that is what I said.

Mr McCartney:
Iain referred to Fred’s being a schoolteacher. If you were asked to write a two-sentence report that a member of the public could easily understand — [Laughter.]

Ms Aston:
There is lots of room for improvement.

Mr McCartney:
I do not mean to put you on the spot, but, in the months that the Committee has examined the issue, we have been bombarded with percentages. Therefore, we are trying to establish a clear picture. The Committee should have received your presentation yesterday, and I will speak to Fred about that after the meeting. That is not a criticism — although you presented it in about five minutes, I am sure that it took you more than five weeks to compile. We require a clear picture, which is why I wrote down those five main points from your presentation.

Ms Aston:
In the presentation, as well the strategic business plan, we talked about what we have done, which is important. The Committee has been bombarded with material, and we must restore confidence into the picture that we paint, as well as into our role, what we do and how robust we are. That does not mean that we can fix the problem tomorrow, but we are trying to give the Committee the information. For example, we have stated that we are doing the annual information return, which comes out in August. We will produce a public report on our findings on how the company has performed as regards standards of service and costs. That report will include an assessment of the company against what it should be delivering and its peer group.

Mr McCartney:
A strategic business plan is supposed to guide a company through the next three to five years. From your summary, the company’s strategic business plan would not take a company too far before it fell down a hole.

Ms Aston:
We are bringing clarity to the process so that we can manage the output and monitor the delivery. That is our focus, and we have had to work to do that.

Mr McCartney:
People will read your submission and say that, if the strategic business plan was as flawed as you suggest, the concern over reapportionment was predictable.

Ms Aston:
We will get back to the Committee on the missing apportionment.

The Chairperson:
The other big problem is that the customer must pay. Our big worry is that we have not seen any of the projections in the strategic business plan work out. I am not saying that forecasts must be exact, but I am talking about figures that are 50% and 60% off the mark rather than 3% or 4%.

You also mentioned higher-efficiency targets of 28·7% — the Department of Finance and Personnel (DFP) wrote those into the Budget and charged for them. No one has convinced me that those efficiencies will be realised. Northern Ireland Water told the Committee that it was having difficulty meeting the original targets, but DFP then proceeded to put additional efficiencies into the Budget, which are now 28·7%. If those efficiency savings are not made, the customer will pay more and allocation of money for other purposes will have to be re-examined. As Raymond said, the strategic business plan should provide an indication of the company’s direction in the next five years. The financial projections in the strategic business plan will influence other Departments on costs, efficiencies and bills, and those will all be called into question.

Departmental officials attended the Committee last week, and they had readjusted the figures again. They were £30 million out for 2010-11. Therefore, there are concerns about the strategic business plan, in which damning problems have been identified.

Mr Osborne:
The next two years should be thought about differently to 2010 onwards. From 2010, we will ensure that, when we pull together the price of control, a strategic business plan is in place that is fit for purpose.

We will also ensure that if we set efficiency targets that the company fails to meet, someone will have to pay for it, but it will not be the customers. We will not increase prices proportionally. However, that means that the taxpayer may have to pay, which is the consequence of public ownership. The Committee has a wider brief than we do, but we will protect our consumers.

The Chairperson:
My point is that taxpayers and consumers are the same individuals. Therefore, someone may not pay as a consumer but will pay as a taxpayer.

Mr Osborne:
The next two years are important in that, during that time, the company must become more efficient. I used the term “historical document” earlier, and we do not intend to use the strategic business plan as a reference point.

The Chairperson:
You will not use it?

Mr Osborne:
No. We have clarified the 2006 opex baseline, and we have also clarified the template for the capital monitoring. Furthermore, we are working with the company to ensure that the appropriate data are available, and we are working with the Environment and Heritage Service (EHS). All that will ensure coherent management.

The available information will not refer to what direct rule Ministers agreed in 2006. Rather, it will refer to the last year that we have audited numbers for, which is 2006-07.

For the next two years, the Minister for Regional Development will be responsible for taking decisions about efficiencies and bills. If the company fails to meet its efficiency targets for 2008-09, that will have consequences for 2009-10. How much of the extra cost is borne by the taxpayer, and how much of it is borne by the consumer will be a decision for the Minister.

The Minister’s role as a shareholder is important. We have reviewed the company’s transformation programme. It is not fabulous; it is reasonably well designed on paper, but various parts are missing. One area that could be improved involves issues of governance

Nevertheless, it is a plan. The fact that it has not yet been signed off on will result in the company’s struggling to build the momentum that it needs, which is a problem. The shareholder unit must maintain the commercial focus on driving the efficiencies. We are currently witnessing some politics and some hesitation over signing off on the plan, and that is a problem.

Mr W Clarke:
Sewer flooding is costly, and many towns require the implementation of drainage plans. No data or KPIs are available for such issues. Do you have any idea of costs, and so on?

Ms Aston:
The company has robust drainage plans. We are talking about issues of performance: how much flooding occurs; how often it occurs; whether it is internal or external flooding; what causes a blocked sewer; and whether it is an adequate sewer or a capacity issue. Those are all aspects of information gathering that the company must present in evidence to us to enable us to justify the amount of money that it can spend to rectify the problems. Such evidence would enable us to ensure that the money is being spent in the right area and to ensure that the people whom the flooding affects benefit.

The company is currently unable to report the facts. They do not have a flood register that shows how many customers are affected by floods, how often floods occur, and so on. The company is required to implement such a register. However, that is not to say that it does not have drainage-area plans.

Mr W Clarke:
The company has such plans?

Ms Aston:
It does.

Mr W Clarke:
What is the time frame for the cost of borrowing in Scottish Water and Welsh Water? Is it a prolonged period?

Ms Aston:
It is a weighted average.

Mr Sean Lyons ( Northern Ireland Authority for Utility Regulation):
Those companies have different tranches of debt. Those figures represent a combination — what the final figure will be. The figure for Northern Ireland Water is only for one tranche of debt. Each of those tranches has different time periods, depending on the lenders.

Mr Osborne:
That could be anything up to approximately 30 years.

The Chairperson:
We discussed how water bills would be £334 per annum, in line with those in England and Wales.

Ms Aston:
That is a statement that is made in the strategic business plan. It stands out because that is how — coincidentally — we ended up with that figure. That is a stark statement, but it is perhaps one that I can only surmise rather than clearly state.

Mr Osborne:
That was the intention — I sat through the meetings.

The Chairperson:
Those figures were drawn from somewhere else and put into a business plan with no financial mapping to ensure that they were appropriate for Northern Ireland.

Mr Osborne:
It was worked backwards — that is what NIW wanted the cost in Northern Ireland to be, so it —

The Chairperson:
It was not done like that, however.

The same was done with the efficiencies — they were drawn from somewhere else and put into the strategic business plan. Does that mean that, after 2010, there will be no political interference in the cost of water? The authority will be in charge of the billing at that stage.

Ms Aston:
In setting a price control, the quality and levels of service are worked on, and then a report is submitted to the Minister. After receiving a scale of the cost, the Minister will then have to guide us by telling us where he has drawn the line and what the objectives are. That will be submitted to us, and we will then set the charge.

Mr Osborne:
The process is in place, and it runs year after year without political interference.

The Chairperson:
That is my point. The figures in the strategic business plan have been drawn from England and Wales. It costs £334 a year, or, without the subsidy, £374 a year. The actual figure is £406.

Ms Aston:
In the strategic business plan, the company makes great play of comparing its performance with a group of companies. Whenever we consider that comparative group of Scottish Water, South West Water, and so on, their actual average cost is £406 a year. There is one argument that goes in one direction and another argument that goes in a completely different direction.

Mr Osborne:
It is irrelevant, because NIW will not set the price control.

The Chairperson:
The point that I am making is that that is fine until 2010, when the regulator takes control.

Mr Osborne:
Between now and 2010, we need to get some working assumptions about the longer-term costs.

The Chairperson:
Is that in case we fall off a cliff come 2010?

Mr Osborne:
It is assumed that there will be a huge increase in 2010. It is incumbent on all of us to have a conversation about other ways to mitigate that nasty increase. Ultimately, the costs will have to be paid, but ways in which to smooth that out somewhat might be found.

Mr G Robinson:
It would be like another Seagate closure.

The Chairperson:
It would be like another 40 Seagate closures.

Mr Boylan:
I do not mean to be flippant, but if the strategic business plan were Lego, would it be possible to construct anything out of it? I acknowledge that the assumptions were wrong, but is it necessary to go back to the drawing board? How do we ensure value for money and protection for customers after 2010?

Ms Aston:
Our focus is on determining the deliverables and the outputs. It was mentioned that key performance indicators are absent. However, we assess current performance levels, and our environmental colleagues were party to the standards and the objectives from the environmental piece. Part of our capital-investment monitoring procedure is to ensure that the projects deliver relevant outputs and increased quality standards. We will ensure that the company deliver the outputs that it is claimed they will. We cannot work from the bottom up; we have had to establish a baseline from which we can crystallise the outputs and establish who will deliver them.

Mr Boylan:
The company must redraw its figures, because its assumptions and bad-debt calculations are wrong. You said that the business plan would not be clear to Joe Public. However, we have been studying it for a long time and have concluded that it has all been wrong from the outset. Can you give a clearer indication?

Mr Osborne:
The Lego-set metaphor is interesting — we have many pieces of Lego. The final version of the strategic business plan, and the previous draft, on which Jo commented, got thinner as it progressed. The Committee will be aware that numbers can be given in response to any given question. Rather than merely producing figures, the challenge is to ensure that everything fits together. Those are our fundamental concerns about the plan. I am sure that we will end up using updated and properly validated versions of the elements that were produced for the final plan or previous drafts. From 2010, we should have something that, although simpler than what was aspired to in 2007, is properly validated and cohesive.

Mr Boylan:
Until that time, however, questions must be asked about cost.

Mr Osborne:
The Minister accepted our views on the operating efficiencies that should be required for the coming year. We will advise him later this year on next year’s operating cost. Similarly, we are agreeing a template and a monitoring plan for the capital required. We can maintain pressure on the company for the next two years, although obviously it would be better if we were all working to a fully implemented plan.

Ms Aston:
We are building up our own baseline and monitoring system. We are working to the outputs that have been defined in the strategic business plan and to the overall costing that the company was granted. We will monitor whether it meets its relevant targets in costs, efficiency and project output. Some of those projects may change. Therefore, to ensure that we understand the building blocks, we must know what will replace those, what has shifted, and what savings may accrue.

The Chairperson:
Thank you very much.