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ANNEX &
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9 March 1999 Not Ceese
Ces Le Ay
Tracey Chere ard — fon
: Mr Stephen Byers fee.
Secretary of State for Trade & Industry LoS
Department of Trade & Industry y .
1 Victoria Street Mv Beker Cqaes
LONDON - im
SW1H 0ET “ms
Me Wacdenatad
* Dear Stephen,
I was very glad to have the Opportunity to see you last Friday to exchange views on
the latest approach to Horizon and Progress with the White Paper. We talked about
some of the key issues emerging in the White Paper where the Post Office had
concerns and I promised to write to you about them.
They are as follows:
@
(b)
We would like to see a clear and unambiguous mechanism by which the
regulator is required, in setting pricing and service objectives, to take into
account financial targets set by Government. This is particularly important in
Tespect of the proposed restructuring at 1 April 2002 of the Post Office’s
balance sheet. Although we have still to agree details of the scale of this
restructuring, if there is no change in financial targets, this would require us to
raise prices significantly. (Over £100m of income from interest is at risk.) But
it is also important more generally in a situation where the Board is required to
meet Government targets and has not got the freedom open to other regulated
industries simply to cut dividends or perhaps to borrow.
The Post Office is pleased that Government has agreed that large scale
investment cases, which are commercially robust, will be approved. But we do
need a clear understanding, either in the White Paper or in a side letter, of the
criteria by which “commercially robust” will be evaluated. Larger scale
acquisitions require a huge amount of Tesource and trust between the two
parties involved well before final authority is given. It is therefore crucial to
have some clear parameters set so we can enter into discussions with
confidence.
In this connection I drew your attention to the vote of The Post Office Board
which is now constituted with able experienced independent non-executive
directors. Procedures are in place for robust testing of any proposals put
forward by the executive.
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(d) The Post Office Would not want to be in a position at each year-end where it
it ili investmen;
OF next year’s £75m We re suggest that, in line with the current
arrangements for the EFL, an UP to £30m roll forward-or-back facility is
agre
would understand this, However, it would very important Mm such a situation for
investments to be operative (albeit informally) from 1 April 1999, © pace of
acquisitions and developments in our markets is stil increasing and without access
immediately to the new arrangements the Post Office and UK would be Severely
damaged,
Yours sineocat.. RO eee
DrNC BAIN
Chairman
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