Mike Welton: the man with his head on the block

Balfour Beatty is up to its neck in the construction industry's biggest issues
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What's the link between Railtrack, Turkey's Ilisu dam project, the part-privatisation of the London Underground, Birmingham's Northern Relief Road and Heathrow Terminal 5?

The answer isn't the embattled Transport Secretary Stephen Byers, whose fingerprints are on most of the above. Nor is it simply that they are all highly controversial.

No. The link is Balfour Beatty, the FTSE-250 construction and engineering group. Because, in some shape or form, Balfour is at the heart of every one.

Take Railtrack. Balfour is contracted by the company now in administration to maintain and supply hundreds of miles of infrastructure. Still more controversial is the Ilisu dam, which critics claim will displace 25,000 Kurds. The dam was to be built by Balfour before it pulled out last month.

Then there's the plan to part-privatise the Underground. Again, Balfour is right at the centre of affairs, as one of the bidders. And then there are two of the UK's most heavily debated construction projects: the Northern Relief Road and Terminal 5. There are no prizes for guessing who's going to build them.

Balfour's chief executive is Mike Welton, a trained civil engineer, who adopts a straight-down-the-line approach to the job. Explaining why Balfour gets caught up in controversy, he says: "The fact of the matter is that we are a large infra-structure company. Large infrastructure nowadays attracts a lot of public interest and, quite properly, debate. It's all part of the process."

Welton joined Balfour 23 years ago when it was part of the cable giant BICC, a company so large that it was in the old FT 30 index. He became chief executive of the renamed and remodelled Balfour Beatty in 1999, at a time when it was £400m in the red and had only just survived a cheeky takeover bid from Wassall, a mini-conglomerate. Today, having shed its loss-making cable interests, the company is a rail engineering, private finance, construction and civil engineering specialist and is in rude health. Last year it made a £114m profit, boasting a record £3.9bn order book.

One of Balfour's fastest-growing businesses is its rail operations, where most of its interests are in the UK, US and Germany. In its 2000 annual report, Balfour revealed that the sector contributed £439m to the group's turnover. Welton now says this figure has mushroomed to nearly £700m. But a question mark hangs over Balfour's rail interests after the collapse of Railtrack.

"If your major customer goes into administration then things are not exactly straightforward," admits Welton. "We are their biggest supplier and they are our biggest customer. Everything is up for grabs. And while there's uncertainty, there's worry."

Behind the scenes, Balfour is positioning itself to at least maintain its work on the railways, and, at best, enhance its position. Welton says that the company's expertise in building, maintaining and renewing railways, combined with its PFI experience, offers "an absolutely superb opportunity for us".

Balfour has already held informal talks with some of the bidders for Railtrack. Welton won't say who, but they could include WestLB and Babcock & Brown. If the Government's proposed company limited by guarantee takes over Railtrack then Welton hopes that Balfour will play a role in it.

Critically, Balfour has three Railtrack maintenance contracts, worth £125m a year. But there is still a dark cloud hanging over Balfour's head, in the form of Hatfield. At the time of last year's fatal crash, Balfour had part-responsibility for re-railing on the East Coast Main Line. There is now a possibility that legal action could be taken against Railtrack and Balfour. The British Transport Police is beginning to pass its files on the case to the Crown Prosecution Service. An announcement is expected in the new year.

"Of course it's a concern to us," says Welton. "But not all of the situation gets into the public domain. I'll leave it at that."

Balfour's rail interests extend to the Underground. Through its 20 per cent interest in the Metronet consortium, the company has been selected to run a number of lines on a 30-year contract.

"The Underground is extremely important to us because all the things that need to be done on the Tube, we were already involved with: railway systems, stations, civil engineering and tunnelling. It's our bread and butter."

Metronet has already spent tens of millions of pounds on its bid and has secured much of its debt financing. After the Railtrack fiasco, however, there is talk that the banks may increase the interest rates on the loans. "We haven't seen any evidence of that yet," says Welton. Could it happen? "I don't know. I don't know."

Perhaps more worrying are the rumours of a "Plan B" for the Tube, which could see the part-privatisation ditched altogether. All this makes for a worried Balfour boss: "I am quite superstitious about orders until we actually have them."

If the Government does stage a U-turn then it will be forced to compensate Metronet. "It's a predetermined amount of money, but it won't cover everything," says Welton.

If these UK projects weren't enough, Balfour hit the headlines last month over its decision to pull out of the project to build the Ilisu dam in eastern Turkey.

Balfour is an expert dam builder. But after two years, the project became Balfour's dam buster. "We decided that we were just throwing money away. There were no signs [of the issues] being resolved in a satisfactory time scale."

The main issue in question was that the contracting group, of which Balfour was a member, could not reach agreement with the Turkish government on a number of commercial details.

Conspiracy theorists claim that the British government made the decision for Balfour by pulling promised export credit guarantees. Welton refutes this claim: "There is no truth in that whatsoever. [The project] was not at that stage of development."

All this must make for lively debate at Balfour's Business Practices Committee. Made up of non-executive directors, the group meets five times a year to discuss Balfour's policies on risk management, human rights, business ethics and the environment.

Being the chief executive of Balfour is not a job for someone who yearns for a quiet life, though Welton says it does have its compensations.

"One of my favourite projects was Hong Kong airport. It was so vast and exciting. My finance director always accuses me of getting excited by big pieces of construction kit and plant. They appeal to the schoolboy that's left inside me."

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