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Having listened to this column the SSRA is making sure that it won't be held to ransom over Mk1 replacement
When the Safety Regulations requiring Mk1 stock to be withdrawn or modified by December 31 2002 came into effect, this column pointed out that they gave the franchisees concerned some leverage when it came to franchise renewal, or replacement as we now call it.
With the South West Trains franchise expiring on 2 February 2003 , followed by Network South Central on 25 May, an incumbent franchisee could play a game of ‘chicken' with the Franchising Director. This would involve doing nothing about Mk 1 stock replacement pending an extension to the franchise. Meanwhile time to order and deliver replacement stock before the deadline would be running out.
As you might expect, this machiavellian thought was pooh poohed. ‘Companies don't behave like that Roger', I was told.
Oh no? Believe that and you clearly haven't read Christian Wolmar's history of Stagecoach. Or, more probably, haven't yet to get to grips with the reality of privatisation.
But Franchising Director Mike Grant has been around the private sector a bit and he agreed that the Ford gambit was a genuine threat. His counter was to decouple Mk 1 replacement from the emerging franchise replacement process. Or as one Informed Source put it ‘Mk 1 stock replacement must be the normal line of business for these franchises. Promising replacement won't win a franchise'.
So, in February this year, the SSRA issued a Notice in the Official Journal of the European Communities (OJEC) seeking expressions of interest in the supply of up to 1500 electric multiple unit vehicles to replace Mk 1 stock currently operated by the Connex and South West Trains. franchises.
Note that the maximum quantity is greater than the number of Mk 1 vehicles. This is another bit of decoupling and is intended to stop franchise replacement bidders ‘sitting on their hands' and using growth builds as a bargaining counter. Thameslink comes into this category, as well as the three south of the Thames franchises with Mk1 stock. Thus, new EMUs will have to be dual voltage.
While the national media got very excited about the SSRA ‘buying' trains, I don't think Chancellor Gordon Brown would really like to see the SSRA actually spending money. After all the whole point of privatisation from the Treasury's viewpoint was to get railways out of their hair.
What the SSRA hopes will happen is that the Rolling Stock Companies will sign up to buy the trains which will be leased initially to the SSRA. When a franchise replacement deal is signed the SSRA will ‘novate' (transfer) the lease to the new operator who will then pay the rentals to the ROSCO over the life of the franchise.
According to the SSRA's weird questionnaire, of which more later, there are three delivery profiles for the ‘up to' 1500 vehicles:
1)Service introduction completed by 1 January 2003
2)Service introduction completed by 1 January 2005
3) Service introduction starting 1 February 2003 and completed by 1 January 2005 .
You can see how this fits in with the Safety Regulations. The first case assumes no cup and coning, or alternative crashworthiness modification, of Mk 1 stock.
Leaving to one side the fact that the Safety Regulations cut across the commitment in the Connex South Eastern 15 year franchise to replace Mk 1 stock by 2005, franchise replacement implies around 950 new vehicles for South West Trains and Network South Central.
So Case 1 means manufacture starting early next year. This was confirmed both by the OJEC notice calling for deliveries to start in June 2001 and the SSRA's stated aim to sign deals before Christmas this year.
Case 2 assumes some Modified Mk 1 stock running through to the final cut-off date. Indeed, Connex is now saying that some of the South Eastern slam door fleet will have to be cup and coned.
But Case 3 is the interesting one. Why 1 February? Presumably this is linked to the 5 February end date of the current SWT franchise. And how do you define ‘service introduction'?
My guess is that this assumes that if Connex retains South Central later this year it will start to replace its Mk 1 stock, either drawing down some of its option on another 1,200 Adtranz Electrostars or converting its current tendering exercise for up to 500 electric multiple unit vehicles into a new order.
Given that the prices in that the option are reputedly well below current market levels (ie unprofitable), some renegotiation may be necessary. And, given the prolonged safety case saga with South Eastern's Adtranz Class 375s, I would expect a prudent Connex to hedge its bets and go for a train with service experience and a safety case. This expectation should be tempered by Informed Sources first law which runs ‘Never assume railways are rational organisations'.
Should GOVIA win South Central, their total lack of new train experience could make them the prime candidate for an SSRA novation. On the other hand, they might want to start a joint procurement exercise covering both Network South Central replacement and a Thameslink growth build. But they would have to be quick with the Mk 1 deadline looming
SWT is a bit different because the engineering troops on the ground are heavily into new train procurement. So, whoever gets the replacement SWT franchise, the troops on the ground are going to remain the same and the troops on the ground have the only new generation DC train in service.
Are they going to recommend their new owner to take a ‘novated' contract for, say, Siemens' ‘Desiro' or Mitsubishi's ‘Zero', both with a DC safety case on trust? Or are they going to quote Kipling's ‘Laws of the copybook headings' and urge ‘better the devil you know'? Tough call, or what?
So, the SSRA might not need to sign up for any new trains at all. Which emphasises that the whole procurement exercise is, in part, a bluff. But for such deterrence to work, you have to believe that Mike Grant really will issue the security codes to the missile silos.
These scenarios also favour the status quo. Adtranz and Alstom can bid standard designs. And apart from giving economies of scale on existing maintenance and spares provision, there is also the little matter of interoperability.
In contrast, the newcomers, (see below) will have to expend substantial sums on bidding, including preliminary design work, with a low likelihood of this effort being converted into an order.
Of course, the SSRA isn't buying anything. These deals will be funded by the ROSCOs, or other finance houses, and this is where it starts to get tricky.
Unless the SSRA can get replacement franchises in place for Network South Central and SWT by October/November this year the ROSCOs will be buying new trains to the SSRA's specification for an unknown customer. And that customer might not want what the SSRA has signed up to.
Indeed, were I an incoming franchisee, I would certainly try kicking the tyres of the SSRA leased fleet, sucking my teeth and saying, ‘Hmm, these Junipers, not really what I want. Now Electrostars, I would take like a shot. So how about cutting the lease rental to compensate for having to run trains I don't really fancy?'
Worse, we are told that replacement franchisee are likely to have five year break points in the franchise agreement when performance will be reviewed and you could lose the franchise. Now, as a franchisee, would you like to sign up for a 20 year hell or high water train lease rental when the SSRA could take your franchise away after five years? So a five year break point in the train lease might be prudent
But look at it from the financier's viewpoint. Suppose you had bought a fleet of trains at up to a million a vehicle on the basis of a 20 year lease and no one wanted them after five or ten years.
Why might not someone want them? Well the evicted franchisee's successor might want something different, or the SSRA specification might not have been right in the first place, or the safety case might have been a bit too route specific for an expanding business.
So, you can see, just setting up the deal will be fraught with uncertainty and the SSRA will have to be exceptionally supportive if lease rentals are not to soar.
But if finance that sounds like fun, wait until we get into the actual procurement.