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Replacement franchises were supposed to take over infrastructure enhancements – but paying them to take risks would cost money
Bit by bit SRA Chairman Richard Bowker is realigning passenger rail policy with the real world. And in August he saw off the basis of the franchise replacement programme devised by his predecessor Sir Alastair Morton.
Sir Alastair believed that 20 year replacement franchises would allow train operators to implement major enhancements through Special Purpose Vehicles (SPV). An SPV would be a consortium of banks, operators and contractors who would fund and implement something like the Brighton line modernisation, then sell it to Railtrack for an agreed price. Any cost or time over-runs would be carried by the private sector consortium.
While ideal for a greenfield enhancement, I could never work out how an SPV could work on someone else's infrastructure, to someone else's Group Standards and within someone else's Railway Safety Case. SPVs were, in short, a non-starter on the real railway.
But some signed up to Sir Alastair's vision, in particular my chums at Govia who have been developing an upgrade-based 20 year replacement South Central franchise for over 18 months. You will recall, that the two stage refranchising process saw Govia selected as the preferred bidder and the company subsequently bought out the remaining years of the original franchise from incumbent Connex.
Since then Govia has been working with Bechtel to develop the associated SPV. And now it has come to naught, wrecked on the iceberg of Thameslink 2000. So, with no SPV, the SRA and Govia are now negotiating a new South Central franchise agreement, running from 1 January 2003 for up to seven years.
Under this new deal Govia will continue to be responsible for the Mk 1 stock replacement programme, station upgrades and information systems enhancements.
What the SRA calls a ‘separate substantial programme of track and signalling improvements', including the Brighton Line upgrade, will now be led by the SRA ‘to ensure effective completion as early as possible'.
This SPV-based upgrade, together with the revised seven year franchise, should deliver ‘substantially the same benefits as those originally planned for the 20-year franchise', says the SRA.
What brought the impracticality of the SPV to a head was the on-going uncertainty over Thameslink 2000 – fast receding beyond 2010. So the SRA also intends to negotiate with GOVIA a new six year franchise for Thameslink, currently due to expire in April 2004.
Both franchises would then run to December 31 2009 , although the SRA will have the right to early termination after December 2007, subject to 12 months notice. This termination right is intended to ‘safeguard' taxpayers - from what, I'm not sure.
From this base the SRA can launch a ‘super-franchise', merging South Central and Thameslink, in line with the policy of fewer, bigger franchises
Why wouldn't the SPV fly? In one word, ‘risk'.
Even a plain vanilla SPV is pretty unattractive to the city given the steady rise of railway project costs. Pricing the risks in a major SPV, plus the demand uncertainties over a 20 year franchise, is either impossible or prohibitively expensive.
If that was not bad enough to stop the South Central Brighton line SPV, and it was, risk was compounded by the changing specification for the Thameslink 2000 project. Obviously, the number and frequency of trains coming off which determined in part the scope of infrastructure provision within the South Central SPV.
Back in 2000, the Govia SPV team was provided with an outline Thameslink 2000 timetable. But shortly before the SPV proposal was completed the team was given a revised ‘hard wired' version which contained major changes invalidating assumptions in the SPV.
So back to the drawing board. But with Thameslink 2010 as uncertain as ever, the Inquiry Inspector's rejection of the station proposals for example, it became clear that if the 20 year franchise were to be signed Govia and the SPV would need a re-opener clause to protect against any downside risk resulting from the final specification for Thameslink 2000.
This would have transferred unknown long-term risk onto SRA which would not go down well with the Treasury.
What happens now? Well the SRA will buy the SPV scheme design and development work from Govia and Bechtel and use it as the basis for its own Brighton main line SPV when the way forward becomes clear.
Elsewhere, short franchises now seem likely to be the order of the day once more. While SRA has denied that South Central sets a precedent, Stagecoach expects that the replacement SWT franchise will now run for seven years maximum.
Similarly, Greater Anglia is also likely to run for a seven year term, based on the train operator delivering specified outputs. Any major upgrades will be progressed through SRA led SPVs.
With franchising dead we need new terminology. And at a meeting of the Supreme Council of the Federation of Railway Authors, Journalists and Writers on the pavement outside SRA headquarters it was agreed that the new name for franchises was Service Delivery Units (SDU). Currently this applies only to franchises under SRA control or replacement franchises, as in InterCity West Coast SDU or Chiltern SDU.