Return to Archive -by date - by topic.
Infrastructure costs are out of control – so SRA squeezes the operators
As a member of the Fourth Estate this column enjoys the traditional prerogative of the harlot – power without responsibility. As Chairman of the Strategic Rail Authority, Richard Bowker has it the other way round – responsibility with not as much power as he would like.
But while he has to rely on the Stealth Regulator to do something about Network Rail's soaring costs, and is a bit of a boiling frog on the side anyway, he does control the funding of the train operators through their franchises, or Service Delivery Units (SDU) as they should be called.
And here too, control is, perhaps, too strong a word since subsidies are rising. But our Richard means to get a grip.
Bidders for new SDU contracts, starting with Wales & borders, are being told that they will have to present three subsidy profiles based on the SRA's tightly defined service delivery specification.
First, there is a base case for running the business. This is expected to be a flat subsidy line, in other words, a fixed sum per year for the life of the franchise.
But bidders will also have to evaluate two levels of reduced support. This will be based on reductions in subsidy of 10% and 20%, expressed in net present value terms over the life of the franchise.
In addition to these three subsidy profiles, bidders can offer costed options for service improvements which can be bought with additional subsidy.
What the SRA wants to do is determine what opportunities there are for cost reductions with ‘little or no effect on passengers', rather than carrying on with the existing cost-base. The aim is to squeeze out the upward pressure on costs, of which more later.
My old chum Chris Austin, reckons quite a lot of the reductions ought to be achievable through greater efficiency. Now where have we heard that before?
Oh yes, all those franchise operators, who are now going bust by the day, were sure they could hack great chunks of costs from the carcase of the monolithic grossly inefficient British Rail. Now, after a doubling of subsidy, followed by five years of steady economic growth, it seems they got their subsidy profiles wrong. The heart bleeds.
In truth, throughout the 1980s Bob Reid I expected his managers to make 3% year on year efficiency savings. And if you couldn't hack it you were replaced by someone who could.
Come the recession in the early 1990s and Chief Executive John Welsby upped the annual saving to 5%. Those were. Of course, the days when the Treasury and the DoT could control railway expenditure.
Of course, there are gains to be had in some of the sloppier franchises, but meeting the 20% target over five to seven years is likely to require service cut backs. However, before the ghost of Beeching joins the feast, the SRA emphasises that proposals involving route closures will not be considered.
So that's alright then. Well I find it hard to reconcile future reductions in subsidy with all those rescued TOCs needing more subsidy. And I reckon that while the Burnt fool's bandaged finger has a tendency to go wobbling back to the fire, I can't see the Stagecoaches, Firsts and NEGs making the same mistake twice and signing up for less subsidy than at present. .
Obviously the TOCs aren't enthused by the prospect. Informed Sources point out that SRA's new franchising policy, promises clearer guidelines on what TOCs must deliver in terms of improved performance and customer service. So how does that fit with cost reductions of up to 20%?
Back in the year dot, this column pointed out that since a TOC's access charges and train rentals are fixed (about one third of total costs each), staff reductions have to bear the brunt of cost savings. One SRA theory is that with all this whizzo new passenger information kit you need fewer people on platforms.
More likely it would have a detrimental effect on the level of customer service which is a key performance indicator in the new franchise policy. ‘Reducing the number of staff would probably see an increase in penalty payments to the SRA for failing to deliver on customer service guidelines' one chum speculated'.
But there are other potential savings. Many of the Rolling Stock Companies' train leasing contracts expire in 2004 and, assuming the SRA's service specification allows, fleet sizes could be reduced by cutting back frequencies and train lengths.
Anyway, as already remarked, the hardened veterans of franchising won't get caught twice. No but what about the new entrants, including foreign organisations, which the SRA is so keen to encourage. I have a vision of this novice from the local nunnery seeking to do charitable work at the Marquis de Sade's estate.
Meanwhile Boiling Frog syndrome still stalks the corridors of power.
As Eliot wrote, ‘Human kind cannot bear very much reality'. Certainly our Transport Secretary and Richard Bowker have such an emotional attachment to privatisation, that they cannot even acknowledge the cold numbers.
For three decades major BR infrastructure projects cost £5million a mile, plus or usually minus, a bit. Now the West Coast Route Modernisation, which started off in this range before Virgin arrived on the scene, is £16-£23 million/mile.
Certainly, Mr Darling doesn't like today's costs. But what are we to make of his remark, ‘This industry has got to get a far, far better grip on project management and costs than it's even done in the past, even in BR days'?
You get the message. Railway projects have always been badly managed with poor cost control. so the present crisis is nothing to do with privatisation. so thank heavens we don't have to do anything dramatic about the structure of the industry.
Yes, I am planning to go to Government in 2004 with a blueprint for expansion, but only if I can show that our plans are robust and deliverable and that the industry as a whole has got its costs under control. SRA Chairman Richard Bowker 4 December 2002 |
So it is not surprising that he tries to soften Richard Bowker's more apocalyptic, and thoroughly justified, comments on the current cost crisis.
Here is Richard, telling it like it is, to the Rail Passenger's Council on 4 December. ‘Costs are rising steeply - both on projects and on operations, and this is squeezing out funding for investment. We still have a commitment for £33.5bn of public funding secured for implementation of the first Strategic Plan a year ago, but it now buys less than it did then. So, there is less to invest in the improvements that we would all like to see, and there will be no new spending commitments in the next Strategic Plan to be published in January 2003.
We have to prove that we can manage costs effectively and that we are providing value for money. So, we will have to defer or descope a number of existing projects and we have been reviewing each to see what can be done and to set some spending priorities'.
‘What Richard Bowker is saying', spins Darling, who is clearly under instructions to keep railways out of the headlines, ‘is that unless the industry gets a far firmer and better grip on the projects that it has got and the costs that it faces, then there is a risk that things you might want to do will slip'. Then he added ‘The money is there, it's allocated and it will be invested'. Compare and contrast as they say.
But what will it buy. Here's another quote, from Mr Bowker
‘One of the ways in which we are contributing to the process of getting costs under control is in specifying much more clearly what we want to buy. We did this with the West Coast upgrade and cut two years and £3bn off what was then the forecast cost and completion date'.
Oh dear, his BFS is getting worse. You despec' the project dramatically so that it is only two years late and five times the original cost and call this getting a grip?
But BFS aside Richard certainly knows where to find his towel. ‘Unless we do this, (get costs under control) the railway will not be trusted to deliver on its commitments - and a higher costs base means ultimately a smaller railway'.
No dubiety about cause and effect there. And Informed Sources report that even small-change investment like the Rail Passenger partnership and the Rail Freight Grants are under pressure. A tough year looms.