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INFORMED SOURCES June 2004

Boiling frogs take the tram

Now LRT has priced itself out of the market

At the time, I thought that the regular infusions of 5FU into my veins during the second half of 1999 made my writing meaner as well as making me leaner. And while the missing pounds came back, surely the edginess remained?

Well perhaps not. Because the more I revisit John Prescott's 10 Year Transport Plan – published in July 2000, the more I wonder that it got such gentle handling in this column.

For example, contrast the current situation, where no new Light Rail systems are under construction in the UK , with Prescott 's Plan, envisaging up to 25 new LRT lines built by 2010. While this aspiration was heavily caveated - being dependent on the funding levels foreseen in the plan being achieved and schemes proposed offering value for money – it should surely have raised the odd eyebrow?

These thoughts were inspired by the latest report of the National Audit Office which reviewed the Department of Transport's work in funding the construction of light rail schemes. At a macro level the NAO is broadly satisfied with the Department's stewardship of its £1billion contribution to the £2.3bn cost of the seven system which have entered service since 1982.

In five cases the Department paid its originally agreed contribution or less. The two exceptions are the Sunderland extension of the Tyne & Wear Metro and Sheffield Supertram.

Zero activity

But today, just four years after the Transport Plan was published, the Government, according to the NAO, considers that its aspirations for new light rail lines ‘might not be practicable, offer value for money or be affordable'. As a result, buses are still expected to make the biggest contribution towards DfT's target of a 12% increase in passenger journeys by light rail and bus combined by 2010.

So why the change of heart? LRT systems have been delivered ‘much as planned' and local authorities are ‘satisfied' with performance levels reports the NAO. Sheffield Supertram and the Midland Metro operated poorly after opening but performance has since improved. The most successful, Manchester 's Metrolink, is now suffering from overcrowding in the peaks.

Bonkers

That said, ridership has fallen ‘well short' of forecasts on three of the four systems examined (Table 3), but the NAO identifies extenuating circumstances which explain the shortfalls.

Apart from over-optimistic forecasts, the NAO points to bus competition and physical limitations on some routes selected. At Sheffield , for example, by the time Supertram was completed the areas of high density housing it was intended to serve had been demolished.

Table 3

LRT ridership performance

Source: National Audit Office

One of the more bonkers aspects of current transport policy is the malign influence of the Competitions Commission and the Office of Fair Trading. One arm of Government thinks Integrated transport is a GOOD THING: but if a bus operator wins a rail franchise and moves to offer integrated ticketing another arms thinks it is a BAD THING because it is anti-competitive.

As the NAO points out, integration of new LRT systems with bus services has been ‘poor to moderate' on many lines. The modes have even competed on some routes.

Ah competition, what stupidities are committed in thy name. Perhaps if policy wonks had to commute to work by public transport outside London they might have a kinder view of integration.

Cost yardstick

But, back to the DfT's key concerns, that LRT is neither value for money nor affordable. This view is shared, says the NAO, by 43% of the local authorities it surveyed who considered that light rail is too costly compared with other options such as buses.

Bids for current schemes, notably Leeds , South Hampshire and Manchester Metrolink Phase 3 have all been higher than expected. And in the case of Manchester continue to grow.

But what should we expect an LRT system to cost. We need a simple yardstick.

An obvious measure is cost per kilometre to build and equip. The NAO helpfully provided the necessary data in its report.

As published the NAO table starts with Metrolink Phase 1 and ends with Nottingham . This augmented Informed Sources version starts with Tyne & Wear and adds the schemes currently under consideration (Table 4).

Table 4

Source: NAO augmented by Informed Sources

Overall, the Table seems to indicate a step change in base cost between the Sunderland Extension to Tyne & Wear Metro in 2002 and NET this year. The nominal price for NET was £200million but there was a cost over-run of around £20 million. After the Nottingham experience one contractor involved was reported as saying it would not touch LRT schemes again.

Variations

In developing yardsticks we need to rationalise cost variations. The Tyne & Wear Metro was Britain 's first modern scheme. While 43km of the route used former main line alignments, the system included some chunky civil engineering works, including a tunnel under Newcastle city centre and a new bridge over the Tyne .

Major political problems also inflated the costs. When over half the original budget had been spent work was halted for nine months while the Government reviewed the project's future.

Manchester Metrolink took over two existing commuter links and linked them with street running through the city centre. Less heroic engineering and Newcastle 's delays probably account for the near 50% cost difference between the two earliest systems.

Midland Metro and Croydon Tramlink also relied on exploiting existing alignments, have virtually identical unit costs and are broadly in line with Manchester Phase 1, although Midland Metro, to its commercial detriment, does not offer city centre access. T he Sunderland extension of the Tyne & Wear Metro which also exploited an existing alignment is cheapest of all.

Sheffield Supertram and Metrolink Phase 2, illustrate the cost penalties of new dedicated alignments and complex civil engineering. Manchester Phase 2 is the most expensive of all the projects listed. It was also the shortest scheme which meant that the heavy engineering costs were not diluted by kilometers of plain vanilla track.

If you average all these schemes, the unit cost comes out at roughly £10/km. The NAO started with Manchester and made the average £7million/km.

Step change

On this basis Nottingham Express Transit, which includes some running alongside an existing alignment, represents the first of the new. It is clearly in line with the five schemes currently under development which have an average unit cost of around £14million/km.

So, depending on how far you go back, it looks as though current schemes cost between 50% and 100% more than historic projects. On the other hand, they are not out of line with two of the NAO's European examples in the table, Lyon and Grenoble . However, I suspect that these may be to a higher specification.

Cautious

NAO tentatively attributes the rising cost of LRT in the UK to the below-forecast ridership and poor financial performance of most schemes commissioned to date. Cost over-runs are a factor in some cases.

As remarked above some contractors have had their fingers burned and have retired hurt or are now committed to more cautious bids. In other words less competition combined with defensive pricing.

But this analysis overlooks the unintended consequence of the Private Finance Initiative (PFI) which confuses the tasks of building and maintaining something with funding and operating it. In Manchester there is also the PTE's desire for the incumbent to fight to the death for the right to finance, design, build, maintain and operate extensions.

Thus the original Manchester Metrolink consortium lost out on Phase 2, meaning that all the operational and maintenance people had to TUPE across. Now the usurper seems likely to lose out to a new consortium if Phase 3 goes ahead.

Madness

Another example of procurement madness is ‘Civic Overpride' - the overwhelming craving for your city to have a unique system with its own design of tram. A consultant chum confirms that this corporate aberration lives on despite rising prices .

He has advised several local authorities specifying a new LRT system to take a week touring Europe and when they found a tram they liked buy it off the production line. Fat chance – civic overpride demands a unique LRV.

Given the penny packets of vehicles ordered, adopting a standard design for all UK systems would show real savings. Add in standard traction power supplies and overhead line kit and you can see further cost reductions.

Indeed, the NAO includes a lack of standardisation, together with the application by HMRI of heavy rail standards and the expense of diverting utilities, as key factors in capital cost inflation. Better sharing of risk and different procurement contracts could also cut costs and bring back private sector investors.

But is it too late? For the first since Metrolink Phase 1 began there are no light rail schemes under construction in the UK , excepting the latest Docklands extension which is more Metro-lite than light rail. Transdev has just been selected as preferred bidder for Edinburgh .

Yet strolling through Santa Cruz de Tenerife over Easter I asked what the construction work in the ‘barranco' was for. ‘It's the new Light Rail system' I was told.

So how come the principal city of a small Island off the coast of north Africa can afford a 16.7km Metro. Well, it helps if the projected unit cost is just over £5/km.

Continues.........

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