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RAILTALK August 2001

Pop goes the weasel

How encouraging to see that the new Transport Secretary Stephen Byers is already implementing the advice we proffered in last month's Railtalk. Well, sort of.

He certainly hasn't panicked and he is taking his time consulting on what his Department should tell the Strategic Rail Authority what to do and is minded to take direct control of franchise replacement policy. Mr Byers, or more probably the Treasury, has realised that the SRA's top management has failed. He is looking to have Chairman Sir Alastair Morton out by the Autumn and a new man in place fast enough to make a contribution to the Strategic Plan which has to be out in November.

If the new Chairman is to make a contribution he or she will have to bring extensive experience of the UK 's dysfunctional railways and the transport scene in general. This suggests that David Begg – Chairman of the Commission for Integrated Transport – heads the list of the usual suspects.

Given that Mr Begg's Commission was marginalized by the Department of the Environment, Transport and the Regions which set it up and that David Begg doesn't mess around, his willingness to leap onto the bed off nails, second only to the Railtrack leadership, could be questioned. ‘Ah' murmur the mandarins, ‘that was Prescott '. Applicants for the Chairmanship, advertised in The Economist, but not Modern Railways, might also ponder on the poisoned chalice bequeathed by Prescott in the form of a new three year contract for the SRA's gnomic Chief Executive Mike Grant.

According to Mr Byers, under its new Chairman the SRA will be expected to focus on delivering the rail component of the 10 year transport plan. He wants to see the investment coming through and the public want to see results quickly.

This is disingenuous, since there is very little investment and railway investment never comes through quickly even before the treacle effect of the current railway organisation. The West Coast Route Modernisation was approved before Labour came to power in 1997, it will still not be completed when the present term of office ends in 2006. Thameslink 2000, the putative East Coast Main Line upgrade, Waterloo approaches, insert your preferred scheme here, are unlikely to be commissioned much before the end of the term after that.

Readers may query our reference to ‘very little investment'. Surely, the railways are down for £64billion under the 10 year plan?

Well, yes and no.

As the table shows, the individual contributions match the total. But that doesn't mean that they add up.

For a start, the Public Resource is effectively the money available to the SRA to subsidise the passenger and freight railway. But when the Rail Regulator decides that Railtrack needs more cash to stay afloat, it can come only out of the SRA's public resource. So that £14.3billion is already £1.5billion light and Railtrack will soon be asking the Rail Regulator for another £2billion or so.

Then there is the Public Investment. Much of this is already spoken for, paying for the Channel Tunnel Rail Link and feeding the West Coast Route Modernisation's insatiable maw. Only the £7billion in the SRA's Rail Modernisation Fund (RMF) is new.

But what about the £34billion of private investment? Well, Railtrack was expected to contribute £8billion during the current five year Control Period and a similar amount in the following five years. That aspiration is dead and gone.

Another £7billion was expected to come from the Rolling Stock Companies replacing and expanding their fleets. That money is safe, provided the train operators and the SRA can agree on franchises which will support the lease payments and protect residual value. The remaining £11billion would have been raised by Sir Alastair's Special Purpose Vehicles (SPV), with the RMF priming the private sector pump.

We never thought that SPVs would fly, because when you applied the concept to a real world project, it simple didn't fit. The SRA's half baked thinking on the subject was emphasised by one of its executives in a presentation at the Rail Freight Group conference in June.

He referred to SPVs as an example of DBFT – design, build, finance, transfer (to the infrastructure owner). When we pointed out that you couldn't Bee until you had raised the Eff and you couldn't Eff until your bankers were sure that Railtrack had the money to Tee, there was much innocent merriment but no answer.

Source DTLR

*Subsidies and grants plus administration costs

So the railways' finances don't add up. As a result of which Sir Alastair has told the Government that without more funding the Strategic Plan cannot be produced. That must have gone down well.

Particularly at the Treasury, which thought it had closed off the railway menace and now fears the risk of what it saw as a bottomless pit reopening. And since it is a bottomless pit of the civil servants own creation, it is more bottomless than BR ever was.

One of the advantages of franchising was that it capped subsidy for seven or more years ahead. No one asked what happened when those franchises came up for renewal. No one certainly asked what happened when those fixed subsidies are renegotiated prematurely on the basis not of lowest cost but most ambitious, infrastructure enhancement led aspirations.

Now the penny has dropped and the Treasury has realised that under the now terminated franchise replacement programme, it would not have known what the total subsidy would have been until the last replacement franchise was let. Put it another way, how on earth could you determine which was best value for money in terms of the national interest. Or, forget the national interest, it wouldn't look good in Party terms if later franchises in, say the North of England and Scotland has to be plain vanilla if all the money had been spent on buying London a knickerbocker glory with extra chocolate.

So, the 10 year plan is now seen as delivering the 50/80 railway – 50% more passengers and 80% more freight over the next 10 years. This will have to come largely from within the existing infrastructure plus current enhancement projects. New projects, the ECML upgrade and Thameslink One day, are not good value once the Ford Factor is applied. And with Thameslink now quoted at £1.7billion, the factor of 2.5 times BR costs seems spot on.

In the immediate future Mr Byers wants the members of the fragmented industry to stop passing the buck and work together to improve delivery. This is easier said than done when companies are bound by contracts and one company's failure to perform is another company's wrecked balance sheet.

Re-nationalisation is ‘ruled out'. Reorganisation is seen as a distraction from the delivery of a better railway, but Railtrack is on probation.

Franchise replacement has been clamped and we can expect to see a series of extensions negotiated. Note that under its existing powers the SRA can extend franchises for up to two year.

In the case of the current seven year franchises a two year extension takes them up to 2005/06 when electors will be holding the government to account over its promise to delivery world class public services.

So no panic from our new Secretary of State. But don't hold your breath for a visionary strategic plan in November