Time for another e-Preview. While railways are not generating much interest in the national media this Summer, from the viewpoint of Informed Sources there’s a lot going on. I have had to put some bread and butter material, like my latest analysis of support for the railway, to one side as high profile topical developments use up all the space the Editor generously provides. So the theme of the September column is immediacy
Leading off is the outcome of GNER’s High Court Application for a Judicial Review of the Office of Rail Regulation’s decision to award the available paths on the East Coast Main line to open access operators. Mr Justice Sullivan’s judgement provided an independent and dispassionate analysis of the structure and working of the privatised railway and, in particular the relationship between franchised and open access operators.
If you would like to read the Judgement I have added it to Professional Stuff on Alycidon Rail. The URL is http://dspace.dial.pipex.com/town/square/ca14/ALYCIDON%20RAIL/Professional%20stuff.htm and it comes as a recommended read.
GNER sought the Judicial Review on three grounds
First, charging access operators only variable Track Access Charges, while GNER paid both variable and fixed charges. was discriminatory.
Second, by not requiring Hull Trains and Grand Central to pay a share of fixed costs ORR was giving the two open access operators unlawful state aid.
Finally, ORR had breached its own policy by granting access to Hull Trains and Grand Central for new services which would depend more on abstracting significant revenue from GNER than generating new ridership.
On the second day of the hearing, GNER withdrew the third claim, so the case came down to the structure track access charges. And for someone coming cold to our convoluted industry, Mr Justice Sullivan did an impressive job. I particularly liked his conclusion that GNER’s fixed access charge is ‘an artificial construct’ which does not reflect the actual cost of maintaining the ECML.
He was also hot on the fact that GNER knew what the fixed charges would be when bidding for the franchise and so they were written into the much vaunted premium. ‘Even if the fixed charge were very low, then the level of fares set by the franchised passenger operator would not be affected as the lower fixed charge would simply result in a higher bid premium’ the judge explained.
He also highlighted the risky nature of open access operation compared with life as a franchisee. It may not seem that way to GHER at the moment, but the ‘blue machine’ is protected under its franchise agreement from increases in track access charges, enjoys cap & collar revenue-risk sharing agreements with the taxpayer and also has a force majeure clauses in the event of revenue shortfall due to external factors.
In contrast, open access operators are on their own. According to Mr Justice Sullivan, imposing fixed access charges on the open access operators would be discriminatory because ‘ORR would be treating two very unlike cases as though they were alike’.
In sum, any attempt to draw comparisons between the two types of business would be ‘an attempt to compare chalk with cheese’.
In rejecting the ‘state aid’ complaint, Mr Justice Sullivan came up with another memorable phrase ‘the charging regime simply treats them differently because … they are different (even though their trains may be distinguishable to the individual passenger only by their different liveries)’.
Naturally Sea Containers, GNER’s parent, disagreed with the decision, describing it as ‘truly extraordinary’. I have to say that when it comes to the contractually-bound, tightly-regulated UK passenger railway, Sea Containers just don’t get it – and who can blame them.
No sooner had I had sent the September column off to the Editor, than Sea Containers released an update on its financial situation which is also posted on Professional Stuff - http://dspace.dial.pipex.com/town/square/ca14/ALYCIDON%20RAIL/Proffessional%20stuff%20archive/Full_Sea_Containers_release_11_August_2006.doc. This included the latest financial figures from GNER where the situation is dire, given that it covers only the first year of the new franchise. It was too late to get my preliminary analysis of this information into the column, but you will find it in the news section. More next month.
Something else emerged from the High Court hearing which could come back to haunt DfT Rail. At 16.30 on 18 march 2005, just as the InterCity East Coast Franchise Agreement was about to be signed, SRA’s chief negotiator received a phone call instructing him to withdraw the clause in the agreement protecting GNER against new open access competition. GNER was given two hours to sign the agreement without the competition caveat or see the franchise re-tendered.
As we know now, this was a massive bluff by SRA from a very weak hand. GNER’s £1.3billion bid was £300million ahead of second place, Stagecoach who also had the competition caveat. But determined to hang onto the franchise GNER folded.
Which leaves the question of who made the phone call. An informed source who was in the room, reckons it was DfT pulling the strings. This one could get very messy.
DfT Rail is also found to be under pressure in the second item in the column. I mentioned in last month’s e-Preview that I was due to see Tony Collins of Virgin Trains and among the subjects we discussed were the linked topics of getting Virgin West Coast out of the July 2002 Letter Agreement and lengthening the Pendolino fleet to provide more capacity.
Since the letter agreement Virgin has run the West coast to a budget agreed by DfT Rail in return for a management fee of 2% of revenue. Obviously Virgin would like to get back to a commercial franchise for the rest of the term, which expires in 2012.
Virgin has put a series of proposals to DfT Rail for a revived franchise since negotiations restarted last year. The latest was submitted at the end of June and Virgin is optimistic that decision could be reached soon.
In fact, a decision is needed by the end of October. This timescale is driven by the requirement to lengthen West Coast’s 53 9-car Class 390 Pendolino tilting trains.
In the current negotiations, DfT Rail has asked Virgin for priced options for the addition of a 10th car. Virgin has complied but made the counter proposal to increase the formation to 11 cars.
This is where it starts to get interesting. I won’t spoil your enjoyment, but that October deadline comes from a combination of maintenance schedules, fatigue life of mechanical parts, traction power and the availability of capacity on the giant presses which extrude the aluminium sections from which Pendolino body shells are fabricated.
It is a fascinating mix of finance, risk and technology which I really enjoyed researching and writing. After the theoretical world of the Judicial Review we are back in the real railway with a vengeance.
Can DfT Rail and Virgin strike a deal to reinstate the franchise, with a premium profile giving better value to the taxpayer than continuing with the letter agreement while rewarding Virgin for commercial risk, including lengthening Pendolino? And all by the end of October? We shall see
You may have read in another publication some smooth words from Network Rail which promoted its decision to invite the five bidders for the ERTMS Early Deployment Scheme (EDS) on the Cambrian Lines to update their offers as a logical development. This is what really happened
In April this year, the five bidders for the EDS contract Alstom, Ansaldo, Bombardier, Siemens and Westinghouse were shortlisted to Ansaldo and Westinghouse. It turned out that one bidders had sexy kit but an unattractive price, the other had a sexy price but unattractive kit.
So there I was at the offices of a signalling contractor on the afternoon of 7 August when the news broke that all five original bidders had been called to a meeting with Network Rail on 10 August. At the meeting they were invited to submit new best and final offers for EDS.
Since none of the original bids had proved acceptable, even after three months discussions with the shortlisted duo, the contractors are being asked to re-bid, with a scope review meeting expected early in September which may allow cheaper installations.
Meanwhile the EDS service date slips relentlessly backwards. In May 2004, the plan was to have fully equipped trains running on the Cambrian lines under ERTMS control ‘in three years time’. A year later this had slipped a year to the first quarter of 2008. Now it is December 2008.
Why bother, you may ask, particularly when in December this year Network Rail is planning a ‘red diamond review’ of the whole ERTMS programme? You can read the questions the Review will be asking in this month’s column. Will the answers cause Network Rail to bite the ERTMS bullet at last?
My visit to Brush at the end of July was a tonic as always. The excuse for the trip was the handing over of one of the first series production re-engined Class 43 power cars to Angel Trains and their customer First Great Western.
After the ceremony I disappeared into the factory and it was good to see the big 25 Shop filling up and starting to buzz again. At the peak of the programme it will be turning out a rejuvenated power car every four days. Back in the 1980s the Shop was completing a Class 60 locomotive a week.
For technically minded readers there is a brief description of the process and I also get quite excited about the quality of the finished product. Did my pale linen jacket survive an exploration of the engine room? I leave you to find out.
It’s been a very quite last few weeks on the railway, which has enabled me to press ahead with a number of writing projects.
The only upcoming visit of note is a chance to catch up with CIRAS, the railway’s confidential reporting service. This was a hot topic a few years back, but as the safety performance of the railway has returned to a state of continuous improvement it dropped off my radar.
ORR is also launching its new industry performance report this week. So that’s even more statistics to analyse then. Oh goody!
On the Alycidon Rail front, there is an addition to Fun Stuff which, if you were around in the 1970s and 80s, should raised the odd smile. And more mirth is promised on Radio 4 on Sunday 27 August at 11.15 am (repeated the following Saturday at 09.00) when the programme ‘The Reunion brings together those giants of privatisation Lord (John) MacGregor, Sir Patrick Brown, Roger Salmon, John Welsby and, exposing the politicians attempted weasels,someone called Roger Ford – unless I have been edited out, which is quite likely.
As always feedback to roger@alycidon.com always welcome.