Informed Sources e-Preview February 2007
Franchising dominates the February Informed Sources with some
interesting revelations in the Virgin West Coast (VWC) franchise reinstatement
and a detailed look at the Management Agreement which keeps GNER running
Inter-City East Coast (ICEC) until it can be let. I also have some fun
with hapless politicians and seek your advice on some bad vibrations
West Coast – Virgin back with a vengeance
GNER – managing to the end
Dazed and confused in Westminster
IEP procurement moves on
U-turns at track level
Vibrating Meridians
You may have come across the outrage over the terms of the
reinstatement of VWC. Comparisons of Virgin Rail Group’s (VRG) substantial
subsidies with GNER losing ICEC because it could not pay premia were
inevitable.
But the DfT Rail line was that the deal struck ‘a better value deal for
the taxpayer’. And for once I can’t disagree with the Ministry of
Railways.
But what about the subsidy? The answer lies in Track Access Charges
(TAC). Under Schedule 18 of Franchise Agreements, if access charges
rise subsidy is increased, or premium reduced, and vice versa. As far a
Train Operators’ budgets are concerned, changes in TAC are invisible.
Back in 1996 when TAC were developed, Railtrack’s fixed income from
access charges was ‘jam spread’ equally across all franchises. But in
2001, when TAC were reviewed for the first time, instead of ‘jam spread’
individual TAC were weighted to reflect investment in each TOC’s
infrastructure.
With the West coast Route Modernisation soaking up most of the
investment and ankle deep in Boiling Frogs, VWC’s TACs soared. Those TOCs with
investment free Zones, including GNER and FGW, saw TAC fall. As a
result, VWC pays nearly three times as much in TAC as GNER.
At which point I must apologies for an error in the main Table of the
article covering Virgin West Coast finances. Fortunately e-Preview
gives me the chance to correct it.
Somewhere along the line my historic data on TAC got scrambled. After
some heavy duty searching, the ORR press office unearthed the original
data and here are the correct figures.
Virgin West Coast Track Access Charges
(2005-06 prices)
| 2001-02 |
2002-03 |
2003-04 |
£266.6 million
|
£290.1 million
|
£298.3 million
|
Those are the fixed TAC. For some light relief I also describe the fun
and games involved in trying (and failing) to extract the variable TAC
for Pendolinos from ORR. Undaunted I invent my own, and these too are
greater than those paid by GNER.
When all the figures are in place, a surprising, or perhaps
unsurprising, fact emerges. Far from sitting back in subsidised complacency while
GNER runs out of cash, VWC is taking one hell of a punt. Nor should we
be surprised.
Under the original franchise plan, commissioning of Stage of the WCRM
in 2003-04 was due to see VWC increase its premium by £60 million
followed by a further £70 million with PUG 2 in 2006-07. You’ll have to buy
the magazine to see how the reinstated franchise compares – but it is
definitely sporty.
GNER
Yet more praise for DfT Rail (it can’t last). With renegotiation of
ICEC franchise ruled out, and running it directly as operator of last
resort both expensive and messy, DfT Rail took the middle way. The GNER
management team will continue to run the business until a new operator
is appointed.
Under the ‘franchise management agreement’, which you can find in full
in Professional Stuff (www.alycidon.com) GNER will continue to provide
‘franchise services’ under an amended franchise agreement and the
business will be run as if it were in the last 12 months of a normal
franchise.
DfT Rail will not pay a management fee, but GNER will have financial
incentives to increase revenue and reduce costs. The business is also
expected to make a surplus and DfT Rail will retain all revenue earned
until the franchise is re-let.
Commitments
That’s the good news. The bad news is that a whole raft of commitments
in the franchise plan have been dropped, hopefully to be taken up by
whichever of Arriva, First Group, National Express or Virgin Rail Group
wins the replacement replacement franchise.
Meanwhile GNER’s appeal to Brussels over the way open access operators
are charged rolls on.
But the open access boys may be in big trouble irrespective of the GNER
case. The European Parliament has approved proposals which include a
new requirement for open access operators to pay extra access charges
which could be used to help fund public service obligations.
Political ramblings
You’re right, it couldn’t last and this month I have some fun with
statements by Transport Ministers.
First to get spanked is Tom Harris who assured the House of cpmmons
that the GNER bid was ‘easily achievable’. This was confirmed by the fact
that recent passenger revenue has increased by 14.5% — ‘an increase
that has exceeded the revenue commitment in the franchise’.
So why was GNER in dire straits? This was entirely due to problems
with parent company, Sea Containers.
Right, so who do you believe, Christopher Garnet and Sea Containers’
boss Bob Mackenzie or a Minister who has just been ambushed by a crafty
opposition spokesman? And Tom was very naughty in letting out the 14.5%
figure, since ministers aren’t supposed to talk about the financial
performance of individual TOCs. It applies to year-on-year revenue growth
as at November 2006 and so includes the bounce-back after 7/7.
Anyway some quick work with the recently published GNER accounts soon
confirms that GNER was financially challenged, irrespective of its
parents’ woes.
Tunnel
Then there’s Lord Davies of Oldham, who has just retired as the
Government’s transport spokesman in the House of Lords. In the space of 12
days he comes up with two explanations for the Government’s continuing
payments to Eurotunnel to support rail freight services. The second one
is correct.
IC125 replacement
The saga of what e-Preview subscribers know as the New Environmental
Vehicle for Express Rail (NEVER) rolls on relentlessly. DfT Rail is now
advertising for advisers to handle finance and procurement.
It’s all a bit vague, but the contract is expected to end early in
2009, which presumably is when DfT Rail thinks an order will be placed. I
can’t avoid comparing the timescale for NEVER with that of the original
HST.
Civils get real
Even railway civil engineers can get carried away, despite having their
safety boots firmly on the ballast. Which brings us to steel sleepers.
A relatively recent aberration is the inappropruate use of steel
sleepers.
Yes they do have certain advantages in certain applications. No need
to renew the formation, just scarify the old ballast. No new ballast
to bring in, no old ballast and spoil to be removed. Just the thing for
track renewal on the Settle & Carlisle after it had been battered by
Anglo-Scots.
As the battering continued the S&C track fell apart again, and I have
a tasteful photo taken on the S&C of some new rails, clipped to new
concrete sleepers resting on new ballast. In the background are stacks of
steel sleepers awaiting disposal.
Talking of disposal, a while back I asked readers to explain the
economics of cutting up continuous welded rail (CWR) for removal by road,
rather than lifting the ‘strings’ and taking the used rail away for use
on secondary lines.
And guess what? Network Rail’s new policy is to lift CWR for re-use.
And early application may be on the Boston-Skegness line where CWR is
to replace jointed track after all.
Vibrations
Simple question. On four trips in Meridians DEMUs during the run-up to
Christmas I was plagued with vibrations. Is it just me being
ultra-critical?
And do you know the unkind nickname for the Bristol Britannia?
Roger’s Ramblings
In the week before Christmas First organised a trip to Derby to see the
refurbished high-density Mk 3 coaches for First Great Western’s IC125
fleet. Despite packing in 84 seats, I found the knee room adequate,
although with airline-style seating you lose the luggage space between
seat backs which facing table seats provide.
There was plenty of time to poke around bare body shells at the start
of the refurb process and for 30 year old steel structures the condition
is remarkably corrosion free. Corrosion hot spots are known, but
unlike classic cars I have worked on there seems a welcome absence of
rampant tin-worm.
Overall, the result is pretty good, if you have to squeeze more people
into existing trains. FGW engineers pooh-poohed my concerns over the
removal of the centre screen, which contributed to structural rigidity
and thus ride quality. I’m still in the dark ages on such issues they
tell me: we shall see.
Post Christmas the highlight was tea in the House of Lords as I
provided the feared Railway Lords with ammunition for a debate on franchising.
My tip – choose the tea cakes.
This coming week we have the January Fourth Friday Club meeting.
Somehow Mr Editor Abbott manages to select speakers for maximum topicality.
This Friday (26 Jan) we have Ian Brown of Transport for London and with
issues ranging from the new London Rail Concession and the PPP to
Oyster cards on National Rail it is no surprise seats are going fast. To
find out more visit www.4thfriday.co.uk.
Then it’s February with a visit to Golden Spanner superstars Bletchley
Depot and, at the end of the month, the Railtex Exhibition where
e-Preview subscribers are duty bound to keep me fed and watered on their
stands.
That’s all for now
Roger
