Informed Sources e-preview by Roger Ford (view all archives)

INFORMED SOURCES e-Preview October 2011

 

For some reason an unedited version of the October Informed Sources over-wrote the October e–Preview file without my noticing it.  So on Monday you received a sizeable chunk of text in your mail with no introduction, no up-dates and no blog.  Having retrieved the backed –up  e-Preview, here it is – with apologies.

Anyway, I hope you all enjoyed the summer break, because it’s back to where we left off with a vengeance in this month’s column, starting with the Albatross round the Department for Transport’s neck – the Thameslink rolling stock order

 

Derbygate – still gaining traction

Derbygate 2 – now Crossrail is sucked in

Alstom pulls from Crossrail train bidding

Virgin breaks its silence

IEP – the most expensive option

Now diesels consider re-powering

 

Let’s get one thing clear.  Siemens won the Thameslink deal fair and square and for all the talk of a Derby City Council funded judicial review of the decision, I can’t see the decision being reversed.

But, this does not absolve this, or the last government, from their failure to consider national industrial strategy since DfT took over rolling stock procurement.  And the unrelenting  political pressure, has already stimulated action within New Minster House to bring forward other work for Bombardier at Derby.

Remember Operation Thor, the proposal floated here at least two years ago, to add a pantograph/transformer car to the Class 22X diesel electric multiple units? Bombardier proposed this as a budget bi-mode during the foster Review of IEP and got the brush off.  Now it’s all the rage.

Meanwhile  another  cunning plan is being developed to justify some more Bombardier Class 377s for Southern – perhaps enough to keep a production line running for a year.  This is doubly urgent because the order for the batch of Desiro EMUs for LM and TPE is becoming overdue. Somehow I don’t think DfT announcing another order for Siemens would go down well with No 10! 

So despite Siemens having been the only show in town for the LM/TPE order – for all of 72 vehicles - since June last year LM has just declared them preferred bidders, with an order expected by the turn of the year.  So Class 377s all round then? 

Fat chance! Southern has just issued an OJEU Notice for 26 five car EMUs to replace the 24 Class 377s sub-leased to FCC.  You wouldn’t trust some procurement-crazed TOCs to buy cheap food in Lidl.  Is it coincidence that they are both owned by Govia?

This leaves the 600 Crossrail vehicles as the only big order between now and 2019.  This is a must-win for both Bombardier and also Hitachi – assuming IEP goes ahead.

IEP quantity has shrunk, big total train service provision deals are now dead, and Hitachi is going to need more than IEP to feed its proposed plant at Newton Aycliffe.  While  optimistic about  winning business in Europe,  Crossrail is the only prospect from an existing customer.

Interestingly, when questioned by the Select Committee in September on the importance of retaining a national train manufacturing capability, Transport Secretary Philip Hammond said that he would certainly like to see a viable train building industry in the UK, adding, ‘fortunately’ this will happen as a result of Hitachi’s commitment to its Newton Aycliffe train building plant.

But Mr Hammond would also like to see ‘strong competition’ within the UK  ‘between British based manufacturers’ for future rolling stock.  Then, while gaining the benefits of  competition, whoever wins the order the trains will be built in Britain. 

Competition for what, one wonders? And will Siemens, Alstom, CAF and the Chinese accept this domestic duopoly?

 

Crossrail procurement deferred

Meanwhile,  Crossrail has got dragged into the Derby maelstrom, announcing on 30 August that the procurement of its rolling stock fleet would be put back by five or six months. Justifying the move Crossrail claimed savings ‘running into the tens of millions’, as a result of  introducing the new  rolling stock over a shorter period.  But Crossrail added that the  delay  would also allow the conclusions of the Government’s review of public procurement, part of the current Growth Review,  ‘to be taken into account’.   

I confess to having had a job getting my head round these ‘savings’, so I took the  time to create a notional time-line from contract signature in 2014 to the start of the  full service between Shenfield/Abbey Wood in the east to Maidenhead/Heathrow Airport in the west  in December 2019.   

What this showed is that compared with the delivery schedule before the project was put back a year under last year’s Comprehensive Spending Review, the fleet size during the delivery run will be about 10 units smaller with the new schedule.  At rentals of, say, £200,000 per unit per month Crossrail will have avoided payments of over £30 million during the fleet build up.

But the saving comes at a price.  If the first new units are to be infiltrated into services on the Shenfield route from May 2017, there will be barely enough time for commissioning, route acceptance and driver training.

Unless, of course, Crossrail places a run-on order of Siemens’ Thameslink Desiro City units. And I suspect  that the real reason for the delay has been to buy time for the Government to explore ways  of getting some of the work into Derby.

With the contract terms  now  potentially subject to political influence, if not interference, the remaining prequalified bidders will now have to decide whether it is worth risking, typically, £10 million, on preparing a tender.  Of course, following Mr Hammond’s argument, if Hitachi wins Thameslink, train building in the UK is assured and Bombardier can do the other thing.

 

 

Alstom out of Crossrail

Also on 30 August, Alston Transport confirmed  that the company had decided not to bid for the Crossrail train fleet contract.  The decision was not surprising and followed an analysis of the requirements for the new rolling stock where Crossrail is now looking for a derivative of an established design.

From the start Alstom Informed Sources were lukewarm about the Crossrail requirement.  After its  X’trapolis articulated electric multiple unit platform, configured for the high density/high frequency duty required for the cross-London services,  failed to be shortlisted for Thameslink,  Alstom had no ready-to-wear product for Crossrail.

But this does not mean that Alstom is out of the UK market. Now that the era of DfT buying trains is over (we hope), and procurement is returning to the TOCs and Rolling Stock Companies, Pendolino is suddenly back on the agenda.

Alstom wants to build it, a ROSCO wants to fund it, and, as Tony Miles reports in this month’s magazine East Coast see it as a potential IC225 replacement.  Add in the EMU repowering market, plus train maintenance plus potential infrastructure work for Crossrail and pulling out of Crossrail rolling stock is a pragmatic decision rather than signalling a retreat from the UK market.

 

West coast financial performance analysed

For some time now, Virgin Rail Group has watched its words very carefully for fear of saying anything which might be interpreted by DfT as promoting the company’s bid to retain the Intercity West Coast franchise.  A standard clause in the franchise Invitation to Tender bans such publicity on pain of exclusion.

On top of that Virgin then began  negotiating

terms to extend its existing franchise from 31 March to December 2012.  DfT has been waving the big stick of Directly Operated Railways taking over if Virgin won’t come up with a sensible offer.

So it was big surprise when, for the first time ever, the always helpful Virgin Rail press office sent me a copy of the latest Report and Accounts for West Coast Trains, the subsidiary which owns the franchise.  In previous years the accounts have been deposited with companies house, from where they could be dug out if you had the time and patience.

So why the change from omerta to a fanfare of trumpets?   Perhaps the change in policy is related to the warning Transport Secretary Phillip Hammond dished out at my chum Nigel Harris’ National Rail Conference.  ‘If you have spent the last ten years screwing us, then don’t spend too long filling out the pre-qualification form’ he told the transport groups present.

And it is known that DfT Rail thought it was screwed when it negotiated the reinstatement of the Intercity  West Coast franchise with Virgin in 2006.  But what if it turned out that DfT had realised it had got a good deal after all? 

And wouldn’t it enhance DfT’s credibility with the treasury if it could show that the franchise was making shed-loads of money for the taxpayer?  How many sheds?  The headline figure is a net  payment to Government, under Cap & Collar,  of £110 million in the 12 months to 5 March 2011.  With a falling subsidy profile plus revenue growing in step with ridership at 11% a year, the payment is  likely to be over £130 million in the current, final, year of the franchise. 

In addition to ridership and revenue growth of 11%  during tough economic conditions, yields have improved too.  ‘Look’, VRG is saying, ‘when it comes to running franchises for the benefit of  the taxpayer, we are the experts’.

All very public spirited, of course.  But Virgin  and Stagecoach  are not altruists.  The accounts also show that they received dividends totalling £30.5 million in 2010-2011.  A further £10 million has already been paid out in the current Financial Year.  Add in the £67 million dividend paid in 2009-10 and £107.5 million will have gone out of the industry in the last three years of the franchise.  But coming on for double that will have gone to DfT.

For readers who enjoy tables, this is the sort of item you will like. I have into the Accounts in detail because of the light they throw, or don’t throw, on the finances of today’s passenger railway.    This brings  home not so much the lack of transparency as the sheer opacity in the finances of passenger franchising, especially   track access charges.

Meanwhile, as I write this Philip Hammond has just shot from the lip again, calling railways a ‘rich man’s toy’ and describing fares on the West Coast as ranging from ‘the eye-wateringly expensive to really quite reasonable if you dig around and use the advanced purchase options that are available’.   Given the £110 million Cap & Collar payment  that sounds like kicking a gift horse in the teeth.

 

 

IEP – an expensive way to acquire trains

It is yet another of the little ironies of railway life that big train fleets are being acquired by Government under total train service provision deals at a time when the Private Finance Initiative (PFI) has been the subject of increasing criticism.  In the case of the Intercity Express Programme (IEP) and Thameslink, the successful bidder, will fund construction of both the trains and the depots and then maintain the fleets for the next 30-35 years.

In opposition the current Chancellor described the Labour Government’s use of the PFI as ‘totally discredited’ and as a ‘flawed model’ which must be replaced.  Since he became Chancellor  the Government has signed 34 PFI contracts with a capital value of £1.8 billion.

This U-turn suggests that there is no alternative to PFI, despite all the disadvantages, the extra cost of private sector borrowing, the windfall gains when established schemes are refinanced and the need to go on paying for a building when you no longer need it.  But in the case of IEP and Thameslink there is an alternative. 

And the big downside – inflexibility - looms larger with railways, especially in the case of the Intercity fleet.   The long term ability to move rolling stock around has always been important. 

Sir Andrew Foster’s review of the value for money of IEP and its credible alternatives, looked at conventional leasing deals and the figures cast even more doubt on the claim by Transport Minister Theresa Villiers that IEP has a £200 million advantage in Net Present Value  over the conventional high speed EMU, plus loco haulage beyond the wires, alternative.

If we start with an IC125 life extended to the max for Continued Service Operation from 2025 to 2035, you get a cost per vehicle of around £17,000 per month.

For a new build 125mile/h EMU, and using real world prices and maintenance costs plus conventional leasing, the monthly cost increased to just over £30,000 per vehicle

A generic IEP is more complex.  Payment  is based on the number of diagrams to be met and the ‘no train - no pay’ clause is a risk which the funders of the deal will need to insure against,  increasing the charges.  When the accountants and lawyers have put this little lot together, the answer comes out at around £50,000 per vehicle per month.  And Government is committed to pay that for 30-35 years.

Government, reluctantly, uses PFI because it’s the only way to keep infrastructure investment off its books, but rolling stock leasing achieves the same end. You have to wonder why Phillip Hammond is persisting with the expensive and inflexible procurement exercises the coalition inherited.  And why the Foster report was binned instead of IEP.       

 

DMU re-powering starts

Back in the August column I highlighted the strong showing  of diesel traction at Railtex.  This was unexpected because no one expects  significant further investment in new Diesel Multiple Units for the UK market.

One technology I spotted was the return of the hydro-mechanical  transmissions and mentioned that two suppliers had identified retrofitting existing DMUs as a potential market for these drives.  The  business case is made by the greater efficiency of the mechanical gearboxes cutting consumption of increasingly expensive fuel.

Now this is to be put to the test under a joint venture which will see a Class 158 DMU retrofitted with a ZF Ecolife drive early next year.  Owner Porterbrook Leasing, operator SWT and supplier ZF Friedrichshafen are to jointly fund the trials. 

SWT is  looking for a modest 5-10% improvement in fuel economy from the trial.  This should be sufficient to justify retrofitting the SWT Class 158/9 fleet.

 

Roger’s Blog

Over the Summer break my first love, aviation, supplanted the business of railways.  It began with finding a copy of Jane’s All the World’s Aircraft 1963-64 in the local Oxfam book shop at a highly affordable price.  It now sits beside the 1951-52 edition which was a combined Christmas/Birthday present. 

Holiday reading during our week near Lyme Regis was Neville Shute’s ‘Round the bend’, a novel with an aviation background. I had forgotten just how good he was. Exploring Dorchester we came across a branch of The works chain which sells discounted art materials and books.  I picked up a copy of ‘Empire of the clouds’ by James Hamilton-Paterson which had been on my must-read list for some time.

This book, which I can’t recommend too highly,  covers the post-war demise of the British aircraft industry, largely at the hands of successive governments - the period spanned by my two Jane’s.  This saw me go from lying under the hedge at North Weald as Vampires and Meat-boxes whistled overhead to standing at a window in English Electric House watching the workforce from Preston marching down the Strand protesting against the cancellation of TSR2.

So I’m back ready for the fray with my attitudes to politicians and civil servants re-calibrated .  As you will discover when you read the full column,.

Looking ahead the diary is filling up.   This Thursday I hope to have an update from Virgin. On Friday Network Rail is holding a round-table briefing on innovation – a subject which usually gets me reaching for my Browning. After that it is straight on  to the first meeting of the new session of the Fourth Friday Club,. Guest speaker is Adrian Shooter – fireworks guaranteed.

Next week  I will try to get to the IMechE Railway Division’s Chairman’s Address, and I had better attend the IRSE Paper on Thameslink signalling on Wednesday evening since the Secretary reminds me I suggested the topic a couple of years ago. 

Thursday 29 September should mark the end of the phoney war in the Periodic Review 2013, with publication of the Initial Industry Plan (IIP) expected .  This represents the input from Network Rail and the TOCs to the HLOS and should keep me quiet for a bit. Next day it’s off to Golders Green Northern Line depot for an update on the performance of Alstom’s original rolling stock PFI.

Fortunately the diary is pretty clear for October. The IMechE Railway Division has a seminar on Energy efficiency on the 6^th which may be worth a visit, depending on how long it takes understand the IIP  

And finally, Monday marked the 900th day since the last new train order was placed.

 

Keep in touch

 

Roger

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