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

INFORMED SOURCES e-Preview November 2011

 

Well, as I promised in the September column, I am now operating a zero tolerance policy on official sources of misleading information and several floggings are handed out this month.  But before that, there’s the industry’s opening shot in the long haul of Periodic Review 2013 (PR13).  Why PR13 when the new five year Control Period (CP5) starts on 1 April 2014? Well the Office of Rail Regulation makes its final defeminisation of NR’s income for CP5 at the end of 2013. Logical? Presumably to Regulatory wonks!

  

IIP starts the long haul to the HLOS

East Coast shows a small profit

Rolling stock debate bordering on the unreal.

DfT clarifies inaccurate parliamentary answers

Procurement follies roll on.

 

A major change in the Review process was unveiled on 29 September.  Last time the industry view of what should happen in the new Control Period was contained in Network Rail’s Initial Strategic Business Plan (ISBP).  This time round we have the Initial Industry Plan (IIP), a joint production from Network Rail, the Rail Freight Operators’ Association, the Railway Industry Association and the Association of Train Operating Companies. 

 

A further 16% efficiency improvement over the five years of CP5 is expected to cut the cost of running the railway by £1.3 billion a year by 2019.  And the total annual Government subsidy will fall to £1 billion a year by 2019. 

 

Compared with the current subsidy of around £4.5 billion a year this sounds very impressive. But as a chart in the IIP shows the combined total of Network Rail’s revenue requirement plus TOC operating costs is forecast to remain constant at £11bn a year over CP5. 

 

So where have all the savings gone?  They go to service Network Rail s steadily increasing debt.  And tucked away in the IIP is what looks suspiciously like a call for a debt write-off. 

 

So if the costs of the railway are constant over CP5, how does the Government support fall from £3 billion in 2014-15 to £1 billion in 2018-19? You’ve probably guessed it.  TOC revenue is forecast to increase by £2 billion, from £8 billion in 2013-14, to £10 billion in 2018-19.

 

This is not new, of course. In the 2007 HLOS DfT assumed revenue rising from £6 billion in 2008-09 to £9 billion in 2013-14.

 

Investment

Current committed schemes, Thameslink, Crossrail, electrification and so on, will cost £4.9 billion during CP5.    The IIP proposes additional schemes costed at £5.6bn.  

 

These include the Northern Hub plus electrification of the Midland Main Line and the North Trans- Pennine routes. Further investment in the Strategic Freight Network is also recommended

 

As an industry document the IIP now includes traction and rolling stock.  An additional 600 passenger vehicles are proposed to exploit the extra capacity provided by infrastructure schemes. The IIP also moots starting renewal of life-expired vehicles in the rolling stock fleet at a rate of 3% a year.  I still think life extension is more likely.

 

There is a reminder that the industry’s ability to improve performance and capacity in parallel with cutting costs will depend on Government policies.  For example, will the promised franchise reform really see DfT abandoning tightly-specified franchise agreements and returning to the flexibility provided in the first round of franchising in the 1990s? 

 

East Coast reports

No sooner had Virgin published the financial results for its West Coast franchise (Informed Sources, last month), than Directly Operated Railways (DOR), the Government-owned franchise operator of last resort, published its own Report & Accounts including a   set for  its East Coast franchise.  This got off to a bad start by claiming that turnover for the year to 31 March 2011 was £645.5 million which after operating expenditure of £641.3 million generated an operating profit before Department of Transport service payments of £182.8 million. 

 

Eh?  Yes DOR had counted its premium payment to DfT as an operating cost.  I was not alone in being confused by the figures – one TOC financial Director struggled too!

 

But after some delving I have produced a set of accounts for East Coast which allow some comparisons with Virgin’s West Coast figures.

 

Perhaps the biggest difference is growth. Compared with Virgin’s 11% East Coast’s year-on-year revenue growth was only 2%, with ridership up 3%.  DOR attributes the difference to the ‘disparity in the economic conditions in regions served by EC which have fallen behind the rest of the country’.

 

I’ve also put together an Informed Sources Table showing the East and West coast results plus some derived parameters.  Interestingly, each East Coast passenger pays an average premium to Government over twice that of their West Coast counterpart.  I look forward to some insights from readers on this table.

 

Train order confusion.

As far as I know Informed Sources has been the only source of analysis of successive Governments’ misleading rolling stock procurement forecasts.  Now the mythical ‘1300 net additional vehicles’ has gone to the great data repository in the circle of hell reserved for those who seek to obfuscate with numbers, we now have ‘2700 new vehicles by 2019’.

 

Which brings us to Deputy Prime Minister Nick Clegg who at the Lib-Dem’s party conference in September  declared ‘do remember there are going to be lots of other rail contracts and I very much hope Bombardier will bid for them’. He added ‘we are going to do everything we can to support the economy of Derby. It would be tragic for Derby and the outlying areas if Bombardier pulled out. As a government, we are spending £8bn a year on transport investment and a lot of that on rail’.

 

So that’s all right then.  ‘Lots’ of contracts to bid for and total Government support for the Derby economy.  But as a Table in the column shows all of the 2700 new vehicles except Crossrail have either been delivered, are being delivered or have preferred bidders. And the preferred bidders are either Siemens or Hitachi

 

Now, as you know, I always try to be helpful, so my Table also includes potential orders not in the 2700 vehicles but on the cards, such as the additional EMUs for Southern.  But even if you throw in the 600 vehicle capacity-build in the IIP and the deferred Piccadilly Line replacement Tube stock, the total requirement by 2019 comes a shade under 4,300 vehicles.

 

Which brings me to the point everyone, including Mr Clegg’s advisors, seems to be overlooking.  A single production line at Derby turns out a vehicle per working day – say 250 vehicles a year.  And as my table shows, for the foreseeable future the railways in the UK are unlikely to generate enough orders to support even a single factory, let alone Derby plus Hitachi’s Newton Aycliffe Assembly plant. 

 

DfT corrects dodgy data

You may recall that in the August column I published a Table issued by DfT on June 20 giving some costs per mile for the Intercity Express Programme (IEP) trains.  I pointed out that the Variable Track Access Charges (VTAC) appeared to be too high by a factor of two.  My chums at Hitachi kindly provided Network Rail’s official VTAC figures for their Super Express Train which I gratefully published.

 

Energy costs were also listed.  And readers soon pointed me at some more dodgy data.  Curiously the electric IEP uses more energy than a Pendolino, while the bi-mode sipped a fraction of the fuel consumed by a 125mile/h DMU.

 

But on 20 October the same Table was re-issued, with ‘regret’, as a Parliamentary Written Question (Correction).  The VTAC figures now aligned with the Railtrack calculations but the improbable energy costs remained unchanged.

 

This gives a good indication of the political mindset.  This column revealed the VTAC mistake five weeks after the original table appeared. So why did it take so long for a correction to emerge?

 

Thameslink consultancy.

Supporting my new ‘No Prisoners’ policy on misleading statements was another example of civil service incompetence foisted on poor Theresa Villiers.  Asked how much had been spent by DfT on consultancy for the Thameslink trains procurement exercise she replied on 20 July, £13.1 million, adding, ‘Of this figure £5.3 million has been spent since May 2010’.

 

Oh dear.  A year before, in reply to a similar question, the then Transport Secretary Lord Adonis had also quoted a figure of £13 million. So if Theresa’s £5.3 million was correct, then the true expenditure to date must be approaching £19 million.

 

And on 14 September, but with no hint of an apology for misleading the House. Ms Villiers answered the same question again, and guess what? Up to June 2011, Thameslink train procurement consultancy had cost £19.2 million.

 

There was also a Table showing where the money had gone.  The fees for rolling stock engineering consultancy came to only £1.49million, compared with £5.31m for legal advice and £2.26m for financial services. This is mirrored by the staffing of DfT’s core rolling stock procurement team: two engineering, three finance, two legal and one operational.  Mind you, given DfT’s original specification for the IEP, perhaps that was two too many!

 

Doctrinaire procurement wasting money

Talk that Southern could order some more Class 377 Electrostars from Bombardier to ease the heat over Derbygate was confirmed on 16 September. Southern announced that it had ‘today’ launched a ‘competition’ to provide 130 new carriages to help meet capacity demand on its network.

 

Potential suppliers (plural, note) had been sent a Pre-Qualification Questionnaire (PQQ).  The trains are required no later than December 2013.

 

These vehicles, 26 five-car units are to back-fill the Class 377s subleased to FCC for Thameslink, which will not now be returned for the December 2013 timetable as originally planned.

 

In a sane world, if you operate a fleet of 150 Boeing 737s, say, and need another 26 aircraft, you don’t acquire some Airbus A320s. Yet here is Chris Burchell, Managing Director of Southern, saying that the ability of suppliers (plural) ‘to demonstrate they can deliver the trains on time while still offering affordability and value for money’ is ‘critical’.

 

Mind you, Boeing would be expected to come up with a good price for a follow on order from a major customer. But according to Informed Sources, Bombardier has been trying to sell Southern the more expensive Greater Anglia Class 379 design, rather than manufacture what its major customer needs - some more of the simpler Class 377.

 

Of course this will involve extra effort from Bombardier and its supply chain to switch back to the earlier build.  But if Bombardier were serious about keeping Derby open you might expect them to be accommodating, especially, since Southern could be in the market for over 350 Class 377 vehicles in the longer term by my calculations.

 

Desiro delays

But Southern is nothing compared to the procurement disaster that is the London Midland Class 350/3 fleet.  On 14 September 2011, London Midland ‘announced today’ that it had selected preferred bidders for ‘the manufacture, maintenance and financing of new rolling stock’.  The OJEU Notice seeking funding for these 44-100 vehicles was issued on 20 January 2009.  Fleet service then was scheduled for May 2011 and the new vehicles were required to be compatible with the existing Desiro EMUs. 

 

In April 2009, when the matching train procurement OJEU was published Siemens’ production line was in full swing building 350/2 Desiros for LM.  The rational way to acquire more Desiro-compatible EMUs   would have been to take up the fixed price option in the Class 350/2 contract.  Had that option been exercised the units could have been in service by now, at a saving or around 25%.

 

Jaw-Jaw

Since Siemens had become de-facto preferred bidder in June last year when Bombardier pulled out, I expected the press release to be the long expected order announcement.  But no, LM is ‘now entering a period of exclusive negotiations’ with Siemens and Angel.   ‘If those negotiations are brought to a successful conclusion, and parallel discussions with the Department for Transport confirm the business case and the necessary amendments to the London Midland franchise agreement, then a firm order is likely to be placed by early 2012’.  Even the exact quantities still depend on the outcome of negotiations with the Department for Transport.

 

You wouldn’t think that the batch of units for TPE’s Manchester-Scotland electric services piggy-backed on the LM requirement is required for December 2013.  And that unless they get an order pronto, Siemens will be hard pressed to get the first eight units commissioned in time.

 

And to think that I used to mock British Rail procurement at Derby.

 

Roger’s Blog

At the September meeting, the new 4^th Friday Club session started with a bang with Adrian Shooter in fine form as expected.  I ran out of time to get to the IMechE Chairman’s address the following week, but did get to the IRSE meeting on Thameslink signalling and control.  This reinforced my view that this is a heroic venture, with a number of vital issues still to be addressed.

 

In the Q&A following an excellent presentation, I asked how the 24 trains an hour approaching the central core from north and south were going to be scheduled to arrive in the right order and at the right time.  This is still work in progress, apparently, but the contractor for Rail Operating Centre at Three Bridges will sort it out.  Hmm.

 

Next day the IIP was launched at Kings Cross.  As a sign of the times only two railway press journalists attended and I was representing three publications!  There’s a lot more digging among the detail to come.

 

Meanwhile this week, I have a session with an advisor to the Labour Party on railway policy and then a chance to hear an alternative expert view on the economics of the rolling stock leasing market.

 

November is filling up nicely.  There’s what looks like an interesting seminar on the 9th and 10th, organised by

First Class Partnerships, Passenger Transport and Waterfront, part of a series with the theme ‘After McNulty, seizing the opportunity’.  The topic is devolution within Network Rail.

 

In the following week there is a conference on ALARP, a topic which does not seem to exercise the column as much as it used to.  And on the Friday Alstom have invited me to see how their Northern Line train service provision deal is progressing.

 

And then on the 25th it’s the November FFC meeting which means that it’s Golden Spanners Awards time again.    These will be the first awards since a major change in the data used to measure reliability.

 

First of all, the Miles per 5 Minutes Delay (MP5MD) will become Miles per Technical Incident (MTIN). This is a more demanding measure because TINs are triggered by a 3 minute delay.  Second, the monthly reports now include the Moving Annual Average Primary Delay Minutes per Incident (DPI) for each fleet.

 

All this came into effect from 1 April this year, so  I won’t have the 12 months data needed to calculate the year-on-year  improvement which determines who wins the Silver Spanners.

 

But if you divide MTIN by DPI you get Miles per Delay Minute (MDM) which I am calling the Index of Reliability. Unlike MP5MD and MTIN. I think this is a concept the average passenger could get their head round – how far will I travel before I’m delayed by a minute.  So the Silver spanners will go to the highest MDM in each main category, (ex-BR/New DMU and EMU plus InterCity.  There will also be spanners for the most reliable IC125 and Pacer fleets.

 

Competition is always fiercest in the New EMU category and any of three fleets could have struck gold when Period 7 ended on 15 October.  For those who can’t attend the awards, the annual reliability review in the January 2012 issue should be a cracker!

 

Meanwhile back to wrestling with Microsoft which seems intent on duplicating the password I enter for my internet connection.

 

Roger

 

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