INFORMED SOURCES e-Preview January 2013
There may be a slightly longer gap between e-Preview and publication of Modern Railways this month. The nominal publication date was the fourth Friday of the preceding but has recently been moved forward a day. This would be the day after Boxing Day, so we are trying to get it out before Christmas – certainly for subscribers.
Southern to run mystery train procurement
More on East Coast Pendolino potential.
Mark 4 interior options unveiled
Formalised RDG disenfranchises suppliers
West Coast imbroglio resolved
Virgin wins their extension
With all the politics I have been remiss in keeping you up to date on traction and rolling stock orders. But Southern’s confirmation that it is exercising the option on a further 40 vehicles in its order for 26 five car Class 377 Electrostar EMUs from Bombardier gave me the excuse to fire up the spreadsheet for some traction action.
In the press release Southern added that it is ‘developing proposals’ with the Department for Transport for a ‘new procurement competition’ for 116 dual voltage 110 mile/h electric multiple unit vehicles. There is also an option for a further 100 vehicles.
Naturally, everyone wondered where these vehicles would run? And those who asked were told ‘dunno’. Southern is simply acting as a procurement agency for DfT and who can tell how their minds work?
Presumably the exercise is linked to the delayed cascade of Class 319 EMUs from Thameslink. As discussed in last month’s Informed Sources the first units are unlikely to be available before the end of 2016.
For a speculative requirement the number is precise. The 116 vehicles could be formed as 29 four car units. Technically, the 110mile/h capability is compatible with running on both the West Coast and Great Western main lines.
According to Southern the new procurement competition ‘will assist DfT’s ability to address the wider rolling stock needs of the country’. Note that ‘new procurement competition’. But if this is an urgent requirement it is unlikely that a new design could enter service in under three years from date of contract.
It doesn’t make sense. But would we expect anything else when DfT plays trains.
Meanwhile, you may remember the endless series of updated tables which I produced in pursuit of the previous Government’s ‘1,300 net additional vehicles’. I’ve decided to restart a the clock and the January column features a new Table listing orders placed since 2009 or currently being procured or proposed.
Pendolino on the East Coast
Back in the September 2012 column I ran a piece analysing Alstom’s claims that a Pendolino running at 140mile/h with tilt operational would save 50 minutes on London-Edinburgh timings. This generated a lot of interest, plus a fair degree of scepticism, so I asked Alstom for their modelled Class 390 timings behind the claim and these are published in the January column.
I have also combined them with the InterCity predictions from the 1980s based on tilting and non-tilting IC225s running at 140 mile/h. It’s an interesting theoretical exercise for readers to ponder over Christmas. I await another flood of e-mails.
IC225 challenges IEP and Pendolino
At the end of November I escaped from the office and drove to an industrial estate outside Bedford where Eversholt and their consultancy Atlantic Design showed me round a demonstration mock-up of proposals for future IC225 interiors. The mock-up has sections fitted out with sections for Standard class, a proposed Business Class, First Class and even a notional Premium Class with 1+1 seating
Standard Class impressed in particular, with a new lightweight, slim-line aluminium honeycomb seat from Rica of Finland with leather upholstery. The seat saves 15mm per row and contributes to a weight saving of half a tonne per vehicle.
Class 91.
New interiors is one arm of Eversholt’s fight to keep IC225 in service against the threat from Pendolino and IEP. The second development is further improvements to the Class 91 locomotive.
To improve reliability a Class 91 is being fitted with a pre-series duplex pantograph. This uses the same mounting points as a standard pantograph but pairs two Brecknell-Willis High Speed pantograph arms back-to-back on the same base frame. The modification eliminates a single point failure while avoiding the major surgery for a second pantograph well
Eversholt is offering potential East Coast franchisees a choice of IC225 upgrades. So the ’Value’ proposition package retains the Class 91. But if you want more acceleration plus regenerative braking, Bombardier would happily provide a Traxx UK electric locomotive.
Similarly, train configuration would be more flexible as a result of moving the kitchen to the DVT. For example you could have five Standard Class coaches, a Business Class vehicle, a composite Business/Premium and two First Class.
Eversholt would invest £120 million in the IC225 upgrade and claims this solution would save £1 billion on IEP to the end of the next ICEC franchise in 2025. I ran my own cost comparison and came up with a saving of £925 million – well within experimental error.
RDG formalisation on hold
Something I really should have written about earlier is the proposal to ‘formalise’ the Rail Delivery Group. The
RDG was industry’s response to one of the recommendations in Sir Roy McNulty’s Rail Value for Money report calling for the formation of pan-industry leadership body.
Since then this assembly of representatives from passenger and freight train operators, Network Rail and other railway industry bodies has been working on an informal basis.
But ORR was anxious this voluntary cooperation should be strengthened. The RDG believed that for this to happen it should be put on a more formal basis.
ORR’s proposal was that RDG should be reconstituted as one of those achingly-fashionable Companies Limited by Guarantee. Membership of the Group would then be mandated through a new licence condition imposed on train operators and Network Rail. But when the details went out to consultation it was clear that something was wrong.
ORR and RDG proposed three classes of membership. The ‘active’ groups owning passenger and freight train operators plus Network Rail would be ‘Leadership Members’. RDG‘s board of directors would be drawn from this membership.
One tier down the hierarchy, all licensed train operators would be classified as ‘licensed members’. They would have the right to participate in RDG consultations and contribute to the working of RDG.
Finally there would be voluntary ‘Associate Membership’ open to other ‘key industry stakeholders’ including railway suppliers, rolling stock leasing companies, funders and similar organisations. Associate members ‘may’ be invited to participate in the work of RDG, particularly its specialist sub-groups, but would not have any specific rights in respect of representation at meetings or voting.
Wrong
Now this is clearly wrong. In the leadership group we have thinly capitalised operators who could be out of the industry after the next franchising round. Meanwhile, those with billions of assets in the industry, like the manufacturers, over-haulers and the ROSCOs have no say when they are the ones with the long term interest.
In a generally supine industry, there was some robust criticism of the formalisation proposals during consultations. Eversholt, for example, pointed out that since no member of the RDG can be bound by its policies and strategies ‘It is not wholly clear to us from the consultation paper what these tangible benefits might be, and what a formalised RDG might be able to achieve that it cannot achieve under its current more informal arrangement’.
Meanwhile, the good news is that someone has thrown a spanner in the works and ORR has had to abandon the deadline for licensed operators to agree to the new licence condition. Nor has a new deadline been set.
West Coast imbroglio resolved
When people ask me what I do for a living I say I am a writer rather than a journalist. This is not snobbery, but a reflection of the fact that much of what I do involves analysis and investigation rather than ‘stop the presses’ news reporting.
But every now and then I get the chance to switch to journalist mode, with fingers flying and adrenalin flowing. And the publication of the two reports into the Intercity West Coast franchise competition cancellation on the last two days of the Informed Sources press week was a classic example.
First came the second report on Sam Laidlaw’s inquiry into the lessons learnt from the ICWC cancellation. Next day we got the report of the NAO’s parallel inquiry on the same subject.
So, given the limited time I have focused on the epicentre of the affaire – the setting of the Subordinated Loan Facility (SLF). This is the bond, backed by an independent bank, which the franchise owner puts up. Should the franchise fail, the SLF is forfeited and goes to run the franchise.
This is DfT’s way of mitigating the risk that a franchisee could over-bid, take the money and then walk away when the going got tough. It sounds simple, until you think about it.
First of all, it has to be big enough to hurt. With bidding under way DfT realised that if it was large enough it might prove impossible raise.
You can imagine a would-be franchisee asking a bank if it could borrow £500 million. ‘What’s it for?’ ‘Well if we screw up the franchise the DfT takes it’. That is going to be an expensive loan.
Of course, if bidders could correlate their bids with the likely SLF, they could structure the premium profile with what they could afford to borrow. But DfT couldn’t release the model it claimed it would use to calculate the SLF. And anyway DfT adjusts bids to what it thinks is appropriate so bidders have no idea what is happening.
So now we come to the Department’s Contract Award Committee (CAC) which met on 27 June to establish the SLF’s for First Group and Virgin’s ICWC bids. According to the NAO report ‘The Department asked Virgin for a subordinated loan facility of £40 million when its calculations showed none was required, while it reduced the total capital required from First Group from £252 million to £190 million, after taking account of £10 million equity included in the bid’.
Yet when the CAC’s decision to award the franchise to first moved up a layer to DfT’s Board Investment & Commercial committee (BICC) on 31 July, the supporting CAC paper claimed ‘We have rigorously assessed the solvency requirements for each bidder to ensure that the risk of franchise failure is reduced including consideration of the robustness of the franchisees offer in a range of 500 economic scenarios. This resulted in a level of Subordinated Loan Facility (SLF) to be requested from each bidder’. But Mr Laidlaw is ‘satisfied’ that there was ‘no proper explanation’ of the way that First’s SLF has been determined by judgement rather than the cold numbers.And when the BICC sought further assurance another paper was produced by the ICWC Project Team, on the evaluation process and risk adjustment that has been undertaken in order to select a winning bidder for the ICWC franchise competition’. Again Mr Laidlaw concludes that the BICC was not given an appropriately accurate and full report as to the manner in which the CAC had approached the SLF sizing process.
Cavalier
This cavalier approach to procurement at the middle levels of DfT, with senior officials, directors and ministers taking what they are told almost without question explains much about other recent policy puzzles at DfT. It explains how the Foster Inquiry into the Intercity Express Programme, initiated by Lord Adonis was seen off by the Department when the coalition took over.
Virgin wins their extensionEven by DfT standard, the idea of extending Virgin’s West Coast franchise for between 9 and 14 months while a competition was run for an interim two year franchise during which there would be a further competition for a full length replacement franchise was an inspired way of wasting money and resources.
DfT’s lawyers had been scared that awarding an extension to Virgin without a competition could be challenged under EU Procurement law. But you can only challenge a decision if you have been materially disadvantaged. And none of the potential challengers felt the slightest bit disadvantaged.
So, the interim franchise idea was dropped, while negotiations on a longer extension continued. And shortly before nine o’clock on 5 December the deal was signed. What DfT terms a ‘new franchise agreement’ started on 9 December and will run for up to 23 months, after which a new long-term franchise will take over.
Initially Virgin will run the franchise as a management contract for a fee of 1% of revenue, currently around £900 million a year. Both revenue and cost risk will be borne by the DfT. Sounds like a concession to me.
However, the agreement includes a provision for the DfT and Virgin to agree revised commercial terms, with Virgin taking at least some revenue and cost risk. According to a Virgin Informed Source, ‘we want a franchise-type deal to make us work’.
Roger’s blog
How time flies when you are having fun. This column marks Informed Sources’ 30th Birthday
For a bit of fun I have looked back at what was in the January column at five year intervals since 1983. It makes for some fascinating reading now we know what happened next. Unfortunately this item was pushed out by the Laidlaw report, but I hope to find space next month.
Last month I left you with the trophies being assembled for the 2012 Golden Spanners awards for traction and rolling stock reliability. This event seems to get more popular by the year – attendance topping 300 for the first time.
With Gold, Silver and Bronze trophies more depots than ever took spanners home. With 84 out of 114 fleets improving reliability there was plenty to celebrate and a good time was had by all. You can check the reliability of every fleet on the network in my annual reliability review in the January issue.
As you can read above the following week I inspected the Mk 4 mock-up and the week after that I popped in to Eversholt’s London Launch where I filled a lot of notebook pages talking to old chums.
Last week, having got ahead of my pre-Christmas writing schedule for once, I made it to the Rail Freight Group Lunch. Guest speaker was Transport Minister Norman Baker. Tony Berkeley stirred things by asking the Minister whether he had heard my views on IEP.
An industrial strength ear-bashing followed at the end of which Norman asked me to write to him. So I will send him a copy of my letter to the Auditor General calling on the NAO to mount an immediate investigation of the cost of IEP based on last month’s analysis.
And the next day there was the launch of the 2012 Rail Technical Strategy. The 2007 version was written by DfT and was a pernicious document angled at rubbishing electrification. The 2012 version has been produced by the industry and, on preliminary run through of its 101 pages looks, to quote ‘The Hitchhikers Guide to the Galaxy’ ‘mostly harmless’, which has to be a big improvement.
This week we have the Modern Railways Christmas lunch where we all travel back from Exeter and enjoy a meal in the comfort of a First Great Western Mk 3 dining car.
So, a peaceful and happy Christmas to all e-Preview subscribers. As for the New Year, I’ll try to make explaining the complexities of the railways as entertaining as possible. And I’ve got some ideas for technical articles too.
Roger