INFORMED SOURCES e-Preview February 2013
Yet again a chunky and controversial report came out just as I was finishing off Informed Sources. This time it was the Brown Review of the rail franchising programme. So more midnight oil and more items put back to the next issue. By which time I will have got up to speed on the Network Rail Strategic Business Plan, which my colleague Ken Cordner has summarised for this month’s News section.
Still it keeps me on my toes and there’s a summary of the Brown Review later on.
IEP beyond compare claims minister.
Rail Technical Strategy 2012 published
TOC costs defy analysis
Brown Review proposes the franchise-led railway
GW electrification has ’slipped 18 months’ - ORR
After, after my shock-horror analysis of IEP costs in the December 2012 column, I have been waiting for some killer correction from DfT pointing out an error in my. But no.
However, Chris Williamson, the rail minded Member of Parliament for Derby North, raised the issue of IEP costs in a letter to Transport Secretary Patrick McLoughlin about the Thameslink contract. And he got am answer – sort of.
This is
what Transport Minster Simon Burns replied.
You can just hear Sir Humphrey explaining this to a baffled politician in ‘Yes Minister’. As the old saying goes, reality is funnier than satire.
Rail Technical Strategy updated
As you may recall, the first Rail Technical Strategy was a pernicious document. It was produced by DfT to support the 2007 railway White Paper which was notable for its ‘Anything but electrification’ tone.
The RTS suggested that the widespread use of hydrogen for rail would depend on a ‘truly renewable source of hydrogen, such as photosynthetic splitting of water using bioengineered algae’. That is how ‘bionic duckweed’ became industry shorthand for out-to-lunch technical ideas.
LeadershipIndustry’s input to the RTS had been through the Technical Strategy Advisory Group (TSAG). It was decided that the industry would take over responsibility for the next RTS and TSAG became TSLG - the Technology Strategy Leadership Group under the aegis of the Rail Safety & Standards Board (RSSB), which also acts as the conduit for Government funded railway research.
In 2010 the TSLG put out a consultation document outlining its approach to the next RTS to be published in 2012. I made a formal response which formed the basis of the February 2011 Informed Sources item headed ‘Technical Strategy – does rail need one? As you will have guessed the answer was no – the industry needs coherent technical policies.
RTS 2012
Just before Christmas RTS 2012 was launched at a function in London. It claims to provide a 30 year ‘shared vision’ of the future railway and inform policy makers and funders about the potential benefits of new techniques and technologies and provide suppliers with guidance on the future technical direction.
According to TSLG Chairman Steve Yianni, RTS 2012 ‘helps focus the minds on where we all agree we want to go' while ‘the opportunities for the rail industry to capitalise on the application of new technology are huge’. Steve added ‘We want to move technology ideas from world class universities, through the testing and development stages to the point at which they can be commercialised, by collaborating and innovating with the whole supply chain’.
And that is one of the problems with the latest RTS. It has a near mystical belief in innovation and undefined new technology, usually from other industries, that will transform the future railway. As you know this sort of techno-cringe always gets me going.
Nor does it help that the TSLG is locked into the ‘Year Zero’ mentality. Anything developed before 1996 is forgotten.
In the magazine I use the specific coverage of braking to illustrate these shortcomings of the RTS in general, exacerbated by the RSSB’s perpetual research projects.
But overall, the RTS is, as it says in the Hitch-hiker’s Guide to the Galaxy, ‘mostly harmless’.
TOC costs resist bench-markingWhile politicians and industry ‘leaders’ still pay lip service to the 30% cost savings ‘identified’ by Sir Roy McNulty’s Rail Value for Money Study, even senior railway managers are now happy to agree that the ‘benchmarking’ against European railways, on which the efficiency claims were based, was of dubious validity.
One of Sir Roy’s recommendations was that the Office of Rail Regulation should analyse the costs of the franchised Train Operating Companies. Such benchmarking would soon expose significant efficiency differences between train operating companies.
ORR didn’t need telling twice and at the end of 2012 published the result of this latest benchmarking exercise. And did it show up the 30% cost difference between the best and worst TOCs as predicted by Sir Roy? What do you think?
ORR seems to have ended up with the usual story of lots of data generating not much useful information. And that’s before they start benchmarking individual TOCs.
In an heroic piece of number crunching, ORR’s statisticians have benchmarked TOC costs against four parameters: cost per passenger km; Cost per train km; Cost per vehicle km and Cost per train hour. And guess what? Overall, no TOC is consistently above the average, that is, more expensive, across all the four measures.
There are, however, four TOCs that are consistently on or below (less expensive) average. These are Chiltern Railways, First Great Western, National Express East Anglia (before the Abellio take-over) and South West trains.
Does this tell us anything? Well I try to find a pattern. Readers will no doubt have their own take.
Inconclusive
ORR concludes that that considering individual measures of unit cost in isolation can be misleading. And for most of the TOCs that have one or more significantly above- average cost categories, ORR has identified ‘plausible reasons’ to explain the difference. We need more detailed and reliable data’ cries ORR. Oh dear.
Brown Review poses massive challenges
Publication of ‘The Brown review of the rail franchising programme’, set me off on another of those total immersion exercises where I load up my mental RAM with the 80 odd pages of the report and pull the various themes and recommendations into what I hope is a coherent narrative. And I also had the benefit of a briefing over the phone from Richard Brown.
Richard had opened our conference call with the claim the ‘franchising is clearly not broken’. With record ridership growth over the last 10 years, the fastest growing railway in Europe and second safest railway after Luxembourg, it is ‘highly unlikely’ that these successes could have been delivered if franchising was ‘fundamentally flawed’.
But what about the obvious failures? That is down to DfT’s departure from the original concept and much of the review focuses on ‘re-stating’ the principles of franchising and determining what changes are needed to set a ‘clear and appropriate framework for how franchising should work’.
I would interpret that as ‘make franchising work’ and it has just dawned on me as I write that in saying this Richard is echoing the apocryphal civil engineer who declared that he could maintain a perfect track if people didn’t insist on running trains on it.
Early start
Another theme is the need to get franchise replacement started again, and especially the three franchises paused after the Intercity West Coast collapse. This is widely supported within industry, because the current uncertainty is affecting everyone.
Though the ‘pause’ in franchise replacement is only a few months old, it is already hitting the supply chain. For example, new train procurement and refurbishment programmes depend on a franchisee in place. An operational input is also needed to support infrastructure mega-projects such as Thameslink and the Great Western Total Route Modernisation.
Richard calls for the programme to restart the three paused franchises to be published by February. An OJEU Prior Information Notice setting out the programme for the other replacement franchises should follow by the end of April. These recommendations have been accepted by Transport Secretary Patrick McLoughlin.
Even before the pause, the franchise replacement programme was turning into a log jam. The review recommends that the new re-letting programme should be staggered to give a maximum of three to four franchises being let in any one year.
Teams
To support this DfT needs to put in place ‘immediately’ four ‘credible’ project teams. But Mr Brown notes that there is a ‘sharp asymmetry’ between the capability and resources of bidders and that of the DfT. This is a polite way of saying that your people are not very good.
Where these teams should eventually be located will be a testing decision for government. Keeping them in-house is ‘simplest and quickest’. Or, it could be an ‘Executive Agency’. Finally, there is the Standalone option, in effect the recreation of the Office of Passenger Rail Franchising (OPRAF).
Richard Brown offers compromise on franchise length. While 15 years gives stability, it is too long in one go in a changing world. His alternative is 7-10 year franchises with ‘pre-contracted extensions subject to meeting performance targets. If the targets were met both DfT and the operator would have to take the extension. So you could have 10+5 years or 7+4+4 years.
Controversially, Mr Brown reckons that DfT should accept that an operator may default. ‘It is neither sensible nor realistic to design franchise structures that seek to eliminate completely the risk of default’, he argues. As for cross default, it simply deters people from ‘participating and investing’ in the franchising market.
Growth
Another big change he recommends is for government to retain full exogenous (external) revenue risk ‘as far as practicable’. Thus, each franchise Invitation to Tender would include DfT’s base revenue forecasts linked to economic growth. Bidders would compete on the basis of their forecasts for growth delivered by their marketing and service initiatives (endogenous growth).
During the franchise, premium or subsidy payments would be adjusted annually in line with actual economic performance versus DfT’s base forecasts. Richard Brown believes that National or Regional GDP and Central London Employment are the most practical proxy for the real world.
Interestingly, while dismissing management contracts or concessions as a replacement for franchising in general, Mr Brown concedes that management contracts could be suited to franchises where mega-projects create disruption and revenue risk and need a delivery partner. He instances Thameslink, but his reasoning applies equal to Great Western.
So while Franchising isn’t broken, it can’t cope with two of the biggest operations on a railway in transition. It needs franchises that are simple and stable?
Anyway, I suspect that implementation of the Review’s recommendations will be neither easy, quick or cheap and DfT may well jib at some of the more radical proposals. DfT’s, programme for the three paused franchises should be out by the end of the month. It should make interesting reading
GW electrification 18 months late - ORRIn it its latest Network Rail Monitor ORR lists the Great Western main line electrification among its projects at risk. Informed Sources had told me late last year that the project was still at Network Rail’s GRIP Stage 3 (Option selection) when by now it should have reached Stage 4, Single option development.
According to ORR, Network Rail is reviewing the project ‘to ensure the technology will deliver the required performance on the route’. While this has caused ‘some delay’, work not affected by the review, such as bridge clearances, is continuing. ORR is concerned is that the early design and development phases have slipped by 18 months and that Network Rail has a ‘challenging programme’ to deliver the infrastructure for the first main line electric services to start running in December 2016.
Meanwhile Network Rail informed Sources confirm that the cost has risen to over £1 billion. Reviewing costs is one reason for further work at GRIP 3. However, the GWML electrification still makes a business case.
Roger’s BlogIt was back to work between Christmas and the New Year with Rail Business Intelligence and the following week Network Rail kicked off the New Year proper with the launch of the Industry Strategic Business Plan. This was an intensely frustrating meeting since all the national media were interested in was trying to find a link between the expenditure in the Plan and future fares increases. Eventually, as the same question was being asked repeatedly I had to get a bit sharp with one chap to get my question in.
Last week I popped up to Kings Cross for a briefing on how East Coast is doing. This franchise highlights the uncertainty referred to by Richard Brown. For example if it is going to stay in the public sector for some time will it be able make truly commercial decisions on the future of IC225?
This coming week I have what all of us who need maximum desk time strive for. On Friday I fit three meetings into one trip to London.
I start at the National Audit Office for a discussion with the Director of Transport Value for money on my letter to them about the cost of IEP. From there I go to a local government meeting for a presentation on franchising and after that it is a quick trot up the road to the Fourth Friday Club meeting which incorporates Mr Miles’ Golden Whistles awards for operational excellence
For the moment, February is pretty quiet, except for a Railway engineers forum meeting on ‘Has 3rd rail had its day?’ on the 27th. Could generate a few sparks.
However, I have several meetings to arrange and in this job you never know when the next 80 page report is going to land in the in-tray.
But for now, it’s time to replace the Brown Review with the ISBP on the screen and start the analysis.
Roger