INFORMED SOURCES e-Preview July 2013
I made sure that this month’s column was delivered earlier than usual because on Wednesday 12 July the Office of Rail Regulation (ORR) was going to publish is Draft Determination of Network Rail’s income for Control Period 5. This meant that I would have three days to go through the document and summarise the key proposals for Modern Railways’ news pages.
Nothing unusual, it’s what I do. But when I downloaded the Draft Determination on Wednesday it tuned out to be 813 pages long. This compares with the previous Draft Determination in 2008 which covered 372 pages.
This meant a lot more time spent reading and transferring of tables to my own spreadsheet and less time for writing, but I hope the report in the news pages gives you the bare facts.
Pondering this more-than-doubling of the pages needed to explain how Network Rail’s income for the next five years is being set, prompted the thought that if, after five previous determinations – 1996, 2001, 2004 and 2009 - you need more pages than ever, then there is something seriously wrong with the way we are running the railway. More on that when I analyse the Draft Determination in detail next month.
Dewirement re-opens Mk3b nature v nurture debate.
Burns exposed on EC
Callie sleepers and Merseyrail trains progress
Intercity ridership growth slows?
Franchise extension finances bewilder
Network Rail under fire on multiple fronts
Inevitably, the Draft Determination criticises Network Rail for inadequate knowledge of the state of its assets. And the lead item in this month’s column is a classic example.
On 5 January 2012 a dewirement near Littleport, just north of Ely on the King’s Lynn-Cambridge line, saw the pantograph torn from the roof of a Class 365, hitting a window as it fell. The RAIB’s investigation into the accident reveals that the primary cause of the dewirement was long term movement of the foundations of two Overhead Line support masts which had caused them to lean outwards, away from the track centre line.
This shifted the catenary from its correct position. High winds at the location that day increased the displacement.
Of course most accidents result from a chain of factors and in the column I detail the maintenance shortcomings and lack of asset knowledge found by RAIB that resulted in the contact wire being so far from its correct position that it came off the edge of the pan’ which rose up and hooked into the knitting.
RAIB reports a disturbing combination of inadequate resources, confuse OHLE maintenance standards, unauthorised overdue maintenance and missed warnings. And I must add that it also challenges the comforting belief that wires coming down in high winds are all the fault of British Rail for electrifying ‘on the cheap’.
As the RAIB report emphasises several times, had the OHLE at Littleport been maintained correctly, the dewirement would note have happened. Yes, the ECML OHLE had its problems, not least the composite catenary which proved vulnerable to corrosion, but as one of the engineers responsible commented to me, presciently as it now turns out, a decade or more ago on the inadequate maintenance regime after Railtrack took over ‘It does help if the catenary is in the right position relative to the track’.
Burns back tracks on East Coast
There I was in last month’s column, analysing the disobliging comments about the performance of East Coast made by Transport Minister Simon Burns and waxing philosophical on the difficulty of sorting fools from knaves on the basis of ministerial statements. And. Blow me down, if he didn’t come up with another challenge.
Mr Burns had told the Transport Select Committee on April 24, that ‘the premium that the East Coast main line pays to the Treasury is less than that paid by the West Coast main line’.
When the Sun newspaper challenged that statement Mr Burns was quoted as saying that ‘the Treasury has received £411million and £450million from the East Coast and West Coast rail franchises’. But there was a crafty caveat. This is separate from money the DfT paid to Virgin as part of their franchise agreement’.
So what are the hard numbers? Well, here we come to the crafty get out of jail card. In 2011-12, for example, Virgin did indeed pay more to Government than East Coast - £210 million versus £188 million. But then, because Virgin was eligible for revenue support under Cap & collar, the operator got £44 million back from DfT making the net payment £166 million.
So Virgin did indeed pay more than EC but after revenue support paid less. Fool, knave or weasel? The choice is yours.
Aggro
Something that always gets up my nose is the assumption by politicians and their civil servants that we have the attention span of a goldfish. Remember in 1984 how the enemy changed overnight.
Well in last month’s column Mr Burns was justifying early replacement of the Intercity East Coast franchise on the basis that comparisons between EC and Virgin West Coast, ‘showed how private sector operators can outperform the public sector’.
By 5 June the chip implanted in all ministers skulls had obviously been reprogrammed because Mr Burns told Parliament ‘East Coast has delivered a great deal in the past three-and-a-half years of public ownership...’. And in a subsequent letter to the Transport Committee he had written ‘On balance the Secretary of State prioritised the East Coast franchise to enable a new operator to oversee the introduction of new rolling stock and the investment planned during Control Period 5’.
Oh, so not because private sector management is better.
Rolling stock developments
Time to catch up with a couple of slow-burning rolling stock prospects, starting with the Caledonian Sleeper service which is being offered as a separate franchise.
Pre-Qualification Questionnaires were returned on May 22 and four potential bidders have come forward. According to Informed Sources, they are Arriva, First Group, Great Scottish Railways and Serco.
Great Scottish Railways? In a blast from the past two of the founding fathers of GB Railways, Michael Schabas and Max Steinkopf, are back in the hunt. If they pre-qualify that should liven things up no end.
According to the OJEU, Transport Scotland will make capital investment of £50-60 million available for rolling stock and station facility modernisation. The additional £50 million being provided by the Westminster Parliament towards the sleepers is not mentioned, perhaps because it was diverted by the Scottish Minsters to Scottish Water. Let’s hope they can get it back.
Flagship
Clearly, Transport Scotland sees the sleepers as a flagship, one aim being to ‘achieve an internationally renowned service that is emblematic of the best of Scotland’. That sounds expensive. And as the Eurostar Overnight Stock showed, modern sleepers, with facilities required by today’s travellers, are expensive and provide fewer berths to pay the return on the investment.
On top of which, if it is decided to upgrade the existing sleeper fleet the Scottish Ministers would be investing public money in privately owned assets. Unless of course, they bought the fleet from Porterbrook. But the Derby company is nothing if not innovative and will no doubt come up with a mutually acceptable solution.
Merseyrail
Meanwhile Merseytravel has provided an update on the proposed replacement of the existing Merseyrail rolling stock fleet. The aim is to have replaced the Angel Trains Class 507s and 508s by the time they come off-lease in 2018.
Merseytravel notes that there are ‘significant financial and technical risks’ involved. A substantial amount of work will need to be completed before a commitment can be made to start procurement and this commitment will have to be backed by a ‘robust’ business case and financial plan.
There’s some interesting detail on the financial implications of procurement which is expected to start ‘around September’ this year. In particular it will require a ‘significant’ increase in the resources deployed with expenditure on the internal team and consultancy services more than doubling to around £3 million in 2013-14.
Ahead of the procurement exercise, the Passenger Transport Executive and the Integrated Transport Authority have been building up a rolling stock reserve against the costs and financial risks associated with the project. By the end of the current financial year the reserve will stand at around £50 million - an indication of the issues involved when a local authority enters the rolling stock market.
Intercity ridership analysis
An Informed Sources column would not be complete without a chart or three and this month I return to the subject of intercity ridership growth, kicking off with the famous 1960s ‘Sparks effect’ graph showing how West Coast ridership boomed after the 1966 electrification
There’s a second trip down memory lane with a chart from the column in 2004, in which I showed the growth Virgin West Coast would have to achieve to equal the achievements of the sixties. And a back-check reveals Virgin met the challenge albeit a couple of years later than predicted.
Back in the present day, in the June column, I suggested that the rate of ridership growth was slowing. In 2011-12 East Coast journeys rose 2.2% but Virgin’s growth was only 1%, compared with 12% the year before.
ORR has just published ridership data for the last Quarter of 2012-13. All three passenger sectors recorded year-on-year falls.
Franchise extension – first numbers available
As you all know by now, my immediate reaction when the financial details of new franchise agreements are released is to start a new spreadsheet. Well, we now have the data for Virgin’s initial extension and the National Express deal for c2c and the immediate conclusion is that two points don’t make a trend.
And that is being optimistic. Virgin is paying a premium of £92 million for the 2013-14 financial year. First Group offered £27 million for the same year in its winning, but ultimately unsuccessful, bid for the 15 year franchise.
At c2c National Express will be getting a subsidy of around £2.4 million for its 16 month extension – say £1.6 million for 2013-14. But I calculate the premium for 2012-13 at around £16.5 million, so the Informed Source who told me that DfT was £17 million over budget on the deal was near enough spot on.
As I say, just two points on the graph, so much too early to draw conclusions. But next up is First Great Western. And with its share price having dived since a rights issue was announced I can’t see First surrendering vital cash flow easily.
Network Rail taking the flak
No battle plan survives first contact with the enemy – and that certainly applies to news management. Network Rail knew that the first week in June was going to be busy – and potentially fraught.
Not only was the company due to announce its full year results, the latest issue of the Office of Rail Regulation’s Network Rail Monitor was scheduled to be published. So it was arranged that the results would be announced on 6 June (Thursday) and the Monitor, inevitably containing criticism, on the Friday.
That way politicians and the press would have only one stick with which to beat the infrastructure provider at a time. Well that was the plan.
But don’t forget that the previous Friday (31 May) the latest PPB figures had been released. And these included the right time figures, which for Virgin West Coast were under 50%. Meanwhile Labour and the Trades Unions were still chuntering on about the bonuses paid to the Network Rail Board.
Oh yes, mustn’t forget that earlier in the week the TUC had released, a new academic study claiming the ‘rail privatisation has failed to deliver for rail users and taxpayers and has brought in little private sector investment’. This was embargoed for Friday 7 June.
And when the Friday dawned, out of the blue Virgin announced that it was again taking action against Network Rail for breach of contract. While the press release was dated 7 June, the Financial Times had been briefed in advance and ran the story in that morning’s paper.
So, media mayhem and all the best laid plans seriously agley. And it didn’t stop there, because it subsequently emerged that Network Rail has blocked Virgin’s applications for paths to run two trains a day each way to both Blackpool North and Shrewsbury in the December 2013 timetable.
A formal announcement of approval for the extra trains by Transport Secretary Patrick McLoughlin had been imminent. According to Informed sources there were some terse telephonic exchanges between Mr McLoughlin and Network Rail Chief Executive Sir David Higgins when the refusal became known.
As I write this, Network Rail is standing firm, arguing that while the extra trains would run in the existing northbound XX.33 hourly path, they would hit PPM on the WCML by half a percentage point. Network Rail faces a fine of £1.5 million for every tenth of a percentage point the PPM is below the target for Long Distances services at the end of March 2014.
In the same vein Network Rail is now questioning whether to accept 12 car Desiro EMUs with three pantographs raised running at 110mile/h under the fragile WCML OHLE – left untouched when the PUG 2 upgrade was de-scoped to get the cost down to only £9 billion.
Roger’s Blog
This coming week is particularly busy, starting with the IMechE ‘carbon’ conference mentioned last month. Then there’s the Stagecoach summer reception and, finally, the Fourth Friday Club where, with the Railway Industry Association, we will also be presenting the 2013 Railway Industry Innovation Awards.
First held in 1998, these must be the longest running awards in the privatised industry. Their continuing popularity is a reminder that the current breast beating about the lack of innovation in the railways is misplaced.
July is pretty quiet, which is lucky, since detailed analysis of the Draft Determination is going to need some serious desk time. However, in the middle of the month there is a chance to meet some old chums when Heathrow Express, Siemens and Railcare will be celebrating completion of the fleet refurbishment programme.
Now it time to start writing my introductory to our annual consultancy feature in the August issue. This year the theme will be the growing role of the consultant in government, but I am sure I will end up writing about engineering too! Any late updates from consultants on their activities to roger@alycidon.com.
Roger