INFORMED SOURCES March 2014
It’s been quite busy since the last e-Preview.
Apart from the announcement that Bombardier had won the order for the new fleet of trains for Crossrail, Network Rail accepted the Regulator’s Final Determination for the new Control Period and the railway was hit by the extreme weather.
New trains are multinational
Minister misleads on East Coast access charges
Network Rail Reclassification – DfT contemplates options
Bonus controversy festers on
Performance challenges Periodic Review Process
New trains for old – old trains as-new
First off in the column is an analysis of the UK content in three trains. I have a table showing the main suppliers for the Bombardier Class 377 (acting as surrogate for the Crossrail Class 345), the Hitachi 800/801 series Super Express Train and the new Siemens 700 Series Desiro City electric multiple units for Thameslink.
And the main message is that with all three most of the high value-added kit is imported. Manufacturing the bodyshells, which non-railway people would think of as ‘train building’, ranks pretty low in terms of value added. In contrast, the traction package represents at least 15% of the value of a four car EMU and is technology rich. And for all three trains, nearly all such high value-added kit will be supplied from abroad. In addition to the traction packages, this includes air conditioning packages, doors, toilets and bogies.
Even the two exceptions are now foreign-owned. When Knorr Bremse took over Westinghouse Brakes it retained the factory at Melksham which still exports. All three trains rely on Knorr Bremse for their power to stop.
Equally, all three trains will depend on Brecknell-Willis to collect the current to make them go. Based in Chard, Somerset, Brecknell-Willis has been a member of the privately owned Fandstan Group since 1979. But just before we went to press Fandstan was taken over by Wabtec. Still the brakes and pantographs, which are clever bits of kit, will be designed and built in Britain.
My list of UK firms supplying kit for each manufacturer is not comprehensive and the number is growing. And as Siemens Managing Director Steve Scrimshaw said at the London launch of the Class 700 mock up in January, ‘there is definitely a big push to look at what you can do to help regenerate the economy. Going forward the focus is going to be even more’.
Spurious numbers on East Coast
Here is Transport Minister Stephen Hammond taking questions at an al fresco press conference during the launch of the Desiro City mock-up on 28 January. Asked by the national press how he felt about the French state-owned railway being able to bid to run the Intercity East Coast (ICEC)franchise when the DfT had declined to put up a UK state-owned bidder, an under pressure Mr Hammond decides to put the boot into East Coast.
‘Actually’, he says, ‘although East Coast’s satisfaction rating has gone up, in terms of sheer punctuality numbers against the other long-distance operators it is a simple matter of fact that it’s the worst performing at the moment. There may be all sorts of reasons for that but it is also true that their access charges, for one reason and another are lower than others so while there has been a huge campaign out there saying that this is a fabulous operator that’s done a fabulous job, all I’m saying is that you’ve got to be very careful about comparisons’.
His reference to lower access charges didn’t ring true – since these are set for each Control Period by the independent Rail Regulator. So back at the office I started a new spreadsheet.
I suppose it’s a bit like breaking a butterfly on a wheel, but someone has to run sanity checks on ministers’ ‘true’ statements. While Stephen Hammond claimed that East Coast’s Track Access Charges are ‘lower than the others’, he didn’t specify ‘the others’.
The obvious comparator is Virgin West Coast, and while I give his claim the full Informed Sources treatment in the column, the key fact is that Virgin pays less per train kilometre than East Coast. Which begs the question who provided the misinformation and why?
Network Rail reclassification latest
As explained last month, reclassification of Network Rail’s debt hinged on two factors. These were Government control and whether, it was a ‘market’ or ‘non-market’ producer.
And the analysis showed that not only is Network Rail firmly in the public sector it is also part of central government. In other words from September this year it will be ‘nationalised.
This will give the Government new powers. DfT’s preliminary thinking on these was outlined in a letter from Transport Secretary Patrick McLoughlin to the Commons Transport Committee in January. These include some interesting possibilities, not least the power for DfT to dismiss Network Rail’s Public Members and become the sole Member.
Currently, as a special member, DfT has the right, with the other members, to be involved in the appointment of the Network Rail Chairman. But as sole member, the appointment would be in the Transport Secretary’s hands.
More to the point DfT would regain the power to sack the chairman. Remember that in 1967, Transport Minister Barbara Castle sacked the Chairman of British Rail.
On DfT and the Treasury becoming more involved in major decisions by Network Rail, Mr McLoughlin said that he has ‘no desire to make major changes to the organisation’ or for government to take ‘a more active role’ in day-to-day matters. That includes executive pay where Network Rail’s ORR imposed bonus structure is the rotting albatross round the company’s neck. See the comments by the Lord Chief Justice below.
According to Mr McLoughlin, while it is ‘vitally important’ that Network Rail can secure ‘the right talent and leadership’, pay should be ‘proportionate and closely related to performance’. If DfT exercised its right to appoint a special director to the Network Rail board, the resulting seat on the Remuneration Committee, would help ensure that remuneration decisions ‘were grounded in wider taxpayer and fare payer views’.
NR bonuses under fire
Bonuses intended to incentivise NR’s executive directors must be having the opposite effect. It can’t be motivating to be lumped with fat-cat bankers.
January saw new impetus given to this corrosive subject. Sitting in the Court of Appeal on January 17, Lord Chief Justice Lord Thomas, suggested that cutting the bonuses paid to Network Rail Board Members might be more appropriate than corporate fines in the case of breaches of health and safety.
The Court was hearing Network Rail’s appeal against the fine of £500,000 imposed following a prosecution brought by the Office of Rail Regulation over a level crossing collision at Beccles in 2010. The appeal was dismissed.
In its judgement the court noted a Network Rail statement that its Remuneration Committee retains ‘a wide discretion to adjust any award downwards for poor safety performance, particularly in the case of a catastrophic accident for which Network Rail was found culpable’. This apparent focus on a catastrophic accident and not accidents such as that at Beccles, which resulted in life changing injuries to a child, was criticised by the Appeal Court. While there was evidence that the bonuses of the directors had been adjusted downwards to a minor ‘though inadequate’ extent, partly because of the poor level crossing safety record, ‘plainly the bonuses should have been very significantly reduced’.
Furthermore the judgement noted that Network Rail’s status of a company limited by guarantee also means that even a significant fine would, ‘in effect inflict no direct punishment on anyone; indeed it might be said to harm the public’. In future prosecutions Network Rail should provide ‘full information’ on bonus policy since it is highly material to the statutory purposes of sentencing ‘in a case where a fine inflicts no direct punishment on anyone’.
And here we come to the crucial point. If a bonus incentivises an executive director to perform better, then, argues the lord Chief Justice, ‘the prospect of a significant reduction of a bonus will incentivise the executive directors on the board of companies such as Network Rail to pay the highest attention to protecting the lives of those who are at real risk from its activities’. In short’, Lord Thomas concluded, ‘it will demonstrate to the court the company’s efforts, at the level of those ultimately responsible, to address its offending behaviour, to reform and rehabilitate itself and to protect the public’ at risk at such level crossings.
This was a very serious case, where nothing had been done following a risk assessment in 2003 which concluded that the crossing was not safe. And bonuses have previously been forfeited following a fatal accident.
But as I have argued before, if a fatal accident means no bonus, then the theoretical incentive vanishes. A fatal accident in April, means that the executive directors will know that that they are not going to get a bonus that year however hard they try.
I said ‘theoretical’ above because my experience of railwaymen is that they are dedicated to the ‘job’. NR argues that it needs to pay bonuses to attract top managerial talent. But if the ‘top talent’ reads the Appeal Court judgement, I suspect it will lose interest.
Performance challenge in CP5
Network Rail had to decide by 7 February whether to accept or challenge ORR’s Final Determination. Performance was the deal breaker or maker. And on 10 February it accepted.
ORR Chief Executive Richard Price, welcomed Network Rail’s recognition ‘that it will need to do things differently to fully deliver’. He added that meeting the challenges of CP5 will be tough, ‘particularly in the early years for punctuality in England and Wales because of recent performance levels’.
For NR, outgoing Chief executive Sir David Higgins was disappointed that the company will start CP5 at a lower level of performance than was assumed at the time of the Final Determination. This is partly because of the weather ‘but we also recognise our responsibility for the missed targets.
That said, Network Rail believes it can still meet the targets by end of the control period. While this cannot be achieved ‘as quickly as assumed or in all weather’, the company will continue work with operators to improve performance ‘as fast as possible’.
Analysis
So I thought it worth analysing where NR has got to on PPM. ORR’s Final Determination specifies the PPM for each year of the five years in the new Control Period. In wonk-speak this is known as the PPM ‘trajectory’.
In the Final Determination ORR had set a PPM of 91.9% for 2014-15. The target in the draft Determination had been 92.3%. The softening, according to ORR, reflected ‘recent performance being below forecast, affecting what can be realistically delivered in the early years of CP5’. But the PPM Moving Annual Average was down to 90.2% in Period 11 2013-14 (5 January to 1 February).
Even before this recent slide, NR was already in breach of its Network Licence for failing to meet performance targets for both the Long Distance and London & South East passenger sectors in 2012-13. However, ORR decided not to penalise this breach because ‘a majority of operators’ had argued that financial penalties for licence breaches would remove funds from the industry.
In the case of Long Distance this sensible decision came too late. Under an enforcement order imposed by ORR back in May 2012 Network Rail will be fined £1.5 million for each tenth of a percentage point the Long Distance sector PPM
In Regulatory terms, all this means that Network Rail will enter CP5 on 1 April already in breach of its Licence. And, rather like the old joke that if you owe £5000 it’s your problem, but £5 million is the lender’s problem, ORR had to bite the bullet when it came to enforcing the CP5 PPM Trajectory from the start while NR had to commit to coming good by the final years.
So congratulations to both parties for resolving a potential impasse.
In the column I go into the detail of PPM and punctuality and where the minutes are lost. The conclusion is that there is no ‘silver bullet’ solution that will transform PPM. Instead, getting back on the ‘trajectory’ by the end of CP5 will be all about what sports managers refer to the ‘aggregation of marginal gains’.
New look trains
Finally I report on two trains – Eversholt’s heavily re-engineered Class 321 demonstrator and Siemens’ mock-up of its Desiro City for Thameslink.
As ever, the devil is in the detail. Eversholt’s contractor Wabtec has cut a lot of metal on the Class 321, the most dramatic surgery involves the installation of air-conditioning.
Internally there are some very interesting practical details including a multi-role draught screen. This enables the same vehicle to be optimised for suburban or metro duties.
Class 700.
At the end of January Siemens put their Class 700 Desiro City mock-up for Thameslink on show. Here the interior layout has had to satisfy two conflicting markets – outer suburban commuting from up to 50 miles out of central London and metro-style capacity busting with the train able to exchange a 1,000 passengers in a 45 second dwell time in the central core. Inevitably, the metro wins. This means large vestibules, wide gangways, plenty of standing space and austere First Class.
But in addition to outer suburban commuter and central London metro duties the new trains will also serve two airports plus St Pancras International. As with the Class 321 demonstrator, interior designers have found ways to provide more height above luggage racks to take the back-packs and bags which have pretty well usurped the classic slim briefcase.
Apology
No analysis of the Bombardier Crossrail order this month I’m afraid. Bombardier was unable to let me have the technical specification in time because of the mandatory post award ‘Alcatel standstill’ period to allow unsuccessful bidders to protest.
Roger’s blog.
January ended with the IRSE Seminar on the relationship between traction and signalling. Having given a technical paper on the subject to the IRSE 20 years ago, I was interested to see what had changed. And it seems the answer is ‘not a lot’.
I had to nip out over the lunch break to see the Desiro City mock up and, with the programme running late, missed the presentation by Bombardier on their solution to taming traction current interference from three phase drives – the subject of my paper. Must ask the author for a copy.
February opened with a lunchtime catch-up session with Porterbrook followed by the Derby & Derbyshire Rail Forum reception at the House of Commons. As you may imagine this was a jolly affair following the Crossrail trains announcement.
The notebook received a good bashing. And I also learned that Margaret Beckett was an AEI apprentice at Manchester when I was with English Electric at Rugby. Both of us were on ‘thin sandwich’ courses which we agreed were an ideal start in life.
This is being written at the end of half term on my Netbook in a break from setting up a new PC. The main conclusion is that it is fortunate that Microsoft doesn’t make trains or signalling.
On Tuesday this week I am off to Derby to see DeltaRail’s approach to NR’s traffic Management System requirement. Then at the end of the first week in March NR is unveiling its electrification programme.
Later in the month I have booked an interview with Terence Watson Alstom’s UK President at which he will no doubt enjoy going through the opportunities he identified as potential business at our meeting just after he had taken over the job some years back.
Then it’s the Fourth Friday Club on the 28th with guest speaker NR’s Great Western Route Managing Director Patrick Hallgate. If he can spare the time from Dawlish and Maidenhead it should be a fascinating session.
Now back to wrestling with Windows 7 and Office 2013.
Roger