INFORMED SOURCES e-Preview August 2014
This month’s column is heavily weighted towards rolling stock, on either side of some ‘emperor’s new clothes’ analysis of growth claims. There are various supporting tables and charts plus a show of solidarity with readers served by Northern, as befits someone who lives north of Watford and whose Dad was a Tyke.
Franchise quality factor boosts train market
Pacer replacement quandary
The Growth Delusion
DfT obfuscating on IEP costs
NAO reports on DfT’s PFI train procurement
Ever since DfT published its Risible Rolling Stock Plan (RRSP) back in January 2008, a feature of Informed Sources has been the regularly updated table showing future rolling stock requirements. With the start of the new Regulatory Control Period 5 on 1 April, I thought it was time to open a new table. The previous version, covering CP4 and CP5 last appeared in the January 2014 column.
Of course, the DfT-procured mega projects dominate CP5, but the number of additional requirements is growing. The recent awards of the Thameslink Southern & Great Northern and Essex Thameside franchises have boosted future prospects. As explained last month, DfT’s evaluation of franchise bids now monetises quality and either adds the value to the Net Present Value (NPV) of a premium profile of subtracts it from the subsidies required.
As a result, where new trains were previously uneconomic when compared with the ultra-low lease rentals for existing ex-British Rail stock, DfT’s new ‘quality factor’ suddenly makes them affordable. So Gatwick Express gets dedicated stock and the Class 313 fleet will be replaced.
Mention of the Class 313 replacement gives me the chance to correct a comment in last month’s e-Preview where I suggested that as the oldest EMU fleet on the network these trains would be scrapped. Informed Sources now tell me that there is interest from various parts of the country in acquiring Class 313s.
New requirements keep emerging, so the table includes a schedule of ‘probables and possibles’. In last month’s column Alstom’s UK President Terence Watson revealed that the company was considering yet another crack at the UK EMU market – targeting the emerging demand for 115-125 mile/h high speed trains.
And the table suggests that this is looking like a shrewd move. I have identified a potential requirement for nearly 350 vehicles and the rolling programme of electrification is likely to generate further demand in this niche market.
Legislation is the only fly in the ointment. Under the conventional European Technical Specification for Interoperability (TSI) you can run multiple units at up to 117 mile/h with current ‘crashworthiness’ provisions. Above that the High Speed TSI comes into effect and crashworthiness requirements escalate.
But the increase in energy to be dissipated by going from 117 mile/h to 125 mile/h is under 15%. These trains will also be running increasing mileages on ETCS equipped lines and Network Rail is committed to getting rid of level crossings.
Were the train builders to get together now and work with the Railway Safety & Standards Board, they ought to be able to get a derogation for operation at 125 mile/h. We are talking about a potential market worth well over half a billion pounds.
DfT urging Pacer replacement.
While British Rail Research (BRR) is sadly missed, the Railbus, which seemed a good idea at the time, was not one of its brighter ideas. It was the bastard child of a high speed freight wagon and that hoary old myth that railways should embrace the best from other industries.
BRR had developed a two axle freight vehicle, allegedly stable up to 140 mile/h, and Leyland Bus had the mass produced National bus body. Add in human dynamos on both sides and one day there was R1 sitting outside the Tech Centre as the press arrived for the roll-out of APT-P.
I recall R1 buzzing along quite happily on the Old Dalby test track. I don’t recall thinking ‘this is a nasty uncomfortable train’. Doubts came sometime later when I was given a ride in the Class 140 prototype, a Rail bus built to railway standards.
As it donk-donked along I commented on the ride and noise to the BR chief Passenger Manager. ‘Ah, yes, Roger’, he explained, ‘it’s at its worst on jointed track’. I think the irony was missed.
Today Pacers have become the symbol of two-nation, or rather, two railway, Britain. And, in the prospectus for the replacement Northern franchise, the Department for Transport’s Rail Executive (RE) highlights passengers’ ‘considerable dissatisfaction’ with the rolling stock fleet reflected in a satisfaction rating of 72%, 13% below the average for other comparable regional operators.
Nudge, nudge
All through the prospectus, there are nudges and hints that the successful franchisee will be the one who can get rid of the Pacers. For example, the Northern franchise Invitation to Tender is ‘likely’ to require bidders to include plans, ‘either in their core proposition or as an option’, which would enable the withdrawal of all Pacer units.
So, while adamant that rolling stock procurement must be left to the market, RE wants the Pacers out. Contrarily, the dominant message in the prospectus is that Northern must do more for less. This will be difficult when any new build Pacer replacement will multiply lease rentals.
Anyway, as explained in the column, a new-build of DMUs is out, both technically and commercially. And in the medium term electrification is unlikely to release sufficient DMUs to replace Northern’s 102 strong Pacer fleet.
With DfT ideologically opposed to a coordinated cascade plan to get the DMUs released by electrification to where to they are needed, it looks as though Pacer replacement is set to become another procrastination pile-up. Anyone care to start a book on how many Pacers will still be running on 1 January 2020?
Cold numbers challenge growth claims
A specialisation of this column is running sense checks of policy and received wisdom against real world data. For some time now I have been tracking the quarterly ridership statistics released by the Office of Rail Regulation (ORR) and comparing official statements with the lines on my developing graph. Statements such as this from Network Rail Chief Executive Mark Carne earlier this month: ‘This is a time of unprecedented growth and record levels of investment in Britain’s railways’.
My chart goes back to 2010 and the latest figures show that in the last quarter of 2013-14 passenger km for both the Long Distance and Regional sectors were the same as, or slightly below, the ridership in Quarter 4 2010-11. Ridership for these two sectors is, literally, flat-lining.
Where ridership has been booming is in London & the South East. But here too, the cold numbers are urging caution. For the last three quarters of 2013-14 ridership has been constant.
Note that I use passenger kilometres, where the growth boosters invariably quote passenger journeys. As I argue in the column, what railways are about is transporting people and goods from A to B. What earns the money, and justifies the investment are the miles. To crib a phrase from the city, ‘journeys are vanity, passenger miles are sanity’.
This irrational exuberance is especially puzzling when both the DfT and the Train Operators have had early, and costly, warning of the slowdown. They have seen franchise premium profiles based on straight line revenue growth collapse, triggering the revenue support provisions under the cap & collar terms in their franchise agreements.
And surely DfT, First Group and Virgin cannot have missed their recent narrow escape? In case they have, I republish a chart comparing the First and Virgin bids for the 2012 Intercity West Coast replacement franchise. Fortunately for those involved the competition was cancelled.
NAO cuts through DfT obfuscation
Last month’s blog left me hoping that publication of the National Audit Office report on DfT’s procurement of the Intercity Express Programme (IEP) and the Thameslink train fleet would frustrate the Department’s blatant attempts to conceal the costs of its two Private Finance Initiatives. And the NAO didn’t disappoint.
One of obfuscations in DfT’s written answers to Lord Berkeley was to pretend that they couldn’t give costs for IEP in 2013-14 prices. But the NAO has got the Present Values of annual charges for both IEP and Thameslink at 2014 prices. And the IEP figures are broken down for the three fleets – Great Western, East Coast and the IC225 replacement deal.
So I was now able reverse engineer the PVs, plus DfT’s quoted figures at Nominal prices based on service entry dates. And the correlation was well within experimental error – as we used to say when determining the value of ‘g’ in A-Level Physics.
On average, Super Express Train operators will be paying Agility Trains £64,000 per diagrammed vehicle per month. In 2012 a Class 390 Pendolino was costing Virgin £32,400/vehicle/month. Note that both IEP and the Class 390 fleet are total train service provision deals combining finance and maintenance.
East Coast is cheaper, thanks to economies of scale, plus less expensive financing, plus a 7.5% cost reduction by Agility on the IC225 replacement trains, plus a free upgrade to 140mile/h operation if and when the infrastructure is ready. Not for the first time in the NAO report I was reminded of double glazing sales tactics.
NAO critical of IEP monomania
Although I received an embargoed copy of the NAO report, plus a briefing at their offices in advance of publications, the column had to go to press next day. But when I had finished the cost analysis, plus a write-up for our news pages, there was still some time, and space, left. So I have highlighted two aspects of the procurement where the NAO was particularly critical of the IEP procurement team’s TINA philosophy.
Most recently there was the decision to impose IEP as the IC225 replacement rather than following DfT’s policy, first proclaimed in March 2012, is that it will leave future train procurement to industry’
According to the NAO, DfT considered that the Eversholt proposal for a re-engineered IC225 with new locomotives would be the option most likely to be chosen by the franchise bidders. Unsurprisingly, DfT’s analysis ‘suggested that the Agility option would provide slightly better long term value for money than the Eversholt proposal’. This was after the 7.5% cost reduction offered by Agility was taken into account plus the likely benefits that future ICEC operators would gain from a homogenous fleet.
NAO observes that this judgement ‘was sensitive to changes in the Department’s assumptions’. Note that ‘slightly better’! The report adds that DfT ‘took steps’ to explain to ROSCOs and train manufacturers its reasons for exercising the option. ‘However, the Department has not convinced parts of industry, which has led to questions about DfT’s commitment to its stated policy’. You can say that again.
In fact the underlying policy has not changed. To paraphrase Douglas Jay in 1937: ‘the gentleman in Whitehall really does know better what is good for the railways than the railways know themselves.’
Agility saves IEP
NAO’ second criticism centres on early 2010 and Sir Andrew Foster’s review of the IEP
Sir Andrew concluded that DfT had not adequately assessed all the credible alternatives to IEP, of which there were several. Such an assessment should be carried out before proceeding, he urged.
This put DfT in a quandary, because even its most skilled sophisters could not conceal the cost gap. But then Agility came to the rescue with a revised proposal; which reduced costs by a massive 38%. See what I mean about double glazing salesmen?
DfT told the NAO that had Agility not submitted the improved proposals it is ‘likely’ that IEP procurement would have had to be cancelled. Over to the NAO for what happened next.
Upon receipt of Agility Trains’ revised proposal, the Department carried out extensive analysis of the revised proposition. This considered, among other things, a range of alternatives including those suggested by Sir Andrew Foster, the costs and delay to benefits from reopening the procurement, analysis of the likelihood and impact of a legal challenge, and the Department’s view that another manufacturer would have been unlikely to produce a bid that could sufficiently close the gap with Agility Trains and offer better value for money’.
And so, in March 2011 procurement resumed on the basis of the radically revised SET offer – effectively a new train. NAO comments wearily that because the Department did not reopen the competition ‘and allow the other bidder (or anyone else) to submit further bids, the Department’s view remains untested’. Which misses the point that testing was unnecessary because the civil servants always knew that their pet train was the only way forward. And now we will be lashing out over half a billion pounds a year for the next 27.5 years.
Roger’s Blog
Last month’s blog left me looking forward to a busy week. On the Monday the Rail Delivery Group and Network Rail unveiled details of their joint studies on how cross-industry working could cut costs in CP5. This is the sort of thing the RDG was set up to do, as opposed to acting as the government’s rebuttal unit in the growing rail re-nationalisation debate, and was supported by some interesting case histories.
Wednesday evening was the Stagecoach summer reception. Obviously, under the Informed Sources convention none of the people I met told me anything in the slightest bit controversial.
Then it was the Fourth Friday Club and the Modern Railways innovation awards which I first hosted in 1998. Our guest of honour was Transport Minster Baroness Kramer, who made an up-beat speech which pushed all the right buttons, and was only too happy to present the first award.
Attendance was over 300 and the entry this year was particularly strong. As with the Spanners and the Whistles, our modest lunchtime awards ceremonies do seem to catch the current mood of the industry and our decision to switch from an evening black tie ‘do’ turns out to have been prescient.
Last week I had an up-dating session with the ‘invisible ROSCO’, Beacon Rail. Now under new ownership, reticence is a thing of the past and I hope to be reporting on its plans in next month’s column.
Today, Monday, I’m off to London for the launch of Hitachi’s new AT200 EMU ‘designed for and to be built in the UK’. Also on display will be interiors developed with the Royal College of Art for London Underground deep Tube stock and I’m promised the chance to drive an IEP simulator.
According to the invite, ‘most importantly’ I’ll be able to relax with the team and enjoy drinks food and entertainment. Actually I’ll be the anti-social element with notebook and pencil badgering the team all evening for boring technical information – although I have been known to work with a champagne glass in my notebook hand.
After that it’s pretty quiet, but I’ll be trying to fix up some visits and interviews over the school holidays.
Meanwhile, the big news is that verification tests with the Beta version of Informed Sources’ new seventh law were successful using a range of case histories, including the NAO. Promulgation could follow in September after further refinement of the wording.
Meanwhile I must get back to comparing the finances of the new Direct Award franchise agreements, then there’s the Lessons Learned report on the LU sub-surface signalling fiasco to assimilate and by the time you read this Labour could have determined their election policy for rail. It seems another world when the August issue of Modern Railways came with a seaside themed cover and I’d write an undemanding feature article on a footplate ride or a bit of Deltic nostalgia for poolside reading.
Better make the most of the holidays.
Roger