Leasing Companies contributing to cost of electrification

[modernrail]

I don't think this has been posted/covered elsewhere.

We know that there are many EMU's and MK IV's coming off lease soon. Some will be ready for scrap but many will be good for many years use. The party currently due to take a hit are the leasing companies. They may have hit initial projections on some units but on others they will be way behind and might be at a risk of a substantial loss on some units. In all cases, they will be keen to maximise return any way they can. That is their business.

Perhaps there may be some market abroad, but will there be problems in using units built for our power systems and loading gauge which make this unlikely? It may be that some franchises will be able to take a few units off their hands but there is a risk of micro-fleets and in any case the current trend is for wholesale fleet replacement.

If I were a leasing company I would be looking at ways to mitigate this risk and the best way is to work out a way to increase the amount of electrified mileage or look at conversion to bi-mode. A bi-mode trial with ex-319's is under way but seems to be harder than first anticipated.

Is their merit in the DfT inviting leasing companies to identify routes they would be willing to help electrify? The key thing would be what money the leasing companies would be willing to invest to un-strand their stranded assets. I think the calculation for this would be quite easy.....

- (a) Take a number of units of a particular class of train (starting with the most modern stranded stock) that would be required for a particular route and work out its potential leasing revenue if put back into use;
- (b) work out the cost of electrification cost of the route in question;
- See how much (a) is in relation to (b). If it is quite a significant proportion, there might be something in this idea.

There are other things that would need to fed into this calculation, like scrap value and the question of what would happen to the existing units on that route, but the above would do for now as giving an idea of whether there is any merit in this.

It would be ironic if privatisation were finally to throw up a market that does force the private sector to invest in infrastructure. However, bearing in mind the **** is taken by ROSCO's being able to charge for Pacer and Sprinter units that would have been written down to £0 years ago in public ownership, it would in some ways just be a justified correction in overall ROSCO remuneration and bring about a capital investment that might have been possible earlier had those units been written down years ago, leaving more cash in the pot.

Any thoughts?

 

[HSTEd]

Why would they?
The politicians will be terrified of what happens when commuters on overcrowded trains see posts on social media from ROSCOs commenting "look at all these trains we have but the Government doesnt want to use"

A well financed PR campaign would have the Government cave in in weeks.
The Mark IVs and the HST trailers rendered surplus by the various HST shortening proposals will likely find use as loco hauled sets anyway, using whatever locomotives are available.

EMUs are harder, but I'm sure the Government could be scared into having eight car running on routes to use them up......

 

[SPADTrap]

The HST trailers need significant modification for which there is limited capacity to provide.

 

[coppercapped]

Finding other sources of funding for infrastructure work is very much on the cards - it has been well publicised that the Government, Network Rail and other organisations are looking into all the factors concerned which include issues such as ownership of the assets, access for maintenance and so on.

So, yes, it is possible.

However I do have to take issue with your comment

However, bearing in mind the **** is taken by ROSCO's being able to charge for Pacer and Sprinter units that would have been written down to £0 years ago in public ownership

as there is a distinct and clear difference between the book value and the on-going costs of supplying and maintaining an asset. The one has nothing to do with the other. For example in the case of the Pacers a number of them were fitted with brand new axles and final drives from Voith only a year or so ago - it all has to be paid for even if there was no original debt allocated to the fleet any longer.

Anyway these trains were not written down to zero book value when in public ownership - the three original ROSCOs had to pay to buy the fleets so there was always a debt which had to be serviced.

 

[AM9]

So let's assume that there was some prospect of the RoSCos contributing to further electrification. What would the RoSCos expect in return?
Contributing to a particular line or part of line would enable the introduction of (probably) EMU services in lieu of existing DMU services. The duration of those services would be defined in the current or next tender specification in terms of the perceived passenger requirements and the operational considerations in satisfying them. Would the RoSCos expect a more enduring commitment from the DfT in terms of the continued rolling stock's use, possibly extending beyond the current or next franchise duration? If so, the tender spec., would commit the winning TOC to use that rolling stock. There would be no breezing-in with a tempting bid offering shiny new trains to woo the DfT or the travelling public. There would also be the need in some cases to build/convert/augment maintenance depots for the EMUs where there weren't any before so the RoSCos themselves would maybe then become infrastructure owners rather than lessees.
Looking at it another way, would this be seen as a back-door way for a right-wing administration to transfer the infrastructure from public ownership (courtesy of Network Rail) to private control. A stealth move would be sure to raise a lot of opposition.

 

[SPADTrap]

It would also likely mean sky high leasing costs as the ROSCO attempts to recover their investment, or contracts with sky high fees which ultimately cost the taxpayer more in the long run anyway.

 

[gordonthemoron]

perhaps the ROSCOs could just reduce their leasing costs?

 

[modernrail]

In terms of the ROSCO's and Pacers and Sprinters, Coopercapped, you may well be correct that some charge is justified. However, I would love to see the full numbers. I have a strong suspicion that those units have been a cash cow for the leasing companies even with upgrades etc. However, until I see the evidence I admit it is just a strong suspicion.

In terms of any deal that could be done, it would have to be predicated on the following:

- electrification assets owned by Network Rail on completion;
- a deal being done with the DfT on specifying the units in the next tender. I agree with you AM9 on that. At the end of the day DfT needs to improve what each £1 spent on the railway can achieve. If this sort of deal can get us there (especially whilst interest rates remain low) then specifying continued use of rolling stock to give the ROSCO sufficient comfort is well worth it. The ROSCO's are suddenly in competition with train builders and we should look to take advantage of that situation for the benefit of the railway overall.

Speedbird - at the moment the leasing companies are looking at a total write-off on some of these units. Any deal that mitigates that position might be attractive, even if it only makes a loss into less of a loss. I think appetite really comes down to how bad their books are looking on some of these units. I suspect the position is not bad on ex-BR units (maybe with the exception of WM 323's), they have probably earned their target return plus some. The problem would seem to be more with the privatisation-era microfleets.

 

[modernrail]

perhaps the ROSCOs could just reduce their leasing costs?

I don't think that helps unless there is sufficient electrified railway for the units to run on. I suspect that will be their first solution.... but they might just run out of routes on which that might work.

 

[LM93]

Or the ROSCO could lease the electrification equipment to NR once it's completed?

 

[AM9]

Or the ROSCO could lease the electrification equipment to NR once it's completed?

Do you mean the OLE itself, or the wiring trains, road-rail vehicles and cranes?

 

[Bertie the bus]

Electrification schemes take a long time to complete. The units currently due to come off lease will have been stuck in a siding for years before they could be used and would either be in no fit state or require a lot of expensive work to get them suitable for public service again.

 

[edwin_m]

Some interesting points here.

I think in principle a ROSCO offering a package of electrification and electric trains has some merit, although DfT's attitude to ROSCOs in recent years may make them less than willing to support it. However there are numerous interactions between electrification and the rest of the infrastructure, and to protect its own position the ROSCO would have to either do some very thorough surveys pass a lot of risk back to NR. So to take the example of signalling cables which caused so much trouble on GWML, the ROSCO would have to ask NR for drawings and if these weren't available or the cables turned out to be elsewhere then NR would be hit for the cost and delay of working round that. The same is obviously true of any other external party financing and delivering an electrification scheme.

So it would work best on a simple and recently modernised bit of infrastructure - East West Rail springs to mind, perhaps Didcot-Oxford after NR has finished the track and signalling - or if the funding body took on more of the work such as renewing the signalling and other assets too.

 

[pdeaves]

Hmmm, for this to work there must be some incentive in place to prevent this:
A RoSCo pays for electrification. The franchise comes up for renewal. The bidders compete on rolling stock quality and end up ordering new (because, you know, new is 'always' better). The old still has no home!

 

[LM93]

Do you mean the OLE itself, or the wiring trains, road-rail vehicles and cranes?

The OLE and maintenance of it. It’d have to be something small first though, as to reduce the risk, but if it pays for itself in the long run, plus with added benefits of releasing idle stock, it could be a win win for the ROSCO.

 

[daikilo]

I wonder if the transfer of 319s to the northwest would have happened if the ROSCO had had to pay for even a part of the electrification?

 

[LNW-GW Joint]

The IEP programme is already a step towards the manufacturer/ROSCO funding infrastructure enhancements.
Agility (Hitachi, Barclays and others) are paying for the depot upgrades (including their electrification), and of course the long term train maintenance.
It all comes out in the usage charge made to the TOC.
People like Siemens and Hitachi are quite keen to link infrastructure to train supply (being major suppliers of both).
But there's hostility to outsourcing infrastructure away from Network Rail, even though they have not covered themselves with glory on enhancements recently.
This government is quite keen, and is exploring options, but Team Corbyn would cancel it all.
But there is a "wall of money" available if the industry can make its proposition attractive enough to the supply side.
It's how the Channel Tunnel was funded (for good or ill), and M6 Toll, and various major bridge projects.

 

[47802]

Well if I was in change of a leasing company, I wouldn't go near until Network Rail sort their costs out with regard to electrification, I would also want some comparison with European Railways and if UK costs are substancially higher you would need to question why that is the latter is something which should be being done anyway.

 

[InTheEastMids]

The other revenue stream for a ROSCo or any private investor in electrification is, of course, the electrical power itself.
After all, it's just a specialised kind of power distribution network. There are a few different ways that it could work, ranging from NR simply leasing the infrastructure and passing through the cost to the TOC, through arrangements that look comparable to industrial electricity tariffs and network charges, or ultimately where the TOC is paying the ROSCo per train-mile, and it's up to the ROSCo to determine if the way to do that is with electrification, batteries, diesel, hydrogen or bionic-duckweed (plus the plethora of bi-mode/hybrid options). This last option effectively integrates the ROSCo and 3rd party electrification provider as a single organisation as outlined up-thread

 

[Bald Rick]

I can’t think of anywhere where the finances would be remotely close to working for this suggestion.

 

[edwin_m]

I can’t think of anywhere where the finances would be remotely close to working for this suggestion.

I agree it wouldn't be self-financing. The ROSCO would need to be reimbursed, perhaps by a per-mile charge covering the rental of the train, the power and the OLE maintenance, with an EC4T charge the same as on NR for other electric trains using the route. It seems to me to fit with the government's latest idea of getting people other than NR to do design-build-finance-operate (or some other combination thereof) on the national network.

 

[CdBrux]

I have read elsewhere in a forum that is probably less reliable than this for information that Wigan to Lostock could be one such scheme. It could fit in that it is a relatively short stretch, already I think at GRIP 3 (but noting of course the point about NR's ability to properly estimate such costs) and I think will allow some switches to electric especially if the 769 project goes badly. ROSCO gets to lease more EMUs and I am sure can easily redeploy any freed DMU. Whether this is worth the electrification investment to them is another matter

 

[AM9]

It seems that this thread is inspired by a desire to avoid using NR for infrastructure work. The problem is that there is no less risk (probably more) with involving a RoSCo as they don't have either the management experience nor the engineering resources to take on such project work. There would need to be yet another layer of NR managing the RoSCo who would manage the subcontractors. Then there is also their profit margin to be added to the existing tiers. Having been chastised for optimistic planning, I suspect that NR (or their successor) would do a better job than a whole new arrangement setup by the Government to spike the last remaining non-privatised vestige of the railway.

 

[IanXC]

It seems that this thread is inspired by a desire to avoid using NR for infrastructure work. The problem is that there is no less risk (probably more) with involving a RoSCo as they don't have either the management experience nor the engineering resources to take on such project work. There would need to be yet another layer of NR managing the RoSCo who would manage the subcontractors. Then there is also their profit margin to be added to the existing tiers. Having been chastised for optimistic planning, I suspect that NR (or their successor) would do a better job than a whole new arrangement setup by the Government to spike the last remaining non-privatised vestige of the railway.

Whats the betting that in order to "open up the market" the Government make some of these third party schemes happen, who promptly contract the whole thing back to Network Rail to "manage the risk"...

 

[modernrail]

It seems that this thread is inspired by a desire to avoid using NR for infrastructure work. The problem is that there is no less risk (probably more) with involving a RoSCo as they don't have either the management experience nor the engineering resources to take on such project work. There would need to be yet another layer of NR managing the RoSCo who would manage the subcontractors. Then there is also their profit margin to be added to the existing tiers. Having been chastised for optimistic planning, I suspect that NR (or their successor) would do a better job than a whole new arrangement setup by the Government to spike the last remaining non-privatised vestige of the railway.

I make no assumptions on who would carry out the work or what contracting structure would be used. However, it would be interesting to contemplate an Alliance model with NR, the TOC and the ROSCO forming the Alliance board. My main point however, is that there may be an opportunity here to achieve a deal that reduces the cost of electrification because of the ROSCO need to try and get some income for trains that might otherwise be sitting idle.

 

[hwl]

I can’t think of anywhere where the finances would be remotely close to working for this suggestion.

It think the suggestion it that it is just a method of NR paying for it over a much longer period of time (say 25 years) rather than the time taken to actually do the electrification rather than directly paying for itself (in the very short term). I.e. It a method of getting round the issues NR has with borrowing after being recognised as nationalised. The main issue might actually be international rules on lease accounting changing making such deals harder to structure.

 

[hwl]

It seems that this thread is inspired by a desire to avoid using NR for infrastructure work. The problem is that there is no less risk (probably more) with involving a RoSCo as they don't have either the management experience nor the engineering resources to take on such project work. There would need to be yet another layer of NR managing the RoSCo who would manage the subcontractors. Then there is also their profit margin to be added to the existing tiers. Having been chastised for optimistic planning, I suspect that NR (or their successor) would do a better job than a whole new arrangement setup by the Government to spike the last remaining non-privatised vestige of the railway.

The main desire to to avoid NR paying for infrastructure work up front, politicians want the benefits just not the costs appearing in full on P&L in a large lump while they are running the Ministry...

 

[hwl]

Whats the betting that in order to "open up the market" the Government make some of these third party schemes happen, who promptly contract the whole thing back to Network Rail to "manage the risk"...

Virtually certain.
The interested ROSCO is apparently Porterbrook

 

[edwin_m]

The main desire to to avoid NR paying for infrastructure work up front, politicians want the benefits just not the costs appearing in full on P&L in a large lump while they are running the Ministry...

As with all PFI-type schemes there has to be that suspicion, along with the risk that the result is exactly the specification and no more, and the company demands an arm and a leg to change anything. It's only really viable if the profit motive drives the private party to manage the job better than Network Rail would, and this is enough to outweigh the extra cost of capital for a private borrower.

 

[daikilo]

As with all PFI-type schemes there has to be that suspicion, along with the risk that the result is exactly the specification and no more, and the company demands an arm and a leg to change anything. It's only really viable if the profit motive drives the private party to manage the job better than Network Rail would, and this is enough to outweigh the extra cost of capital for a private borrower.

The original question asked about a ROSCO contributing to or paying all of the cost, not actually doing the job. It could be an alternative to the 769 if a route/s could be made 319 compatible hence the cost of conversion could be saved.