Conservatives outline railway plans

[Pumbaa]

Train operators would be freed under a Conservative government from Whitehall “micromanagement” when buying new fleets and setting timetables, the Shadow Transport Secretary will promise today.

Franchises would be extended to 15 to 20 years to encourage private operators to upgrade stations, while the rail regulator would win new powers to claw back bonuses paid to executives at Network Rail, the owner of the railway infrastructure, if they failed to meet targets, including the prompt completion of engineering works.

In what amounts to a manifesto for the railways, Theresa Villiers will add detail to broad policy goals set out in the Conservative rail review last February. In a speech today at Politeia, a think-tank, she will say: “We will introduce longer, more flexible franchises to incentivise private sector investment in station improvements and measures to relieve overcrowding problems, such as longer trains and longer platforms. We will scale back the Department for Transport’s tendency to micromanage the railways.”

http://business.timesonline.co.uk/tol/business/industry_sectors/transport/article6985438.ece

Good news then! Apart from the fact we've got to deal with them for at least the next four years!

 

[Old Timer]

Apart from the fact we've got to deal with them for at least the next four years!

:roll::roll::roll::roll:
Never happy

 

[DaveNewcastle]

Franchises would be extended to 15 to 20 years to encourage private operators to upgrade stations

I guess many of us hope they'd go further than just upgrading some stations!

But can anyone help me with an economic doubt I have?
We all know the argument that a short term TOC franchise is a sound reason for NOT investing in stock (or stations).

But is the opposite true?

With a longer franchise, what investments actually become profitiable within a realistic time to repay investors?
Why would longer franchises lead to any more investment?

For example, would the financial model which currently supports the viability of ROSCOs (who order, own and lease rolling stock) begin to favour a TOC to order stock directly, to undertake the liftime liabilities of ownership and still manage to turn a substantial profit within the term of the franchise? A profit which is guaranteed to be greater than leasing from a ROSCO as at present?

Personally, I would think the most viable way of operating a longer frachise would be to continue leasing whatever is available, to minimise expenditure which didn't repay itself with 3 or so years, and to pocket the profit (or distribute it to shareholders).
Sure, there would be investment in areas which give a TOC a competitive advantage over competing TOCs, but where there's no competition? Why invest?

 

[Metroland]

There's always competition to railways, it's called the car, bus, plane, coach and truck.

If fares/service/timetables are not in the right ballpark, you simply don't get growth, except in areas where maybe where railways are in a monopolistic position: which are central London, Leeds and Glasgow commuting. All of these areas are heavily regulated and integrated.

I think 15-20 year franchises should be the first step. I'm not sure what the optimal investment period is, I would expect it has to be a long time, possibly more than 20 years.

There are considerable arguments going on in the Merseyrail area over the cost of running and upgrading the network - Meseyrail say they can do it cheaper. At least one area should have a trial of vertical integration.

 

[robert2000]

i hope ATW dont win the next franchise.
not another 20 years on top of what they have left of their current franchise.
No growth or decent trains or any new trains ordered. and poor timetables.

 

[Burkitt]

How are TOCs supposed to predict the amount of subsidy / premium they can afford over the course of twenty years? They've already proven themselves incapable of predicting economic trends over a couple of years and needing massive revenue support or going bust entirely. Won't longer franchises just result in either even larger subsidies or more profits going directly to the shareholders?

 

[350401]

Excellent sensible policy from Theresa Villiers, I hope that, along with HS2, this policy becomes reality in the next few years (Off topic, but Tories plan to bring in HS2 earlier than 2025 - construction would start in around 2014 not 2020ish). The way to make 20 year franchise's work is simple - ensure the franchise has realistic minimum service provisions, conditional break clauses every few years so the TOC can be stripped of the franchise if they are doing a poor job, and outlines in general what is expected of the franchise. Leave the rest to the TOC to work out, with the incentive of automatic renewal if they meet the targets. I know it keeps being mentioned, but Chilterns 20 year franchise and the fact they are now on their 3rd tranche of improvements ("Evergreen 3"), shows that such a long franchise system can work.

I'd agree too that a trial in vertical integration is worth attempting, although it may only work in areas with 1 predominant TOC - e.g. Wales and ATW, Merseyrail etc. Not sure it would work on the WCML - can just imagine the local and intercity TOC passing the buck to each other.

 

[WillPS]

The most sensible option to me is complete nationalisation, with the ROSCOs remaining (unless they make a good offer, which should be expected eventually) but all new stock bought in-house. However, we're expecting a conservative government, and nationalisation is not a word which will fall from their lips.

This is the next most sensible option - although they'll need to be more careful about how they word 20 year contracts; there should be absolutely loads of break clauses. Operators should be given specific targets on overcrowding, train condition (although quite how this would be measured I don't know) and time-keeping. This should keep operators on their toes, and empowered to make their own decisions should result in more rolling stock.

Subsidies should be under constant review; commercial success in the railway should be shared between the owner of the railway (the government) and the franchisee. This means that 2 year reviews should decide the level of subsidy or premium payable based on present performance.

InterCity routes should be individually franchised (these should all need no subsidy). The emphasis here should be on maximising revenue (as well as the above break clauses).

Regional routes should be franchised in large groups - e.g. Central, Northern, ScotRail, Wales, South East and South Central & West. Having loads of little franchises is not at all efficient. The emphasis on these should be improving provisions - e.g. stock renewal (I'd imagine removing Pacers from service should be a priority).

 

[91101]

I guess many of us hope they'd go further than just upgrading some stations!

But can anyone help me with an economic doubt I have?
We all know the argument that a short term TOC franchise is a sound reason for NOT investing in stock (or stations).

But is the opposite true?

With a longer franchise, what investments actually become profitiable within a realistic time to repay investors?
Why would longer franchises lead to any more investment?

For example, would the financial model which currently supports the viability of ROSCOs (who order, own and lease rolling stock) begin to favour a TOC to order stock directly, to undertake the liftime liabilities of ownership and still manage to turn a substantial profit within the term of the franchise? A profit which is guaranteed to be greater than leasing from a ROSCO as at present?

Personally, I would think the most viable way of operating a longer frachise would be to continue leasing whatever is available, to minimise expenditure which didn't repay itself with 3 or so years, and to pocket the profit (or distribute it to shareholders).
Sure, there would be investment in areas which give a TOC a competitive advantage over competing TOCs, but where there's no competition? Why invest?

The annual lease charge is set by the ROSCO on the basis that the DfT only underwrite the leasing charges for the length of that franchise.

So Southern ask Angel to buy in a new 377, Angel say the want a gauruntee that Southern can pay for it. The DfT provides that assurance till the end of the franchise term. Southern has a 4 year franchise and as a result Angel sets a lease fee that gets as much revenue back from that train in the 4 years as possible, so the leasing charge is artifically inflated.

If you have a 20 year franchise, the risk is
lessened.

Asside from this the introduction of a new fleet of trains is costly, engineering time, the management needed to complete the procurement, then all of the associated training needed for staff. All adds up.

 

[yorksrob]

Nice idea, although it won't work because it still fails to deal with the main problem with the current system - namely the disruption in cross-subsidy from one bit of the railway to the next. Until I hear them say they intend to put the railway back together again it's still "same old same old" as far as I'm concerned.

 

[Pumbaa]

:roll::roll::roll::roll:
Never happy

I thought of you especially OT

I'm glad that the Tories are grabbing the situation and look set to turn it around. I can't think of anything too bad to come out of Teresa's ideas here, the only thing I would be adding probably is giving infrastructure control to the region as well. A case study like Merseyrail wouldn't go amiss so we can see just how well vertical integration works.

 

[Aictos]

Great stuff, wonder what Labour's going to comeback with?

 

[Metroland]

The most sensible option to me is complete nationalisation

On the surface yes, but BR's problem is nobody wanted to put money into it, and nationalised industries can only raise money from the Treasury. This is a country where transport comes bottom of the pile, with a number of people who want to see them get no money. As a consequence BR lost passengers for 50 years apart from in the late 1980s.

Yes I know the current system gets far more money than BR did, but the private sector needs to deliver growth to get investment. Whereas the attitude toward BR was, lets cut the budget every year.

Under BR lines like the Chiltern very nearly closed, part of it nearly got changed into a busway at one stage with various forces pulling strings in the government. It was the leadership of Chris Green that saved it, and considerable input of the private sector since privatisation - Today it's one of the most successful lines in the country.

Let's remind ourselves what BR's problems were.

http://www.youtube.com/watch?v=7CCCKoo42pM

http://www.youtube.com/watch?v=WYZ4o-JVqmI&feature=related

http://www.youtube.com/watch?v=tEWuapbJDrc&feature=related

 

[hairyhandedfool]

Some might think there is an election on the way :roll:

 

[jon0844]

Labour is going nowhere. I am not convinced the Tories will do what they say, but it does at least give them a chance to run a privatised railway that they made. By losing power in May 1997, they never really got a chance to prove that it was a good idea based on what their plans were (or not).

 

[DaveNewcastle]

The annual lease charge is set by the ROSCO

. . . .

If you have a 20 year franchise, the risk is lessened.

Thanks 91101.
But I'm still unclear about my initial query:-
"With a longer franchise, what investments actually become profitiable within a realistic time to repay investors?
Why would longer franchises lead to any more investment?"
I guess I'm really challenging those who've being claiming for years that TOCs don't invest because the franchises are too short. If that barrier to investment is removed, does investment follow?

 

[yorksrob]

On the surface yes, but BR's problem is nobody wanted to put money into it, and nationalised industries can only raise money from the Treasury. This is a country where transport comes bottom of the pile, with a number of people who want to see them get no money. As a consequence BR lost passengers for 50 years apart from in the late 1980s.

Yes I know the current system gets far more money than BR did, but the private sector needs to deliver growth to get investment. Whereas the attitude toward BR was, lets cut the budget every year.

Under BR lines like the Chiltern very nearly closed, part of it nearly got changed into a busway at one stage with various forces pulling strings in the government. It was the leadership of Chris Green that saved it, and considerable input of the private sector since privatisation - Today it's one of the most successful lines in the country.

Let's remind ourselves what BR's problems were.

http://www.youtube.com/watch?v=7CCCKoo42pM

http://www.youtube.com/watch?v=WYZ4o-JVqmI&feature=related

http://www.youtube.com/watch?v=tEWuapbJDrc&feature=related

You're certainly more of an optimist than me if you believe that the conservatives won't be back to cutting that subsidy soon after they gain power - particularly when they realise that their reforms won't bring about the desired reduction. The question is, how will the fragmented railway be able to cope. I predict that the commitment not to micro-manage will be short lived.

 

[merlodlliw]

i hope ATW dont win the next franchise.
not another 20 years on top of what they have left of their current franchise.
No growth or decent trains or any new trains ordered. and poor timetables.

Robert, with all due respect,Arriva took on the All Wales Franchise with no growth or new trains. The DFT at the time were the only controlling body,at the next round in about 8 years, there will be WAG and passenger focus.

I somehow recall a Dutch bidder, offering new trains, but this bid was turned down for reasons only known to the DFT, a lot of questions have been asked
why Arriva were gifted the All Wales, but this as remained secret.

One could also ask, how could a professional PLC bid for a franchise with no growth,a recipe for bankruptcy in the real world of business, well we have the answer if you travel on a ATW 158.

 

[tbtc]

We all know the argument that a short term TOC franchise is a sound reason for NOT investing in stock (or stations).

But is the opposite true?

With a longer franchise, what investments actually become profitiable within a realistic time to repay investors?
Why would longer franchises lead to any more investment?

Put it this way - there's one Chiltern, and there's one Arriva Trains Wales and one Merseyrail. The case that long term franchises mean more investment in trains certainly isn't proven.

Whilst some of the Tory ideas are positive (not that I'm convinced they'll all actually happen...), one thing not discussed would be the government owning trains (on a non-profit basis), so that they could lease them out to TOCs at a fair rate, meaning a TOC isn't stumped with mega-high charges to take on a new unit, plus would mean short term loans could be arranged a lot easier.
--- old post above --- --- new post below ---

Robert, with all due respect,Arriva took on the All Wales Franchise with no growth or new trains

True. However, they still had a fifteen year franchise (?), which would be plenty of time for them to invest in new trains and see the benefit spread over the rest of the franchise. I know the contract was set up with a "no growth" assumption, but there's nothing to stop Arriva from investing in new trains over the long franchise period.

In reality, with class 57s introduced for the WAG express, the ATW fleet is now *older* than it was at the start of the franchise! It certainly doesn't encourage me to think long franchises are automatically the way forward

 

[Metroland]

You're certainly more of an optimist than me if you believe that the conservatives won't be back to cutting that subsidy soon after they gain power - particularly when they realise that their reforms won't bring about the desired reduction. The question is, how will the fragmented railway be able to cope. I predict that the commitment not to micro-manage will be short lived.

Oh they'll cut back on subsidy, that's why cost reduction is absolutely essential. The good news is there is a lot of fat to cut back on, this will do the railways a lot of good in the longer term. NR have already been told they can kiss goodbye to bonuses if the Torys get in.

Some schemes have got so expensive they now have no hope of approval. Take the Portishead branch re-opening. Bendy buses have been proposed now instead because costs have got completely out of control.

We have the worst of all worlds at the moment, more government control than at any time in history, managers coming out of the woodwork which costs a huge amount of money and delivers very little and so much fragmentation the whole system works against each other.

NR pays £1 billion worth of interest every year that goes straight to the banks. Without taking inflation into account, this equals all of Network South East's revenue in the early 90s. All straight in the back pockets of bankers without a penny spent on any kit all to suit a political ideal.

 

[jon0844]

If the Government bought the trains outright, wouldn't it just mean they'd run them into the ground and all future rolling stock would be expected to last, well, forever!

 

[Metroland]

According to Transport briefing Labour has now also backed longer franchises.

 

[jon0844]

The Tories can say what they like; they're not in power (yet).

But Labour started in 1997 with its 10 year plan and other promises. It's somewhat lame to suddenly say something like this after 13 years in power!

We can be skeptical of what the Tories are saying, as they just want to get in power, but we can totally ignore what Labour says it will do. It's too late.

 

[devon_metro]

Sounds sensible and the way a privatised system should operate. The DfT meddling with everything is what flaws the current system, let the Tories have a go at what they are good at.

Awaits Labour to jump on the bandwagon

 

[Pumbaa]

According to Transport briefing Labour has now also backed longer franchises.

Widely tipped to be an announcement tomorrow by Labour regarding this... At the same time as the Chiltern Evergreen 3 press launch... Errr, this couldn't have anything to do with awarding Chiltern another franchise extension could it?

 

[Metroland]

The Tories can say what they like; they're not in power (yet).

But Labour started in 1997 with its 10 year plan and other promises. It's somewhat lame to suddenly say something like this after 13 years in power!

We can be skeptical of what the Tories are saying, as they just want to get in power, but we can totally ignore what Labour says it will do. It's too late.

Well yes, a lot of what is proposed in Transport is never delivered. In fairness the railways have had a good time under Labour in the last decade or so, but a lot of money has been spent and there is a limited result. Could this be catching up with the backlog of engineering built up since the 2nd World War, or just over management?

The De-Railing of Transport 2010

Monday 18 January
8:00pm - 8:30pm
BBC Radio 4

In the 1990s, a new way of thinking about transport emerged. Sustainability became the buzz word, advocates of a so-called New Realism had the ear of government and a ten-year plan was hatched. But many of its ideas got no further than Whitehall. Chris Ledgard looks back at the revolution which never happened and asks if transport is one of the hardest ministerial briefs in government.

 

[Tom B]

On the surface yes, but BR's problem is nobody wanted to put money into it, and nationalised industries can only raise money from the Treasury. This is a country where transport comes bottom of the pile, with a number of people who want to see them get no money. As a consequence BR lost passengers for 50 years apart from in the late 1980s.

Yes I know the current system gets far more money than BR did, but the private sector needs to deliver growth to get investment. Whereas the attitude toward BR was, lets cut the budget every year.

It is unfortunate that transport is never considered a priority. Whereas politicians promise spending to the NHS, to education et al, paying for improved transport isn't "sexy". It's something which everyone expects to happen, but nobody wants to pay for.

 

[merlodlliw]

True. However, they still had a fifteen year franchise (?), which would be plenty of time for them to invest in new trains and see the benefit spread over the rest of the franchise. I know the contract was set up with a "no growth" assumption, but there's nothing to stop Arriva from investing in new trains over the long franchise period.

In reality, with class 57s introduced for the WAG express, the ATW fleet is now *older* than it was at the start of the franchise! It certainly doesn't encourage me to think long franchises are automatically the way forward[/QUOTE]

I fully agree with you, but ATW have publically stated (CEO) ATW will not pay for any new trains, they will only run extra services if WAG pays for them,
which made a joke of the now forgotten ATW London aspirations.

 

[MCR247]

I think that longer franchises will make TOCs invest more. On one of my local bus routes, it had small buses, that always got overcrowded in the peak. The company thought, ok, we'll buy bigger buses. But when these bigger ones got here. They then got overcrowded. Why? Because that small overcrowded buses discouraged people to use them, so when they saw bigger new buses. They all started using them. Not exactly the same situation, but I think you can get the gist of what I'm saying

 

[The Planner]

I fully agree with you, but ATW have publically stated (CEO) ATW will not pay for any new trains, they will only run extra services if WAG pays for them,
which made a joke of the now forgotten ATW London aspirations.

Forgotten ?? The ORR hasnt made a decision yet.