What next for the railways?

Presentation to thePublic Transport Group

Northern Home Counties RegionBy

Roger Ford AIRSE MCILTIndustry & Technology Editor

Modern RailwaysFounding Editor

Rail Business Intelligence

Another four years

• Transport never became an issue in the election campaign

• Railways even less so

• Transport Secretary Alistair Darling did a good job!

• And he is staying on

Unfinished business

• Labour’s first term assumed that privatisation would deliver

10 Year Transport Plan

• Labour’s second term revealed the failure to deliver

‘The future of rail’ White Paper

Railways Act 2005

Confusing signals

• Since privatisation the cost of the railway to the taxpayer has increased by a factor of five.

• Costs of railway projects has increased by a multiple of pi

• Yet the railway supply industry is undergoing another order hiatus

What the DfT remembers

Support for the Railway - yesterday and tomorrow

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Brave new world 2004/05 - 2008/09

Bad old days 1984/85 - 1998/99

Record Government support

• In 2005/06 subsidies and grants will reach £6.5 billion (excluding CTRL)

• This is:– Triple British Rail’s subsidy in its worst ever

years – 1982 and 1983– More than six times what BR received in its

best ever year 1989/90.

2003-04 2004-05* 2005-06 2006-07 2007-08 2008-09Franchising 1,726 961 1,066 1,501 1,353 1,417Scotrail (funded through Scottish assembly from 2005-06) 191.4 264 270 285Grants to Network Rail 1448 1710 1,843 2,883 2,832 2,651Freight Grants 32 32 22 26 21 20SRA running costs [other from 2005-06] (1) 84 250 206 201 175 177Project development [enhancements from 2005-06 (2)] 95 75 33 18 27 34Total 3,385 3,028 3,361 4,893 4,678 4,584Network Rail borrowing to fund income shortfall 1589 3,108 446 333 -13Network Rail borrowing to fund additional renewals

Total less CTRL 3,385 4,617 6,469 5,339 5,011 4,571

DfT (mainly CTRL) {All CTRL from 2005-06] 222 300 1,387 1,181 180 93Total 3,607 4,917 7,856 6,520 5,191 4,664

Where the money goes

Expenditure by category

Support for the railway 2003-04 2004-05

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Project development [enhancements from 2005-06 (2)]

SRA running costs [other from 2005-06] (1)

Freight Grants

DfT (mainly CTRL) {All CTRL from 2005-06]

Grants to Network Rail

Franchising

Cost to the taxpayer increasing

• Proportion of railway’s income from the customer a key indicator

• Historically has gone up and down with the economic cycle.

• As the economy recovered after the recession at the start of the 90s the proportion increased.

But then the trend reversed.

The taxpayer's growing role

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Pecentage of income

Passenger km

Growth not an issue

• A common excuse is that the railway is carrying record number of passengers.

• But ridership grew as fast in the 1980s

• Infrastructure maintenance costs not an issue

• Nor are the ‘decades of underinvestment’

Diseconomies of scale

• 1989/90• 812 million journeys• Subsidy £985 million

• £1.21 per passenger journey

• 2003/04• 1 billion journeys• Subsidy £ 3.8 billion

• £3.80 per passenger journey

The long term underinvestment myth

Maintenance and renewal costs 1975-2000

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Maintenance

Renewals

What decades of underinvestment?

• Consistent spend by BR on maintenance and renewal

• Health warning – some double counting on renewals still to be reviewed

• But maintenance in line with current Network Rail forecasts

Darling’s conundrum

• Record ridership

• Continuing growth

• But – new projects to provide extra capacity

unaffordable– Route modernisation programme abandoned. And subsidy fixed until next Periodic Review

Network Rail’s future budget

IINCOME EXPENDITURETAC SRA Other* Total Opex Maint Renewals WCRM renewalsTotal

2004/05 3,121 1262 688 5,071 1178 1222 1914 1052 53662005/06 3,692 644 710 5,046 1101 1124 1948 923 50962006/07 3,618 544 718 4,880 1031 1034 1948 303 43162007/08 4,158 714 4,872 991 982 1924 280 41772008/09 4,108 725 4,833 953 933 1776 72 3734

18,697 2450 3555 24,702 5254 5295 9510 2630 22689

Network Rail funding2004/5-2008/9

Network Rail funding 2004/05-2007-08

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New grants

Existing grants

Fixed and variable charges

Time to retrench

• What you people have got to realise is that the future is about service cuts and fares increases

Senior DfT Official

Getting costs under control

• Regulator determined Network Rail’s income for five years in the Interim Review.

• Next Control period starts on 1 April 2009

• Railways Act means no repeat of Ministerial ‘radio silence’ during the Interim Review

Ministers must decide

• Under the Railways Act Ministers have to specify how much railway they want and what they are prepared to pay for it.

• ORR and Network Rail work out the present cost of the railway the Government specifies.

• If there is a gap - iteration

Ministers must decide

• If the gap between Government budget and cost of the railway can’t be closed, ORR decides on how much railway the available funding will buy.

• From unelected Regulator deciding how much money the railway needs to unelected ORR deciding service and quality cuts?

Ministers really must decide

• A knotty issue. ORR interprets Act as meaning that it will seek guidance from Government on any cut backs. We shall see

What will the minister specify?

• Typical objectives and standards of what the railways are to achieve

• Capacity (types and number of trains) of networks• Frequency of passenger services• Journey times• Reliability • Measures to prevent or mitigate overcrowding• Fares levels and ticket types• Quality of passenger information• Accessibility for the disabled• Implementation of major projects ‘to improve railway services’.• ‘Protection of persons from dangers arising from the operation of

railways’.

What happens next?

Periodic Review Timetable• Informal process to determine funding and

service levels 2006• Formal statement by DfT – early 2007• ORR publishes draft conclusions Early

2008• ORR publishes final determination Mid

2008

No time to lose

• DfT Rail has to start developing specification this year given the detail

• Still recruiting people for the new Rail Directorate under Mike Mitchell

• Hopes to be fully operational in October

Meanwhile…….

Sundry minor issues to be taken forward

• Thameslink

• CrossRail

• CTRL Domestic Services

• Franchise replacement

• International Freight charges

• HST replacement

Not to mention…….

• Virgin West Coast renegotiation

• Conventional Interoperability

• ERTMS

• RAIB

• Plus achieving major cost reductions across the railway

WCRM - Money no object

• By BR standards the 125 mile/h upgrade was generously funded

• Black diamond review could be accepted as reflecting the many inefficiencies introduced by privatisation and Health & Safety

• But £12.4 million/mile for a 15mile/h upgrade is ridiculous

Project costs 1966-2003Cost £m Cost £m £m

scheme year Length miles historic 2000-01 Cost/mileWCML electrification(x) 1966 312.75 175*(a) 1,960 6.27 WCML electrification 1974 274.5 75 540 1.97 GN electrification 1976 69 80* 340 4.90 Selby diversion 1980 14.5 60 145 10.00 Midland Suburban 1982 50 120* 292 5.84 ECML elec 1984 387 366 690 1.80 NLL 1985 6 12.15* 21.77 3.63 WCML(x) 1991 312.75 800* 1005 3.21 Heathrow Express 1993 12 55 67 5.60 WCML 1996 587.5 1500(e) 1657 2.82 WCML 1997 587.5 2,100(f) 2,385 4.06 WCML 2000 587.5 4860(g) 4860 8.27 WCML 2001 587.5 6300(h) 6300 10.72 WCML Baseline 3 2002 587.5 13500 22.98 WCML Baseline 4 (I) 2002 587.5 9800 16.68 WCML Baseline 5 2002 587.5 8430 14.35 WCML Baseline 5- 2003 587.5 7290 12.41

Southern Region power

• Southern Region power supply

• December 2001 - £ tens of millions

• June 2002 - £500 million

• January 2003 – Roundly a billion

• January 2004 - £780 million

• BUT

Southern Region Power

• BUT

• Heavily despecified

• No increase in power per train

• 50% of minor overloads to be monitored and upgraded if necessary

• No provision for growth

Power - a mini case history

• Ashford-Hastings and Uckfield lines

• 1993 Ashford- Hastings £19-25 million

• 1998 Both schemes £30.5 million

• 2002 Both schemes £154 million

• 2003 New diesel multiple units ordered

Signalling – Hidden costs

date job routekm track km cost £m cost 2002cost/routemile1984 Tonbridge-Hastings 50 1.5 2.98 0.061984 Leicester 96 228 4 7.96 0.0831995 Norwich 82 3.3 6.23 0.0761986 Waterloo 51 5.5 10 0.21987 Yoker 80 4 6.24 0.0791988 Euston-Watford 28 1.2 1.95 0.0691988 Hurst Green Uckfield 40 0.6 0.97 0.0241990 Newcastle 179 31 43.5 0.241990 Kent coast 170 21 29.5 0.171991 Brum X-city 25 3 3.97 0.158

Project cancelled (1)2002 2003

£bn £bn

ProjectWCRM 5.80 7.70 DescopedVWC trains 0.6 0.45CCRM(1) 0.60 nil Final stages proceedingChiltern franchise 0.34 0.34 Further improvements as in franchise planCTRL 5.50 3.30 Phase 2TPWS 0.50 nil nearing completionTPEx 0.14 0.14 Starts late 2003MML extension(1) 0.23 0.20 Parkway delayed, speed upgrade droppedMk1 replacement 1.36 1.36 New trainsPower upgrade nil 1.00 Contracts being placedThameslink 2000 2.00 nil deferred pending new InquiryERTMS nil ? pilot scheme under developmentECML 2.90 0.80 Descoped to series of individual enhancementsFelixstowe-Nuneaton (via Londonnil 0.05 Phase 1 via London proceedingSoton-W Mid freight 0.90 nil deferredEast London line 0.60 1.10 Funding being soughtCherwell Valley nil 0.16 CommittedWest Midlands Capacity nil ? Development underwayCrossRail development ? continuing

Project cancelled (2)

WARM 0.19 0.19 On-goingSouth Central upgrade 0.95 nil Being reviewedSWT upgrade 1.00 nil being reviewedTrans-Pennine/S Humberside freight capacitynil deferredCTRL domestic EMU nil 0.20 OJEC issuedFelixtsowe-Nuneaton (direct)0.50 nil deferredEdinburgh-Waverley ? ? development onlyRPP 0.43 0.09 No funds 2003/04IOS 0.70 ? No funds 2003/04DDA ? ?Small freight schemes 0.30 nil No funds 2003/04SR electrification infills 0.03 nil Cancelled at £154million

Total 25.57 17.07

Poor little rich railway

• The railway has run out of money

• Between the Strategic Rail Authority’s 2002 and 2003 strategic plans investment in enhancement over the next 10 years has fallen from £25 billion to £16 billion.

• Massive expenditure on renewals

Record investment levels

But money is buying less

• Ford Factor now pi

• But that is modest inflation compared with some cases already mentioned

• SRA and Network Rail in denial over comparisons with BR

Inflated franchise costs

SWT subsidy profile 2001/02-2006/07

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Mystery red line

So there

Personally I couldn't care less what it cost BR. All that matters is what it costs now and what we have to do to get it under control.

Richard Bowker

11 September 2002

Funding & investment 1991-2011

R a ilwa y fu n d in g a n d in v e stme n t 1 9 9 1 -2 01 0

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Private Investment

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