TRAIN
OPERATING
COMPANIES'
PERFORMANCE
31. We asked the Franchising Director whether the
overall level of service now being provided was better or worse
than under British Rail before privatisation. He told us[31]
that the privatised service was cheaper, more reliable and more
punctual than before privatisation. In the last 12 months the
number of passengers carried had gone up by 8 per cent across
the network and the number of trains running had increased by
approximately 5 per cent. In 1996-97 the cost of subsidy
was £1.73 billion. This was expected to fall by £300
million in 1997-98 and reduce further the following year. As 1996-97
was a transitional year with British Rail running the service
for part of the time it was difficult to make a clear comparison
between the last year of British Rail and the first year of privatisation.
The subsidy to British Rail in 1995-96 had been £1.7 billion,
slightly less than the adjusted cost for the whole network in
1996-97, but there were several factors which meant that was not
a comparison of like with like.
32. On the relative performance of individual train
operators within the overall picture, it emerged that achieved
performance was still consistent with the requirements of the
franchise agreement.[32]
Additionally, the Franchising Director confirmed[33]
that in the areas of service covered by the incentive regime,
nine train operators were currently performing worse than British
Rail at the time of privatisation.
33. On incentive payments to train operating companies,
the Franchising Director told us[34]
that the benchmark for train operators' performance was the actual
performance by British Rail at the time the franchises were set
up. If the companies could improve performance they had the opportunity
of earning more money. If performance declined money would be
taken from them. In the last year OPRAF had paid out £13.3
million under performance regimes.[35]
Although train operators' performance had got worse over recent
months, it was still better overall than under British Rail; thus
in the current year incentives were still being paid, but at a
lower rate than in the previous year.[36]
34. On the extent to which the train operating companies
met their investment obligations,[37]
OPRAF told us that all the companies which had committed to investment
under their franchise agreements were currently meeting their
investment obligations. OPRAF confirmed that with some small exceptions,
no companies were suggesting that they could not meet their investment
commitments. One operator did not believe it could meet a £2 million
commitment to staff training because to do so would take staff
away from running the service. OPRAF expected this operator to
propose alternative expenditure to produce passenger benefits.
OPRAF confirmed that no train operators were suggesting that they
would not be able to meet investment commitments because of the
shorter length of their franchises.[38]
35. As regards the relationship between the profitability
of train operating companies and the amounts of money received
from OPRAF, the Franchising Director told us[39]
that every company on the network would be massively in loss if
it were not for the subsidy provided by the Government. He confirmed
that the then Government had deliberately decided to let the franchises
on the basis of full risk transfer, so there was no provision
either for the Government to claw back profits, or for operators
to be bailed out if things did not go according to their plans.
This meant that train operators would retain any windfall profits
made on the basis of public subsidy.
36. On the sale of Great Western Trains to First
Group, the Franchising Director told us[40]
that the original franchise awarded in December 1995 was a ten
year contract conditional on the provision of significantly increased
services within two years. In August 1997 the company had committed
to acquiring 40 new vehicles and at that time OPRAF took the opportunity
to reduce their subsidy by £93 million. As part of the discussions
with First Group, OPRAF had now obtained a further commitment
to 32 more vehicles, an overall increase of 72 vehicles. The first
40 vehicles have to be in place by 2001, and the company will
try to expedite the remaining 32 vehicles as well. In addition,
the franchise arrangements would be revised to provide for penalties
to be paid for poor punctuality, such as a fine of £1,000
if a train was more than two hours late, and a free week's travel
to be given to season ticket holders.
37. We were concerned to establish what OPRAF's accounts
could tell us about the relative performance of individual train
operating companies. In particular we asked OPRAF about the table
of performance incentive payments at note 11 to their accounts.
They said that not all train operating companies were included
in the note because only 19 companies, the non-inter city companies,
were included in the incentive regime, and not all of the companies
covered by the regime had been operational throughout the year.
Any company showing a net payment to OPRAF was in principle falling
below the previous British Rail performance benchmark although,
because of the transitional nature of 1996-97, direct comparison
between the train operating companies on the basis of the table
alone could be misleading. Payments or receipts under the performance
regime were made on a monthly basis as a matter of course in the
franchising process. In future years, information of this sort
would be a sounder basis for comparison, as it would reflect a
full year's performance for each company. In addition to their
accounts OPRAF produce a separate annual report giving the details
of payments to each train operating company.
38. We raised a number of further points of detail
about the information disclosed in OPRAF's accounts. OPRAF told
us[41] that they had
spent £866,000 less on professional fees in relation to setting
up the franchise agreements than had been anticipated. They also
explained[42] that £16.1
million had been received from British Rail as not required by
them in the final stages of their running the franchises. The
accounts also disclosed privatisation costs of £25.5 million
and redundancy costs of £33 million met by British Rail as
their part of the privatisation process.[43]
Conclusions
39. We were concerned to establish whether the train
operating companies were currently meeting their investment obligations,
especially those with the shorter franchises. OPRAF assured us
that all of the companies committed to investment under their
franchise agreements were meeting their obligations, and that
none were not expecting to be able to meet their commitments because
of the length of the current franchise agreements.
40. We note that, as part of the deal for First Group
to acquire the Great Western franchise, the Franchising Director
has obtained a contractual commitment to provide 32 new vehicles,
in addition to the extra 40 already promised. We expect him to
monitor closely the delivery of this commitment to new investment
in rolling stock.
41. In order to improve the transparency of the franchising
arrangements, OPRAF should review the presentation of their accounts
to make the note as informative as possible about the performance
of individual train operators, and its implications for the level
of franchise and incentive payments made and penalties imposed.
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