Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


Memorandum by West Yorkshire Passenger Transport (RT 01)

LIGHT RAPID TRANSIT SYSTEMS

  West Yorkshire PTE is submitting evidence to the Committee to provide an insight into the problems faced by the promoters of a well thought out and justified scheme which so far has been refused Government Funding. It is considered that this evidence is equally important as that provided by proponents of a scheme that achieved implementation. The submission also considers how clearer rules and signals could have assisted the process and reduced the resources expended. This evidence also comments on mechanisms for funding infrastructure schemes and the current funding deficit in the UK.

BACKGROUND

  In the late 1980s as significant growth in the Leeds' economy was taking place business leaders in the City were advising the City Council and the PTA that transport and, in particular, growing congestion due to the growth in jobs in Leeds were becoming key topics in decisions for firms considering investing in Leeds. This led to the City Council establishing a joint private/public sector group to produce a transport strategy endorsed by all the political parties in transport policy documents for the City. This was published in 1991. The strategy has also been endorsed by the DoT demonstrated by the award of TSG to Leeds as one of the earliest recipients of package funding.

  The strategy was not just about transport. It encompassed a vision for the City together with complimentary transport facilities which were derived as a result of a full public consultation exercise. The latter indicated that the transport investment should be aimed at improving public transport, improving the overall environment and making travel safer.

  The strategy which emerged included:

    —  an emphasis on retaining the dominance of the central area for employment, retail and entertainment.

    —  support for completing the Leeds Inner Ring Road and the A1/M1 link.

    —  no increase in radial road capacity for private vehicles.

    —  improvements to existing bus and rail services and facilities.

    —  guided bus experiments in suitable selected corridors.

    —  LRT to serve major sectors which could not be served by existing rail lines.

  Whilst many of the measures have been implemented the major exception has been the LRT or Supertram scheme for which funding has been withheld.

DEVELOPMENT OF THE LRT (SUPERTRAM) PROPOSALS

  The Leeds Integrated Transport Strategy, published in 1991, proposed an LRT system of three lines. It was decided to progress the South Leeds line initially as this was where congestion problems were predicted to become worst first.

    —  Parliamentary powers to construct and operate the South Leeds scheme were acquired in July 1993.

    —  The economic case for Section 56 grant was first accepted by the DoT in 1993. The transport benefits from the South Leeds scheme warrant Section 56 grant for the total cost and DoT at one stage indicated that "there was a robust case for grant".

    —  Following acquisition of powers discussions with DoT elicited that a design, build, operate and maintain (DBOM) model should be used for inviting tenders.

    —  Tenders were sought in April 1995 and a preferred bidder, Eurotrans, made up of Morrison Construction, Taylor Woodrow, Christiani & Nielsen, British Bus and Vevey, were successful and were appointed Preferred Bidder in early 1996.

    —  Further negotiations then continued with the Preferred Bidder leading to confidence that a contract could be let in early 1997.

    —  A key element of these negotiations was the transfer of risk to the private sector and at the conclusion of the process very few risks to the public sector were still outstanding and these were of a type which had been accepted on other schemes.

    —  At all stages in the process the DoT were kept fully informed and specific reference was made in settlement letters to the fact that some of the funding allocation was made to facilitate further development of the scheme.

    —  The DoT and DETR expressed concerns about patronage levels from time to time which were risks which had been transferred to the consortium. Indeed with PFI the risk of the operation being terminated became even more remote.

    —  Transport & Works Act powers (which have superseded the parliamentary process) were sought for lines 2 and 3 with the Inquiry held in Spring 1997.

THE FUNDING PROCESS

    —  Substantive bids were made in the years 1996, 1997 and 1998 for Section 56 grant.

    —  In 1996 it became clear that DoT were looking for as much local funding as possible towards the total cost of the scheme.

    —  The then Minister was advocating that local businesses should contribute towards the cost and S Norris visited Leeds and addressed a large gathering of people from the private sector in Leeds with the above message.

    —  This was backed up with personal visits and letters by the Study Team to nearly 200 businesses in Leeds.

    —  The view of the local business community was that the Government commitment was a pre-requisite to making a decision and whilst some positive and negative responses were received a large number of firms chose to take no formal decision at the time. This was positive because a negative decision would have been easy to take.

    —  Leeds City Council (LCC) invited bids for a major leisure development which would have been integrated with Park and Ride at one outer terminus. This involved the consortium in developing proposals with the competing developers.

    —  As a result the City Council offered to provide £40m towards the cost of the scheme made up of consortia contributions, development contributions, Local Authority contributions and those received from the private sector and effectively offered to underwrite this total.

    —  To assist with this process further work was done on the effect of the scheme on the economic health of the city. This demonstrated that the scheme would generate an additional retail spend in Leeds City Centre of between £70m and £160m per annum and that as a result of the scheme an additional 4,500 net new jobs would be created which would benefit the national economy by £40m per annum.

    —  At this stage the Government interest in PFI increased and advice was taken from the DoT at the time who advised to continue to seek Section 56 grant because this avenue of funding was still available and this met the way the scheme had been developed best. Appeals to a further three Ministers have been made at a senior political level. This failed to elicit the necessary commitment.

    —  Belatedly in late 1997 it became apparent that the DoT was unlikely to fund any further light rail schemes using Section 56 grant and that PFI was the only method through which Government financial support that would be contemplated.

    —  The PTE therefore undertook legal and financial studies which demonstrated how the existing scheme could work within a PFI framework. The consortium confirmed that bankers would be willing to assist with the initial funding.

CURRENT POSITION

    —  The powers to construct and operate the South Leeds scheme are available until June 2003.

    —  A ministerial decision on the Transport and Works Act application for lines two and three is outstanding.

    —  A ministerial decision on the extension of the CPO powers for line one is outstanding. The December 1998 settlement letter indicated that the DoT would almost certainly not fund the scheme under Section 56 grant rules or under PFI in the foreseeable future. At the same time the DETR advised LCC and the PTA to reconsider the options for dealing with the transport problems.

    —  In contrast to most other major provincial cities Leeds has achieved substantial growth in jobs in the 1980s and 1990s and the growth is predicted to continue with 30,000 extra jobs between 1996 and 2006. The result of the review was that the City Council and the PTA still believe that the Supertram scheme is of the right quality to attract motorists from cars and is therefore the best technical solution in appropriate corridors. It is recognised that some modifications, given that powers for lines two and three should still be available, may be more appropriate. The envisaged urban road pricing and work place parking levy proposals appear to offer potential funding mechanisms although "up front" funding putting the system in place first is a pre-requisite.

    —  Leeds City Council has offered and been accepted as the trial area for electronic road pricing in England. Leeds City Council has also offered itself as a pilot area for urban road pricing on condition that improved public transport systems are in place before charges are introduced. Given the major changes and the shape of the project and the method of funding it is likely that the existing Eurotrans bid is unlikely to be valid because of the competition rules.

    —  It is unlikely that commercial organisations are likely to take substantial interest in an LRT system in Leeds until the funding position is clearer. A key element is the primary legislation setting out the basis for urban road pricing and the secondary legislation relating to the detailed scheme.

LESSONS TO BE LEARNED

  1.  The Leeds scheme has the necessary transport and economic benefits which meet all the DETR criteria. If the scheme is not built it will be the first modern tramway which has obtained the necessary powers but not been implemented.

  2.  The criteria for and the method of funding has continually changed. Initially the focus was on a scheme's role in a transport strategy and on economic benefits against both of which the scheme performed well; better than others which have been implemented.

3.  The focus then moved to minimising Department funding through local and private sector contributions. For an initial scheme in an area Leeds again met this challenge better than others which have been implemented.

  4.  The method of funding then moved to PFI and again it was demonstrated by the Authorities and the consortium that the scheme was capable of functioning in this environment.

  5.  Continual preference for other schemes which apparently did not perform as well against the various criteria is a mystery. Whilst the Department appeared to have doubts about the ability of the scheme to generate the projected patronage this risk had been transferred to the private sector. Indeed, with PFI type funding it would have benefited the consortium to operate with no patronage during the period of Government support—ie of the order of 20 years. The continued growth of Leeds should have provided the necessary confidence in the success of the scheme.

  6.  In trying to meet the changing criteria and funding frameworks the Authorities and the private sector have together expended over £6m and also involved businesses and other organisations. In the process.

  7.  To prevent this serious waste of resources a clear framework of criteria and rules which are not subject to continual change is essential. Schemes like LRT have long gestation periods because of their technical and legal complexity. Changing course to meet changing situations is both time consuming and expensive.

  8.  It follows that the criteria and rules must be robust and in this context it is noted that Government borrowing is at lower rates than can be achieved by the private sector. This means that the current emphasis on PFI may not be durable. Whilst public/private partnerships have much to offer many feel that the present PFI regime is the wrong vehicle to deliver best value.

  9.  A clear set of initial criteria need to be set down to minimise work undertaken on schemes which stand no chance of being funded. These would include such as:

    —  part of cohesive strategy and interest to Local Transport Plan;

    —  no ongoing operating subsidy and appropriate risk transfer;

    —  required levels of benefits relative to cost;

    —  support from Regional Bodies, Local Authorities etc;

    —  demonstration of interest from commercial sector.

  10.  For each scheme in response to a business plan a further set of criteria should be devised which take into account the particular aspects of each individual scheme. If these criteria were met the funding should be made available. These criteria should include:

    —  obtaining of necessary powers;

    —  fulfilment of assumptions made in initial case;

    —  cost and quality benchmarks; and

    —  funding and procurement methods to be used.

  11.  Provided that the criteria were rational and applied consistently they would be welcomed by Local Authorities and the private sector as they would enable decisions to be made against specific measures rather than the current method whereby criteria appears to be altered arbitrarily to suit expediency.

  12.  If Urban Road Pricing (URP) or Workplace Parking Levies (WPPL) are to be a main source of funds in the future there will have to be recognition that DETR will not be the sole funder and that once a decision on a Local Transport Plan has been taken the implementation would be a matter for Local Authorities. However, Local Authorities would need Government support to cater for changes in the law. For example, if a £100m LRT scheme had been implemented with deferred payments to be made from road pricing receipts and subsequent legislation withdrew the road pricing powers the position of the Local Authority would be unsustainable. This is one of the critical issues which needs to be solved before the private sector will become involved in major schemes which depend on URP or WPPL funding.

FUNDING GAP

  13.  Lack of funding for public transport infrastructure schemes remains a major obstacle to achieving Government objectives for integrated transport. Transport infrastructure has a key role to play in delivering and maintaining successful cities. Analysis of transport investment over time shows the UK to perform extremely badly in both per capita terms and as a percentage of GDP when compared with for example ten other European countries. Revenue streams for new mechanisms such as Road User Charging are a long way into the future and Government should be urged to ring-fence other revenue streams eg fuel tax increase or fund other methods of injecting the required level of investment. West Yorkshire PTE would be happy to provide the Committee with further information and analysis in relation to funding issues, comparative data and options available.


 
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