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

Memorandum by the Rail Freight Group (RI 07)


  1.  RFG welcomes this enquiry at a time of further change and uncertainty in the industry. It is also an appropriate time to take stock of what has been achieved in the last five years following the privatisation and restructuring of the industry.

  2.  In this period, passenger traffic has grown by about 30 per cent and freight traffic by some 35 per cent. There is little doubt that passenger and freight service quality has generally improved, but so have peoples' expectations. Service quality for freight is, in any case, measured against the main competition, road.

  3.  During these last five years, the freight train operators have invested about £1bn in rolling stock, other equipment and services, and the new locomotives and wagons are bringing a much a needed step change in reliability.

  4.  New services have been developed for rail freight in markets such as food and drink, mail and parcels, waste disposal and general manufactured goods, as well as expanding existing services such as coal, steel, aggregates and other building materials. Deep-sea containers form an increasing number of trains from our major ports.

  5.  The problem now is that the rail network has become congested, with both passenger and freight trains taking up the slack in the system inherited from BR. It is also evident that those who set up the structure of the railway at privatisation did not expect traffic growth; rather a continuing steady decline, certainly in the case of freight.



  6.  Railtrack was part of this expectation of decline, and negotiated a contract with EWS Railway for track access in which Railtrack's income per train mile would increase as traffic declined, but would decrease with growth. Sadly for Railtrack, freight traffic grew.

  7.  Railtrack was set up to manage the rail infrastructure, bring much needed private sector investment into it, renew worn out equipment and, where necessary enhance the network to meet the reasonable requirements of its customers. Some investment has taken place, especially when it was negotiated as part of a franchise agreement, but very little of this is for the use of freight.

  8.  Much of the last five years has been wasted in arguments between Railtrack, the rest of the industry and the Regulator about whether enhancements were necessary and, if so, who will pay. This has, of course, achieved what many see as one of Railtrack's objectives—to delay expenditure for as long as possible.

Maintenance and renewals

  9.  The Rail Regulator has reported on Railtrack's maintenance and renewal programme. Unfortunately, the regulatory action has, as the NAO Report demonstrated, been hampered by lack of information and targets. The general conclusion is however clear—that maintenance and renewals have not been sufficient and that the network is deteriorating at a time when traffic is increasing.

  10.  Railtrack has lost several years before starting to introduce modern track and ballast equipment, continuing to use very out-dated labour intensive methods which cause lines to be closed for much longer periods and undoubtedly cost much more in the long term than if modern equipment were used.

  11.  Similar comments can be applied to Railtrack's signalling policy which has ranged over the space of little more than a year from feast to famine. At one moment, there was so much signalling work required that design was being subcontracted to Australia; only a year or so later, signalling engineers were being laid off in the UK due to lack of work from Railtrack.

  12.  The sad saga of the West Coast Main Line signalling demonstrates a degree of technical incompetence which is now reflected in a cost overrun of nearly £4 billion on a project originally costed at around £2 billion. Since this work is to be undertaken under a contract between Railtrack and Virgin to which the Regular attached enforceable conditions requiring Railtrack to deliver the 42 additional trains paths it promised, we question why any of the cost of this project should fall to the public purse.

Asset register

  13.  Alongside all this, it is only in the last year that the sSRA and Rail Regulator have instructed Railtrack to prepare an asset register. This should of course have been done five years ago. Without such detailed knowledge of how big, how wide, how high structures are and what clearance are available, the type of signalling and platform dimensions (to name but a few), it is difficult to get at firm costs for enhancements.

  14.  There is also the question of public access to the Register, and into what detail it goes. We are pleased that the Regulator has said that the Register must be published but, if Railtrack restrict access to some information to itself, then it has control of the information on which others may be able to offer alternative and cheaper solutions.

  15.  An example of this is the proposed upgrade of the West Coast Main Line for piggyback gauge where several Rail Freight Group members have suggested solutions which would save about £100m in compensation to trains operators by doing the work at night while allowing the trains to operate at line speed during the day. This compared with Railtrack's statement that it would be necessary to close the whole line south of Rugby for six months. The technology proposed by RFG members is not new; it was used to increase the bore of the London Underground Northern Line in the 1930's.

  16.  We have been trying for the last year to get technical information from Railtrack on some representative tunnels on the WCML so that the proposals can be worked up in detail. This has not been refused; it has just not been provided.

  17.  This demonstrates the need for Railtrack to make available full details of the assets it owns. We would argue that, since Railtrack has a duty to operate efficiently and since many enhancement projects will be funded by outside agencies, mostly the Government, although Railtrack will presumably still be operator of the infrastructure and holder of its safety case, it cannot expect to be sole contractor, nor expect to be paid a price for a scope of work which is not subject to question, audit or competition.

  18.  There is the further point that, as in the BR era, if BR did not want to do particular works, it quoted a price so high that nobody would take it forward. This same attitude still appears to be around in Railtrack and, we believe, applied to the piggyback gauge upgrade. Railtrack does not want to do it, even if the work is done at no cost to Railtrack. Hence the importance of their asset register and technical details being available in full for outside scrutiny and use.

Railtrack's future project management ability

  19.  BR did very little new works, the last major one being the East Coast Main Line electrification. It therefore had little need of project management skills and, although Railtrack has taken some steps to bring in new skills, its performance on the West Coast Main Line upgrade shows how far they have to go even on one project. We agree with sSRA Chairman Sir Alastair Morton, who has stated that Railtrack will need to have upto 20 major projects going at once if it is to meet the future needs of customers; it has put most of its best management into the WCML and hired external projects managers. How will it cope with the other 19 projects?

  20.  We believe that the only solution is for Railtrack to accept outside project management alongside outside funding for major and possible minor enhancements. The company must be prepared to restrict its involvement to outputs, operational and safety matters. How the outputs are achieved, provided that they are done safely, in line with standards and operational requirements, should be left to others.


  21.  Finally, there should be much more clarity about what happens to funding paid to Railtrack for enhancements. Because Railtrack will not have taken any of the financing or construction risk, there is no reason why such funds should find their way into the Regulatory Asset Base on which Railtrack is allowed by the Regulator a certain rate of return. Alternatively, it could be converted into a government equity holding in Railtrack. Either way, any dividends received should pass to the SRA for reinvestment in the railway system.

The future

  22.  The previous Government's stated purpose of privatising Railtrack was so that it should have the ability to raise large sums in the City, take the risks involved in operating and enhancing the network, and give a return to its shareholders commensurate with the risks taken. In addition, investment in the infrastructure would no longer be dependent on the annual allocation of funds from the Treasury.

  23.  Now we have a private sector company, giving high returns to its shareholders, raising some, but not enough money in the City, and taking less and less risk. Is it going too far to suggest that Railtrack may say to the Government if it has a financial problem at any time "pay up or the network will get worse and worse, and you will get the political fall-out"?

  24.  So what is the advantage of carrying on like this? As in the old BR days government provides the money for capital investment. No longer all of it, but much of it, and the proportion grows all the time, and it takes the majority of the implementation risk .The difference now is that the private sector Railtrack takes a slice for itself for taking little risk at all.

  25.  We understand that consideration is being given within the sSRA, ORR and government about how tough the Regulator can be on making Railtrack deliver its £4 billion West Coast Main Line commitments, and concern has been expressed that it could push Railtrack into insolvency. Such concerns have been faced by the Regulators and regulated utilities in other industries, and it is time that they were faced in the railway industry. After all, the difference between private and public sector is that the former can go into liquidation.

  26.  If the government decides that Railtrack is really to operate in the private sector, then this option must remain open, and contingency plans must be made to ensure minimum disruption to rail services if it happens.

  27.  If the Government is to treat Railtrack as if it is in the public sector, then it must take, through the Regulator and the sSRA, a much greater control, monitoring and auditing role than has hitherto happened, and it must also assume responsibility for telling Railtrack what it wants done. At present, we appear to have the worst of both worlds.

  28.  Alongside all this, it is time the sSRA and the Rail Regulator pooled their resources to be able to assess and monitor operational and engineering proposals by Railrack; at the moment they generally take Railtrack's word for it. Most other utility regulators have strong technical teams to monitor and check not just on the expenditure by the utility, but whether it is really necessary, whether there is a better way, and whether they got value for money. It is time the regulated railway industry was checked in the same way.


Railtrack's costs

  29.  The role of the Rail Regulator is vital in ensuring that Railtrack performs efficiently and effectively. His duty is to ensure that the public interest is looked after and that "his" regulated utility performs to achieve this in an efficient manner. Sadly, for the first few years, the then Regulator did not pursue this function with sufficient rigour so that now, although we have a new and by all appearances, more active Regulator, we have lost four years.

  30.  Railtrack has made little inroad into more efficient operation and, based on US experience, its costs of maintenance and renewal are some three times those of international best practice. The Regulator is likely to decide that Railtrack should reduce its costs by just five per cent per annum, at which rate it will take about 25 years to reach even today's international best practice.

  31.  RFG has pointed out to the Rail Regulator on many occasions that there needs to be independent checks operating continuously on Railtrack, as well as checking from year to year whether it has completed what it committed to in previous year's Network Management Statement. This would be on the lines of the Channel Tunnel Maitre D'Oeuvre which provided independent technical and commercial audit of Eurotunnel and its contracts during construction of the Channel Tunnel. Since Railtrack continue to produce its NMS to a new format each year, it is very difficult for anyone to check on such progress.

  32.  Of course, the greatest failure of successive Regulators is to make Railtrack create and maintain a proper asset register of what it owns. It is very difficult to debate what should be done to change or enhance a piece of infrastructure if one does not know what is there at the moment. We understand that the work to create this register has now started and we look forward to its competition and publication (see paragraphs 11-17).

  33.  The new Rail Regulator, Tom Winsor, has taken a more robust view of his role but still appears to be unwilling to confront Railtrack on matters technical. The Rail Regulator's documentation still refers to Railtrack's costs as if they were a "given". He is rightly seeking a more incentive based charging regime for track access and other charges, but progress on bringing some kind of regulation to Railtrack's land which is adjacent or connected to rail lines is till painfully slow.

  34.  The time has come to force more transparency into a naturally secretive industry. Many transport buyers expect this as part of their commercial negotiations and if rail freight is to attract their custom in large numbers, it must keep up with current business practices.

The let-out from customers' "reasonable requirements"

  35.  Railtrack's Licence Condition 7 requires the company to provide for the "reasonable requirements" of its customers. Although these have been put regularly to Railtrack, it has frequently refused to provide any such enhancements listed as "reasonable requirements;" because of a let-out in this condition which says the company does not need to do the work if this will adversely affect its financial position.

  36.  Over the last three years we have learned that this let-out applies to virtually all freight projects. Railtrack will not even provide costing or studies for enhancements unless someone else pays for them to do so, and generally the price quoted is unsubstantiated, as well as being subject to frequent, usually upward, changes.

WCML Freight Strategy

  37.  The Regulator has tried to force Railtrack into producing a freight strategy to demonstrate how it could accommodate the additional 42 train paths on the West Coast Main Line to which Railtrack committed in return for receiving the Regulator's approval for it agreements with Virgin on PUG 2.

  38.  Two years after the initial agreement, Railtrack's response in the shape of a West Coast Main Line freight strategy was of little use in identifying whether or not the 42 paths would be available or on considering alternative routes. It provided three route options; on the first one, using the WCML along its whole length, it included the costs of new Silverlink tilting passenger trains with no explanations to why freight should pay for them.

  39.  On the third route option from London to Scotland avoiding the SCML and the ECML, it provided a route that was of little use to its customers, with grossly extended but unspecified journey times and which does not go where the customers want it to. Instead of using the Settle Carlisle line, it actually uses the WCML from Carlisle to Preston, again without any explanation.

  40.  We fear that the Regulator will not enforce these contractual commitments on Railtrack, possibly for fear of the financial consequences. If this happens, it is likely that freight will lose out—again!


  41.  The sSRA has been in existence for a year, and incorporated the Office of Passenger Franchising as well as introducing a new freight team in order to implement the aims of the sSRA as currently drafted in the Transport Bill.

  42.  From the point of view of freight, RFG is pleased that freight now has a voice in the strategic authority for the industry. Our concern is that the sSRA as a whole does not yet appear to have shed the old OPRAF mantle. It does not yet have its powers under the Bill but it has been told by Government to act as far as possible as if it did have them, and it is on that basis that we judge its performance to date.

  43.  We see it concentrating much on passenger franchise renewal. That is to some extent inevitable, given the timetable and necessity to improve on the sometime dire quality some of the existing franchises. However, new passenger ideas affect infrastructure and freight and, while welcoming new ideas from franchisees, we are concerned that there does not seem to be an overall strategy or plan for what the sSRA believes should happen to passenger services as a whole.

  44.  It is good for it so say " we welcome new ideas and will not constrain them unnecessarily", but there does not appear to have been any long term policy developed on if or how they consider the effect of any proposal on freight, on Railtrack or on other franchises.

  45.  Freight almost inevitably comes last in applying for paths since it generally does not apply for them until a need and a customer have been identified, passenger franchises. Franchisees generally have to reserve paths for the length of their franchises. This will often mean that, if a franchisee proposes to double the frequency of a service, that may well remove the possibility of freight taking those paths in the future.

  46.  That would not matter if the sSRA and the ORR ensured that Railtrack provided enhancements in capacity and capability ahead of demand. Since this has not yet happened except in a few isolated instances, it behoves the sSRA to come up with a policy to deal with the competing demands of passenger and freight.

  47.  On infrastructure, for reasons stated above, there is every likelihood that the sSRA will have to fund many of the infrastructure enhancement projects required to accommodate the forecast growth in traffic. Unfortunately we have not seen any comment from the sSRA about what future traffic growth figures they might expect, and what they are working to.

  48.  From these growth figures should come a strategy for enhancing the rail network to enable the additional passenger and freight trains to operate efficiently and effectively. We are aware that a Freight Strategy is virtually complete, but are not aware of any similar work on the passenger network. Since both passenger and freight services are interlinked, it seems odd to let passenger franchises before producing a strategy for passenger services, as is required in the Transport Bill. We hope that the sSRA will consult on its Freight Strategy and publish it as soon as possible.


  49.  We are aware that the sSRA is leading or participating in a number of regional studies on capacity but, in the mean time, we are surprised that it has not taken a more proactive role in ensuring that land is available for enhancements should they be required.

  50.  We have had many and ongoing problems with land holdings owned by Rail Property Ltd, some of which could have future potential use for freight or passenger use. RPL has resisted for years any suggestion that land for transport use should be retained for such use and not sold off at a higher price for commercial use as non-rail related developments. RFG and others in the industry are making progress in identifying sites and will, eventually seek ministerial or parliamentary approval to provide some statutory protection for such sites.

  51.  It was encouraging to hear Keith Hill, MP, Minister for Railways, state during the passage of the Transport Bill through the House of Commons, that he could see good reasons for looking at such land retention on a 20 year timescale. This compares favourably with comment from the sSRA that land should only be retained if an immediate use and purchaser could be found. In our view, this is hardly strategic thinking.

  52.  Another example of lack of strategic vision in railway property is at Gerrards Cross, where the rail freight industry and Chiltern Trains have succeeded in persuading Railtrack that it will have to renegotiate the agreement it inherited from the BRB to allow Tesco to build a supermarket car park over a tunnel to be built in the railway cutting, leaving only space under it for two tracks. It was pointed out that this line is the only main line leading North or West from London on which there is any reasonable capability to enhance capacity by widening it to four tracks. The cost of widening the tunnel to four tracks was estimated to be small and it was encouraging that Railtrack accepted this argument. However, we were surprised that the sSRA refused to comment or support our stand, saying that they could see no possibility for ever needing four tracks there.

  53.  We welcome the recently announced sSRA review of the RPL land holdings, and will be responding with information about which RPL sites should be retained. However, there is still the need for a long-term vision from the sSRA on land holdings and disused track-beds. In particular, the sSRA will have to reach agreements with SUSTRANS over trackbeds sold to them by RPL. At the time, SUSTRANS said that they would not stand in the way of allowing any of their trackbeds to be returned to rail use. Now they are saying that, in most cases, they must be provided with a parallel and equally good replacement cycle route. One must suspect that, if such parallel routes were available in the first place, SUSTRANS would not have acquired so many miles of disused track with such alacrity.

Network strategy

  54.  The WCML will be closed for 12,000 possessions per year over the next few years, according to Railtrack's 2000 Network Management Statement. We are not told what the effect of these closures will be on passenger or freight traffic, but there is a need for the sSRA to be much more proactive and creative in this area, rather than just leaving it to Railtrack, especially when it comes to protecting the interests of freight from night-time closures and possessions.

  55.  The sSRA should also be leading and/or contributing to feasibility studies. We were surprised that the sSRA refused to contribute to funding of a feasibility study by Railtrack and Derbyshire Country Council into the possibility of reopening the Buxton Matlock line, one that has potential for both passenger and freight traffic, not only during WCML closures but on a permanent basis.

Project implementation strategy

  56.  In the future, it is likely that the SRA will be contributing large sums of money to infrastructure enhancements, either through passenger franchises or, for freight projects, direct to Railtrack.

  57.  Powers will be available for the SRA to start this implementation process soon after Royal Assent of the Bill, perhaps as soon as the end of this year. At that time, subject to government funding, the SRA could instruct Railtrack to start enhancement work on priority projects chosen by the SRA, funded by them and which are required urgently to improve capability or capacity.

  58.  The campaign group "Transport Choices for Industry—the Rail Freight Alternative" has produced a list of freight infrastructure projects which it believes are necessary to be implemented within 10 years if rail freight traffic is to double in that period. No doubt the sSRA has a similar list of projects. The challenge is that some projects could be started in just six months' time.

  59.  However, from what we can deduce:

    —  there has been little discussion and consultation between Railtrack, the sSRA and the industry over which projects should be implemented first;

    —  there is no information about any plans being prepared by Railtrack which are in sufficient detail to be funded because, even when Railtrack know which projects to concentrate on first, there is not yet a mechanism in place to decide which organisation funds feasibility studies;

    —  there is no evidence of discussion or consultation by the sSRA and Railtrack on funding mechanisms for projects, how they should be paid for and supervised, the role of Special Purpose Vehicles (if any), and if and how the Rail Regulator should be involved in regulating these enhancements;

    —  there would not appear to be the necessary resources within the sSRA to create and oversee such projects, whether this be alongside the Rail Regulator or not.

  56.  The consequence of this is that there is likely to be a year or more lost before even the smaller project gets started. We urge the sSRA to "be prepared" and sort these problems out on an urgent basis.


  57.  The relationship between the offices of the Rail Regulator and the sSRA is crucial if the railway is to develop its full potential in the shortest possible time. We see a number of areas of overlap between the ORR and sSRA and, although certain responsibilities will be transferred when the Bill receives Royal Assent, this will not necessarily mean that there will be a clear and harmonious relationship between these two organisations which both have a crucial role to play. We urge them both to work very hard together to ensure that they operate in partnership rather than competition with each other.

June 2000

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