Supplementary memorandum by the Strategic
Rail Authority (RI 12B)
RAIL INVESTMENT: RENEWAL, MAINTENANCE AND
DEVELOPMENT OF THE NATIONAL RAIL NETWORK
Why was the award of the new South Central franchise
delayed? Does the delay reflect problems with balancing improved
services with the need for higher subsidy?
In the replacement of franchises generally there
are no predetermined dates for signing heads of terms. In the
particular case of South Central, the sSRA issued a Press Notice
on 10 October saying that the result of replacement negotiations
was likely to be announced by 25 October. This statement was made
in order to avoid any disruption of an orderly market in Go Ahead
shares, that company being then subject to a takeover bid by Caisse
des DepotsDeveloppment (C3D) and Rhone Capital. In the
event, the signing of Heads of Terms with Go Via for the replacement
South Central franchise was made on 24 October. There was therefore
Where there is a case for upgrading the network,
should this not be negotiated between the SRA and Railtrack before
new franchises are tendered?
It is the role of the Strategic Rail Authority
to determine investment priorities. The franchise replacement
process is not the only means of taking forward investment but
it is one of the vehicles. The Strategic Rail Authority, having
identified network problems, decides which franchises to take
forward to replacement, and in what order, on the basis of seeking
offers providing deliverable solutions. The initial franchise
replacement offers that have been received have reflected the
widest range of operators' views of investment needs, and this
information assists the SRA to decide on the core franchise proposition
which is the basis of the competitive process then used to choose
the new franchisee.
We have sought to get the industry itself to
address the issues facing franchises. This means that we achieve
greater innovation, ownership by the counterparties (as the solutions
are theirs, albeit evaluated and refined by the SRA) and greater
ability to transfer risk to the private sector at a reasonable
The SRA is keen to see operators take the initiative,
backed by their own risk capital as appropriate, in negotiating
the terms and priorities governing the procurement of infrastructure
and other investment. An excessive prescription from the Strategic
Rail Authority would lose the benefits of this type of competitive
and commercial optimisation. We have argued that in some cases
Railtrack's programme needs to be supplemented by other infrastructure
providers. This possibility would not exist if all projects were
pre-agreed with Railtrack by the Strategic Rail Authority.
To what extent will third parties, rather than
Railtrack, be used to expand the rail network? What types of enhancement
projects are currently being considered which might be implemented
through joint ventures with operating companies or through special
Railtrack will always play a central role as
the main network owner and operator. For the moment, at least,
it also bears the responsibility for determining the safety requirements
of new infrastructure improvements. Nonetheless, we have been
saying for some time that Railtrack cannot resource all that needs
to be done. We believe that financing structures can be agreed
to enable others to bear design and investment delivery risks
within the operating and safety framework. Such structures, which
may or may not involve Railtrack as a financial partner, could
permit a significant part of the railway enhancement programme
to take place at the risk of others and not Railtrack.
Since Railtrack employs contractors to carry
out major renewals and enhancements, we do not see difficulty
in principle in supplementing Railtrack's scarce project management
capabilities from third parties. However, we agree with Railtrack
that some projects will probably not be suitable for third-party
financing. In essence, projects where the delivery or operational
risk are too intertwined with Railtrack's existing operations
to be separated out for planning and financing purposes. Other
kinds of project can be financed in this waystations and
passenger facilities, new lines, discrete parts of the network,
infrastructure running parallel to existing lines to increase
capacities and depots, for example.
GoVia, for example, plans to use a joint venture
for all of its investment in infrastructure and stations. The
joint venture would be a partnership between GoVia, Bechtel (their
programme managers) and Railtrack. Discussions between GoVia/Bechtel
and Railtrack are already underway. Examples of the types of works
include (a) building a new flyover at Windmill Bridge Junction
(north of Croydon); (b) upgrade of the line on the Arun Valley
(between Horsham and the South Coast); (c ) refurbishment of stations;
and (d) building/developing new stations.
Does the approach taken in the Regulator's review
in respect of future investment levels provide sufficient clarity
to enable Railtrack to plan its future investment programme effectively?
The Charges Review, together with the Regulator's
proposals on model clauses, address historic concerns about the
liability and rights of Railtrack, its customers and funders,
so that Railtrack will know what it is required to provide for
access charges, and customers and funders will know what they
are entitled to, and their rights to compensation or redress if
Railtrack fails to deliver. This greater contractual certainty
will assist both Railtrack customers and funders to plan their
investment with greater certainty and less risk.
Has the Regulator taken sufficient action to increase
Railtrack's accountability for its expenditure?
The Regulator is taking forward a number of
licence amendments, including new obligations to report on asset
condition and on expenditure, which will provide customers and
funders as well as the Regulator with much greater clarity on
what Railtrack is spending on asset condition and delivering.
These changes reinforce the obligations which Railtrack already
has under its licence to maintain, renew and develop the network
in accordance with best possible practice and meet the reasonable
requirements of its customers and funders.
Has the Regulator's periodic review placed too
much emphasis on performance, which may discourage Railtrack from
running more trains on its network as a consequence?
The sSRA wishes to see a bigger, better and
safe railway. It therefore expects Railtrack to deliver higher
performance and the capacity to operate more trains. The Regulator
is providing Railtrack with what he has calculated as sufficient
funding for this purpose.
18 December 2000