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

Supplementary memorandum by the Strategic Rail Authority (RI 12B)


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 Depots—Developpment (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 no "delay".

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 price.

  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 purpose vehicles?

  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 way—stations 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

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