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

Supplementary memorandum by the Association of Train Operating Companies (RI 17B)


Is there any merit in the suggestion that Railtrack should be divided into regional companies (along the lines of its existing zones) which would undertake infrastructure works with other functions, such as signalling, being given to other bodies which would have responsibility for the whole network?

  The immediate task of Railtrack is to restore the network to the point that normal train services can be safely operated, and then to manage the enhancement of the network in line with the Government's 10 year plan.

  It is clear from recent events that to achieve these aims Railtrack must improve its capabilities in three areas:

    —  Engineering Expertise

    —  Quality Control

    —  Project Management

  ATOC has seen no evidence that breaking up Railtrack into regional companies will assist in the achievement of these objectives or advance the development of the appropriate capabilities.

Should Railtrack bring the track maintenance workforce in-house?

  There is no doubt that the relationship between Railtrack and its track maintenance contractors is one of the critical areas which must now be re-examined in the light of Hatfield. A part—but only a part—of that relationship is the proportion of Railtrack's work that is undertaken in-house. Other components are the nature of the contract between Railtrack and its contractors; the degree of oversight and quality control exercised by Railtrack; and the involvement of train operators in the process.

  All of these issues are currently being reviewed by Railtrack. ATOC believe that it is right for the organisation which is responsible for delivering the output (ie Railtrack) to be in the initiative. ATOC will naturally wish to discuss with Railtrack once they have formed a view.

Does ATOC have any concerns about the way in which the Rail Regulator's final conclusions may be translated in track access charges?

  Track access charges have four parts to them:

    —  Fixed costs.

    —  Variable costs associated with track wear and tear.

    —  Electricity charges.

    —  Congestion charges (otherwise known as capacity reservation charges).

  The policy of the Rail Regulator has been to align charges with costs. The effect of this is to shift the balance of track charges to variable charges, largely because of the impact of increased congestion charges.

  The effect of higher variable charges is to reduce the incentive on train operators to increase service levels. This sits uneasily with an objective to shift traffic from roads to rail.

  How large a problem this is depends upon the translation of pricing principles into charges for each train service. Train operators have not yet seen the detail of these charges.

With certain fares expected to rise at a rate below that of inflation and the possibility that passenger numbers might fluctuate in the future, is it reasonable for the Government's 10-year plan to assume that 60 per cent of investment in new rail capacity will be generated by a continuing rise in fare revenue?

  The case for investment over the next 10 years by train operators is largely based on traffic growth. To some degree it depends upon fare levels, but it is unlikely that the overall growth in fares will differ greatly from general rates of inflation.

  As the question implies, there is significant risk associated with revenue over a period as long as 10 years. Much of this risk can be managed by train operators, but there remains some risks on such things as GDP and central London employment which are outside their control.

  Train operators have however shown themselves to be willing to take on demand risks in the two franchises which have recently been announced. In the case of South Central franchise, Govia has agreed to a £1.5 billion investment programme. In the case of the Chiltern franchise, M40 Trains has committed itself to £370 million of investment, and is developing plans for a further £1 billion of investment.

  So far therefore, train operators have shown a willingness to shoulder their share of the rail investment programme set out in the Government's 10-year plan.

Will the continuing disruption caused by emergency engineering works following the Hatfield accident, as well as by the recent flooding, reduce demand for passenger rail travel in the long-term?

  Passenger revenue in the four weeks between 15 October and 11 November was £55 million below expectations, ie £257 million rather than £312 million, and in the four weeks between 12 November and 9 December it was £65 million below expectations. In addition to this a special compensation package has been announced for that will cost a further £70 million.

  In the short to medium term effect on passenger demand will depend upon:

    —  The length of disruption that is experienced by customers. In some areas the train services are already back to normal, but in others such as GNER it may be several months before the full capability of the network is returned.

    —  The speed with which confidence amongst customers is re-established and they return to rail. This is particularly important for leisure travel and business travel.

  In the longer term—ie 3 years plus—it is the underlying forces which will determine passenger demand, these being:

    —  economic growth

    —  the costs of motoring

    —  investment in the rail network and in new rolling stock

    —  road building

    —  the relative cost of different modes of travel

    —  employment patterns, particularly in London.

  The long-term prospects for these are unlikely to have been fundamentally changed by Hatfield.

  In summary therefore, there has already been a high short-term cost of Hatfield; the long-term rate of growth on the other hand depends on fundamental factors which have probably not been charged. What matters most is the path between now and the long-term and this will depend crucially on how the rail industry responds to the current crisis and on how customers respond in turn.

Would it be easier to strike a balance between safety, reliability and capacity issues on the rail network if the SRA took a leading role in determining the timetable?

  The SSRA already have an important role in determining the timetable through the establishment of a minimum public service requirement (the PSR). Train companies can add to this if they believe that there is a market for the additional services, or if they can persuade the SSRA or local authorities that there is a wider benefit which justifies additional subsidy.

  The SSRA also has an important role in providing investment for additional network capacity. This is needed to relieve bottlenecks which restrict the growth of the network and its reliability.

  The detailed determination of the timetable is and should be a matter for train companies.

Would it be possible to have more details on the special purpose vehicle proposed for the New Southern Railway referred to by Mr Ludeman in his oral evidence (Q.437)?

  GoVia is the preferred bidder for the South Central franchise which is currently operated by Connex. They have proposed a £1.5 billion investment programme of which £600 million is in infrastructure improvements.

  GoVia naturally wish to ensure that these infrastructure investments are delivered in a timely way. They are therefore exploring with Railtrack and other partners innovative ways of financing and managing this programme. One option is for GoVia, Railtrack and other partners to form a Special Purpose Vehicle (SPV). The reason that it is called a Specific Purpose Vehicle is that it is a joint venture company specially set up for the sole purpose of financing and constructing a specific programme of investments.

Alex McTavish

Director of Policy & Regulation

January 2001

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