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Select Committee on Public Accounts Appendices to the Minutes of Evidence


APPENDIX 1

Supplementary memorandum submitted by the Department of the Environment, Transport and the Regions (PAC 00-01/175)

DETR RESPONSE TO NOTE OF ASSUMPTIONS USED IN NAO ASSESSMENT OF CTRL VALUE FOR MONEY: GOVERNMENT CENTRAL CASE

BENEFITS

  INFB. Time savings. These are based on 14 minutes' time savings (47 per cent of 30 minutes, as per DETR assessment) from 2003-07 and for the whole period for Waterloo passengers. One third of trains/passengers are assumed to use Waterloo after Stage 2 opens (as per DETR assumption, advised in meeting with economists). Time savings of 30 minutes for St Pancras passengers as per DETR value for money assessments.

  I have reviewed source documents (see attachment) and conclude the appraisal is correct. The assumed time savings from Waterloo and St Pancras are shown below and when weighted give an approximate time saving of 32.5 minutes which is consistent with the appraisal of 30 minutes.


  Value of time growth assumptions have been corrected. The growth rate was 2.4 per cent a year in the DETR version. We have used the growth rates in HEN 2: ie 2.07 per cent until 2016, and 2.21 per cent a year thereafter.

  Agree the growth rates for the value of (international) time savings need to be lowered to be consistent with DETR appraisal guidance. An average value of 2.16 per cent per annum rather than the 2.4 per cent should be used. This reduces the present value of international non financial benefits from £1.8 billion to about £1.7 billion.[1] (Revised DETR appraisal guidance to be issued in November will probably lower the value of time growth rate to about 2.06 per cent per annum).

  Capacity benefits. These are based on Government Central Case patronage and yield figures in base case (unconstrained no-CTRL). Fares in the constrained no-CTRL case are then increased by (per cent difference between unconstrained case and 19.2 million capacity)/1.2 from when capacity reached. -1.2 is the weighted average price elasticity for business and leisure passengers.

  The difference between the with-CTRL fare and the constrained (NAO version) no-CTRL fare is the capacity benefit per passenger.

  For time savings and capacity benefits the rule of half applies, so those "existing passengers" (ie up to 19.2 million) get the full benefit. Those above that only get half of the benefit.

  No change to appraisal required.

  DNFB. The OPRAF figure for phased benefits has been input, at £800 million. The DETR has used the unphased figure of £1,000 million.

  Accept use of £800 million.

  Road decongestion benefits. These have been adjusted to take account of phasing of construction as in the DETR case. They stand at £30 million.

  No change to appraisal required.

  Environmental freight benefits. These are not adjusted to take account of phasing in the DETR calculations, but have been reduced here in the same way as road congestion benefits, so fall to £60 million (2/3 of £90 million).

  The environmental freight benefits come from releasing capacity on the existing network for freight operators. The bottleneck for freight trains is between Ashford and the tunnel and is relieved by Phase 1. Beyond Ashford freight trains travel on the existing network and their route does not conflict with Eurostar services. Therefore, the environmental benefits are dependent on Phase 1 and it is not appropriate to reduce them in the manner suggested by NAO.

  Regeneration benefits. These are estimated at £500 million by the DETR. However, the inclusion of an explicit monetary value for these benefits goes against DETR and Treasury guidance, as the methodology is not sufficiently robust. DETR has tried to avoid double counting of these benefits by removing a figure to represent those benefits already reflected in time savings, but the figure included is still very high. If regeneration benefits were included in the NAO assessment, this would turn the value for money assessment positive. We do not feel that the figure is sufficiently robust for the whole economic justification to hinge on regeneration benefits.

  Suggest NAO value for money appraisal is presented with and without monetised regeneration benefits. The latter would recognise the basic NAO point that DETR appraisal guidance does not allow for the inclusion of monetised regeneration benefits within a standard transport appraisal. The former would help the reader of the NAO report to understand that the project was not just about a fast rail link to the Channel Tunnel and increased domestic rail capacity. The project was equally about regeneration hence why there was so much argument about route choice and, particularly, the location of stations.

  Reduced Thameslink 2000 benefits. DETR originally had a figure of (£200 million) for the impact of the CTRL delay on the benefits of the Thameslink 2000 project. They removed them from the final assessment as they said there had been a two-year delay in Thameslink 2000 anyway. However, Footnote 12 of the DETR assessment of April 1998 stated that the CTRL delay was three years, so we have included an impact of (£100 million) on the Thameslink 2000 benefits.

  Accept inclusion of £100 million.

COSTS

  LUL and A2/M2 costs. These were originally (£130 million), but DETR removed them from the final assessment as they said the work would need to be done even in the absence of CTRL. However, closer reading of the text in the original assessment says that these works are specifically to fit in with the CTRL (Annex B, paragraphs B1 and B2), so the figure has been reinstated.

  Agree. In fact this should be a present value of £170 million because in 1998 the entire King's Cross Underground redevelopment was calculated as costing £205 million. This would have met CTRL needs as well as LUL's outstanding Fennel requirements and non-CTRL-generated growth. If there was no CTRL, then LUL would have undertaken a scheme costing £35 million to meet its requirements.

  Government grants, etc. The direct grants are (£1,800 million).

  Additional support. The DPM's announcement on 3 June 1998 gave a figure of (£140 million) in the Government Central Case. The DETR's final assessment rounded this down to (£100 million), but we have input the correct figure of (£140 million).

  Agree figure should be a present value of £140 million.

  OPRAF subsidy (after phasing). This has been taken from the OPRAF paper of 19 June 1998 and includes the impact of phasing the CTRL. This gives a figure of (£250 million), rather than the unphased (£400 million) included in the DETR assessment.

  Accept should be a present value of £250 million.

  Eurostar revenue forgone. The DETR figure of £440 million has been retained.

  No change proposed.

  Thameslink 2000 work avoided. The costs of the project include works for Thameslink 2000 at St Pancras, and the DETR assume that this would have to be funded from another source if the CTRL did not go ahead. However, the Thameslink 2000 project is currently subject to a Public Inquiry so is not yet certain to go ahead. As the costs are not yet committed, we have removed the costs avoided.

  We do not accept this point. The Thameslink project is subject to the outcome of the public inquiry, however, we believe the modelling and appraisal assumption to assume the project will go ahead is reasonable. Indeed, other financial impacts of the Thameslink 2000 scheme are assumed elsewhere in the appraisal. Moreover, if we were to follow the NAO suggestion the alternative is not to exclude these forgone costs. If Thameslink 2000 were not built as proposed it would have much greater implications for the design and costs of the CTRL scheme with respect to the impact on LUL and the existing Thameslink line.

  Eurostar debt payments avoided. Although Treasury says that Eurostar debt does not count as public expenditure, debt repayments avoided have been included at £400 million. These have been retained in our calculations.

  Project wind up costs. The DETR figure of £110 million has been retained.

  No change proposed.

CTRL VALUE FOR MONEY ANALYSIS: MAY 1998 NAO REWORKING

  
  
  
Gov Central
Gov Downside
  
Gov Central
DPM submission
21 May 1998
Gov Central
NAO assessment
August 2000
Proposed DETR 1998 base October 2000
ex Regen
Indicative NAO base October 2000
ex Regen
International non-financial benefits
1,800
1,400
1,700
  
1,550
  
Domestic non-financial benefits
1,000
800
800
  
800
  
Road decongestion
30
30
30
  
30
  
Environmental freight benefits
90
60
90
  
90
  
Regeneration benefits
500
0
500 or
0
500
0
Reduced Thameslink 2000 benefits
0
-100
-100
  
-100
  
TOTAL BENEFITS
3,420
2,190
3,020 or
2,520
2,870
2,370
  
"around £3 billion"
  
  
  
  
  
LUL and A2/M2 costs
0
-130
-170
  
-170
  
Government grants etc
-1,800
-1,800
-1,800
  
-1,800
  
Additional public support
-100
-140
-140
  
-360
  
EURL revenue forgone
-440
-440
-440
  
-400
  
SRA subsidy of domestic services
-400
-250
-250
  
-250
  
Repayments of F1 debt and interest forgone
400
400
400
  
400
  
Thameslink costs forgone
240
0
240
  
240
  
Advance land and project wind up costs forgone
110
110
110
  
110
  
TOTAL COSTS
-1,990
-2,250
-2,050
-2,050
-2,230
-2,230
NPV
1,000
-60
970 or
470
640 or
140
Benefit Cost Ratio
1.72
0.97
1.47
1.23
1.29
1.06
  
"about 1.5:1"
  
  
  
  
  


  January 1997 prices, discounted at 6 per cent per annum to 1997.

BT/DETR

November 2000

COMPARISON OF JOURNEY TIMES FOR INTERNATIONAL TRAINS

  
Reference journey times
(Schedule 1)
  
  
Without CTRL
With CTRL
LCR 270 km/h times
With CTRL
Differences between Schedule 1 and LCR times
  
FromTo
Down
Up
Down
Up
Down
Up
Down
Up
See note
WaterlooCheriton
71
71
50½
49½
52
50½
1
A
FawkhamCheriton
22½
21½
24
22½
1
A
St PancrasCheriton
32
31½
32
32
0
½
C
St PancrasStratford
6
½
0
B
St PancrasEbbsfleet
13½
14
14
14
½
0
C
WaterlooAshford
59
59
46
46
47½
47
1
A
FawkhamAshford
  
  
19½
19
  
  
  
St PancrasAshford
27½
28
27½
28½
0
½
C
StratfordCheriton
28
27½
28
28
0
½
B
EbbsfleetAshford
17
16½
16½
16½
0
C
EbbsfleetCheriton
21½
20
21
20
0
C
StratfordEbbsfleet
10
10
10
½
0
B
AshfordCheriton
13
13
8
7
½
½
C





  Notes:

  *  Times are based on VISION simulations, plus 5 per cent performance allowance, rounded to nearest ½ minute. All times are net of station stop times.

  A  Additional 1½ minutes on Gravesend West Branch between Fawkham Junction and Southfleet Junction is attributable to enhanced detail and lower speed restrictions now included in VISION compared to earlier runs.

  B  Additional time taken for Stratford station stop as a result of station detail now loaded into VISION, including 70 km/h turn-out speeds into platform loops.

  C  Inconsistency with previous times results from cumulative effects of roundings.

  Source: "Operational Simulation of the CTRL by the Project Representative", 4 July 1996, Simon French.

DETR

1 November 2000


1   Spreadsheet IGCE October 2000: Consumer surplus: Method C = £3.315 billion, of which UK residents' share is 50 per cent or about £1.7 billion. Back


 
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