MAJOR INFRASTRUCTURE ENHANCEMENTS
27. It became increasingly apparent that Railtrack
lacked the necessary financial and project management resources
to develop the network as originally expected. As a consequence
of this, in April 2001, it was agreed that Railtrack should concentrate
its efforts on maintaining the existing network, work has been
under way on a new procurement and funding framework for major
enhancement projects. In future, improvements to the network will
be developed by enhancement companiesjoint ventures between
the Strategic Rail Authority and a project management contractorand
implemented by 'special purpose vehicles'comprising consortia
that would fund, design and build specific schemeswith
schemes transferred to the infrastructure operator on completion.
28. It is envisaged that the use of special purpose
vehicles will be crucial for the development of the railway.
Some witnesses, such as Great North Eastern Railway, did not consider
it inevitable that special purpose vehicles, would create fragmentation
as they are simply a way of funding infrastructure upgrades.
Others were more cautious or critical. The Strategic Rail Authority
noted that the approach had yet to be used and that it was dependent
on the infrastructure operator providing information and assuming
responsibility for the scheme on completion.
Railtrack foresaw a number of problems with that approach when
applied to the upgrading of the existing network including the
allocation of risks relating to safety and train performance,
and did not think that special purpose vehicles would be seen
in practice before 2003/04.
The Rail Regulator thought that fragmentation might be increased,
at least for the duration of a project, depending on the type
of special purpose vehicle adopted. Once the project had been
completed, the enhanced assets would have to be transferred to
the infrastructure operator to ensure safety and economic efficiency
were not jeopardised.
29. A particular concern is that special purpose
vehicles should give better value for taxpayers' money than direct
funding of enhancements by the Strategic Rail Authority. This
will only be achieved if the basis for dealing with any cost or
time over-runs is properly defined at the outset, and if the results
can be measured, so that the special purpose vehicle has strong
incentives to hand over the completed project on cost and to time.
If the special purpose vehicle contract is unclear on any of these
issues, risk might be transferred back to the public sector, resulting
in poor value for money. It is difficult to see how the necessary
clarity in the contracts can be achieved without adequate knowledge
of the condition and performance of existing assets.
30. There is no simple solution to the conundrum
of how to upgrade railway infrastructure: Railtrack was not up
to the task and there is no evidence that special purpose vehicles
will be successful as they have yet to be used to enhance the
existing network. The fundamental problem is that the modernisation
work requires continuing large sums of public money over a period
of many years, which cannot be funded from the farebox alone.
The Treasury must accept this reality and provide the money needed
to pay for these projects. A full assessment should be carried
out before using the special purpose vehicle approach, taking
account of the risks involved, to ensure that it represents better
value for money than conventional public sector funding through
the Strategic Rail Authority.
31. If a special purpose vehicle is to be used
to take forward an enhancement scheme on the existing network,
clarity will be required in:
- the allocation of risks between the Strategic
Rail Authority, Railtrack's successor and those undertaking the
- the arrangements for minimising disruption
to the existing network; and
- the arrangements for transferring the enhanced
asset to Railtrack's successor on completion.
32. In spite of the benefits of this form of operation,
only a relatively small proportion of Britain's railways have
been electrified compared with many other European countries.
We recommend that the Strategic Rail Authority implement a
programme of electrification without delay.
33. The upgrading of existing lines is a complicated
and time-consuming process and causes considerable disruption
to services using while the work is carried out. The work is also
extremely costly and may be at least as expensive as constructing
new lines. The
Government should examine the costs and benefits of building new
railway lines alongside existing routes to reduce the disruption
to passengers and freight users when existing lines are being
upgraded. Ways of reducing the time that it takes to open new
lines should also be investigated.
34. Although the upgrading of the East Coast Main
Line is expected to be taken forward by a special purpose vehicle,
the modernisation of the West Coast route from London to Glasgow
is unlikely to adopt that model.
In view of the continuing delays and dramatically rising costs,
which have increased from £2.5 billion to £6.3 billion,
Railtrack had been discussing changes to the West Coast scheme
with Virgin Trains before the former went into administration.
As a result, some of the benefits of the modernisation project
might be postponed or lost and Virgin reportedly might receive
compensation of at least £300 million.
The Strategic Rail Authority is now involved in discussions on
the future of the project, and it was expected that it would be
two or three months before a decision is reached. The Secretary
of State warned, however, that it may be impossible to retain
all the original project's features because of the cost overruns
caused by Railtrack's failings.
It is extraordinary that the future of the West Coast Main
Line, a major strategic route, is again in doubt and that the
date for the completion of the upgrade remains unclear. We recommend
that the Government establish how and at what cost the West Coast
modernisation project can best be salvaged from Railtrack's mismanagement
and it sets a firm timetable for the completion of the work. The
scheme should be the priority and it will be seen as an important
test of the Government's commitment to implementing major enhancement