Memorandum by Mowlem plc (LR 33)
INTEGRATED TRANSPORT: THE FUTURE OF LIGHT
RAIL AND MODERN TRAMS IN BRITAIN
INTRODUCTION
This submission is made by Mowlem plc, one of
the UK's foremost construction services companies that has significant
experience of light rail systems in the UK.
The Mowlem experience extends from building
tramway systems in London in the early 1900's to the provision
of the first light rail in Manchester under a design, build, operate
and maintain contract taking full revenue and patronage risk.
Mowlem also completed most of the London Docklands Light Railway
(DLR) including the first and very successful PPP extension under
the Thames to Lewisham.
Our response to your enquiry is based on this
experience which we feel is relevant to your Committee.
Q. The costs and benefits of light rail.
In 1992 the initial phase of Manchester Metrolink
provided the benefit of a safe, reliable, comfortable and convenient
means of transport for people travelling in from Bury and Altrincham
to the city centre and for modal interchanges at Victoria and
Piccadilly stations.
After the first two years of operation the Metrolink
carried over 26 million passengers and took over a million car
journeys off the road, which endorses the need to have modern
light rail schemes in our major cities.
The capital cost of the Manchester system was
minimised by the GMPTE undertaking the utilities diversions and
street works upgrades separately so the main contractor was able
to quantify the design build risk they undertook.
One of the most significant benefits of the
initial DLR was that it provided the infrastructure catalyst that
attracted developers into the area which provided urban regeneration
and increased land values which were used to fund the extension
to Beckton.
The capital cost for the initial DLR scheme
was contained within a design build contract undertaken by GEC
Mowlem who provided a complete system on time and to budget. Upgrading
of the first contract works commenced before the initial scheme
was completed.
Q. What light rail systems need to be successful.
A defined need which is a public transport corridor
that links areas of demand and provides sufficient patronage and
modal transfer to permit a high quality LRT scheme.
Political will that supports and encourages
LRT in conjunction with other transport modes to provide passengers
with seamless, door-to-door journeys.
Funding by both the private and public sectors
that recognises an equitable share of risk to the party that is
best able to manage it.
A long-term view that recognises that LRT is
value for money compared with buses which have lower capacity
and higher replacement and running costs.
An integrated public transport system where
the LRT are not run as competition to other forms of transport.
Q. How effectively is light rail used as part
of an integrated transport system.
Phase one of Manchester encountered particular
difficulties in getting the funding and permission necessary to
link it directly into the Piccadilly station so providing passengers
with a direct connection between heavy and light rail.
If this connection had not been achieved the
benefits of integrating the modes would have been lost.
DLR is a very good example of being part of
an integrated transport system that provides real passenger benefits.
People arriving by heavy rail at Waterloo can travel to Canary
Wharf by underground and LRT and if arriving by bus at Lewisham,
can go directly under the Thames by DLR to Canary Wharf.
The DLR is presently being extended to Woolwich
Arsenal via London City Airport which will provide a link into
Bank station, it also links to Stratford station for heavy rail
and Channel Tunnel rail link.
All these modes can be used by purchasing one
Travelcard ticket.
Q. Barriers to the development of light rail.
The track record for delivering of UK LRT schemes
compared to that of EU is poor. The gestation period for development
and funding of LRT projects is tortuous and complex with most
schemes taking 5-15 years to deliver.
Schemes such as Midland Metro and Sheffield
have failed in meeting passenger forecasts predicted during the
development stage, this has translated into poor revenue returns
for the private sector. In addition, on Nottingham and Croydon,
the transfer of utilities and full design & build risk has
meant losses for the concession companies involved.
The need to form multi-discipline consortia
and the cost of bidding has also been a barrier when these schemes
are procured on a PFI basis.
The above factors have led to disillusionment
and loss of appetite in pursuing LRT schemes in the UK, especially
against a background of less risky and more certain PFI projects
in the health and education sectors.
The expectation from the public sector that
good value for money is obtained by passing farebox risk to the
private sector. This results in the public sector paying for a
risk element or the concession companies going into receivership
as a result of over optimistic forecasts.
Q. The effect of different financing arrangements
(public/private) on the overall cost of light rail systems.
The PFI method of financing, building, operating
and maintaining LRT schemes in the UK transfers most of the risks
to the private sector; these risks have to be costed and financed,
including those that are not fully defined such as revenue, patronage,
planning, utilities, insurance, and long-term maintenance.
The underpricing of these risks has led to the
Croydon, Nottingham and Midland Metro schemes getting into financial
difficulties with significant losses to the private sector companies
involved.
The consequence of this experience has caused
cost escalation on the present LRT bids for Manchester extensions,
Leeds and South Hants. Also, the withdrawal of companies from
the Light Rail market and much higher IRR expectation for the
financing agencies.
The most successful example of financing an
LRT scheme is the DLR which has used different arrangements during
its development.
The initial DLR was financed by the public sector
using a design, build procurement when it was found that the traditional
consultant design contractor build was too expensive.
The extension to Beckton was traditionally procured
using public funds that were generated by the sale of land at
increased value on the Isle of Dogs. The value increased because
the DLR provided the catalyst to attract developer funds which
then regenerated the area.
The DLR extension under the Thames to Lewisham
was financed under a PPP procurement using public and private
(mainly Bond) funds on an availability and part revenue risk,
concession basis. The risk of rolling stock, operations, signalling,
planning and most of the revenue was with the public sector.
This project was completed two months early
and on budget which is a great success when compared with the
Jubilee Line which was being built at the same time on a traditional
basis with public funds; it went significantly over budget and
programme.
The most recent DLR extensions to the Airport
and Woolwich has used PFI procurement with the public sector paying
an infrastructure availability fee for a concession period. The
risk of revenue, patronage, rolling stock and its maintenance,
the operatives and signalling system are retained by DLR. The
private sector has the financing, design, build and alignment
availability risk.
This DLR model of financing and procuring Light
Rail schemes gives a much better risk distribution between the
public and private sectors in a way that provides a realistic
cost for the scheme.
In addition, the bidding process was short with
an early selection of preferred bidder so bid costs were reduced.
The bid documentation contained good surveys
to allow below ground risks to be priced. The financing risk was
definable, giving lower IRR based on availability fees.
Much of this is because the authority is informed
and has carried out the process previously; some attempt should
be made to use the skills and best practice used in the DLR procurement
to be transferred to other projects.
Q. The practicality of alternatives to light
rail such as increased investment in buses.
Mowlem were involved in providing the dedicated
guided bus ways for Leeds, the capital cost of these when compared
with a single track on street LRT were cheaper but not significantly
so.
Where buses are using the roads they are adding
to the surface deterioration and do not have to pay the full cost
of repair and maintenance.
Buses generally means fossil fuels.
Buses are more expensive for larger passenger
volumes but are effective in providing feeders to LRT termini.
February 2005
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