Memorandum by Serco Integrated Transport
(LR 68)
THE FUTURE OF LIGHT RAIL AND MODERN TRAMS
Serco is an international task management contractor
to government and industry, providing comprehensive engineering
and support services across a wide range of applications. Around
90% of Serco's business is with government and some 25% comes
from outside the UK. The Company's capabilities derive from the
extensive knowledge and experience of its 34,000 plus employees
on all seven Continents in over 36 countries throughout the World.
Today, Serco runs over 500 contracts around the World, spanning
the transport, defence, health, science, state and local government
sectors and has made a significant investment in a research institute
that ensures international best practice is shared throughout
the Group's worldwide business. Serco Integrated Transport operates
the award winning Docklands Light Railway, Manchester Metrolink
and the new Copenhagen Metro.
If requested to do so, Serco would be happy
to be called as witnesses to give evidence to the Transport Sub
Committee and to answer any questions and clarify or expand on
any of the points raised.
LIGHT RAIL—A
SUCCESS OR
A FAILURE
1. INTRODUCTION
Light Rail Policy in the UK demands that a full
Benefit Cost Analysis (BCA) is completed taking into account all
factors including, but not limited to, the forecast patronage,
modal shift, environmental and commercial benefit, social inclusion
and cost of designing, building, operating and maintaining the
system. One of the major problems faced is the exuberance of the
promoters of many such schemes regarding revenue expectations
and the often overly optimistic assumptions when it comes to design,
build, operate and maintenance costs. This results in an overestimate
of the debt capacity which can be supported which ultimately could
manifest itself as a perceived continuous increase in the grant
required to support the venture. Recent problems in patronage
build up on some systems after opening has exacerbated the problem
with the Lenders who are taking a very pessimistic view of forecast
revenues that therefore limits the borrowing capacity. This paper
therefore attempts to provide suggestions as to how Light Rail
systems in the UK can be developed in such a way that both the
Public and Private Sector can develop a solution in partnership
with risks being managed by those best able to mitigate them and
with the requisite incentives for both parties to ensure a successful
outcome with no surprises.
2. BENEFITS OF
LIGHT RAIL
2.1 Air Quality
Though now better than for many years air quality
is still a serious problem, particularly in urban areas where
there are significant health effects. The use of LRT emitting
no pollutants from the vehicle at the point of use goes a long
way towards cleaner air. This is valuable in urban areas and traffic
corridors where a modal shift to the system would reduce the high
concentrations of pollutants generated by motor vehicles.
2.2 Congestion
The use of LRT helps in a very positive way
to reduce congestion.
A conservative estimate puts the total number
of car journeys saved as a direct result of trams at between 10-12
million, in Croydon alone the number is between 3-4 million. If
the average car journey is eight miles round trip then this means
a saving of over 80 million miles per year and more than three
million gallons of fuel. Not only does the motorist save but the
environment benefits from a reduction in local pollutants of more
than 23,000 tonnes carbon dioxide.
2.3 Comfortable
Comfortable, quiet and safe; LRT systems reach
right into city centre pedestrianised areas; are relatively economical
to use, run frequently such that a timetable is unnecessary, and
surveys have shown that modal shift from private car is much more
likely than with bus.
2.4 Indirect benefits
For people who don't use LRT but would benefit
from its construction for example, an accident associated with
driving comprises a significant cost to the economy. Loss of life,
personal injury, medical costs, property damage and human suffering
represent declines in economic productivity, time away from work.
There is an accident risk associated with any
type of travel, regardless of the mode. However, road vehicles
have a greater accident risk than LRT systems and by encouraging
modal shift from highways to LRT, the number of accidents would
decline and remaining highway users benefit from travel time savings
as they become less congested.
2.5 Impact on property values
Proximity to LRT systems has been shown to improve
property values. The average property value increase near stations
is in excess of 6% when compared to similar property located further
away and vacancy rates are lower for commercial properties near
stations.
2.6 In summary
The year 2004 saw an encouraging increase in
the usage of Britain's LRT's systems, 4.9% excluding the newly
opened Nottingham Tram system and in particular the number of
motorists that abandoned city driving, choosing instead to go
by LRT.
Even though some systems are already at close
to full capacity, this compares to the 3.9% rise on national rail,
3% on buses and 0.6% on London Underground.
Where towns and cities have shown the lead in
introducing or re-introducing LRT systems, local motoring populations
have seen the sense in leaving the car at home or outside the
central areas LRT systems are now regarded as the type of public
transport most likely to attract motorists out of their cars,
the reasons cited being convenience, comfort, security, speed
and cost
3. ALTERNATIVES
3.1 Buses
Although a necessary form of transport and an
important element of any integrated transport solution, there
is enough evidence from various cities both in the UK and Europe
that car drivers cannot be tempted in large numbers to transfer
from their cars to buses. However, a much larger proportion are
prepared to use public transport when LRT systems is the main
form of transport for all or part of their journey, eg where buses
feed into an LRT system. The bus does not offer the same advantages
with reducing congestion and air quality in city centres. The
bus cannot compete with travel times achieved with most LRT systems.
The UK bus market, with the exception of London, is deregulated
and therefore has less control from local authorities in route
design, headways and times of operations. Should bus operators
outside London be asked to operate along major transport corridors
at defined headways and operating hours, then most likely a number
of operators will ask for operating subsidies.
4. RECOMMENDATIONS
TO ENSURE
THE SUCCESS
OF LIGHT
RAIL
4.1 Revenue
Patronage forecasting confidence remains low
on new systems, despite various methods used and financier assessments
and most lenders will take pessimistic forecasts to mitigate the
risk of failure to meet debt payments. Lenders are not operators
and the ability to "step-in" is a mechanism of last
resort since it rarely solves the core problem of lack of revenue
unless the Operator is failing so badly. Mitigation of this risk
by the Authority, who is best placed to "encourage"
use of the system through changes in subsidy and ticketing strategy
across the whole Public Transport system in partnership with a
suitably incentivised Private Sector operator would give much
greater "comfort" to the Lenders and subsequently permit
higher levels of borrowing.
4.2 Financing
Financing new schemes is an important element
in ensuring the viability of new LRT systems and the time and
process of developing these schemes need to be reviewed and shortened
where at all possible. LRT projects in Britain face difficult
challenges from their conception, especially getting clear Government
support for projects. The drawn out bid process employed under
OJEU rules does not facilitate the decision making process, in
many cases the project costs continue to rise just due to the
length of the bid period. Every effort must be made by the promoter/authority
to select a preferred bidder as soon as possible and to work together
for a pre-agreed period to reach financial close to mitigate this
risk.
4.3 Utility Diversions
These have become a major cost in building new
LRT systems or extensions. Utilities such as water and gas mains
are usually dug up and moved when a new LRT system is built on
streets in order to facilitate easy access in future. Utility
diversions can therefore be a significant capital cost element
of LRT systems. In the case of Croydon this was 10% of the £200
million construction cost.
Constructors of new schemes have to pay 92.5%
of the costs of diverting utilities whilst Utility companies pay
7.5% they gain the cost of having new infrastructure and considerably
less maintenance costs. There must be a more equitable way of
dealing with this but it requires the full support of the Authority
who is in a much stronger position to deal with utility providers.
4.4 Involvement of the Private Sector
Most local authorities employ various consultants
to assist in the planning and design of new schemes to allow recommendations
to Government on BCA and the estimation of funding required. Only
once this is complete and the tender process starts, does the
private sector become involved and only then are the full requirements
established and a determination of risks and their ownership identified.
This has led to the true cost of these schemes being realised
after agreement on funding requirements has been reached with
Government. Greater ownership from such advisors in the original
estimates together with the early involvement of the private sector
is required in order that large discrepancies are avoided (ie
to ensure that the answer initially provided is not what the Authority
want to hear necessarily but what they need to know)
4.5 Involvement of Property Developers
A number of highly desirable properties are
often developed along the LRT corridors as part of regeneration
and the Authority should take more advantage of the increase in
property values along transit corridors. A number of European
schemes have tapped into this market and use funding from developers
to help offset the cost of LRT's. There is little or no property
developer involvement in the UK schemes and therefore possible
links to assist in funding has not been fully explored. A number
of new developments have already been built in and around the
Manchester Metrolink's Phase 3 corridors, in anticipation of the
opening of the new extensions.
LRT systems benefit from high density land use,
around some stops, particularly housing. Conversely where there
is land for development that may remain undeveloped for a long
period of time then the building of stops should be delayed to
avoid stops being isolated and creating public concern for safety.
This can be eliminated with a coordinated development approach
and operational efficiency is enhanced in early years in this
way.
4.6 Transport Integration
Both current and future passengers are looking
for the seamless journey from home to work with the shortest possible
journey and where necessary the shortest connection time. In London
the regulated transport market and ticket integration has aided
the success of Docklands Light Railway and Croydon Tramlink. However
outside London integration with bus services is perceived to be
poor and with de-regulation the major bus operators generally
compete with LRT's rather than act in harmony as feeders. Due
to financial constraints within the bus sector routes and timetables
remaining uncoordinated and there is little integration; the only
exception to this is Nottingham Express Transit where the local
bus operator has a significant role within the LRT operating consortium.
However the operators of both bus and LRT have to ensure that
competition law enforced by the Office of Fair Trading is not
broken.
4.7 Early Operator Involvement
Some LRT systems have experienced early operational
problems. Most problems are due to late and often inadequate integration
of various systems and the pressures of competition have often
led to inexperienced consortia winning on price by reducing spend
on early mobilisation activity and thorough systems integration
and testing, at the cost of poor reliability on opening and subsequent
lack of revenue and ridership. Whereas the experienced operators
may mitigate this risk through more rigorous testing, they could
be considered to be over priced. The recognition and insistence
of Early Operator Involvement by the authorities could help mitigate
this risk.
4.8 Risk
The private sector is naturally cautious but
not necessarily risk averse, so as new LRT schemes are tendered,
planners and financiers take cautious and prudent views of ridership
and fare revenues. On the other hand the public sector is requiring
more risk transfer and as more risk is passed to the private sector,
then risk margins increase the overall costs. A more optimum balance
of risk transfer needs to be agreed between both the public and
private sectors to allow a more realistic approach to costing
risk.
4.9 Reliability and service delivery
A number of issues have occurred in LRT systems
due to poor reliability of assets or longer journey times than
expected. It is essential for LRT to be able to deliver a safe,
reliable a fast form of transport if ridership numbers are to
be achieved. This starts at the procurement stage, with consideration
given to whether there is one contract for the design, build and
operation or whether separate contracts are let for each of the
individual elements of the service, the latter introduces more
integration risk. Consideration should be given to the industry
as a whole as current operators may be able to advise on development
of future routes or new schemes and drivers and engineers working
on existing fleet of vehicles should be consulted in the design
of future vehicles. Operational parameters should, ideally, be
fully included in construction contracts to avoid unnecessary
operating costs.
Robust and workable incentives and penalty systems
should be imbedded in contracts to insure that a partnership approach
is achieved by contractors and clients to find the common objectives
eg increasing patronage through ensuring everyone supports actions
whilst being clear on costs and funding thereby jointly managing
the project to ensure the delivery of a sound and robust LRT system.
5. ACTIONS REQUIRED
|
| Barriers | Issues to be addressed
|
|
| Transport Integration | Further develop Quality Bus Contracts
Review feeder routes and ticket integration
Review integration in the design stage
|
| Financing | Local authorities to review alternative forms of funding, including economic benefits where schemes increase the value of local trade property and land values
Further review the options to raise funds from the powers given in the Transport Act 2000
|
| Utility Diversions | A review of cost associated with utility diversions should be undertaken
A cost benefit analysis should be undertaken on savings on maintenance once diversion is complete
Is Light Rail subsidising the utility companies on capital expenditure?
|
| Private Sector | Private sector partnering in the design stage will ensure that best practice and knowledge about what has worked well elsewhere both in this country and abroad. Learn from lessons learnt to avoid the same mistakes
|
| Property Developers | More robust working arrangements to be established with developers to aid the funding and community growth along Light Rail corridors
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| Risks | Review of risk transfer between public and private sectors could help reduce costs and attract more private sector investors
|
| Reliability | Use the private sector and other operators to learn from the lessons learnt from other schemes
Have a robust procurement strategy
Work in partnership with sound incentives and penalties to ensure service delivery and revenue targets are met
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John H Taylor
MD Urban Transportation
February 2005
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