Memorandum by South Hampshire Rapid Transit
(LR 86)
PHASE 1: FAREHAM—GOSPORT—FAREHAM
INTRODUCTION—SCHEME
DESCRIPTION AND
STATUS
South Hampshire Rapid Transit Phase 1 (SHRT
1) is a proposal for a 9 mile light rail system between the town
centres of Fareham and Gosport and Portsmouth City centre and
is being promoted jointly by Hampshire County Council and Portsmouth
City Council. It would provide a new permanent link, via a tunnel
under Portsmouth Harbour, which enables a seamless journey to
be made between the Fareham—Gosport peninsula and Portsea
Island. It also utilises a disused railway for two thirds of the
route, which provides for swift reliable journey times.
SHRT 1 has been in development since 1990. It
has been through extensive consultation with members of the public
and key third parties. In March 2001 approval for £170m (npv)
of public sector funding was obtained and in July 2001 the Secretary
of State for Transport granted the TWA Order, which meant the
negotiated procurement process could be started.
Procurement followed Treasury guidance for the
public private partnership route, with invitations to tender issued
to three pre-qualified private sector consortia in June 2002.
One bidder dropped out two weeks before the deadline for tender
returns but in December 2002 two consortia returned bids for a
concession lasting 33 years to design, construct, operate, maintain
and part finance the system. The bids exceeded the approved funding
limit, which after a protracted project review led to the transport
secretary deciding not to approve the additional cost. The Department
then revoked the funding agreement for SHRT1 in July 2004.
Both bidders remain committed to what is a stalled
procurement process. In September 2004 DfT officials requested
that the promoters review the scope of the scheme and the risk
profile to see if substantial savings could be made. This is proceeding
with a revised submission planned for March 2005.
THE COSTS
AND BENEFITS
OF LIGHT
RAIL?
Light rail schemes, like other transport schemes
are evaluated in cost benefit terms using the standard methodology
required by the DfT (and HM Treasury) for major investment in
the transport system. The outcome is a benefit cost ratio (BCR)
that enables the performance of a particular scheme to be compared
with alternatives as well as other schemes in different locations
throughout the UK. The method, however, quantifies benefits which
focus on the transport essentials and fails to capture the full
potential value that light rail can help to deliver in terms of
local regeneration and economic growth. A recent move to quantify
economic impact attempts to capture more of the potential benefits
that light rail schemes can deliver but the results are still
likely to understate the value of light rail in the wider transport,
land-use and regeneration context. The point is given further
weight by the empirical evidence gathered for the PTEG report,
"The Case for Light Rail".
Typically the performance of light rail in metropolitan
areas is considered against the circumstances where it would overlay
existing public transport such as an existing underperforming
heavy rail line or an over capacity bus route. In these situations
the case stands on the added value of light rail over the existing
public transport service. As a consequence it is often more challenging
for light rail to demonstrate a high BCR. The exception is where
a light rail proposal would provide a new link in the public transport
network. Such is the case for SHRT 1, which utilises a disused
railway formation and provides a new permanent link across Portsmouth
Harbour. As a result it has a BCR of 3:1, which places the scheme
in the high value for money bracket.
WHAT LIGHT
RAIL SYSTEMS
NEED TO
BE SUCCESSFUL?
Government and local authorities need to reach
a common and thorough understanding of light rail and the circumstances
in which it can deliver added value over alternative modes so
that these characteristics can be applied effectively to particular
situations. Of equal importance is that projects are brought forward
inline with established priorities and affordability constraints.
Regional economic, transport and spatial strategies should provide
the reference framework for setting future investment priorities
including light rail schemes. This strategic approach should provide
a more stable environment to support the delivery of effective
projects.
Most elements of the delivery process require
cross working to achieve objectives. For example, light rail schemes
will be more successful serving high-density residential areas
where public transport is given priority over other road users.
To achieve this requires the collaboration of public transport
executives, private sector public transport operators, and highway
and planning authorities. Such an arrangement is recognised in
South Hampshire and has led to the formation of Solent Transport
Partnership. This initiative has established a partnership of
transport operators, representative organisations for the private
motorist, freight organisations and local businesses, local authorities,
and regional and national government organisations. In March 2003
members signed the Solent Transport Charter to assist in achieving
sustainable economic growth for South Hampshire. This integrated
management approach acts as a delivery device and progress is
already manifest with the recent introduction of the Solent Travel
Card, which is valid across all bus services and will shortly
cover trains and ferries.
HOW EFFECTIVELY
IS LIGHT
RAIL USED
AS PART
OF AN
INTEGRATED TRANSPORT
SYSTEM?
It is perhaps helpful to consider an integrated
transport system from three aspects.
(1) that the physical design of the system
provides for accessibility and connections between different travel
modes;
(2) that integrated services are established
involving bus feeder connections and heavy rail services, together
with Park and Ride facilities, which together coordinate travel
across the local transport system; and
(3) that travellers benefit from the convenience
of integrated ticketing and co-ordinated real time travel information
services.
By its nature light rail provides connectivity
benefits by being able to link directly with principle travel
origins and destinations. A well-designed scheme should take full
advantage of this potential. Co-ordinating light rail services
with buses and heavy rail presents more of a challenge particularly
if the system provides scope for commercial competition between
travel modes. Ideally the superior level of service offered by
light rail should avoid the need for regulating against wasteful
competition from other modes, particularly buses. For example
the SHRT1 project would enjoy a competitive advantage over other
modes, due to the dedicated tunnel under Portsmouth Harbour. A
well designed light rail scheme with a clear competitive advantage
over car travel can grow the local public transport market and
in these circumstances commercial bus operators have a business
interest in providing services that feed the light rail corridor
instead of competing with it. In most circumstances it will however
not be possible to rely on this self regulation and light rail
promoters will need to consider how best to moderate commercial
freedom through quality bus partnerships and quality contracts.
BARRIERS TO
THE DEVELOPMENT
OF LIGHT
RAIL?
These can be split into pre and post procurement
process.
Pre-procurement the Transport and Works Act
process often leads to the promoters being obliged to undertake
protective measures designed to keep third party interests whole,
in particular the public utilities and Network Rail. This has
commercial significance on later value for money and affordability
issues, which is very often not recognised by the promoters during
the planning phase. Effective risk management processes need to
be put in place earlier to enable risk to be removed or mitigated
at the appropriate time. If this is not achieved promoters could
be placed in a position where to finalise a contract with the
private sector becomes prohibitively expensive. Better value for
money could be achieved in striking the right balance of public
interest with institutions such as public utilities and Network
Rail, where the outcome is agreed at national level.
During procurement the complex delivery of light
rail schemes requires effective project management. The Department's
past involvement can be described as being at arms length as it
tends to delegate the delivery authority to the light rail promoters.
This delegation however comes without investment authority and
recent events have shown this approach to be unsustainable leading
to the revocation of funding on three light rail schemes. More
effective change management control involving the Department directly
during procurement development could have avoided this breakdown
in trust.
The light rail programme launched in 2001 introduced
a step change in the value and complexity of business to be delivered
using Local Transport Plan resources. Local delivery teams were
supported by specialist advisers but this expertise was not extended
to the local transport team at DfT. Consequently unfamiliarity
with the specialist procurement skills required to deliver these
complex programmes has prevented the Department from taking an
active part during the delivery process. Arrangements to rectify
this are now being implemented by the Department.
Better supply chain management is needed. The
light rail programme has not benefited from any effective programme
management. There could be considerable benefits from a more reliable
deal flow in the light rail sector. Greater consultation with
the industry at large is needed.
At a strategic level DfT need to take ownership
of the national light rail programme and to engage with suppliers
to raise the confidence over the actual commercial opportunities
in the sector. It should be noted that the collapse of light rail
procurement has put supplier confidence at an all time low. Industry
forums such as UK Tram will be able to support DfT in this leadership
role.
The committee will receive representations from
others regarding the benefits of greater consistency of standards
and specifications across the industry.
THE EFFECT
OF DIFFERENT
FINANCING ARRANGEMENTS
(PUBLIC/PRIVATE)
ON THE
OVERALL COST
OF LIGHT
RAIL SYSTEMS
The market response to procurement based on
PFI principles suggests a more conventional approach would deliver
better value for money. It appears that the PFI approach has been
destabilised by the stance taken by promoters in passing all revenue
risk to the private sector. Splitting the infrastructure provision
from the system operation, such as the model used on Docklands
Light Railway, may well treat market failure. However, there is
a danger that there could be an over reaction as light rail promoters
retain more risk. In doing so they need to ensure that they appreciate
the type and scale of risk and that they have the competencies
in place to manage it.
The underlying philosophy of applying PFI procurement
for light rail remains sound but the delivery has been flawed
mainly by transferring full revenue risk.
THE PRACTICALITY
OF ALTERNATIVES
TO LIGHT
RAIL, SUCH
AS INCREASED
INVESTMENTS IN
BUSES?
Light rail can be the right transport option
in certain locations. As with any investment decision, you must
be prepared to have confidence in your options appraisal and evaluation
methodology, and its conclusions. It should however, also be recognised
that affordability pressure can result in decisions that appear
perverse in hindsight when systems are designed for 30 to 60 years.
February 2005
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