Rail funding plans prove DfT has no monopoly of ideas

 

Last week the Department for Transport (DfT) published a raft of papers on how rail enhancement projects will be chosen in future, including a couple of documents on a new framework for market led proposals (MLPs) that look, at first sight, to be contradictory.

Transport secretary Chris Grayling, who ended the week labelled ‘less than candid’ on the subject of rail enhancements, grabbed a few headlines with an announcement that ‘private companies have been asked to come forward with ideas to deliver a new southern rail link to Heathrow Airport’.

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Transport secretary Chris Grayling

In a statement to Parliament, Mr Grayling explained that: ‘Governments do not have a monopoly on good ideas for the railways.’ He made clear that he is looking for the private sector’s cash as well as its ideas, to unlock new private sector funding to invest in railway infrastructure across the country.

Mr Grayling said he was publishing guidance for market-led proposals ‘to provide clarity on what government is looking for from these ideas and the process by which it will consider them’.

In fact, the DfT published two documents on this subject. As well as the guidance, there was a ‘call for ideas’.

The second document states: ‘We are encouraging promoters and investors to bring forward proposals which are financially credible without government support.’

It makes the point again to head off anyone who asks: What if my proposal requires government funding? ‘This call for ideas is for proposals that are financially credible without government support.’

The first ‘illustrative example’ set out in the document is for a commercial new route, where an MLP in the form of a design and build contractor, supported by an investor, proposes a new route which passes through a housing development site with planning permission.

‘The MLP could fund 50% of the construction costs, with the remaining 50% raised through private finance. The business case would robustly illustrate how the financing costs could be met by the increased farebox revenue, subject to ORR consent. These payments would be made on the basis of asset availability.’

That all makes sense so far. Then the document adds: ‘The department could run an open competition for the design, build, finance and maintain (DBFM) contract which would present best value for money for taxpayers.’

This suggests that the DfT expects outside investors to pitch an idea for a new rail line, which would then be put out to competition, with the possibility that someone else would take the idea forward. The aim of the competition would be to secure value for money for taxpayers, who are, as the document has repeatedly stated and as the example sets out, not putting in any money.

The guidance document sets out two categories of MLP. One looks very much like the kind of thing the call for ideas is looking for, although it doesn’t say so explicitly: ‘A Category 1 MLP is one which ‘Does not require public funding that is provided either directly or indirectly by central or local government such as government grants or public financing guarantees […].’

However: ‘Category 1 MLPs are not required to enter a procurement or address the priorities set out in the Rail Network Enhancements Pipeline.’

‘A Category 2 MLP is one in which one or more of the following is true: Public funding is provided either directly or indirectly […].’

Returning to the call for ideas document, another illustrative example of a credible MLP ‘could be one that offers a traffic management system to enhance an existing signalling system - speeding up recovery times following a disruptive incident resulting in fewer compensatory costs for unforeseen train delays (Schedule 8 payments) and improved railway performance’.

Network Rail proposed something similar a year ago, albeit with the idea of using private funding to increase capacity rather than improve reliability.

However, the DfT’s call for ideas explains: ‘The MLP would provide all capital costs of installation (e.g. upgrading hardware, license to software, skills uplift), as well as the maintenance support for the system to ensure it operates effectively. The MLP would need to come to commercial terms with the train operating company, based on the savings and benefits provided by the system.’

This again gives the impression of not having been entirely thought through. As Transport Network and others have repeatedly pointed out, train operating companies are the recipients of Schedule 8 payments from Network Rail, which dwarf compensation to passengers. It’s hard to see how they would make savings to fund the improvements from reduced compensation.

These are a few of the issues that the Government’s plans to cash for rail enhancements through market led proposals raise. They may or may not succeed in this, but one thing is undeniable: ‘Governments do not have a monopoly on good ideas for the railways.’

 
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