Peer review: Tim Burleigh
Relationship Development Manager, Eversholt Rail Group
Mike’s article rightly highlights the rapidly changing nature of the UK railway, and the expectation of continuing demand growth. A key aim of the industry’s long-term rolling stock strategy was to raise stakeholder awareness of the quantum and type of additional rolling stock, and the investment that would be needed to meet a range of demand growth and electrification scenarios.
The industry must meet this growing demand affordably and ensure that growth is sustained by providing solutions that appeal to passengers as well as train operators. We believe that this is best achieved through a combination of new-build procurement and targeted enhancements to existing rolling stock.
In both cases, the solutions must combine reliability - a major driver both of passenger satisfaction and dissatisfaction - with a passenger environment and functionality that meets ever-growing expectations. This is not a ‘once and for all’ activity, and requires regular reappraisal throughout the product lifecycle. Investment in concept demonstrators for suburban and intercity rolling stock has provided invaluable stakeholder feedback to inform future specifications.
Electrification and other improvements to enhance the overall capacity of the ‘Classic’ network (soon to be overlaid with the impact of HS2, HS3 and other high-speed lines) increase the likelihood of rolling stock cascade. In recent years, we have seen a range of diesel and electric fleets, several of them very early in their service lives, redeployed and reconfigured. This trend will undoubtedly continue. Mike also outlines how the major rolling stock manufacturers supplying the UK market have developed core product families. These families are well-aligned with the categories and roles suggested in the industry long-term rolling stock strategy, yet provide flexibility to tailor some aspects (such as seating configuration) to meet specific operator needs.
It’s also worth noting that within each of these product families (particularly the Bombardier Electrostar and Siemens Desiro EMUs) there has been considerable evolution to incorporate technologies and features that both maximise reliability and reduce operating costs and environmental impact. We must be careful not to stifle such evolution and innovative solutions through an excessive insistence on backward compatibility.
Consideration of ‘standardisation’ should also embrace more than just the rolling stock design itself - it’s also about how and where the trains are deployed. Greater effective capacity can be achieved from the existing UK passenger fleet, by ensuring that future cascades are targeted at building up a critical mass of rolling stock well-matched to the needs of the region or franchise, rather than a variety of smaller fleets.
It is more important than ever that the specification of new-build rolling stock and the enhancement of existing fleets is undertaken with a long-term perspective on utility and flexibility, to maximise the potential for future redeployment.
Peer review: Alistair Dormer
Global Chief Executive Officer, Hitachi Rail
Mike Jones delivers a factual history of rolling stock procurement in the UK over the past 50 years or so. Rolling stock procurement methods have been hotly debated in the rail and national media over the past few years, unlike any other market known to Hitachi. This is primarily down to the uniquely fragmented structure of our industry, post-privatisation, and a lively and knowledgeable trade media. With government specifying services, TOCs holding relatively short-term franchises, ROSCOs owning the rolling stock, and Network Rail maintaining/upgrading the infrastructure, compared with most markets it is a complex contracting environment with many stakeholders.
I do, however, disagree with a few of Mike’s statements. In the UK, rolling stock manufacturers are required to take significant financial delivery and performance risk, while TOCs must be confident of delivery to maximise the revenue boost generated by the new trains.
Yet despite this, the UK has a very competitive rolling stock market, with more suppliers than any other single European market. I do not agree that the UK has restricted market entrants, as we operate trains manufactured (in whole or in part) in the UK, Germany, Italy, Japan, Belgium and Spain. The UK is actually a very open and transparent market, which is why Hitachi came here 15 years ago.
The post-privatisation rolling stock TOC/ROSCO model has been highly successful and has delivered massive passenger growth. Back in the mid-2000s, however, the DfT was becoming frustrated with what it perceived as ROSCOs charging high lease costs yet taking no performance risk - a complaint subsequently rejected by the competition commission.
The DfT felt it was picking up the bill, via Network Rail, for power upgrades and additional track repairs caused by new trains - over which they had no technical control - being more power hungry and less kind to the track.
With this in mind, the DfT set out in the Intercity Express Programme to increase competition for finance, to force financiers to take performance risk, to standardise rolling stock and to consider the infrastructure costs in new train design. These are all laudable objectives, but despite extensive consultation on rolling stock specifications, the TOCs were opposed, as they had lost their role specifying the rolling stock (despite being the interface with passengers and taking some revenue risk). The ROSCOs were also opposed, as this was a challenge to their market dominance and would end the HST ‘cash cow’. These opinions were expressed in the Andrew Foster review, which unfortunately favoured uninformed opinion over fact, so it was soon discredited.
Mike is not correct in his reason for the delays to the IEP project financing. Yes, new financiers do not know the rail market as well as ROSCOs, but that is the role of the lender’s technical advisor (Halcrow, in the case of IEP). The main cause of delay was the financial crash, which removed almost all liquidity (lending) from the markets (including ROSCO funding), followed by the election of a new Coalition Government with a mandate to cut projects and cost. Therefore, the programme was delayed, as the markets recovered and all major projects underwent extensive government review to confirm value for money.
So, has this new form of funding worked? IEP is often criticised as the most expensive train programme ever. Well, new high-quality Intercity trains are not cheap, and finance costs were high in 2012 when the project reached financial close.
That said, Intercity trains are more expensive than commuter trains. Back in the day, the HSTs were much more expensive than standard units, as were the Virgin/Angel Pendolinos when purchased, so it is no surprise that the Class 800 is also more expensive than commuter EMUs today.
As is standard in PPP deals, the DfT has the right to request Agility Trains to re-compete lenders to seek cheaper finance throughout the project life (similar to remortgaging your house if better deals become available), with the vast majority of savings going back to the Government. Indeed, the Great Western tranche is already being tendered for cheaper finance and will no doubt be refinanced again after delivery of the trains, reducing the cost yet further.
The project has introduced many new investors and lenders to rail. Rather perversely (against the DfT’s original objective), this has benefited the ROSCO owners, who have seen the value of their businesses increase significantly (as demonstrated in the recent sale of Porterbrook). However, we are now seeing companies such as SMBC making highly competitive bids for leasing contracts, so I believe the objective of increasing competition in the leasing market will be delivered effectively.
The other objectives of reducing lifecycle cost have been successful - the industry is now much more alive to track access and energy consumption costs, spawning a new generation of EMU designs from manufacturers. Standardisation is being delivered, with a common Intercity fleet on the Great Western and East Coast lines and a once-in-a-generation investment in Intercity depots being realised. The objective of forcing financiers to take performance risk is (in theory) achieved, although in practice 99.99% of risk has flowed down to Hitachi, so manufacturers must be highly competent and financially strong to play in this market long-term.
The debate will doubtless continue, but what is clear is that the UK needs further investment in rolling stock. I suspect the DfT would rather let the market decide. However, as the funder of last resort, it must retain a significant interest in the market. Then, of course, there is the small challenge of how to fund HS2 rolling stock…
