Open for Business
Network Rail’s website says: “We’re making it easier for other organisations to invest in the railway. We’ve published a list of opportunities for third parties to fund, finance or deliver improvements and have committed to keeping it regularly updated.”
A link to the list displays another page that says: “This is a list of potential opportunities for third parties and inclusion does not necessarily represent a commitment to deliver a project. It is a growing list and we have ambitions to update it regularly. It is not an exhaustive list and we are always open to new and innovative ideas.”
But there’s no list on the page. So, RailReview asked NR for the list. No list came back, but NR said: “We’re still seeking third-party investment, particularly from the private sector. We are working with our partners in the Department for Transport on an updated list of opportunities to invest in the railway and expect to be able to share that soon.”
NR’s page did include a list of schemes on which it had collaborated with third parties. Four were stations, and the other was private funding of a scheme to add 1.4km of double track to the branch to Felixstowe and its port.
Within this section of its website, NR lists Stoke Maintenance Delivery Unit as an example of it being open for business. However, Stoke is not an example of private sector investment. It’s an example of NR being open to other ways of delivering projects. In this case, it explained what it wanted (the outcome), and gave the private sector more flexibility in delivering this.
For Stoke, the new building for maintenance staff was sufficiently far from the live railway to allow builders to work on it as they would on the High Street. This saved money, as did the contractor’s use of pre-formed panels that were quicker to install and greener than traditional building methods.
Stoke provides a decent example of NR working differently and more efficiently, but it’s not an example of NR being open to private sector investment.
What might provide an example is Project Reach. Here, NR is looking for £1 billion of private sector investment in lineside fibre optic cables.
NR launched the project in spring 2021, with Chief Executive Andrew Haines saying: “This proposal makes good business sense for all parties. We get a cutting-edge, future-proof telecoms infrastructure; the investor gets a great business opportunity; train passengers in Britain get an improved service for years to come; and the taxpayer saves a significant amount of money.”
The business opportunity is the chance to use spare capacity for other commercial activities. That provides an ongoing income stream that justifies private investment in the way that constructing a building or buying an intangible such as clean air does not.
With Project Reach now a year old, Network Rail told RailReview: “The commercial process continues and we hope to issue an update soon.” Which doesn’t sound very encouraging!
Coupled with the lack of any obvious list of potential private funding opportunities, NR appears fairly closed to private investment - that is, funding which requires a monetary return to the investor.
The answer to private sector investment in rail might better lie in its skills rather than its money. This means using public money to build projects, but private sector skills to extract every last penny of value.
Network Rail’s Southern Region is about to test this with a ten-year renewals programme. It will not be easy, as Programme Director Tim Coucher readily recognises. He admits that NR will need to become a much more competent client and much more open. The openness will come from NR placing its entire Control Period 7 renewals work bank upfront into the hands of its contracting partners.
In close collaboration, NR and these partners will form an integrated team that will ‘slice and dice’ how they deliver these renewals for best overall effect. The partners can’t lose money under Coucher’s arrangements, but their profits depend on how well they deliver the work bank. In some PPP cases, it was this delivery in which the private sector failed.
If work costs more than thought, the extra money comes from taking other work out of the programme. That’s because NR will be working to a fixed limit set by the Office of Rail and Road. If work costs less than thought, the programme can expand and that gives the chance for the private partners to earn more profit.
Coucher is thinking in terms of factory production for renewals, with a steady drumbeat of work. That doesn’t readily apply to enhancements or major projects, but the thinking of openness does and so does too the willingness to encourage private innovation.
Translate that into enhancement programmes (perhaps Stoke does provide an example?) and there’s a chance that rail can have the best of both worlds.
Trust me
London’s Thames Tideway Tunnel has hybrid funding. Thames Water was the client for the project and it had a good technical understanding of what it wanted. By putting £1 billion into the project itself, it made other investors more comfortable putting in the other £3bn. For the money side, Thames Water reflects DfT in having money to invest. For the technical side, it’s closer to Network Rail.
The other twist to the Tideway Tunnel comparison is that Thames Water’s regulators allowed it to increase consumers’ bills to ultimately pay for the project. Ministers are considering similar mechanisms to increase bills for electricity users to fund nuclear power station construction.
For rail, the equivalent options would be for ORR to permit NR to bill higher track access charges for upgraded lines. That would make sense if NR were allowed to borrow money to fund enhancements, as Thames Water does.
However, when government auditors reclassified NR’s debts as public sector debts in 2014, government closed off this borrowing option. So, any higher access charges would fall on government to pay, and that’s the same government that would have to fund the project in the first place.
The other option would be to pass on the increase in charges to passengers in the form of higher fares. DfT has spent years increasing regulated fares by more than inflation so that passengers pay more of rail’s cost. So, there’s a clear argument that passengers are already paying for upgrades, although this is in a general sense rather than specifically for any one upgrade.
