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Christian Wolmar - Britain's leading transport commentator
Rail 729: ORR tries to make sense of the impossible
(Articles first appeared in Rail Magazine 13th & 31st August 2013. Reproduced by kind permission)
You can’t fault the Office of Rail Regulation for trying. Trying, that is, to make sense of an industry structure which every experienced railway managers knows is inherently dysfunctional and full of perverse incentives. And trying, too, to turn the railways into a normal conventional business like selling soap or Coca Cola with competition at its heart when, in fact, that is a hopeless task.
The latest effort from the ORR is the publication of a document with the uninspiring title of Opportunities and Challenges for the railway, ORR’s long term regulatory statement. Don’t be put off by the dullness of the title. This is an important consultation document examining the risks facing the industry but also setting out an agenda in which competition is crucial to the future success of the railways.
Let’s look first at the emphasis on competition. The ORR says that as the industry becomes ‘less dependent on subsidy…[it] ought to become freer to take its own decisions on how best to meet its customers’ expectations and grow demand’ Yet, within a couple of paragraphs, the ORR contradicts itself: ‘As efficiency improves, there is an opportunity for rail businesses to work together in a commercial way to deliver for their customers, potentially with less intervention from ORR and government.’ So is it to be ‘working together’ or competing?
In reality, the railways will always be constrained in terms of competition by the very nature of the industry: train paths are limited, huge investments are required to enter the market, and massive government subsidies are required which means competition could waste taxpayers’ money. Consequently co-ordination should be the default option since competition can be disruptive and lead to a misallocation of resources. Much as I love the open access operators, their presence on the East Coast actually leads to all kinds of complexity over the allocation of train paths that, perversely, means some towns are less well served than if the whole service were provided by a single operator. And open access, which was responsible for the way the industry was structured, is a dead duck on the rest of the network.
While there is competition in the supply market for Network Rail, it is dominated by a small number of big players with the equipment and experience to provide what is a very specialist service. Rolling stock can really only be supplied by a limited number of manufacturers and the roscos do not have fleets of trains ready to replace existing ones. So the competition they supply is limited and mostly restricted to the financial package they can offer. Even the supposedly most competitive area of the industry, the franchising bidding process, is dominated by the same old players with new entrants effectively disbarred by the rules specifying the need for experience.
So, much of this emphasis is misplaced and ideologically driven. The ORR recognises that a future government may not be interested in furthering competition but it still drives the regulator towards devising schemes aimed at reaching a non-existent Nirvana. It would be much better employed simply focussing on the key day job of making Network Rail efficient not least, as I have mentioned before, a crisis looks in the industry over the infrastructure provider’s ever growing debt.
And that’s the most important aspect of this report. Already, according to the ORR, ‘a quarter of industry costs now directly relate to the capital costs of historic infrastructure investment incurred by Network Rail through debt financing costs and the amortisation of past investment’. And that proportion will only grow as the debt is set to reach £50bn by the end of the decade. Thank God the governor of the Bank of England is now promising low interest rate for several years to come, or otherwise there would be a real crisis looming in the industry.
Even so, the ORR suggests that the present model of simply adding to Network Rail’s credit card (not that it is expressed in those words). The ORR warns that ‘The challenge for rail is to ensure that the current funding model remains sustainable and affordable in light of the continued high level of investment that is anticipated to be needed to keep up with demand on the existing network, in addition to the need to fund significant additional new investments like HS2’. It recognises that ‘the burden on future generations to pay for the costs of historic investment will continue to rise as
Network Rail’s debt grows to fund further investment’. In other words, there is a warning that this is not really sustainable. My notion is that at some point the debt will simply be absorbed by government but that may well come at a price for the railways, in terms of reduced investment. Otherwise, the debt will become such a huge burden on Network Rail – or its successor – that reduced investment levels will become inevitable.
The key point is this: successive governments tacitly accept that the railways need to be subsidised because of the huge benefits they bring which cannot be captured through the fare box both social and economic. Yet, politicians never speak up and spell that out in so many words. The Network Rail debt has been a way of disguising the real cost of the railways to the taxpayer. What ORR is saying between the lines is that one day this will have to be stopped and that the economics of the railway will, in its words, have to become ‘more transparent and accountable’. There’s no sign of that yet.
Rail 730: Alliance reunites railway…and John Major explains privatisation blank.
Reintegrating the railway has been the subject of much debate ever since the network was broken up and privatised in the mid 1990s. Indeed, one of the main suggestions to come out of the McNulty report into the finances of the railway was to find a way for the train operators and Network Rail to work better together in order to save money.
The way that the industry is presently set up mitigates against co-operation: what is good for the infrastructure provider is not necessarily what the train operator wants. This is most evident in, for example, the length of time that the line is closed at night when the operator wants to provide the latest possible train while the infrastructure provider wants to get people down on the track to carry out maintenance. There are a myriad such conflicts built into the structure which while they did exist under British Rail were resolved internally and without cash incentives such as compensation payments.
Therefore, South West Trains, owned by Stagecoach whose boss, Brian Souter, has long argued for an integrated railway, has got together with Network Rail to form an alliance to run the railway together under the expressed encouragement of the Department for Transport. Easier said than done. Because of European Union rules, passed by politicians with no understanding of railways, they are not allowed to form a legal entity to run the franchise together.
So the alliance that has developed since April 2012 on the route out of Waterloo is an informal structure run by a board consisting of managers from both the train operator, South West Trains and Network Rail. SWT actually has a majority on the board. According to Tim Shoveller the boss of SWT and now also of the alliance as recognised by the badge with the logos of both organisations which he wears proudly, of the 6000 staff who work for this new integrated railway, 4,500 are employed by SWT. However, they have been melded into one team. Shoveller says: ‘there are South West Trains staff who manage Network Rail people and vice versa. All the responsibilities and liabilities of the two organisations have been pooled with myself as MD in charge’. For example, Mark Steward, the operations director is responsible not only for the drivers, as is normal, but also for the signallers who, of course, work for Network Rail. It is, therefore, a genuinely integrated structure.
He says, though, that this is not a return to British Rail: ‘This is not about nationalisation or privatisation. It is recognising that both models have strengths and weaknesses and that each should do what they are best at’.
One key change has been the way that delays have been treated. The compensation mechanism between Network Rail and SWT only considers delays of three minutes or more, and never examined those of less. (Note, with a sigh: this is different from the Public Performance Measure, the PPM used to assess performance overall which only considers delays of five mins or more). In practice these small delays are a great majority and the normal practice meant disregarding a staggering 5,000 delay minutes and only considering 2,000 which were three minutes or longer. There was no incentive to look at these shorter delays because they did not come within the compensation scheme.
Now this has changed. Every delay is taken into account with the result that more staff have been employed to despatch trains at stations such as Wimbledon or Earlsfield where previously this was done only occasionally. Shoveller’s explanation about why this had been the case is revealing about the way that everything in the privatised railway is about profitability: ‘In the past, this would not have been worthwhile to put on these extra people as there was no incentive to reduce these shorter delays. We would not have been rewarded for reducing those delay minutes.’ That implies that the operators will only make changes if there is a financial reward rather than merely to run a better railway. The alliance may to some extent changes this.
The perceptions about how the other half works have changed throughout the railway: ‘Robin Gisby [Network Rail’s Operations Director] now understands how the fare structure works and Brian Souter [Stagecoach chairman] knows a lot more about the infrastructure’, said Shoveller.
Despite the alliance, the PPM has not improved and, indeed, has been declining for the past four years. Shoveller is clear about the reasons and explains that thanks to the alliance, things are going to get better: ‘It’s simple. The trains are simply overused. What used to be a 60 second stop now turns into 80 secs. And that adds up. In 1995 108 million people were going through Waterloo annually, now it’s almost double that at nearly 210m. We simply can’t run more trains as there are no paths but they are so overcrowded they cannot get away from the stations.’
He relates how a few years ago a decision was made by all the stakeholders – the Department for Transport, Network Rail, SWT and ministers – that it was not worth the disruption to extend platforms 1 – 4 to accommodate longer trains so the work was not carried out during the current Network Rail control period which ends next March. But Shoveller says: ‘This was the wrong decision. And now we are going to expand capacity’. That will be done by bringing into use the Waterloo International platforms and that will provide the extra capacity to rotate platforms as they are worked on. Shoveller insists: ‘We would not have made that decision a few years ago. Now the money available for investment is pooled between us and Network Rail and we are able to carry out this scheme.’ Moreover, the Department for Transport is on board and has sanctioned the purchase of 135 new vehicles to enable 10 car trains to run on several more suburban services.
Shoveller emphasises that the alliance is very much an experiment and both sides have had to learn as they go along: ‘We are learning how to meld the organisation together and that takes time. It was never going to transform the business overnight. The driver manager has to learn what the signaller manager wants and vice versa.’ However, he is evangelical in stressing the potential gains: ‘At root, the theme is that railway can only be efficient if you look at it as a system. Even British Rail did not do that. No model has optimised the whole life costs. Look at East Coast where the catenary was not sufficiently robust.’
All the political parties support the alliance initiative and it is being looked at closely to see if it can be replicated. There is not going to be a universal roll-out because of the complexity and the difference between franchises, though in Scotland there is improved co-operation between Network Rail and Scotrail under a similar but looser arrangement. It will certainly be many years, if ever, that such a scheme could be made to work on a railway with as many users as the West Coast or even the East Coast, though Shoveller says that other users of the route out of Waterloo, such as Arriva and First Great Western, have been very pleased with the work of the alliance.
While saving money was the spur for this initiative, the result seems to have been a better, more co-ordinated railway with a clearer idea of long term objectives, rather than a cheaper one. That is good news for passengers but may be less appreciated in Marsham Street.
John Major’s silence on the railways explained at last
I met that John Major at a drinks do (it’s not all hard toil at the coalface as a journalist) celebrating, if that’s the right word, 20 years since the publication of the Railways Act that enabled the railways to be privatised. I had for many years been dying to ask him why there was nothing about rail privatisation in his 2006 autobiography. He responded that there had not been sufficient time and that it was getting too long, and therefore he was unable to include it. I must say that did not sound entirely convincing.
If you do want a a statement about why he privatised the railways, the research team on a TV programme I presented was given quite a full statement. I have made it available as part of the Kindle and other e-versions of my book, On the Wrong Line (sadly out of print in hard copy) available at Amazon via my website: http://www.christianwolmar.co.uk/books/on-the-wrong-line/ His explanation is all about how the railways were inefficient and not innovative, hardly an original argument, but at least it explains the reasoning. He did tell me, too, that he had wanted to break up the railways into much larger groupings, but he had been dissuaded from doing so by his advisors, and he rather regrets that.
It still remains strange that there was as much about the railways in his autobiography as there was about his affair with Edwina Currie in a 816 page volume, published nine years after he was ousted from office which therefore gave him plenty of time to be comprehensive. Perhaps he will include something about the railways in a new edition but don’t expect the inside story on Ms Currie.
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The introduction of 4G networks has been making waves in the telecommunications industry and elsewhere, but what's in it for rail operators and passengers? We find out about the benefits, obstacles and future plans for 4G implementation on the world's railways.
We also explore Canada's efforts to overhaul safety measures on the country's rail network, take a look at a futuristic virtual ticketing concept that aims to change the face of the traditional ticket office, and find out why hydrogen-compatible systems could represent a better long-term fuel investment for operators than natural gas.
Moreover, we profile a new EU project working on energy savings in subway systems and find out how a developer of energy-capturing floors is working with the Russian Railway Research Institute to explore human footfalls in stations as an alternative source of energy
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