Written evidence submitted by Professor Stuart Cole (WBR 04)

 

 

MAP OF CURRENT FRANCHISE

 

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QUESTIONS AS SET BY THE COMMITTEE

 

What standard of performance has been experienced under the current franchise?

 

The decision to privatise the train operating companies and the track operation separately resulted from a European Commission directive. The format was further influenced by the realisation that a free market such as that which had been created for the bus industry could not provide the network benefits required by passengers. Hence the franchising system was set up.

The Wales and Borders Franchise is a conventional rail franchise awarded to Arriva Trains Wales by the Secretary of State for Transport (Westminster Government) on a ‘no growth’ basis. A joint parties agreement (April 2006) between the Welsh Government (WG) and  DfT (English Department for Transport) made the former responsible for funding and performance management of all Arriva Trains Wales (ATW) services following a budget transfer in the block grant of £140m (2011-12). WG then used its own powers to provide a further £30m funding for additional services. Since then the subsidy to ATW has risen to £180m per annum. ATW turnover is £330m. However DfT remains the primary franchisor and the WG a co-signatory.

In 2003 when the franchise was let to Arriva Group it had a low level specification with no allowance for growth in passenger numbers, no extra train capacity and indeed one of the competitors pulled out of the bidding process because of what it saw as running down the railway in Wales by the Strategic Rail Authority (and when it took over responsibility, the DfT).

At the time trains such as Pacers and Class 150’s were over 30 years old (now over 40 years) and it is to the credit of ATW engineering staff that the reliability figures are so good.

The outcome since 2003 has been one of growth:

The passenger growth is a positive move but it was not forecast and providing additional capacity through the contractor ATW has resulted in an additional subsidy cost for the for the Welsh Government. It does not appear to be compensated for in the block grant.

Further additional capacity has not been provided because no suitable diesel trains are available at present.

The problem of high load factors (up to 130%) arises on certain journeys. Examples are:

 

What lessons can be learned from the current franchise?

 

A primary lesson is to effectively forecast demand and take into account any potential shifts in demand and demand patterns. The demand and train supply options should be set out as measures to meet changes in demand. This flexibility will protect the Government and the contractor against risks of lower or higher demand affecting increased capacity provision or revenue shortfalls. (Please see later section).

Demand in the new franchise could return, because of increased capacity, to grow at 8% per annum. Thus there is little point in assuming 2.5% which is effectively what the DfT are doing. The use of more realistic demand figures can increase costs of future provision so that major investment would not take place as it might not achieve the required benefit cost ratio. This is an unrealistic process and not future proofed.

The new franchise has to be specified in terms of demand and rolling stock both diesel and electric (please see later section). The working relationship between the train operating contractor and Network Rail who operate the infrastructure makes this easier with the Network Rail Wales Route (division) now in place and, for south Wales, the presence of NR / ATW staff at Canton control room.

This would have enabled the Welsh Government to have determined its priorities and considered the best option between for example:

The current penalty system relies too heavily on timekeeping alone. The new franchise should consider factors such as passenger growth, journey experience, train cleanliness and passengers personal security perception.

What improvements to rail passenger service should be expected under the next franchise?

 

Franchise Specification

The franchise specification should improve the passenger experience, including for example franchise length, targets / incentives and the core service standards which should be included;

 

The key justification for any changes – electrification, resignalling, different rolling stock, alternative franchising structure – would be the benefits received by end users. These include the passengers, the primary subsidy funder – the tax payer, the Welsh economy, the environment and society in general in Wales. Any other rationale should be unacceptable.

The benefits which will show the new franchise to be a success (and could form the basis of incentives) are:

The train operating company (TOC) would be set targets such as service frequency, reliability (trains operating), timekeeping, station facilities and market growth. The TOC would then be financially rewarded for achieving the targets but with financial penalties for failure. The contract would be renewed every 5 years (London Overground, Merseyrail and Transport Scotland franchise contracts provide good models).

The objective of this is to ensure that the passenger obtains the best service, that shortcomings are put right, that good quality is rewarded and that the Government gets what it pays for.

Information + Interchange + Investment + Imagination = Integration

In all cases integration of train and bus services using the 4I’s principle is vital to the success of the post 2018 rail franchise. This requires the reregulation of bus servicers in Wales as proposed in the Buses Bill for England currently going through both Houses.

 

Rolling stock and station waiting requirements

New rolling stock is needed for the new franchise if journey quality is to improve as this with station waiting quality are the primary passenger experience factors.

 

Before any move is made to procure rolling stock an analytical process has to be completed. This is

 

Demand > Capacity > Services > Rolling stock > Depot locations

 

 

Stage 1 Demand analysis

The expected growth rates in the rail passenger market have to be determined.

 

There is an assessment of risk transfer of course but who takes the revenue risk – the franchisor (Government) or the franchisee (TOC).

Forecasting revenue over more than three years is a difficult  task as markets change rapidly in retailing – clothing, food, motor cars, DIY, and of course railways and buses. Cost forecasting is also tricky as many transport companies have found in trying to forecast the price of oil products which once were only about five per cent of total costs but have now risen to nearly twenty per cent in some companies.

So a decision has to be made by Welsh Government on whether franchising is possible without the transfer of revenue risk. To achieve this, the franchise conditions have to be clearly set out and a whole range of possible options built in. This involves considerable vision and forward thinking and the provision of break clauses where neither party has unfair advantage.

This is not easy particularly for long term franchises. In 2003 for example when the Wales and Borders franchise was let forecasting the electrification of the southern network would be underway was not a consideration. The Government will be involved in revenue support interventions if it wishes to achieve other economic, social and environmental objectives thus accurate subsidy projections are essential.

Stage 2 Capacity

Having determined the potential demand levels the size of vehicle will have to match that and several options for future vehicle procurement have to be determined. The capacity of the rolling stock has to be balanced against purchasing vehicles in which space will never be used (thus ‘overspending’) and not procuring enough capacity making it necessary to procure at a later date either assuming the same vehicles are available or having a non-standardised fleet if demand expands.

Stage 3 Services

The services to be provided will vary from route to route.

The intensive service on Valley Lines Metro should operate at eight – ten minute intervals along the core central section and 15 – 20 minutes beyond Pontypridd and Cogan Junction. There is a decision on whether this should operate as a tram (light rail) or a heavy (conventional) rail basis. Trams operation could provide further penetration onto the road network into roads such as Greyfriars Road and Westgate Street and the planned public transport interchange.

The Swansea – Cardiff – Bristol Temple Meads route will require an electric fleet to provide stopping and express services on a half hourly frequency to supplement the InterCity IEP London service and the DfT Great Western franchise Cardiff – Portsmouth Harbour service.

Carmarthen – Manchester should continue on an hourly basis. It provides for Wales the link between south and mid Wales with bus or rail connections at for example Pontypool, Abergavenny, Hereford Church Stratton and Shrewsbury. This should remain a part of the W&B franchise as it provides an essential link between south Wales and parts of mid and north Wales and has a limited role in England. It also provides one through service each hour between Carmarthen and Cardiff.

Aberystwyth – Birmingham through services. This route provides commuter and international airport journeys and should be retained within the W&B franchise. To separate these two sets of services at Shrewsbury, as suggested by the DfT and HM Treasury, detracts from the current convenient through journeys provided. Shrewsbury Station has insufficient track / platform capacity for interchange; train unit and train driver interchange between companies / franchises presents serious negative implications for insurance, financial penalties for late running and customer convenience – the most important element for this Committee’s consideration. 

On the Cambrian Line to Aberystwyth an hourly service is now operationally possible with connections at Machynlleth for the Pwllheli service.

Services to / from west Wales would be expected to increase in frequency providing a half hourly service between Swansea, Llanelli, Carmarthen and Whitland and hourly onwards to Pembroke Dock and Milford Haven. Whitland should become a major park and ride facility using available railway land and its nearness to the A 40 trunk road. These west Wales diesel services will require a change at Swansea into a high frequency (3 / 4 trains per hour) electric service (either fast or stopping) east of Swansea towards Cardiff and Newport.

The Heart of Wales line services would take the recent market analysis into and if / how a two hourly frequency service may be justified.

Wrexham – Bidston services are currently a diesel service and thus a W&B franchise operation as Merseyrail is entirely electric. The logical objective is to electrify the line and create a 'circle line' service between Liverpool – Birkenhead – Chester – Wrexham General – Wrexham Central  - Wirral Stations – Bidston – Birkenhead – Liverpool. When this is complete the service would transfer to Merseyrail with a Memorandum of understanding between Welsh Government and Merseytravel on fares, train frequencies and reliability and service interchange for Welsh travellers.

The Liverpool City Region Combined Authority is looking to bi-modal trains to transform the Borderlines Line but the most likely option in the shorter term is to double the frequency of the existing diesel service. This would still require changing trains at Bidston.

A key impact to be considered in this ‘North East Wales Metro’ is the traffic reduction possibilities on commuting routes into Chester and Liverpool centre

On the North Wales Main Line the combined services of the Wales and Borders and the West Coast Main Line will require increased capacity to match expected growth. The electrification on this route should begin within the timespan of the nest franchise beginning in Control Period 6 (2024 – 2019)

Llandudno to Blaenau Ffestiniog services will continue to have a summer peak demand.

Stage 4 Rolling Stock

Wales requires a mix of rolling stock to match the service requirements outlined above. They are:

 

 

 

There are several options for rolling stock procurement and several potential suppliers. (Please see Supplementary Information 1).

 

In evidence to the National Assembly Enterprise and Business Committee report The Future of the Wales and Borders Rail Franchise December 20o13, both Professor Stuart Cole and a train leasing company, Porterbrook, advised that detailed plans should have begun at that time to achieve deadlines in 2018 for new trains. The lead time for new electric trains can be 2 / 3 years and 3 / 4 years for diesel units. In exceptional circumstances if another order is in place with manufacturers for an appropriate train this time lag can reduce slightly.

 

Stage 5 Depot location

 

Depots provide the operating base for maintenance (either routine or heavy) and overnight and off peak stabling of trains.

 

The location has to fit the logistics of train operations to minimise ‘dead’ mileage (out of service running) particularly at the start and end of the operating day. They also have to be located to minimise the recovery time (and passenger inconvenience) to replace a failed train. The present depot at Canton was designed for diesel trains and would require major changes or replacement for joint electric / diesel operations

 

How do the Welsh and UK Governments cooperate in deciding how rail passenger services in Wales should be run?

 

Franchise responsibility

The Committee is of course aware that the franchise currently is a joint franchise in the inter – governmental protocol where the English Department for Transport (DfT) is the primary contractor and the Welsh Government (WG) a co-signatory.

 

In practice the DfT remains the primary signatory while WG funds the subsidy from its block grant.

 

Franchise management

This work should be carried out by officials in the Welsh Government appointed for their experience at a senior level in franchising and railways economic and operation. These skills are limited at present within Government in terms of full time members of staff. Such personnel are vital to give Welsh Government the best value for money in rolling stock procurement and in service and price negotiation with applicant companies.

 

Consultants are able to provide advisory skills but for the long term operation of an estimated £3 bn franchise requires the level and experience of permanent management (at appropriate high salaries) as Professor Stuart Cole recommended over two years ago.

 

Relationship between WG and DfT – recent history and funding

The exit from the EU presents particular problems for Wales’ infrastructure and financial constraints occur because two of the main east west routes would qualify for TEN – T funding. The extent to which HM Treasury will fund the difference from ‘funds no longer paid to the EU’ will be seen. Evidenced by previous Whitehall decisions, many believe Wales will not be so funded.

 

For example DfT (and predecessors) prevarication over funding railway electrification to Swansea (8 years) and the north Wales line (40 years) and building the HS1 and HS2 lines with little benefit to the Welsh economy.  Despite DfT being the responsible authority for rail investment in Wales under the devolution settlement, schemes which though very beneficial to Wales come a long way down their priority list.

Valley Lines one may conclude did not have extensive financial and economic worth in 2000 when a franchise with 40 – year old trains and no expansion plan for services was expected to allow rail travel to reduce. Yet passenger numbers grew by up to 8% each year (though this has slowed in recent years). And the Metro puts the successful modal transfer from cars (on congested roads) to rail in south east Wales as an expected outcome. 

EU structural funding has been generous to Wales’ transport system through its clear financial and economic criteria against which successful bids could be made. These funds were specifically targeted at low income and low economic growth areas such as the south east valleys and rural Wales many but will not be available following EU exit. Such fixed criteria become less definite in negotiating the increases in block grant funding with HM Treasury.

Relationship between Welsh Government and Network Rail

Network Rail was set up as an arm’s length company supervised by the DfT. It had considerable autonomy in both borrowing its funding and its operations. However the position of independent borrowing outside the PSBR and the repayment of its debts by the UK governments made its independent position untenable. It is now in effect an operating division of the DfT. It is therefore included under this question

Under the Railways Act 2005 and the Transport (Wales) Act 2006 there is no statutory relationship between the Welsh Government and Network Rail. Such a situation does exist in Scotland, in England (with DfT) and with Transport for London

Network Rail has itself established a Cymru – Wales Route (or operating division) to give more transparency to its network maintenance expenditure in Wales and to provide for a closer relationship with Arriva Trains Wales (the TOC) and the Welsh Government. This provides for viewing the budget and to discuss priorities in expenditure.

Major investment is still determined by Network Rail (Great Britain) head office. However there is a planning and strategy team in Cardiff to put the Welsh needs within the overall capital expenditure programme.

Suggestions have been made for closer working between Network Rail and the TOC with joint working of signal centres e.g. Canton (Cardiff) and Swindon signalling centres, and information provision for major events and disruption

 

Franchise Transfer

The geographical area served by Wales and Borders franchise should remain intact.

There has been considerable delay in transferring the Wales & Borders Rail Franchise from DfT to WG. That this has not been achieved despite being discussed for over a year presents serious problems for WG. WG cannot expected to acquire skilled permanent staff and set up financial arrangements for train procurement (purchase or leasing) or electrification when DfT remains the prime franchisor

 

The routes from the Canolbarth and north Wales into England have to be retained. One might suggest the objective in moving these profitable services into English franchises is aimed at increasing WG subsidy and reducing that of the DfT. It also shows the gap between the WG and DfT in terms of the latter’s understanding of the Welsh train journey pattern.

 

The operational logic has been explained earlier. The same principle applies to the marcher line from Newport to Chester. This is the only link between the three east – west main lines and provides the backbone of Wales’ network

 

Yr Athro / Professor Stuart Cole

17 Awst / August 2016