Funding Report Delivery of High Speed Rail in Britain February 2010 Contents
Total Page:16
File Type:pdf, Size:1020Kb
Fast Forward – Funding Report Delivery of High Speed Rail in Britain February 2010 Contents Introduction 1 Overview of High Speed Rail 2 Scope of High Speed Rail 4 Summary of key risks 5 Structure of the project delivery organisations 7 Funding sources 10 HSR delivery and financing structure: illustrative model 14 Conclusion 23 Appendices 24 Contacts 36 Introduction This summary report on the delivery We have described an illustrative of High Speed Rail (HSR) in delivery and financing structure for a Britain has been prepared by single corridor, London-Birmingham- PricewaterhouseCoopers LLP (PwC) Manchester, the first stage of the on behalf of Greengauge 21. proposed high speed North West Scheme. This can also be used as a The report covers: model for the financing of subsequent corridors. However, the benefits of n commercial and organisational economies of scale and increased issues; understanding of risk might reduce n contractual mechanisms including the average cost to the public sector risk allocation; and lead to modifications to the structure for these later corridors. n funding and financing sources; and n an illustrative structure for the This report makes a fundamental delivery and operation of HSR. assumption that delivery of HSR could not be funded solely from It describes the work carried out by its own revenue and therefore PwC for Greengauge 21’s HSR substantial Government involvement development programme, as reported will be required. Despite the current in ‘Fast Forward – a high speed rail pressure on Government finances, strategy for Britain’. it is important that funds continue to be found for investment in key strategic infrastructure. 1 Overview of High Speed Rail High Speed Rail, which is broadly The first European high speed line defined by the industry as trains of 420km was inaugurated in 1981, travelling at over 250km per hour, between Paris and Lyons. The graph began in Japan in 1964. The first high below shows the growth of high speed line of 515km was between speed rail in Europe since 1981 Tokyo and Osaka. Japan now has a and a projection to the end of 2010. high speed network of over 2000 km and since opening the network has The UK has a single 108km high carried 6 billion passengers. speed line from the channel tunnel to St Pancras known as High Speed 1 (see case study). Figure 1: Length of high speed infrastructure in Europe in Kms 6000 5000 4000 Kms 3000 2000 1000 0 2 Case study: High Speed 1 The Channel Tunnel Rail Link (CTRL), In 1998 the project ran into financial LCR is the 100% owner of: now known as High Speed 1 (HS1), is difficulties. The project was n High Speed 1 Limited, the company a 108km high-speed line between the restructured and the length of the which operates St. Pancras Channel Tunnel and St Pancras, lease was reduced to 90 years, International Station and the high London. London to Paris now takes ending in 2086. speed line to the Channel Tunnel; 2 hours 15 minutes and Brussels less than 2 hours. The total cost of building A recovery programme was agreed n London & Continental Stations the infrastructure was £5.2bn. whereby LCR issued government and Property (LCSP) which is the backed debt to pay for the construction property division of LCR. The Government decided that the of section 1 (Channel tunnel to North entire project should be a Public Private Kent). A further restructuring occurred Since the restructuring this year, Partnership (PPP). In 1994, an open in 2001 when LCR also took over LCR is also 40% owner (with SNCF competition was undertaken to find the Section 2 (North Kent to St Pancras) and SNCB) of Eurostar, which appropriate private sector partner to which Railtrack had taken responsibility operates international train services. part fund and manage the project. for after the first restructuring. LCR is now the sole owner of both sections of Lessons learnt: A 999 year concession was awarded the CTRL and development property n It is not practical to transfer to London and Continental Railways around St Pancras. Detail of the revenue risk to the private (LCR) in 1996. Under the concession restructuring is set out in the NAO sector on a new-build railway agreement LCR would finance, build Report published 28th March 2001, in Western Europe; and and operate the link, drawing on “The Channel Tunnel Link”. revenues primarily from the Eurostar n Public sector involvement in service and additionally from later use In June 2009 the Department for the funding of projects of this of the link by domestic train operators. Transport novated bonds issued by size is inevitable. LCR to the Department and took The financing of the project was control of LCR ready for sale in 3 originally highly dependent on discrete parts being the infrastructure, forecast revenues of Eurostar UK the UK train operator and the (British operations owned by LCR). property assets. 3 Scope of a High Speed Rail project To deliver a HSR project the following n Maintenance of the n Train operations: the day to day elements of the project need to infrastructure: scheduled lifecycle operation of the train service be considered and in most cases refurbishment such as periodic includes despatch, driving, on specified and procured through renewal of track, unscheduled board customer service, ticket contracts of various types: maintenance such as repairing inspection and provision of damaged power lines and routine refreshment services. Train n Planning of the network and land inspection and servicing. operators also typically carry out a acquisition: preparation of detailed range of other activities as part of plans, business cases, environmental n Operation of the infrastructure: their business including marketing impact assessments and signalling and train control plus and sales, station and car park management of the statutory safety management including operation and provision of planning process then in force to maintaining security and customer information. obtain relevant planning consents; responding to incidents. acquisition of land for the line and for n Property construction (stations n Rolling stock manufacture: construction and access, including and depots): stations, depots and designing, manufacturing, testing compulsory acquisition. All activities stabling facilities for the rolling and commissioning new high speed need to include consideration of stock. This may require existing trains to run on the network. integration with other land uses and property assets to be upgraded transport modes and a plan to ensure n Rolling stock maintenance: and new assets to be built as well the benefits of the project are realised. scheduled and unscheduled as integration with neighbouring maintenance and servicing. property such as roads, bus/tram n Design: concept design through to Servicing includes watering, tank stations, offices or retail facilities. detailed design of each work package emptying and the cleaning of both – different levels of design would be n Property maintenance: the outside and inside of the trains. carried out by different parties. unscheduled and scheduled Scheduled maintenance may maintenance for new and enhanced n Construction of the include periodic major overhauls. property assets. infrastructure: new build dedicated high speed lines plus enhancements The private sector is typically to and interfaces with the classic responsible for all the above activities network so that it can sustain high for new lines except for project speed trains. The work comprises planning and the specification and civil engineering plus signalling, procurement of the other elements, communications and power supply which Government is normally best and distribution. placed to manage. 4 Summary of key risks The inherent technical, environmental, Construction cost overrun and Maintenance and operational financial and political complexity delivery risk cost risk means any HSR project will inevitably involve a large number of major risks. Delivery of high speed infrastructure Maintenance and operation risks for The identification and allocation of the on time and on budget is probably the infrastructure are relatively small most significant project risks is a the biggest risk faced by Government in comparison to construction risks. critical factor in deciding upon the and so it would normally wish to Risks of operating and maintaining most appropriate financing and transfer this risk to the private sector. HSR infrastructure should be ownership structure for the project. In practice the private sector will not transferable to the private sector, The party best able to bear or manage have the financial capacity to take on though possibly this would be best a risk should have responsibility for the level of risk associated with the done for periods of 5-10 years at a that risk. scale of HSR. It will limit its liability time as is the case with Network Rail in respect of cost overruns and under its regulatory structure. therefore any cost overruns above Land acquisition and that level would be a Government Ideally, maintenance risk should be planning risk retained risk. Alternative delivery born by the same party as the The risk of acquiring land and options such as a PPP might seek construction risk in order to incentivise appropriate planning consents for HSR to transfer a greater level of whole life cost optimisation and corridors would lie with Government construction risk to the private sector. performance. Separating responsibility as it is able to manage this risk most However the financial capacity of the for operation and responsibility for efficiently particularly where HSR private sector to take risk is a limiting build from maintenance therefore corridors pass through conurbations factor regardless of the delivery reduces the potential for effective risk or sensitive land. This is consistent structure taken forward. PPPs might transfer. For equipment, and in with the procurement of other major allow full risk transfer for discrete particular for rolling stock, this means rail projects in developed countries.