GLA TRANSPORT OPERATIONS SCRUTINY COMMITTEE: SCRUTINY OF MAINLINE RAIL SERVICES IN LONDON MEMORANDUM OF EVIDENCE FROM THE STRATEGIC RAIL AUTHORITY (SRA) Introduction 1. It is easy to lose sight of the fact that the railway is delivering each day, carrying a third more passengers than five years ago, and 40% more freight. Everyday 18,600 trains are run (21% more than five years ago). Every day 2.8 million passengers are carried, and 480,000 people are safely delivered to Central London between 07.00 and 10.00. The results of the last five year’s planning are starting to be delivered. New trains are arriving. The c2c fleet has been transformed. With LUL and TfL, the SRA has started work on the East London Line extension. We have set out details of the re-franchising programme and have extended the Rail Passenger Partnership Fund. We are spearheading the drive to improve rail industry skills. On 14 January the SRA will publish its Strategic Plan, a blueprint for how we are going to plan and deliver a better railway in line with the Government’s Ten Year Transport Plan. Seventy per cent of passenger journeys take place in the South East, from which much of the growth will come to fulfil our key targets. It is also the region that will benefit most from the share of the available resources.+ 2. But much remains to be done, working in partnership with TfL and others. Meeting the needs of rail users, and working towards the Government’s core targets, requires action to tackle the following key issues affecting mainline services: • safety; • industry stability and structure; • the need for better performance; • delivering improved capacity and major infrastructure projects; • the railway’s cost base; and • industry skill shortages. SRA January 2002 1 An appreciation of these issues provides the context for many of the decisions and trade-offs that need to be made. The SRA’s Strategic Plan addresses these issues, funding and priorities. 3. Performance remains poor, and the collapse of Railtrack has left uncertainty for passengers, for train operators and for rail staff. The priority is to restore a sense of stability and belief back into the running of the day-to-day railway. 4. The SRA will play a full part in this process and take a lead by prioritising what is done and when. In the railway industry, this means skills and technical resources as much as money. For example, in the next few years key signalling resources are in limited supply. 5. Focusing on delivery means some hard choices in the short term. But the longer term will not be forgotten. The projects that will define our future, such as cross London links, are being developed and planned now. This is a long lead time industry and many of the problems we face today are a direct consequence of short term investment thinking in the past. The SRA will not repeat that mistake. 6. The SRA is also committed to making sure it does not lose sight of smaller things that can be done relatively quickly to improve the quality of the overall travel experience. That is why we have re-launched the Rail Passenger Partnership (RPP) programme and made it easier and quicker to access such grants. Many schemes have been successfully implemented but we are keen to see them happen more quickly in the future. 7. The Strategic Plan sets a clearer vision for the future than has existed before. However, planning is not a static exercise, it’s a way of working. So the SRA is working with the Rail Regulator’s office to create a process designed to provide a better model of the investment needs of the railway. Railtrack SRA January 2002 2 8. Bringing Railtrack out of railway administration as soon as practicable is a top priority. The SRA has recently taken responsibility for the formation and sponsorship of the Company Limited by Guarantee (CLG) which is preparing a bid to take over Railtrack plc’s railway assets and its role as network operator. 9. A CLG is a private company without shareholders. It would not be a ‘not-for-profit’ company, but any profits or surpluses would be invested directly back into the network. The CLG would have the management, board and independence of a conventional PLC – including strong financial and other incentives for directors to achieve demanding performance targets. 10. The company would be accountable to members representing the key interests in the rail industry, including passengers, the Train Operating Companies and stakeholders. These members would effectively be the owners of the company. The Government always envisaged that the SRA would be a founder member of a CLG and it makes sense that the SRA should take on the sponsorship role. This includes agreeing the appointment of directors and legal and financial advisors to support Chairman Ian McAllister, and approval of the business plan and associated financing arrangements for the CLG bid. Railtrack CLG would, of course, be a national company requiring direction on a national scale. 11. The bid team will develop the Government’s outline for a CLG, which was published on 23 October. Like any other potential bidders, the bid team will need to take account of the guidelines published by the Secretary of State on 31 October to help those formulating bids to understand what the Government is expecting of its successor as network operator. 12. The CLG bid team will put forward a proposal to the Administrator, who will evaluate all the bids he receives before putting a proposed transfer scheme to the Secretary of State for approval under Schedule 7 of the Railways Act 1993. It is for the Administrator to assess and make recommendations on proposals for how Railtrack plc's railway assets are transferred out of administration as a going concern. SRA January 2002 3 13. It has been envisaged for some time now that major projects over a certain threshold could not be undertaken by Railtrack alone because of the risks involved. It is likely that future projects will be taken forward by stand alone partnership companies – Special Purpose Vehicles (SPVs) - a concept which the SRA has been developing with DTLR and Treasury. This has implications for how franchises are taken forward in future (see below). 14. The changed status of Railtrack also has potential regulatory implications. The Government announced on 15 October last year that it intends to streamline the existing regulatory structure, while still recognising that there will be a continued need for some form of independent economic regulation. No decisions have yet been taken. Franchising 15. The SRA announced a new franchising programme on 19 December last year, to deliver the Government’s objectives of 50% passenger growth and a reduction in overcrowding. We want franchises that put passengers first and get the basics right - acceptable performance, better services, improved facilities, less overcrowding and with safety paramount. The SRA will explore the full range of options for securing benefits for passengers. These include: • variations to existing franchise agreements without any increase in length; • franchise extensions; • early replacement of existing franchises; and • "on time” replacement of existing franchises. 16. This 'horses for courses' approach means we can move forward quickly and secure some early benefits for passengers, while also putting in place plans for the medium to long term. The new programme helps to stabilise and restore confidence within the rail industry. It is both practical and deliverable, and provides clarity for train operators competing for franchises. 17. The programme reflects the different needs of each franchise. It provides a balance between short-term extensions and long-term commitments. Details are set out in SRA January 2002 4 Annex 1 below. The Annex lists franchises for replacement and those for possible two-year extension, subject to negotiation of satisfactory terms which provide benefits for passengers and value for money for the taxpayer. Also listed are the franchises moving to expiry, but short-term improvements here may be sought through the Rail Passenger Partnership fund or through contractual agreement with the franchisee. 18. Clear guidance will be given to parties on the core requirements of a franchise, whilst leaving scope for innovation. Wherever franchises are replaced or extended, new contract terms will target improved performance and reduced overcrowding. 19. The length of new franchises will depend, amongst other things, on the investment needs of the franchise and the level of risk to be borne by the franchisee. It is also very important to establish structures that allow good quality operators to take a longer term view of their business and the needs of their customers. Where long- term franchises are appropriate these are likely to be up to 15 years (in line with emerging EU requirements) but, crucially, will be dependent upon delivering operational performance targets. Because this represents a considerable development in franchising policy the SRA will be consulting with key stakeholders on the proposed franchise term. Franchises would end after five or ten years if the conditions were not met. 20. The SRA is also looking at the longer-term benefits of combining franchises and a simpler structure. In particular, where two or more franchises share access to a London terminal, combination might produce benefits for passengers. It may allow better use to be made of available capacity, and would simplify the timetable planning process and contractual relationships, with the aim of producing a more reliable, cohesive and attractive service for passengers. The SRA will be consulting train operators, passenger committees, TfL and regional and local authorities on the value of combining franchises in such a way.