Rail 508: £100m trains fiasco just a footnote in a sorry scandal

RAIL’s exclusive revelations about the £100m new trains that can’t be used have underlined the idiocy of the railway’s unco-ordinated structure, laments CHRISTIAN WOLMAR.

The story of the seven homeless Midland Mainline nine-car Meridian DEMUs ( RAIL 501/507) is a fascinating tale that highlights how the lack of co-ordination in the industry can lead to a crazy waste of resources.

To recap, from the excellent exclusives produced by RAIL’s Hassard Stacpoole, three years ago MML – part of National Express Group – ordered seven new nine-car trains worth around £100 million, from Bombardier using HSBC as the rolling stock leasing company. They were to be used for linking St Pancras with Leeds via Sheffield, providing an alternative to the heavily used GNER line.

The introduction of the new service was promised in the Strategic Rail Authority’s Strategic Plan published in early 2002, which said there would be an extension of London-Sheffield trains on the Midland Main Line giving an “hourly service to and from Leeds between 0700 and 1900 from May 2004.” At the same time, parent company NEG ordered a fleet of 23 Meridian trains (127 carriages as the trains were of varying lengths) in order to fulfil that extra service and replace the Turbostars which had proved unsatisfactory for the long-distance services.

By the time the trains started coming into service, the world had changed. No longer was the SRA talking of expansion and new services; cutbacks and trimming were the order of the day. Last March, the SRA published its Route Utilisation Study for the Midland Main Line and there was nary a mention of the St Pancras- Leeds service. Consequently, the part of the Meridian order intended for the Leeds service is now stuck somewhere like Platform 9 3 / 4 of ‘Harry Potter’ fame.

The SRA, instead, favoured a Nottingham- Leeds service running via Barnsley but although new rolling stock would be required, this would not be a MML service and, in any case, would require extra funding which is unlikely to be obtained. So as the Bombardier trains, built in Bruges (Belgium), are stacking up in the sidings, a ferocious row over their fate is taking place behind the scenes. You can be sure there is blood on the carpet but finding where requires a forensic analysis with few clues. Someone has obviously dropped a clanger here but getting anyone to explain the situation, to ascertain precisely who is responsible for an order of £100m trains that no-one wants, is rather like having a casual chat over dinner in a Trappist monastery.

When the trains were ordered, the SRA did not apparently underwrite the deal. In other words, there was no Section 54 agreement which would guarantee that the trains would be passed on to the next franchisee after April 2008 when MML’s contract, extended by a couple of years in August 2000, comes to an end. On pressing the SRA, however, it is clear that its signature is on the contract because all rolling stock deals have to be rubber-stamped by the SRA.

The SRA says this approval only relates to Section 30, the legislation that makes it the operator of trains of last resort which is necessary to ensure the stock would be used should the franchisee go belly-up. It does not, stresses the SRA, mean there was any commitment to provide the service. However, that is not what National Express thought at the time the deal was signed.

Its press release proudly proclaimed: “Commenting on the order, Ian Buchan, Chief Executive of the NEG Trains Division, said, ‘We are delighted that as part of our franchise agreement we can now confirm that this new fleet of trains is in the pipeline. The quality of the service that MML can provide to customers will be greatly enhanced by this development.” (my italics) The fact that these trains were part of a larger order muddies the waters even further. National Express says that at the moment it is not paying anything for the trains since it has not taken delivery because it would have nowhere to maintain them.

Therefore, NEG argues, the trains are currently the responsibility of HSBC, the rolling stock company that ordered them, which did not return my calls. Now, of course the precise arrangements are governed by contracts which, for reasons of commercial confidentiality (often a spurious excuse to keep information away from shareholders rather than rivals), the various companies will not discuss. However, for sure, there will be a clause in the contract that allows National Express to avoid payment on the basisthat it has no use for the trains. Ultimately, in one way or another, I bet the poor old taxpayer will end up footing some of this bill. HSBC is bound to get its money given that its core business is all about getting the contracts right, and so clearly the dispute is between NEG and the SRA, or rather the government.

NEG, with its eight franchises, is going to have some pretty strong leverage over the SRA, whatever the precise wording of the agreement, and will extract its tuppence-worth. That is why in its few public pronouncements on the issue, the company has not sounded too bothered about a fiasco that theoretically could wipe out all its profits from rail operations in one fell swoop.

In the scheme of the overall scandal of the way that the privatisation of the railways has cost the taxpayer billions of pounds, £100m is a trifling amount. So there are unlikely to be any MPs hopping up and down about the issue, and this little incident will be a mere footnote in a fiasco. Yet it is an important story that is illustrative of the way that the pretend capitalism imposed on the railways by ideological politicians has cost us all dear. In the real world of capitalism, entrepreneurs take risks based on the quality of their products, their assessment of the market and their predictions of the behaviour of the market. On the railways, the risks are all artificially created by governmental – not market – decisions.

It was the SRA changing its mind, under pressure from the politicians, that created this mess in the first place. (It could be said that having two separate services to Leeds running from London stations next to each other was another daft attempt to inject competition into the railways and should never have been considered in the first place.) Yet the train operators and ROSCOs have to account for this type of risk when making bids to provide trains or services, and increase their prices accordingly.

So we end up paying more for these risks in terms of higher subsidies to train operators and higher leasing charges to ROSCOs when, in fact, these risks are created by the politicians’ inability to make clear decisions and their failure to devolve the running of the railway to either the private sector or their own agencies like the SRA. And when something like this happens, the companies point out, rightly, that these extra sums are justified. Of course, the daftest aspect of this sorry tale is that there is no shortage of potential uses for these trains.

There are several suggestions, such as reforming the units for Hull Trains and MML’s other services or using them to boost the Voyager fleet. Despite being a Voyager derivative, apparently they cannot be hooked up with a Voyager set because their computers speak different lingos, a classic old railway failing. But now there is talk of these muchneeded trains going to Ireland or elsewhere because there is no money to subsidise them. That may save the SRA or the politicians from getting egg on their faces, but it will be a sad indicator of how the railways are to be allowed to decline over the next few years.

Can we trust the Ministry?

The Department for Transport was long accused of being the Ministry for the Motorist and doubts about whether that has really changed were reinforced by a report in The Times on February 21.

The paper reported that when public transport schemes are being assessed for value for money by the department, the fact the new users of buses or trains will not be paying fuel duty for their cars has to be taken into account, pushing up the notional cost of such projects. This seems almost unbelievable from a government which originally set out to get people out of their cars and on to public transport.

It brings up a wider point, too. I have always been a sceptic about the worth of cost-benefit analyses and their consequent business cases. They work largely through the idea that transport schemes allow thousands of people to make tiny time savings which are then valued at a certain amount per hour. The notion that you can value a scheme on such a basis is fanciful and is really a surrogate for decision-making that takes into account the societal value of such schemes.

The fact that, under existing methodology, the Victoria Line still comes up as being of marginal value shows that the whole process needs a major rethink, especially if the department is playing such silly games as putting the cost of lost fuel duty into the equation.