Rail 655: Eurostar needs to really set itself free

Eurostar has always been a creature of government. All the major decisions determining its service have been made by government or state-owned railways but now the company is determined to establish itself in its own right. To do that would, ultimately, require Eurostar to be entirely freestanding and, obviously, to make a profit so that it would not be dependent on government handouts.

 The first step towards this was Eurostar’s establishment, on September 1st, as a separate entity replacing an impossibly complicated structure that made management decisions dependent on the whims of the three owning parties – London & Continental Railways, SNCF and SNCB. The new company has immediately shown it means business with the announcement that it is buying ten new trains from Siemens to use on routes that have yet to be determined. Clearly negotiations have being taking place for some months, but the new company’s aggressive intent is demonstrated by the timing of the launch which was a big PR jamboree complete with train prototype being displayed next to the Albert Memorial in Kensington Gardens. This took place just ten days before Deutsche Bahn’s ICE train was due to come through the Channel Tunnel as a demonstration of its intent to run trains to the UK from destinations as yet unspecified.

 So the gloves are off. Eurostar’s announcement about the new rolling stock was not, strangely, accompanied by any detail of precisely what these trains, due to arrive in 2014, will be used for. Frankfurt, Cologne and Amsterdam were all mentioned but according to Nicolas Petrovic, the chief executive of Eurostar, no decision has yet been made. I find it rather incredible, in the true meaning of the word, that Eurostar should commit itself to £700m of investment in new trains without knowing what they are for. If this were the case, then one has to wonder about the judgement of the company’s new top management.

 With DB announcing its intention to take a test train through the tunnel, Eurostar was rushed into its PR stunt. Certainly, the fact that the mocked up train had neither wheels nor seats suggest it was not quite ready for a public display. There is no doubt that Eurostar deliberately upstaged DB but I suspect that its failure to firm up any new destinations is to keep its German rival guessing over its plans.

 Of course, all this is great for rail passengers and the industry more widely since HS1 is an underused asset. There are, though, two fascinating aspects of the deal. First, the choice of Siemens over Alstom has caused ructions right up to the top level of the respective governments although it is unlikely to lead to the fourth invasion of France by Germany in 140 years. The procurement, oddly, was carried out through the Link Up process, which is a agreed list of suppliers, rather than the conventional route of putting out a tender in the European Union’s Official Journal. This avoided any pre-publicity although, of course, Alstom would have been one of the companies approached by Eurostar.

 M Petrovic was unwilling to give any clear explanation as to why Alstom, which of course is  French and was, for a time in the 2000s, partly owned by the state after getting into financial difficulty. It is, truly, an unexpected decision since Eurostar is 55 per cent owned by SNCF, which is of course heavily subsidised by the French government, which appears to have been greatly angered by the choice of German trains, and one which railway watchers from the sidelines

 Alstom is, too, apoplectic, complaining that the trains – which have distributed power rather than a locomotive at each end – are unsuitable for the tunnel. Certainly, the rules for going through the tunnel will have to be changed since the Siemens trains cannot be split and under current rules, the escape plan in the event of an emergency involves dividing the Eurostar train into two after shepherding the passengers into one half, but this has never been used and is a ludicrous and impractical requirements. Alstom’s bleatings were quickly put in their place by Richard Clifton, the head of the UK side of the Channel Tunnel Safety Authority

 Mr Clifton – who, I have to declare an interest here, was union president when at Warwick University when I was briefly a fellow member of the union executive – is becoming something of a serial debunker of the use of safety as an excuse for inaction or opposition, and jolly welcoming it is too. Last month, he quickly refuted DB’s suggestion that ‘elf and safety was preventing their trains from going through the Tunnel in time for the Olympics by saying that their request could be processed within a couple of months but that he had not received an application.

 The other interesting aspect of the Siemens deal  – actually bizarre would be a better adjective – is the choice of 900 seater trains which from a commercial point of view seems to make no sense. Eurostar is saddling itself with trains that are the equivalent to more than two Boeing 747s with no 737 size alternative available, and since the trains cannot be split, load factors for many services – midday service to Frankfurt anyone? – are bound to be low. TGV trains range from 368 seats to just over a thousand (when two Duplex sets are coupled together). Of course, again, the Channel Tunnel rules come into play, as trains are supposed to be at least 400m long to ensure one exit is always next to one of the entrances to the middle escape tunnel which are 375m apart, but that is another ludicrous requirement which Mr Clifton’s Authority well may dispense with.

 Incidentally I challenged Philip Hammond, the Transport Secretary on the HS2 connection at the launch since, under initial plans, the two lines would not be connected. While avoiding being totally categorical, since the issue is being examined by the Department, he believed such a link was essential. However, this could cost up to £3.6bn in one scenario – a huge tunnel from Rainham Marshes to Old Oak Common and there is another obstacle in making the trains pay for themselves, the ban on domestic journeys on international trains for security reasons, another nonsensical rule. (Mr Hammond may be learning that reducing the cost of HS2 – and indeed of HS2 operation – requires challenging these crazy rules imposed so carelessly on the railways)

  For LCR, the decision to go German has been greatly welcomed as the company is keen to see different types of train operating on the line. LCR is, of course, in an odd position. The previous government announced it wanted to privatise LCR in three sections – the property portfolio at Kings Cross and St Pancras, its 40 per cent stake in Eurostar and HS1 –  and the Siemens decision would have required the approval of all three shareholders (SNCB holds 5 percent). Therefore one can assume that LCR would have batted strongly for Siemens but the reasons for SNCF’s agreement will remain a mystery.

 The new trains decision is, in fact, well overdue. For too long Eurostar has been resting on its laurels as a state-subsidised company with a monopoly on high speed services through the Tunnel and with little ambition to do anything else but go to Paris and Brussels, and occasionally a few seasonal destinations such as Disneyland and Bourg St Maurice. Partly this was because of the various constraints imposed on the company but it has never lobbied to change them, precisely because it was a creature of government. It has, for example, done nothing to challenge the ridiculous safety rules in the tunnel, its poor allocation of space in St Pancras – where there is a massive waste in a totally empty ticket hall and the area above, about which I have written numerous times (see Rail passim) or properly considered alternative destinations despite having many spare train sets. Recently, it has begun to look more commercial with, for example, the operation of extra trains during the volcanic ash grounding of flights which were not only declassed but had all seats at a set price

 Moreover, its finances were a mystery. It published revenue figures, but not properly accounted costs, and therefore the extent to which it was receiving subsidy was unclear.   Don’t get me wrong. I have no problem with long distance rail services being subsidised, although, of course, it is a regressive benefit since most travellers are relatively well off. But I am convinced that the wider societal benefits make it worthwhile – though, as I have argued previously, not in the case of High Speed Two.

 However, the accounts must be transparent and open to scrutiny. When, at the launch, I asked Richard Brown, the former chief executive of Eurostar who is now the chairman, whether full accounts showing what precisely Eurostar would be paying for all the various services supplied by its shareholders – such as the use of the stations, maintenance facilities, etc – he said ‘of course not, no other company would do that’. In other words, the precise arrangements between SNCF and Eurostar will not be open and therefore it will be impossible to assess whether Eurostar can be really considered a conventional stand alone company and whether it is genuinely profitable. For a start, no normal company would be able to announce it is spending £700m on new equipment on the basis of one month’s balance sheet!

  Of course there are good reasons for Mr Brown’s reticence. Rail companies are not supposed to get state aid, and any subsidy would immediately attract the attention of rivals, both rail and aviation. Nevertheless, real detailed accounts would allow the industry and the public to see the real economics of high speed line operation. Even then, of course, you would have to take into account various capital items, such as the fact that Eurostar got given its first lot of British-owned Eurostar trains, worth £1bn, in the deal to finance the construction of what is now High Speed One. Such openness would certainly help inform the HS2 debate and until Eurostar’s finances are transparent, its claim to be a normal company will remain dubious.

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