Rail 461: Short sight at the SRA must not wreck the CTRL

With the National Audit Office again turning its attention to the Channel Tunnel Rail Link, Christian Wolmar calls for a fundamental recasting of the Kent suburban timetable if the expensive projects is to provide value.

Here’s a paradox. The construction of the Channel Tunnel Rail Link is set to be completed on time and on budget at £5.2bn with the first section, due to open on 28 September, almost finished and the second one well underway. Yet the project is set to cost taxpayers far more than that, possibly over £10bn. Moreover, the high costs of building new special trains and running services on the line may mean that domestic services, one of the major reasons for building the link will either be severely curtailed or even not be introduced at all.

So how does one explain this contradiction – the rare event of the successful construction of a major project together with the all too common experience of taxpayers having to cough up vast sums for the scheme?

The key to understanding this very complex story is the difference between financing and funding a project. While the funding is merely the cost of the new link, it is the financing – how the money to pay for the cost is raised – that is the key to the problems that have beset the project of creating Britain’s first new major rail line in more than a century. In the old days, a company or the state just built a railway and hoped that revenues would pay for it. If the railway made losses, the shareholders or the state would simply lose out. Nowadays, things are more complicated.

The original deal to build the link, signed by the Conservative government in 1996, collapsed in 1998 when the forecast of numbers using Eurostar services proved wildly optimistic. It had been financed on the basis that Eurostar profits, plus a one off grant, would be enough to ensure that the link could be built and operated without any further government support. Fat chance. Eurostar loadings were around half of the numbers projected and London & Continental, which had won the concession to build the link, went begging to the government for more money.

Rather than coughing up money directly, John Prescott, the then Transport Secretary brokered a new scheme to ensure the £5.2bn scheme could be completed supposedly without any new injection of public funds. There was still to be a grant of £2bn but most of the money would come from a bond issue of £3.75bn, underwritten by the Treasury but, amazingly, not counted as government spending because it was reckoned that the likelihood of the taxpayers being called upon was less than 5 per cent. Instead, the scheme again relied on Eurostar revenues with what seemed like a very optimistic forecast of 13.8m users, more than twice the current level of around 6.5m, per year.

The original projections were optimistic enough but foot and mouth, September 11 and the Iraq war, made them unattainable. The biggest bluebottle in the ointment, however, has been the low cost airlines. Not only do they make it cheaper to fly to (somewhere near) Brussels and Paris, but they open up a myriad alternative destinations for short breaks.

So, surprise, surprise, the project is again in financial difficulties, and the National Audit Office, which published a highly critical report into the Prescott deal two years ago, has taken a renewed interest in the project having, last time, warned that the ‘taxpayer is exposed to considerable risk if Eurostar UK does not perform as well as expected against revised forecasts’.

With Eurostar numbers stagnating for the past couple of years, and now dropping 8 per cent this year despite some welcome ticket price reductions, the CTRL project is back into financial crisis mode. The bond issue is being increased to £5.25bn, including £700m of old Railtrack debt being now included (since Network Rail is effectively a government company), and the first repayment, due in 2010, is now going to be postponed for a decade by the refinancing. But at the end of the day there is no getting away from the fact that taxpayers are going to have to dip into their pockets.

Another hidden subsidy, incidentally, is that the access charges for domestic services have been rolled up and given an upfront cost of £395m, a sum that will inevitably fall on the taxpayer. Given that the Eurostar trains, worth £1bn, were handed over for free to LCR, along with lots of land worth possibly twice that amount at the time of the first deal in 1996, the taxpayer is going to pay at least £10bn for financing this railway.

At least, though, we will get a spanking new railway. Yes, but the question is, if these costs had been known in the first place, would the CTRL project have ever been given the go-ahead? There has always been a fundamental dishonesty about the project. The ridiculously optimistic Eurostar forecasts are a game that has to be played in order to get the project past the Treasury. In reality, the CTRL is a ‘grand projet’ undertaken for reasons of prestige and European integration, rather than as a realistic and viable commercial scheme. Ultimately, it is probably worthwhile – although a domestic north-south high speed line might well have more economic benefit – but only provided that the link is well used for domestic services. And this is another saga that suggests we have lost the ability to run a railway in this country.

In February, the Strategic Railway Authority issued a consultation paper setting out various alternatives for domestic services on the CTRL which range from a core service option, focussing on Gravesend, Canterbury and Folkestone, to fuller versions serving more Medway or Mid Kent towns. The possible permutations, of course, are endless but whatever is offered, will require subsidy ranging from £205m to £385m expressed as Net Present Value – in other words, rolled up as a capital sum which will be required at the outset. However, in a recent interview with BBC Radio Kent, Jim Steer, the managing director of the Strategic Rail Authority, admitted that that ‘the worst case scenario, under a lot of spending constraints, would be that there would be no domestic services on the Channel Tunnel Rail Link.’

Not only is there ongoing subsidy but the cost of the rolling stock which will have to be designed from scratch to cope with the requirement to travel at 200KPH on the CTRL using the 25,000 volt AC overhead power while being be able to operate on 750 volt DC third rail off it. Each of the 175 coaches may cost as much as £4m, three times as much as normal because of the complex requirements and the high development costs.

Does that mean we are not going to get a domestic service? No, as it would be crazy for the £5.2bn line to be confined to a couple of Eurostars per hour as freight is also unlikely to use the line. Steer is deliberately being pessimistic in order to put pressure on the government because he knows that much of the purpose of the link will be lost if it were not used for domestic services.

However, the argument for high speed services for local commuters has not been helped by the SRA’s remarkably short-sighted options set out in the consultation paper. The SRA’s basic mistake in the paper has been to start from the premise that the existing services should remain and that the CTRL trains will be additional: ‘The aim has been to focus on [options] that complement existing services between Kent and London’. But this is bonkers. Once the study is constrained like that, all sorts of unwanted consequences result. Turnaround times have to be very long at the termini, meaning extra stock is needed, and service patterns become far too generous on little-used sections of railway – for example, there is already an existing half hour frequency to destinations east of Ashford and there is simply not the demand for more services than that. Moreover, infrastructure requirements to accommodate these unnecessary services, such as a loop at Gravesend, are pushing the price up of the whole scheme for domestic trains. Yet, the SRA warns that their introduction must be affordable and ‘offer value for money’.

An old railway buff who has assessed the options says they are badly thought out, expensive and do not make use of what is a fantastic opportunity to boost rail use in the whole region. He argues that the London and South East railway was built on the cheap with lots of flat junctions which has constrained usage and growth and that the existing timetable is a hodgepodge inherited from the past and constrained by factors that will change as a result of the new line.

The creation of a whole set of services together with the removal of Eurostar trains from existing lines, means that the current timetable for both suburban trains within London and Kent services should be completely recast bringing about many improvements. Given that the South East franchise has been shortened so that it no longer extends beyond 2007, the earliest starting date for these new services (though unlikely to be met because of the delay in sorting out the service pattern and ordering the trains), it is an opportunity to create a whole timetable, as was done for the introduction of Thameslink and, to a lesser extent, Eurostar.

So why has the SRA started from the premise of not affecting existing services? Partly timidity: the whole process of consultation over such a sea change is so massive in the current structure of the industry – you would have to ask Network Rail, other train operators, passengers groups, the regulator and the whole panoply of organisations involved in the railway – that it has backed off. But also there is a lack of knowledge about railway operation by those carrying out these consultation processes. However, it is, I’m afraid, lads and lasses, back to the drawing board if another expensive fiasco is to be avoided. Given that we have got the CTRL, it would be crazy not to spend a bit extra to ensure the line is intensively, but economically, used.

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