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The Strategic Rail Authority's cunning plan to pre-empt blackmail by franchisees isn't turning out as expected
Back in the February 2000 column I had much fun exposing the Strategic Rail Authority's retro approach to procurement of Mk 1 stock replacement electric multiple units. The aim is/was to place contracts for new trains which could be novated to the replacement franchisees for South Central and South West Trains if they hadn't done anything themselves.
Conceptually this was a shrewd move. With the two franchises expiring shortly after the Mk 1 withdrawal deadline of 31 December 2002 , there was always a chance that a hard nosed incumbent, or a wannabe franchisee, would try to make replacement of the Mk 1 fleet a bargaining counter. By having contracts in being, the SRA made bidding Mk 1 replacement neutral.
Which is not to say, that the SRA's spin doctors are averse to writing Mk 1 stock into the bidding equation to talk up a deal. Of the much vaunted £1.5billion ‘investment' in the winning GOVIA bid for Network South Central, roughly half covers Mk 1 stock replacement which would have had to be spent anyway.
Significantly, GOVIA's, franchise replacement business plan assumes that some Mk1 stock will remain in service into 2004. Which is where I got it badly wrong.
Under the Safety Regulations, Mk 1 stock has to be withdrawn by December 2002, unless it is fitted with some form of anti-override protection.
Her Majesty's Railway Inspectorate sponsored the development of a suitable retro-fit. Unfortunately, tests with this ‘cup and cone' system were not an unalloyed success. However there are other options, such as new couplers which similarly reduce the risk of the very strong Mk 1 under-frame slicing through a not so strong Mk 1 body structure in a collision.
With anti override protection Mk 1 stock can stay in service until 31 December 2004 . But I calculated that the cost of fitting cup and cone, plus the Train Protection & Warning System and, possibly, On Train Monitoring & Recording, would make two years' life extension uneconomic. Sorry, I miscalculated.
Leasing charges for Mk 1 stock, say a Class 423 (4VEP for the innumerate) are in the range £3,000-4000 per vehicle per month. When a four car unit is worth £150,000 a year, you can see that the £70,000 I estimated as the cost of meeting the safety regulations produces a pretty attractive payback. Add in the fact that a new four car EMU has a capital rental charge alone of two to three times the VEP, and life extension is attractive to both lessor and lessee.
So, the pressure is partly off the SSRA and Captain Deltic rejoices in the thought of the world's greatest traction motor, the EE507, clocking up 65 years in front line passenger service.
Market forces have further reducing the pressure on the SSRA. Angel has placed a speculative order with Siemens for 25 four car Class 335 Desiro EMUs which should be available, mit DC safety case, for Mk 1 replacement mid 2002. Alstom has obtained up-front funding to start building 50 four car Class 458s with delivery starting towards the end of this year. And Porterbrook, apparently unimpressed by its Alstom Class 458s, is funding 40 four car Class 375 Electrostars.
Meanwhile the SRA and its advisors have been fumbling through their procurement-by-numbers exercise – offending sundry chums with red braces in the process. Speaking at the Railway Forum's annual conference in September 2000 Sir Alastair Morton said that we could forget the term ‘ROSCO' (Rolling Stock Company) because they have been sold and resold and they are departments of banks, just like their competitors. ‘The market has regularised with the decline and expiry of the initial leases that will complete that process and we should not think of it (the ROSCOs) as something special', he explained.
That may Sir Alastair's view, but his procurement team has remained locked solidly into the ROSCO mindset. Two banks to my knowledge were spitting mad after big money proposals to fund Mk 1 stock replacement EMUs had been not so much dismissed by the SSRA as not even acknowledged.
Meanwhile on the hardware front, further consolidation had seen Bombardier and FIAT/Traxis exit the shortlist of train builders. And Japan Inc had arranged for the pre-qualified Japanese bidder Mitsubishi to become a front for Hitachi , which has ambitions in the UK market with AEA Technology Rail providing safety case expertise.
Which brigs us to December 20, which, as you will recall, was the date for Mk 1 stock replacement contracts to be awarded. Instead, the SRA held their pre-Christmas media soiree.
In the spirit of the season I innocently asked Chief Executive Mike Grant if he could remind me of the date. ‘December 20' he replied. ‘Oh, I said, with as much faux surprise as I could muster, 'weren't you supposed to have ordered the Mk 1 replacement stock today'.
Well, my naughtiness got me some useful information, because Mike revealed that at least they had chosen the two preferred financiers – HSBC Rail (nee Eversholt) and Porterbrook. Subsequently this news did not go down well with Angel, which is actually doing something about Mk1 stock, while banker chums just rolled their eyes skyward.
I digress. ‘What about ordering trains though', I pressed. And Mike went on about 600 vehicle sitting around going nowhere and asked what he should buy. ‘Simple', I replied, ‘a train with a DC safety case that's in service and building up reliability'.
But, since it was a party, I threw in the gratuitous slur that his procurement team was sufficiently ‘old BR' to go and buy something totally new on the promise of a safety case. And we went round the ‘600 vehicles standing/what shall I buy/a working train with a safety case', loop again which Mike ended by commenting that he knew I had ‘baggage'.
Whether this referred to my long standing support for the industry that took me in or my personalised Alstom overalls I'm not sure. Certainly I got the impression that the SRA wants to break the European hegemony in the UK market on the grounds that someone who hasn't spent ages and tens of millions getting a safety case is obviously untainted by the set-backs and delays covered at length in this column.
But with Siemens and Alstom getting Interim Certificates for the AC EMU Classes 333 and 334 respectively before Christmas and Alstom getting a 12 car DC safety case for the Class 458 at the same time and the Gatwick Express units showing surprising reliability, I believe Grant is misreading the market.
I mean, who would you favour to get the next DC Interim Acceptance Certificate first, Adtranz and Siemens, who have been in the thick of melee for years, or someone coming new to the fray. Informed sources report that the first reaction of Japanese traction engineers to the Railtrack acceptance process was that the Yellow book (Railtracks guide to how to get a safety case) must be re-written.
So there we are, another procurement sago which really is a no-brainer. Where franchisees keep English Electric Traction rolling on to the end of 2004, time is not of the essence and the market will provide for replacement.
Intervention may be needed by the SRA only where Mk 1 fleets are planned to be out of service in December 2002.
So, if the SRA buys, it must buy in the certainty that trains with safety cases will be available in quantity during 2002. Turn to Andred to see what's happening and the choice is a no-brainer.
In a book on great financial disasters of our time a banker described three danger signals: ignoring what you know; forgetting what you know; and believing that this time it will be different. What price the SRA doing all three?
Sic transit Gloria munde
To speed things up I have a number of macros in my word processor's auto correct. Enter ‘WCR' and Bill Gates' little man in the box under my desk types out West Coast Route Modernisation. So with ‘gauge corner cracking' now occurring in every other sentence, I entered the phrase as ‘GC'. Was I sure, the little man asked? I checked his list, Previously typing ‘GC' inserted ‘Railtrack Chief Executive Gerald Corbett'. I clicked on ‘replace'.