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Analysis | Is Network Rail on track with its plans for third party investment?

Heathrow Southern Rail image 3to2

The long-awaited list of projects Network Rail wants to see privately funded has been published and the government has outlined the policy on how it views third party funded rail proposals. But just how feasible are the projects and will the policy change make a difference?

Following last year’s Hansford Review into how third party investment can be brought into the rail, Network Rail has published its shopping list of its own projects, for which it would like to get private funding.

The list, which covers the whole of the country, contains a mix of stations, track improvement works and bridges, ranging from less than £10M to over £100M in cost and at differing design stages.

Funding for the schemes could be part or complete, with Network Rail saying it would be up to the third party to develop the business case to support its funding contribution. 

Although the publication of the list appears to be a welcome step forward, sources New Civil Engineer have spoken to are raising concerns.

One said the small value of some of the contracts would probably not make the high cost of the buliding the business case and going through the Network Rail application process worthwhile. They also wondered where the risk of interfacing with a live railway would lie and how much risk Network Rail would be willing to take on. Another said he found it difficult to see where the commercial opportunity lay, especially with the track improvement work.

“The tangible items like stations are easier to see how you could commercialise them,” he said. “But things like the track and other bits and pieces, I don’t understand it. I don’t see how they are commercialised and made attractive.” 

One such example of this however, might be the two-year deal with signalling and train control specialists Resonate, which picked up much of the costs to install and run a signalling system. If reactionary delays are reduced as predicted, the compensation paid to train operating companies will also shrink and the money saved will be shared between Network Rail and Resonate.

One expert said he welcomed Network Rail’s list and suggested packaging up the smaller projects might make them worth the administration cost. But he said Network Rail had to make sure there was both certainty and repeatability of transaction to make the projects attractive to the supply chain. He wants to see the newly devolved regions procuring the work in the same way to allow the supply chain to hone their bids and drive down cost through subsequent bids. He also said sticking to promised timetables for publishing tenders would cut the cost of bidding for the projects.

“There’s a couple of administrative issues around the certainty and repeatability of transaction to sort out,” he said. “That might sound small, but they’re very important to get right.

“We also need to see the DfT [Department for Transport] put out a tender when they say they will,” he said. “We see it all the time with franchises for tender, almost without fail, the timetable will slip.

“If that happens then you could have £250,000 of consultancy staff costs just sitting in the office and you can’t let them go because they’ll find work elsewhere and might not come back.”

Network Rail said the projects would follow its normal procurement, where it delivered the project, and projects would follow the “established processes for third parties to part fund projects”.

Another expert said projects proposed by the market would always be more attractive to funders than those proposed by Network Rail.

“I don’t see a huge appetite for funding the government shopping list [Network Rail published list],” she said. “However, if you give ownership of the idea, then there is an appetite for that because they can find their own innovations and drive change within the industry.”

At the same time as the Network Rail list was published, the DfT also put out new guidance for market-led rail proposals, the Rail network enhancements pipeline, setting out the process by which it would consider outsider schemes.

Like the others, she welcomed the new policy saying there was an acceptance that the state wasn’t a sole source of ideas and there was now “a front door to go through where there wasn’t before”. But said the government now needed to improve on the “binary” approach of the two proposed categories for prospective projects.

“The definition of cat 1 [schemes which require no public funding] is so tight that is seem unlikely that any scheme will ever fit into it,” she said. “By contrast, cat 2 schemes include everything from schemes that are light touch and subsidy-free to those that are totally funded by government.

“I would like to see a simpler process where the degree of government involvement required, money, guarantees or compulsory purchase powers etc, is matched progressively by the degree of compliance with government methods for example the Green Book [the guidance by which the Treasury appraises projects].”

Companies now have four months to submit initial proposals after which the government is expected to respond in the Autumn. The DfT said more information and support for those interested would be available at its rail investment opportunity days which will be held in May. 

Hansford said in his review that the “potential ‘size of the prize’ is significant and that this prize is within reach” for third party funded projects. However, it is still too early to tell if the new measures will unlock this prize or if investors will end up hitting the buffers.

 

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