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Monday, 22 January 2018

Andrew Adonis Gets Rogered

Since the DfT announced that the Inter City East Coast (ICEC) franchise, run at present by Virgin Trains East Coast (VTEC), was going to end prematurely, politicians have been queuing up to claim that VTEC, or perhaps Richard Branson personally, have been “bailed out” to the tune of around £2 billion. In the vanguard of this claim-o-rama has been former Labour minister Andrew Adonis. The Great Man rather let himself go with his attack.
London's Kings Cross terminus, start of the East Coast Main Line

Handing a cheque worth hundreds of millions of pounds to Richard Branson and Brian Souter [chair of Stagecoach] would be indefensible at the best of times but we are now at the worst of times with a Brexit squeeze on the public finances and with rail fares going through the roof … The cost of this bailout is going to be a slashing of the national infrastructure programme and even bigger fare rises” he claimed.

Also, Chris Grayling would have to go: “I think he is going to have to go because, as he is forced to defend a massive bailout to the private sector, the question will be asked by the public accounts committee and the National Audit Office - why didn’t you adopt the alternative course which was to set up state companies to avoid the need for a bailout? He has no answer to that”. But those with a little industry knowledge did.

Roger Ford of Modern Railways magazine was one of them (and if you want the detail, subscribe to his Informed Sources e-preview), as I told recently. As a result of Adonis generating plenty of heat but not necessarily much light, he has returned to the subject to inflict a little reality on all those shouting “bailout” from the sidelines.

Here’s what he has had to say: “The VTEC affair is being promoted by opposition politicians as the Department for Transport ‘bailing out’ Stagecoach and Virgin from their franchise commitment to pay ‘£3.3 billion’ in premia over the life of the franchise … Actually adding up the annual premia at 2014 prices I make the total £2.7 billion. But the important number is the total payable in the last four years from April 2019”.
Roger Ford - at the controls

There is more. “I put the premium payments for those last four years at £1.6 billion. This compares with the £1.1 billion which VTEC will have paid [my emphases] in the first four years to 31 March 2019. Thus, all this £3.3 billion stuff is typical political misinformation”. And the “£2 billion” claim seriously over-eggs the premium pudding.

Then we come to the great bailout conspiracy. As I’ve been explaining … the premium payments for the second four years depend on VTEC being able to generate revenue growth from the more intensive higher frequency faster timetable which was due to be introduced from May 2019. As the franchise agreement makes clear VTEC will use its ‘best endeavours’ to deliver the timetable, but it still depends on Network Rail delivering”.

Now comes the crunch part: “At the moment all we know is that the infrastructure to support this timetable won’t be ready by May 2019. What parts of it will become available and when, no one seems to know … So it pretty obvious that, despite VTEC’s best endeavours, the premium profile is wrecked and there is nothing VTEC can do about it”.

Ford concludes “Even in the arcane world of political semantics, being ‘let off the hook’ through someone else’s shortcomings is not the same as being ‘bailed out’”. Quite. And after noting that Adonis claims he will involve the Public Accounts Committee, claiming “I am ready to share troubling evidence with the PAC and other parliamentary committees investigating the bailout”, he calls out the former minister directly.
Andrew Adonis - a mere passenger this time

What this ‘troubling evidence’ is has yet to be revealed. It looks as though we are entering conspiracy theory territory here”. One doubts that Adonis will have read this verdict with anything over than the apprehension at being imminently exposed as having overreached himself to the point of ridicule. But Grayling did not get off Scot free, either.

And as for the ability of the DfT to set up new arrangements for ICEC by the appointed time, Ford is deeply sceptical: “The chances of setting up Chris Grayling’s new East Coast Regional Partnership by 2020 are on the emaciated side of slim, so I could see VTEC running the renegotiated Intercity East Coast franchise, possibly up to its full term”.

Shades there of the Team Shambles award I gave the DfT over the West Coast débâcle. But what this shows, once again, is that politicians - in this case those left of centre, but don’t think the Tories don’t indulge in the same kind of attack lines - are more than willing to be creative in bending reality to fit the desired narrative.

No-one is being “bailed out”, no matter how loudly and frequently the claim is made. But the reality is more complicated. Politicians need it to be kept simple. Thus the problem.

13 comments:

SimonB said...

It's still a failure of privatisation. This kind of thing wasn't supposed to happen in our brave, efficient new world. Certainly the DfT need to answer some questions.

Anonymous said...

Adonis 'left of centre', Tim? Mr PFI?

SteveB said...

The 2012 shambles may be an example of the general state of affairs at the DfT but this case actually has a near identical predecesor, go back to the original launch of Virgin Trains on the WCML. In 1997 Virgin won the franchises with a bid that was linked to Railtrack providing them with a 140mph railway no later than 2005 (up from the max 110mph railway they had at the time). The DfT signed off on the deal and all the various premiums that Virgin would pay to them. They sat back and rubbed their hands while Virgin went out and aquired their fleet of 140mph trains in readiness......

Now the nerdie part, pay attention. The faster the train goes the more productive it and the crew are. Faster trains may cost more money but in a working day they can do more trips so carry more passengers - who will also more pay a bit more for speed (so double bonus), and they can get more mileage out of the crew within the same hours. So you take in much more in fares without increasing crew costs. Stuff politics, this is basic maths. This was part of the Virgin calculation in 1997 and once again when they supported Stagecoach's bid for the ECML franchise which is now under discussion.

But in 2000 just as the trains were going into production Railtrack announced they had no chance of providing the 140mph railway as per contract. The calculations all fell apart - the expensive trains had to be paid for but the extra revenue would be impossible to achieve. So what happened was that the LABOUR government renegotiated the contract including providing funding for extra trains to fill the gaps in the planned timetable. And now, just as the new trains for the ECML are being built Network Rail announces the line upgrades won't be ready and the faster, higher frequency timetables can't be implemented. And just like before the DfT are liable for contract failures - except this time they actually specified the new trains as part of bid calculations so didn't just sign off on the deal, they actually wrote part of it!

Anonymous said...

Well done privateers.

The usual profiteering inefficient scam.

Anonymous said...

Okay, Virgin and Stagecoach had a deal that was structured so they had to pay more in the latter half of the time period. They didn't fancy that so they jumped and were allowed to do so and will be allowed a new deal. Seems like a bailout in all but name.

SteveB said...

I'll assume that my previous post didn't go through until after the Anons at 20:56 and 21:45 had posted their comments.......

let me add some more techie facts (yes, I know, facts are the last thing you need when you've got a political axe to grind and I do have a bad habit of using more words than the average Twitter user can cope with...).

In the mid 80s British Rail decided to upgrade and electrify the ECML. At this point BR was still a nationalised company. Trains were designed, these were to a run at a new maximum speed which was to be raised from 125mph to - anyone want to guess? - yes 140mph!! The locos were built in Crewe works, the last that ever were. The trains were delivered and guess what, the track and signalling side couldn't provide 140mph and they have spent their entire service limited to 125mph. These are the ones about to be replaced as part of the Stagecoach contract and state owned Network Rail has still not got a handle on the problem!

Despite failing to get the 140mph on the ECML, a few years later British Rail launched a project to raise the WCML to 140mph and started planning. This was shelved when privatisation was announced but had that not happened BR would have spent huge amounts of money and ended up in the same position that Virgin did in 2000. So BR would have been the bad guys and the right wing would have held it up as grounds for privatisation.

And so the right and left use the railways as a battle ground for their silly little ideas without understanding that politics are irrelevant in these problems. Neither side has ever said their version would work if only they could sort out the civil engineering industry AND the civil service, neither side has any idea of what is going on. And they don't care.

If I was a Stagecoach shareholder my complaint would be that they ever signed the contract on the assumption that NR and DfT would deliver their side of the deal, history shows this was unlikely to happen. The "security" that they had a get out clause in case of failure was just bad publicity waiting to happen, anyone with brains would have got a contract that had bonus payments IF improvements were made.

SteveB said...

PS - if anyone really wants to understand how political decisions ( or sometimes lack of them) have buggered Britains railways from Day One I recommend the book Eleven Minutes Late by Matthew Engel, usually available via Ebay or the second hand book selling websites for a few quid. Not at all techie and gently breaks you into what is going wrong. The left wingers especially may like the interview with John Major which includes a bit of a confession......

Tubby Isaacs said...

SteveB,

I'm pretty sure that Souter-Branson (who aren't stupid, however much they overestimated revenue in the first couple of years) wouldn't have signed the contract without a pretty heavy nod and a wink from the DfT that the work would get done.

I agree with you, it was always unlikely it would get done. But the DfT (under pressure because East Coast was so popular, albeit not all that deservedly) wanted to come up with the biggest number possible to wave about when the deal was done. So they said "yeah, yeah, it'll be done, now add on that extra billion for us to announce".

I'm a defender of the current rail system, for the most part, but it made itself look very stupid here.

SteveB said...

Tubby

exactly. The company signed a deal with the DfT, it was the DfTs job to ensure that the deal could be delivered. The excuse that Network Rail are completely useless and can't be trusted may get sympathy in any pub in Crewe but it won't stand up in court. Yet the press (who are genetically incapable of understanding railways) and Adonis (who should know better) shout about it being all Virgins fault.

In the long term this won't affect the chances of Stagecoach or Virgin for any future franchises they bid for, let's face it even if a company is responsible for something bad it doesn't usually count against them in the future. But if Branson has got the business brain he is famous for and they do get a future franchise, such as the forthcoming WCML/HS2 deal, he will make sure the press announcement on day one makes very clear what conditions the DfT has to ensure, and what get out clauses Virgin has. Then when the almost inevitable failure occurs he can refer editors back to it.

Anonymous said...

So, let's get this right.

Since 1979 successive right wing governments (that is, all of them) have repeated ad nauseam "The market will deliver" and proceeded to rig the private AND PUBLIC (or what's left of it) economies accordingly. But after 38 years the "rail market" has FAILED to deliver - made it worse in fact.

Apart from the "techy stuff", Twitter or Facebook or not, don't you think you're missing something vital here? Such as the political decisions which govern everything, that whether you like it or not politics rule all our lives, that "technical management" is subject to political bias.

But no matter. "The market will provide". Not rational people making rational decisions. The market. Or something.

SteveB said...

Are you suggesting that there has been a long term political decision to ensure that the higher echelons of civil and signalling engineers within the British rail industry are inept?

The ECML project of the 1980s was mostly an old fashioned BR scheme - the free market's main involvement was the trains (and the loco construction was subcontracted back to BR's workshop subsidiary). The trains worked but track upgrades weren't delivered. These few schemes discussed here are barely the tip of the iceberg. Look at the disasters of the South Manchester resignalling scheme around 15 years ago or the GWML electrification which is still not resolved. It's true that we didn't have these major failures before 1979, but that might be because we didn't have many major schemes before then. There was the WCML modernisation of the early 60s which was done quite well and the GWML upgrade around 1975 (but that came with without electrification so could be classed as an expensive mistake). Maybe the political decisions between 1948 and 1979 caused a skill shortage in civil and signal engineering. But no political policy comes close to causing the amount of problems to match those of the dodgy handshake brigade who have run the railways for decades.

Anonymous said...

Sigh.

This gets worse, SteveB.

It would help if you didn't try to imply I made an assertion I didn't make. A peculiar kind of "logic", that.

Please re-read my previous comment - if you read it at all first time round. I can't be arsed repeating myself.

The "handshake brigade" operate in a much wider field than mere railways. In politics for instance. But you seem unwilling or unable to see that. C'est la vie.

I leave the railway platform to you. Bad pun intended.

James Araali-Kabyanga said...

Tim - why not keep it simple.

1. Was a contract signed for a period of time with expected revenues agreed?

2. Did the companies that signed that contract request to get out of it?

3. Have the companies that signed the contract committed to paying the expected revenues?

4. Have the companies that signed the contract committed to paying the expected revenues been let off the remaining revenues or part of them?

5. If the answer to 4 is yes in any way, then why?

6. Will the UK tax-payer miss out on expected revenues?

7. Will the UK tax-payer have to absorb the cost of the expected revenues?

Have I missed out any obvious thing?