Professor Stuart Cole spells out the background to the race for a crucial rail franchise
A week ago the UK Government announced the four bidders for the rail franchise that will run services between south Wales and London from 2013. All the bidders are bus companies, all are parts of major groups and all have been involved in rail operations for some time. They are all bidding for a franchise where there is a lot at stake for Wales.
Who are the bidders? (in alphabetical order)
First Great Western Trains Limited (First Group) – the current operator, and also major bus operator in south Wales.
GW Trains Limited (Arriva UK Trains Limited – DB (UK) Investment Limited) – currently operating part of the South Wales Main Line along with First Great Western; operating the Wales and Borders franchise and operators of Cross Country Trains from Cardiff. Arriva Group is the biggest bus operator in north Wales.
NXGW Trains Limited (National Express Group plc) – operator of the National Express long distance coach network. The company currently operates commuter rail services in England and previously operated the East Coast Mail Line services.
Stagecoach Great Western Trains Limited (Stagecoach Group plc) – operators of train services in England including South West trains. Stagecoach is a major bus operator in south east Wales.
What is a train franchise?
Ever since the privatisation and disaggregation of British Rail, passenger train services in Wales, England and Scotland have been contracted out by the respective governments of the three countries.
The companies whose name and livery adorn the trains are contractors. They do not own the trains or the railways on which they run, but they have a contract with one of the governments to operate services in accordance with that agreement. This may be changed to meet differing demand situations if both the company and the government agree.
In Wales all local services and some cross border services, e.g. to Manchester, are within the Wales and Borders franchise. In south Wales there are also two franchises let by the UK Government’s Department for Transport (DfT): they are the Cross Country franchise operating between Cardiff and Birmingham/Nottingham and the Great Western franchise to London Paddington and Bristol/Portsmouth.
Under the franchise system the train company takes the financial risk although, and in the case of England’s East Coast Main Line services two operators in succession pulled out during the franchise period. The other options are a concession or a management contract where the franchising authority takes the financial risk. The Welsh Government is also examining the case for the Wales and Borders operations post 2018 becoming a not-for-profit or, more accurately, a not-for-dividend company.
What is the existing Great Western franchise?
At present the InterCity services between south Wales and London are part of the Great Western rail franchise awarded in 2006. This franchise was an amalgam of
- commuter train services into Paddington from Oxford, Reading, Didcot and Newbury (previously Thames Trains/Great Western Link)
- local services in the west of England
- regional services such as Cardiff to Bristol Temple Meads/Portsmouth (previously Wessex trains)
- and intercity operations between London Paddington and south Wales, Bristol and the west of England to Plymouth and Penzance (the original Great Western franchise 1998 – 2004)
From the standpoint of south Wales the services of interest are the InterCity service to and from London Paddington and, possibly, the service to Bristol and Portsmouth – more of this later.
So what’s different in the new franchise?
The new franchise is intended to cover all the train services currently operated by First Great Western except for the services from Paddington to Heathrow and the new Crossrail services that will all become part of the Crossrail business from 2018. The Heathrow Express will continue to operate as a separate ‘open access’ company and not as a part of the franchised railway.
The consultation document for the new franchise and the tendering documents indicate a much longer franchise than in the past, with 15 years being the most likely period. The train operators have argued that a longer term would make for more sensible investment decisions. The deadline for the submissions is August 2012, with decisions expected in December and the new franchisee taking over in April 2013. The decisions on this franchise will be made by the DfT. Although the Welsh Government is a consultee it will not be the body which determines who will get the franchise or what it will look like.
The DfT believes that Train Operating Companies “should be given greater commercial freedom to design train services and respond to changes in demand within a framework set by the franchise to ensure the interests of passengers, the economy, and taxpayers should be protected”.
The experience of the existing Wales and Borders franchise suggests that it is important that any increases in demand are factored into the franchise and that any likely costs to government are known. In the case of Wales and the Borders the Welsh Government inherited a no-growth franchise from the DfT and in consequence had to provide a significant increase in subsidy to match demand increases.
According to the DfT the new franchise is not on the same format. The new franchise “will give greater flexibility, commercial opportunities and long term investment”, although the trains themselves will be specified and procured by the DfT. It is also intended to meet the reduced cost scenarios foreseen by the Report of the Rail Value for Money Study by Sir Roy McNulty.
What does the new franchise mean for south Wales?
Many of the benefits for south Wales will come from the electrification of the Great Western Main Line and the rebuilding of Reading station, the latter currently underway at a cost of £850m. However, the new franchise will not be without its problems. Although it is being let as one contract, the changes will make it very difficult for the successful bidder.
There are three stages in the operation of the new franchise:
- The period 2013 to 2015, when the existing services will continue.
- The period 2015 to 2018, when electrification work will be undertaken with some inevitable disruption to services
- The post electrification period, when hopefully the pain will bring the gain!
The electrification programme currently envisaged for south Wales by the DfT would mean operating electric trains only as far as Cardiff. A discussion on extension to Swansea is currently taking place between the Welsh Government and the DfT on the basis of a recent economic and financial evaluation. The final decision on Valley Lines electrification is crucial here. If the Valley Lines Metro is extended to Bridgend and Maesteg and the whole of the Vale of Glamorgan line, then electrification to Swansea is a very attractive proposition in economic and financial terms.
From south Wales’ point of view this full electrification scheme is essential. It means that electric InterCity Express trains will then operate between Wales’s capital city and our second city and London – an essential link to one of the world’s most powerful financial centres.
A second issue is who will run services from Swansea to Bristol under an electrification scheme. Electrification beyond Cardiff is not mentioned in the franchise consultation document because the final decision has not yet been made. This might be a good sign or a bad sign. Time will tell.
If electrification does go as far as Swansea, the DfT is unlikely to fund any extension further west. Consequently, the connections at Swansea and the possibility of a continuation of the through service from Carmarthen to Manchester will have to be considered as part of the new Welsh franchise due for renewal in 2018. If electric train services do operate from Swansea to Bristol the question then remains – will they be a part of the Wales and Borders new franchise or of the Great Western franchise?
From a Welsh viewpoint it would be preferable for these services to become part of the franchise issued by the Welsh Government. This would make easier any timetable integration with those services west of Swansea and with Valley Line Metro services. In effect they would be a part of the South Wales Metro operations with four trains per hour between Swansea and Cardiff.
Services west of Swansea could also benefit as existing diesel trains on the valley Lines could become available and with appropriate funding could double the service frequency to Llanelli and Carmarthen (half hourly) and to Pembroke Dock and Haverfordwest/Milford Haven (hourly).
Apart from electrification the bidding process is also affected by uncertainty regarding the new InterCity Express (IEP) trains to replace the InterCity 125’s currently operating between south Wales and London. The DfT has not yet finalised the order and consequently all four bidders will have to provide alternative proposals. The IC125’s were one of the best trains of their age. The DfT has already had to scale down the type of train to replace them from the preferred bidder, Agility Trains.
The other worry is that DfT will opt for the lowest cost franchise option and find problems arise when capacity issues arise in the future. The forecast rate of growth set down by DfT at present is 2.9 per cent. The current average rate of growth shown in Office of Rail Regulation statistics for Valley Lines and for the main line is 8-10 per cent.