except that when you are dealing with 3 companies who have you over a barrel there's not much negotiation. Hence investigation of a potential cartel and the DaFT's attempt to do procurement themselves...
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Article - Train leasing companies’ profits investigated by regulator. But should the government “buy out” the ROSCO’s?
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thomasheywood
Member
Because investors have the sense to read the Labour manifesto and see that one of their biggest pledges is to nationalise the rail system, also buy to lease is a massive rip off anyway so I for one would be glad to see it consigned to the dustbin of history…
There’s a vast difference between seizing assets without compensation and nationalisation, which would either involve buying those assets or (more likely) simply not going down the ROSCO route for new stock orders (the equivalent of what’s happening with the TOCs)
MarlowDonkey
Established Member
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You could always have a State owned ROSCO which was in effect the way it worked during British Rail. They would borrow money from the Treasury and use it to buy or build new rolling stock. There were some exceptions, class 50 was it, where the locomotives were leased.
The problem was that the Treasury would periodically impose borrowing and spending limits which having private finance through the ROSCOs avoids.
When the railway gets it wrong as with the construction of short life steam and diesel classes during the 1950s and 1960s, it was the taxpayer who suffered rather than private invrestors.
renegademaster
Established Member
Surely when the government becomes the monopsony for train leasing, anything that couldn't find a life abroad or with the open access operators they should be able to negotiate the leasing costs down to just the true maintenance cost + scrap value . With only one buyer or the scrap heap they can't be picky. Or will the government mentality be that forcing the ROSCOs to take too much of a haircut will hurt investor confidence in the rest of the economy
Trainbike46
Established Member
If the government decided to stop leasing most stock / abolish the ROSCOs in the long term, there would be a range of options:Moderator note - split from:
Article - Train leasing companies’ profits investigated by regulator. But should the government “buy out” the ROSCO’s?
https://www.thetimes.com/business-money/companies/article/train-leasing-companies-profits-investigated-by-regulator-xs9g3gtg6 The rail regulator has launched a review of whether the privately owned train leasing companies are acting in the best interests of passengers and taxpayers. The inquiry...www.railforums.co.uk
Why would the government not be able to buy ROSCO'S out , if they really deemed it nessesary they could spend a few hundred million ( or whatever is nessesary) buying off all the stock from them.
If the government could buy them out it would make the process of stock transfer a lot easier and save a lot of money on the costs of renting the stock. Personally I think it should be done as even though it would cost a massive amount in the short term it would save a lot and recoup coats in the next decade or so.
- Buy all stock from the ROSCOs
- Buy new stock outright, but continue leasing existing stock until it is end of life or no longer needed
- a hybrid option, where some existing stock is bought from the ROSCOs, but only stock that likely has a long life left in the industry and where the ROSCO is willing to sell for a reasonable price.
This is a really bad way of framing what is happening - both because it isn't how state level finances work, and because over the long term direct ownership is usually cheaper than leasing over the long term.
LNW-GW Joint
Veteran Member
Not even Jeremy Corbyn planned to take back Roscos, or open access, or freight.
It was all about taking back franchises (at no public cost), which is what is happening (though reorganisation costs will be high).
Once the new Railways Act is passed, that will settle the public-private split on the railway for a generation.
Transport Scotland just gave a ferry construction contract to the Poles, as better value for money than giving it to nationalised Fergusons.
I'm here now
Member
It would have to be GBREL.
Clarence Yard
Established Member
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No, the IEP contracts have massively skewed “leasing” costs because, like some other newer contracts, they are a full train supply agreement, not just a lease with, maybe, L5 costs included. The DfT also negotiated them!
Elsewhere, pre COVID, the total amount of rolling stock leased was going up, not down. Financing remained competitive and, even today, you can still get very good lifetime financing rates, better than you would have to pay the Treasury if you were the DfT.
Headline figures rarely tell the full story here.
They also stated that nationalising didn't include ROSCOs (or open access or freight operators).
I can see the opaqueness of the inclusive IET contracts and vendor financing element being one of the main areas of ORR investigation.
12LDA28C
Established Member
And where in the Labour manifesto does it mention seizing the Roscos' assets or buying the rolling stock off them as part of 'nationalisation'?
thomasheywood
Member
Why would the Labour manifesto need to mention the seizure of rolling stock? Most people know what nationalisation means.
But nationalisation doesn’t (necessarily) mean seizure.
12LDA28C
Established Member
You were the one who suggested seizure of assets. Most people also know that the Government cannot afford / has no desire to buy all the stock off the ROSCOs which is why it's never been suggested as part of the plan to renationalise. You appear to fail to appreciate this for some reason.
thomasheywood
Member
I do appreciate that the government can’t afford to buy off the leasing companies, which is why I am suggesting seizing them, as you appear to fail to appreciate.
Clarence Yard
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I appreciate what you are saying but in the UK that is not currently legal. Governments can’t seize private assets like ROSCO vehicles at no cost just because they feel like it.
If they do it through nationalisation, they will then have to pay for them. Which is why they aren’t doing it.
If they do it through nationalisation, they will then have to pay for them. Which is why they aren’t doing it.
styles
Member
Keeping to the topic of the ORR investigation..
I do think something is off and needs to be regulated somehow, even if we don't bring them under public ownership somehow. The profits and the dividends have rocketed to levels well above what was seen even before COVID. I think it's right to question to what extent the ROSCOs are operating in the best interest of passengers and taxpayers.
Yes there's been some newer ROSCOs join the market, but they are still tiny compared to the original big names. It's hard to get into the market, and until you can offer significantly better value than the likes of Angel Trains, including the capital cost of changes an operator's rolling stock, switching is going to be a slow process.
Forming a publicly-owned ROSCO and starting to offer better value and perhaps even switching incentives to operators whose rolling stock leases are coming to an end would probably be a good idea. But unless you compulsory purchase a significant portion of existing stock (which may not actually be a sound decision for some aging stock), it'll be a slow process.
The alternative might simply be tighter regulations, and possibly even financial restrictions on dividends or 'windfall taxes' etc.
I do think something is off and needs to be regulated somehow, even if we don't bring them under public ownership somehow. The profits and the dividends have rocketed to levels well above what was seen even before COVID. I think it's right to question to what extent the ROSCOs are operating in the best interest of passengers and taxpayers.
Yes there's been some newer ROSCOs join the market, but they are still tiny compared to the original big names. It's hard to get into the market, and until you can offer significantly better value than the likes of Angel Trains, including the capital cost of changes an operator's rolling stock, switching is going to be a slow process.
Forming a publicly-owned ROSCO and starting to offer better value and perhaps even switching incentives to operators whose rolling stock leases are coming to an end would probably be a good idea. But unless you compulsory purchase a significant portion of existing stock (which may not actually be a sound decision for some aging stock), it'll be a slow process.
The alternative might simply be tighter regulations, and possibly even financial restrictions on dividends or 'windfall taxes' etc.
LNW-GW Joint
Veteran Member
The CMA investigated the Roscos when Labour was last in power, and came to the conclusion that the main culprit keeping leasing costs high was the DfT, who effectively stopped a viable market developing for rolling stock in the UK.
That was because franchise contracts were overly prescriptive and meant there was never a spare pool of rolling stock to enable competition between Roscos.
If anything, the DfT has become more prescriptive over the years, including running major procurements themselves (eg IEP and HS2).
We also now have a number of situations where trains have gone off-lease with no new takers, which does mean the Roscos have to do more to make their money.
Development of bi-mode and battery technology, and reconfiguring fleets with new components, has also cost the Roscos dear.
Financing of trains is now much wider than just the original 3 Roscos, and on top of that manufacturers often provide train maintenance rather than the TOCs as part of the whole-life offering.
Unless these assets were deemed to have been obtained unlawfully
DaFT has consistently held the belief that it understands the economics of the railway better than anyone else bar none and that the ROSCOS are making excessive profits, despite consistent analysis and reports disproving that.
Unfortunately, DaFT's IET procurement is one of the most egregous examples of its own assumption of omnicience versus its actual level of competence.
From the very first line of the article.
The answer is "no": as required by law, the privately owned train leasing companies will (or certainly should) be acting in the best interests of their shareholders.
Of course it is, however that is not the starting point; currently there are thousands of trains currently privately owned and whichever way you look at it, they would need to be bought back. It's a high up-front cost to put them on the government's books and frankly governments of all flavours do not like that sort of thing, especially when it comes to infrastructure!
duffield
Established Member
Not saying this is or is not a good idea, just that it is a possibility:
There is a legal avenue to "seizing" assets in this sort of situation without actually seizing them and suffering all the negative consequences (there might be some negatives but not as much as outright seizure, because this would be and look very railway-specific).
You tighten the monopoly laws and railway-specific legislation in ways that further and further squeeze the RoSCos' profits. Maybe actual price controls for train leasing - there is price regulation for water, gas and electricity already, for example, and a 3-way monopoly can be used as justification.
Make them barely profitable, to the point where when you offer to buy them out, the amounts are relatively modest compared to what they would be today. Or even push them into administration and pick up the assets for not much more than scrap value apart from those which could be sold cheaply abroad which would cost a little more.
Takes longer, but all done perfectly legally with no actual confiscation.
There is a legal avenue to "seizing" assets in this sort of situation without actually seizing them and suffering all the negative consequences (there might be some negatives but not as much as outright seizure, because this would be and look very railway-specific).
You tighten the monopoly laws and railway-specific legislation in ways that further and further squeeze the RoSCos' profits. Maybe actual price controls for train leasing - there is price regulation for water, gas and electricity already, for example, and a 3-way monopoly can be used as justification.
Make them barely profitable, to the point where when you offer to buy them out, the amounts are relatively modest compared to what they would be today. Or even push them into administration and pick up the assets for not much more than scrap value apart from those which could be sold cheaply abroad which would cost a little more.
Takes longer, but all done perfectly legally with no actual confiscation.
SWT_USER
Member
Perhaps it's all part of a government master plan to buy rolling stock on the cheap.
1) Leak a few stories about private companies profiteering at taxpayers expense
2) Drag out the 701 fiasco until the lease expires (next year?). Unlikely to be any real progress by then anyway given the gross incompetence so far on this project.
3) Decline to extend the lease, let the ROSCO go bankrupt. DfT is effectively in control of all TOC anyway so don't let them go elsewhere.
4) Buy the 701's for scrap value, and get them in service
5) Rinse and repeat with any new rolling stock orders
Probably one for speculative discussion rather than a serious thread!
1) Leak a few stories about private companies profiteering at taxpayers expense
2) Drag out the 701 fiasco until the lease expires (next year?). Unlikely to be any real progress by then anyway given the gross incompetence so far on this project.
3) Decline to extend the lease, let the ROSCO go bankrupt. DfT is effectively in control of all TOC anyway so don't let them go elsewhere.
4) Buy the 701's for scrap value, and get them in service
5) Rinse and repeat with any new rolling stock orders
Probably one for speculative discussion rather than a serious thread!
That goes back at least to the abolition of slavery, when the government paid the slave owners a lot of dosh.
The government is unlikely to want the debts for funding a lot of trains going forward appearing as government debt (incidentally I expect PFI to come back too albeit rebranded for the same reason) so I expect this will be to determine if good value is being achieved including:
- No excess profits are being made (i.e. are they above what could be made in comparable infrastructure / capital investments)
- Is the product being delivered to specification throughout the contract term
- Is there evidence of collusion that is keeping costs artificially high
renegademaster
Established Member
It's the monopoly buyer. All it needs to do is calculate the actual maintenance costs+ what value they would get for scrapping it , and tell the ROSCO that's what they are charging. They can't play the TOCs off eacother anymore so theirs no need for dodgy lawfare
Odd to be investigating the ROSCOs for warping the market - the thing that will warp the market is nationalisation creating only one significant buyer!
Seems to me that the ROSCOs will withdraw from the market unless DfT gives them lifetime leases, otherwise the risk is too great that interest rate drops make new stock cheaper or the Treasury cut services and dump stock with no alternative user, particularly when the DfT is clearly so hostile.
If there is effectively no other uses is there a risk that stock leases get redesignated as public debt?
Seems to me that the ROSCOs will withdraw from the market unless DfT gives them lifetime leases, otherwise the risk is too great that interest rate drops make new stock cheaper or the Treasury cut services and dump stock with no alternative user, particularly when the DfT is clearly so hostile.
If there is effectively no other uses is there a risk that stock leases get redesignated as public debt?
Dave W
Member
And especially, it seems, not this one.
The state level finances not working that way thing is irrelevant if the government is talking about borrowing and so forth being too high and hacking down benefits. Because that means they're treating the state's finances like a finite resource even if that's not really the case. Political choice it may be, but the end result is the same.