Directly Operated Railways

[TheEscapist_]

Just had a random thought....

Since Directly Oerated Railways are doing a great job managing East Coast, would it be possible for them to take over other franchises when they come to an end. E.g. The West Coast one when that comes to an end? It could be the way back to nationalised railways!

Any thoughts on that?

 

[Eagle]

Not a chance. There are five companies bidding for the West Coast franchise; the chance that all five of them default is astronomical.

DOR is the operator of last resort, i.e., where they can't find anyone else to take the franchise over—usually due to a franchise being terminated at short notice. This has only ever happened twice; Connex SE were stripped of their franchise in 2003 and the nationalized SET stepped in (for three years until Southeastern took over), and NXEC defaulted in 2009 laving DOR-owned East Coast to fill in (for a similar time period, it seems).

 

[johnnychips]

Not a chance. There are five companies bidding for the West Coast franchise; the chance that all five of them default is astronomical.

DOR is the operator of last resort, i.e., where they can't find anyone else to take the franchise over—usually due to a franchise being terminated at short notice. This has only ever happened twice; Connex SE were stripped of their franchise in 2003 and the nationalized SET stepped in (for three years until Southeastern took over), and NXEC defaulted in 2009 laving DOR-owned East Coast to fill in (for a similar time period, it seems).

Did the two companies have to pay some sort of financial penalty for not living up to promises/defaulting at all?

 

[Michael.Y]

DOR should be an emergency fallback for any failed franchises, rather than a long-term going concern. In this wildly fragmented model, I think it would be a mistake to have DOR stray outside its remit. As for renationalisation by the back door, bad idea. I'm more in favour of rationalisation - fewer companies owning more proportion of the network.

 

[ainsworth74]

It could be the way back to nationalised railways!

Justine Greening made it clear in the Q&A after her statement today that the railways will not be nationalised by this government.

 

[Eagle]

Justine Greening made it clear in the Q&A after her statement today that the railways will not be nationalised by this government.

Not as if we could ever afford to anyway... how much would it cost to buy everything out?

 

[ainsworth74]

Not as if we could ever afford to anyway... how much would it cost to buy everything out?

I seem to recall a figure in the region of £10bn to £20bn was bandied about by Gordon Brown back around sometime near 2002. So it would be safe to assume that it would be a fair bit more now, I would guess at around the full Y HS2 costing of £30bn.

EDIT: I've found the link and it seems I was a fair way out, the date was 2004 during the Labour conference when they voted in favour of renationalisation but Gordon Brown said no as the cost was expected to be £22bn. So yeah I would guess if you wanted to do it today you would be looking at in excess of £30bn easily.

 

[WatcherZero]

Did the two companies have to pay some sort of financial penalty for not living up to promises/defaulting at all?

When you become a franchise you pay a bond into a escrow account that the Government will keep if you default, a similar but smaller bond is also paid to cover ticket revenue so if a company folds without settling up at the end of the month/quarter the other franchises arent out of pocket from revenue they were owed through Orcats.

 

[Holly]

Justine Greening made it clear in the Q&A after her statement today that the railways will not be nationalised by this government.

That's not to say they won't be nationalised by any government though. For example the German government.

 

[ainsworth74]

That's not to say they won't be nationalised by any government though. For example the German government.

Very true! How many TOCs are either owned, part owned or closely affiliated with a state owned Railway? I have the list as:

ATW, AXC, Chiltern, EC, TPE (though Keolis which is effectively SNCF), GA, GC, LM (Govia which is part owned by Keolis), LO, Merseyrail, Northern, Southern, Southeastern. Assuming I've got everyone that would mean that of the 22 TOCs 13 of them are some how affiliated with a foreign sate owned railway (or in the case of DOR our own government).

 

[Royston Vasey]

Very true! How many TOCs are either owned, part owned or closely affiliated with a state owned Railway? I have the list as:

ATW, AXC, Chiltern, TPE (though Keolis which is effectively SNCF), GA, LM (Govia which is part owned by Keolis), LO, Merseyrail, Northern, Southern, Southeastern. Assuming I've got everyone that would mean that of the 22 TOCs 11 of them are some how affiliated with a foreign sate owned railway.

You can add Grand Central to the list (Arriva/DB) and even TW Metro are run by the Bundesbahn! And East Coast are state run of course, at least it's our own!

 

[ainsworth74]

You can add Grand Central to the list (Arriva/DB) and even TW Metro are run by the Bundesbahn! And East Coast of course.

Knew I would forget a couple! Well that makes 13 out of the 22 are somehow related to governments.

(I don't count TW Metro as they aren't a TOC though admittedly they do share tracks with TOCs).

 

[Xenophon PCDGS]

Not as if we could ever afford to anyway... how much would it cost to buy everything out?

Indeed this is true...and more so than ever under the debt-ridden situation that the country finds itself in. The current move towards cost-cutting in all areas of the economy in order to try to pay off this "debt millstone around the neck of the country" will see such ideas as this one proposed would receive very short shrift by those in the Treasury.

 

[Schnellzug]

I'd have no argument at all with railways being nationalised with a genuine aim of being provided for the Public good, but that's never going to happen under our kind of "democratic" Government, so I'd much rather, until the Revolution comes, that they kept their hands as far away as possible and left it to the Private Sector Fat Cats.

 

[DarloRich]

Very true! How many TOCs are either owned, part owned or closely affiliated with a state owned Railway? I have the list as:

ATW, AXC, Chiltern, EC, TPE (though Keolis which is effectively SNCF), GA, GC, LM (Govia which is part owned by Keolis), LO, Merseyrail, Northern, Southern, Southeastern. Assuming I've got everyone that would mean that of the 22 TOCs 13 of them are some how affiliated with a foreign sate owned railway (or in the case of DOR our own government).

that shows the madness of our system. You can have a bid from the French/Dutch/German state railway companies but you can not have a bid form the British state railway company!

 

[Eagle]

...but you can not have a bid form the British state railway company!

Because there isn't one. Obviously.

Also note that DB et al are state-owned private companies, not nationalized companies; there's a big difference. (I think I've used the example of Channel 4 and the BBC to illustrate this before.)

 

[DarloRich]

there used to be a British state railway compnay - and it was prevented from bidding for the initlal franchises.

The key is that the companies are state owned - not private companies beholden to thier share holders and the bottom line

 

[Yew]

Surely in an age of cost cutting, keeping a profit making asset would be useful? Although it's a shame that DOR couldn't hav painted their 225's in IC swallow

 

[Eagle]

there used to be a British state railway compnay - and it was prevented from bidding for the initlal franchises.

That's a very misleading way of putting it. BR couldn't bid because a) it had been broken up and b) there was no bidding.

In 1994 British Rail was broken up into 20 or so "shadow franchises", which one by one between 1995 and 1997 were floated into the private sector, usually by means of a management buyout (not by franchise letting). Only then could the transport conglomerates start buying these management-owned companies—some were snapped up immediately, look at VT, whereas some stayed independent for quite a while. It wasn't until about 2000 that all the franchises were owned by various transport groups.

 

[Schnellzug]

As the owner, does the German Government end up getting the profits from the companies that DB owns (assuming there are any), or do they stay with DB, as an arm's length company?

 

[Eagle]

As the owner, does the German Government end up getting the profits from the companies that DB owns (assuming there are any), or do they stay with DB, as an arm's length company?

The Bundesregierung do not get any profits whatsoever from DB's foreign operations (Arriva and the like). Not sure about domestic operations though.

Same analogy again; the British Government owns 100% of Channel 4, but how much money do they get from that? (Ofcom fines notwithstanding :P)

 

[Wath Yard]

The key is that the companies are state owned - not private companies beholden to thier share holders and the bottom line

Of course they are beholden to their shareholders and the bottom line, just as BR was. It is just that their 'shareholders' are the Government. Do you think state owned companies don't have budgets they have to work within?

 

[DarloRich]

That's a very misleading way of putting it. BR couldn't bid because a) it had been broken up and b) there was no bidding.

In 1994 British Rail was broken up into 20 or so "shadow franchises", which one by one between 1995 and 1997 were floated into the private sector, usually by means of a management buyout (not by franchise letting). Only then could the transport conglomerates start buying these management-owned companies—some were snapped up immediately, look at VT, whereas some stayed independent for quite a while. It wasn't until about 2000 that all the franchises were owned by various transport groups.

fair enougth - the point i was failling to make was that the structure put in place specifically meant that Intercity (say) could NOT try and win the busines.

 

[Eagle]

fair enougth - the point i was failling to make was that the structure put in place specifically meant that Intercity (say) could NOT try and win the busines.

But that doesn't make sense. Intercity wasn't a company, how could it bid for anything?

In fact, you could say that since most franchises were bought out by their BR managers, that BR initially won a lot of the franchises :P

 

[Zoe]

floated into the private sector, usually by means of a management buyout (not by franchise letting).

The shadow TOCs were all privatized by franchise letting. The Great Western franchise was however awarded to Great Western Holdings which was a 51% management buyout but it was still a franchise awarded by OPRAF.

 

[Eagle]

The shadow TOCs were all privatized by franchise letting. The Great Western franchise was however awarded to Great Western Holdings which was a 51% management buyout but it was still a franchise awarded by OPRAF.

GWT wasn't the only one that went straight to the management though. Off the top of my head SWT and NLR (later Silverlink) were independent till about 1998, and Chiltern even longer.

 

[Zoe]

GWT wasn't the only one that went straight to the management though. Off the top of my head SWT and NLR (later Silverlink) were independent till about 1998, and Chiltern even longer.

I've just had a quick look and it seems only Chiltern was awarded to a managment buyout. South West Trains was always Stagecoach and North London Railways was always National Express.
--- old post above --- --- new post below ---
The Railways Act 1993 did not prevent the BRB from holding franchises so in theory the BRB could have bid for rail franchises itself.

 

[Eagle]

The Railways Act 1993 did not prevent the BRB from holding a franchises so in theory the BRB could have bid for rail franchises itself.

Interesting, I never knew that. Although I can think of the obvious reason why they chose not to... (hint: it involves money).

 

[Zoe]

Subject to the following provisions of this section, subsection (1) above shall not prevent—
(a)the British Railways Board (in this Act referred to as “the Board”), or
(b)a wholly owned subsidiary of the Board,
from being a franchisee.

That part of the Act though has now been repealed.

 

[HSTEd]

That part of the Act though has now been repealed.

Pity, that was the loophole I was looking for....


If nationalisation of everything really would save £1.2bn per year subsidy payments.... the current 30 year bond rate is 3.22%, which means that the amount nationalisation would have to cost for the Treasury to not be better off in the long term would be..... ~£36bn.

If the loans were undertaken to be paid off in a shorter time (and thus shorter, lower interest rate loans were used, such as ten years) the interest payments for a ~£36bn buyout would be: ~£740m.
So you would end up with a rather better deal.

Government gilt rates are so low these days (the inflation adjusted ones are negative) that a massive rail buyout, although expensive, would actually reduce the budget deficit.