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Payments to passenger rail operators, March to June 2020

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Nicholas Lewis

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Dept of Transport has published there methodology for how they assess payments under Emergency Measures Agreements and the payments made between Mar and June

https://www.gov.uk/government/publications/payments-to-passenger-rail-operators-march-to-june-2020

Franchise Payments Mar_Jun20.JPG

Figures are adjusted for actual receipts in arrears and also include capital expenditure for some so aren't a direct reflection of actually ridership but C2C looks the most cost effective. Im sure the Treasury will be questioning the scale of support for IC TOCs.
 
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LNW-GW Joint

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Excludes TfW, Merseyrail and Scotrail which are on different terms, not handled by DfT.
LO and TfL Rail will be also handled by TfL.
So the bill for "GB rail" will be significantly higher.
 

ForTheLoveOf

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Anyone got any idea why Greater Anglia received £20m more in June than they did in the previous 2 months? Seems a pretty big jump, especially considering that these numbers are net of receipts, so passenger revenue will have increased slightly over the months.
 

dk1

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Return of some services?
We never lost many local services. It was the commuter, airport & Intercity that where chopped. Perhaps it was the increase in some of them but that didn't happen until late June/early July.
 

dk1

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I read in MR magazine that subsidy came in at around £900m for the worst month of lockdown when NR access charges where taken into account.
 

js1000

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The southern franchises are extremely dependent on lucrative bread and butter commutes into London but with remote working this will significantly reduce the value of these franchises long term.

Suddenly Northern doesn't look like the basket case it once was (assuming these figures include what franchises would have got with a subsidy?)

I think the Treasury will want to reduce services but Covid will not last forever so the government may argue that mothballing the system makes little sense. I was on a train on Saturday evening into Manchester and I was surprised how busy it was. It's the increase in working from home and the loss of everyday passengers that is going to hurt the railway industry.
 

popeter45

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Excludes TfW, Merseyrail and Scotrail which are on different terms, not handled by DfT.
LO and TfL Rail will be also handled by TfL.
So the bill for "GB rail" will be significantly higher.
Is the Cally in the same position as Scotrail and Tfw as cant see it on this as well
 

millemille

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It's a real worry as to what the DfT are going to do come mid September....

An average of ~£23M a day to support the rail industry for the 1st 96 days of the EMA's and, overall, it doesn't seem to be decreasing significantly. Is that sustainable?

Maybe it has to be.....

Is there any way to reduce operational expenditure to a point that gets close to the income? I can't see it myself. You can run fewer services, which means fewer miles run to pay track access charges for and reduced rolling stock maintenance needed.

But all of the operational and maintenance staff have to be paid and I can't see how TOC's can get rid of drivers and guards and maintainers, given how long it takes to make someone competent and legally qualified to drive or maintain a train.

And the leasing companies still need paying....

The DfT could say to the TOC's "You've had 6 months support from us but that's it, so it's over to you now ladies and gentlemen. It's within your gift to get people back on the trains so get stuck in..." or it could go the complete opposite and the DfT extend the EMA's for several years....
 

ainsworth74

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The DfT could say to the TOC's "You've had 6 months support from us but that's it, so it's over to you now ladies and gentlemen. It's within your gift to get people back on the trains so get stuck in..."

In which case they all, probably instantly or certainly within a matter of months, hand in the keys as their situation is impossible and the DfT end up back on the hook anyway when they put the Operator of Last Resort in charge.
 

millemille

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In which case they all, probably instantly or certainly within a matter of months, hand in the keys as their situation is impossible and the DfT end up back on the hook anyway when they put the Operator of Last Resort in charge.

Absolutely, and there's probably not enough competent people in the UK rail industry - who aren't already directors at the TOC's - to staff OLR's for every franchise.
 

JonathanH

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Absolutely, and there's probably not enough competent people in the UK rail industry - who aren't already directors at the TOC's - to staff OLR's for every franchise.
In the circumstances the directors might simply be part of the TUPE exercise along with all the other staff, just the owning arrangements changing. In this instance, it isn't the directors who have done the wrong thing and run their operation badly. It is just people choosing not to travel.
 

millemille

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How are the EMA payments structured to the operators?

Is it "Payment from DfT = (TOC outgoings + management fee) - any TOC fare income"?
 

hwl

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It's a real worry as to what the DfT are going to do come mid September....

An average of ~£23M a day to support the rail industry for the 1st 96 days of the EMA's and, overall, it doesn't seem to be decreasing significantly. Is that sustainable?

Maybe it has to be.....

Is there any way to reduce operational expenditure to a point that gets close to the income? I can't see it myself. You can run fewer services, which means fewer miles run to pay track access charges for and reduced rolling stock maintenance needed.

But all of the operational and maintenance staff have to be paid and I can't see how TOC's can get rid of drivers and guards and maintainers, given how long it takes to make someone competent and legally qualified to drive or maintain a train.

And the leasing companies still need paying....

The DfT could say to the TOC's "You've had 6 months support from us but that's it, so it's over to you now ladies and gentlemen. It's within your gift to get people back on the trains so get stuck in..." or it could go the complete opposite and the DfT extend the EMA's for several years....
The extended the EMAs to 18months recently .
 

millemille

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How are the EMA payments structured to the operators?

Is it "Payment from DfT = (TOC outgoings + management fee) - any TOC fare income"?

Answering my own question...


"Each periodic franchise payment initially comprises a ‘forward-looking’ forecast for costs and capital expenditure for that period, less a ‘backward-looking’ estimate for revenue received for the previous period. The forecasts of costs and capital expenditure are taken from the TOC’s budget. The revenue estimate may come from either the TOC’s budget or the DfT’s own estimates, based on the most recently available industry data on ticket sales.

Each periodic franchise payment also includes an adjustment based on the difference between these initial values (for costs, capital expenditure and revenues) and the actual values as reported in the management accounts submitted by the TOCs to the DfT."
 

dk1

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Did they? When was that announced?

I know SE had an EMA of 18 months from the outset but I didn't know the others had been extended...
Announced around a month ago now. DfT paying all the Bill's with TOCs on a management contract until early 2022.
 

LNW-GW Joint

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Announced around a month ago now. DfT paying all the Bill's with TOCs on a management contract until early 2022.

I know that's the intention but hadn't seen an announcement of the terms - it's not on the DfT web site for instance.
 

matt_world2004

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I can't find the link with the announcement of the extension of the ema . But I remember reading about it . It included an reduction in premiums over operating costs to 0.5% from 2% iirc.
 

peters

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Northern haven't received that much extra then, in comparison to the other operators. Is that because other operators haven't axed as many services or because northerners rely on the train more?
 

Ken H

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So what incentive is there for TOC's to increase ridership and fare income. if they get more people on the trains, the DfT just grabs all the cash.
 

Nicholas Lewis

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Announced around a month ago now. DfT paying all the Bill's with TOCs on a management contract until early 2022.
No formal announcement released yet but railway press a month ago was suggesting this was where this was headed


The government is preparing for a further 18 months of financial support for passenger train operators once the existing Emergency Measures Agreements expire on September 20, industry insiders have confirmed.

I can't see DofT moving away from EMA's until they are ready to implement the Williams review or whatever its mutating into as the direct costs should be declining as passengers return. Trying to transfer this over with social distancing in place would be difficult task especially when just keeping things going is all that's necessary. Doesn't mean DofT can't challenge TOCs to make recommendations to reduce costs or the mandarins fiddle basic requirements but can't see it unless there or until there is a policy shift.
 

Nicholas Lewis

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I can't find the link with the announcement of the extension of the ema . But I remember reading about it . It included an reduction in premiums over operating costs to 0.5% from 2% iirc.
These haven't been formally extended yet but little snippets are leaked out like this from Sunday Telegraph quoted in this article


Quoting ‘industry insiders’, it said terms have been made on an operator-by-operator basis, with firms that were struggling financially prior to the pandemic offered an operating profit margin of as little as 0.5%, compared to the current 2%.

The Sunday Telegraph said it understood that Whitehall officials contacted train operating companies (TOCs) over the last week, offering new a new version of EMAs called ‘Emergency Recovery Measures Agreements’.

As i say i believe DofT won't want the keys back yet but the endgame is coming so they might as well squeeze them especially First group who they could then buy up for next to nothing and then lose its US operation.
 

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Are the Government (taxpayer) having to fund these payments because the shareholders of the various companies won't put their hands in their own pockets? If that is the case then consider using the OLR plan as the way forward.
 

millemille

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So at the moment it's speculation, however well informed, that DfT are going to extend EMA's for a considerable period?

I can believe that they are intending on doing so, because it's the least worst option, but the sums of money involved are terrifying. If, and it's an unquantifiable "if" at the moment, it's going to take 2 years* for passenger numbers to return to a level where DfT can stop making up the shortfall in income then that suggests the treasury will have had to find between 8 and 9 billion**.

I struggle with the notion of TOC's being able to significantly reduce their op ex, there may be fractions of percentage points to be had here and there but on the whole the TOC's themselves are pretty lean. Cap ex to be spent on non-urgent non-safety upgrades/modifications could be - and is being from what I, as a tier 1 supplier into TOC's, am seeing - stopped.

Maybe the DfT need to start casting their net wider and looking at the leasing companies and their charges and the TSSSA & TSP contracts the TOC's are having to pay and see what can be done to reduce those costs for the duration of the EMA's?






*The only real frame of reference the industry has for this scenario is post Hatfield and post the 2009 financial crash and both instances took 2 years, AFAIK, to get passenger numbers back to where they were.

** assumes a linear increase in passenger numbers over 26 performance periods
 

dk1

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I know that's the intention but hadn't seen an announcement of the terms - it's not on the DfT web site for instance.
Was mentioned in one of our internal weekly briefings by our MD a few weeks ago that we can all be grateful that the DfT will continue paying all Bill's & wages for us for a further 18mths from September & it was also in the local press in the area a few days previous to that.
 

peters

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Are the Government (taxpayer) having to fund these payments because the shareholders of the various companies won't put their hands in their own pockets? If that is the case then consider using the OLR plan as the way forward.

My understanding is that if an operator makes more money than they expect to make then the government claw some of that money back but if they sell fewer tickets than they expected to sell then they give support to that operator. Realistically if the government want the shareholders to bail out operators who get in to trouble then they can't claw back money when they make more than expected.
 

Steddenm

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How does this payment work for open access operators (those not subject to franchising) such as Grand Central, Hull Trains, Heathrow Express and do Translink Northern Ireland Railways receive a payment?
 

dk1

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How does this payment work for open access operators (those not subject to franchising) such as Grand Central, Hull Trains, Heathrow Express and do Translink Northern Ireland Railways receive a payment?
They get nothing as far as I'm aware. Hence the reason some where quick to shut up shop.
 
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