ROSCOs under the spotlight

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Mojo

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Found this from the Government News Network (www.gnn.gov.uk)
The Department for Transport today initiated steps for a market investigation into the costs of rail rolling stock leases. It has referred the matter to the Office of Rail Regulation under section 131 of the Enterprise Act 2002.

The Department recognises the important role rolling stock leasing companies have had in investing over £4 billion in new trains and carriages through competitive tender over the last 10 years. However it also has a duty to ensure that best value is achieved for fare payers and Government money.

On the information and analysis available, the Department is not satisfied the prices charged for the rolling stock which leasing companies inherited from British Rail are fair and competitive. It is the Department's contention that there is a lack of effective competition within this market and lack of transparency as to how leasing charges are applied. The grounds for a market investigation into leasing costs are therefore clear.

Each year the rail industry pays over £1 billion to rolling stock operating companies (ROSCOs) to lease trains and carriages. The leases are commercial agreements between private companies. It is important those contracts represent good value as the ultimate cost is borne by the Government or fare payers.

The Office of the Rail Regulator investigated the rolling stock market in 1998. It suggested there should be further consideration after leases for existing trains were renewed. The 'Future of Rail' White Paper, published in July 2004, made clear the Government's view that the competitive market for rolling stock leases had not materialised as expected. The White Paper argued there was a case for looking at how the operation of the market could be improved. To support this, the Department began discussions with rolling stock leasing companies in the Spring of 2005.

Those discussions have progressed but it has become necessary to bring the matter to a firm conclusion. Therefore the Department has asked the Office of Rail Regulation to consider a further referral to the Competition Commission for a market investigation.

This decision has been taken to secure good value for both tax and fare payers.

At the moment the estimated return ROSCOs achieve on the leasing charges for ex British Rail stock is contrary to what would be expected if the market was competitive. The Department argues the excessive leasing charges are the result of a deficiency in the market created by privatisation that should be remedied. A market investigation reference under the Enterprise Act is the appropriate mechanism for dealing with such an issue.

Notes for Editors:

1. The Department for Transport has made a submission to the Office of Rail Regulation asking it to conduct a market study into the rolling stock market. The ORR has the power with the OFT to make a reference to the Competition Commission under section 131 of the Enterprise Act 2002

2. There are approximately 12,500 trains and carriages on lease. Approximately 60% predate privatisation.
IMO £107k for a Pacer, £80k for a 153 and £170k per annum for a 156 is a joke.

Code:
131    	Power of OFT to make references
 
  	    (1) The OFT may, subject to subsection (4), make a reference to the Commission if the OFT has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the United Kingdom or a part of the United Kingdom.
 
  	    (2) For the purposes of this Part any reference to a feature of a market in the United Kingdom for goods or services shall be construed as a reference to-
 
  	

      (a) the structure of the market concerned or any aspect of that structure;

  	

      (b) any conduct (whether or not in the market concerned) of one or more than one person who supplies or acquires goods or services in the market concerned; or

  	

      (c) any conduct relating to the market concerned of customers of any person who supplies or acquires goods or services.

  	    (3) In subsection (2) "conduct" includes any failure to act (whether or not intentional) and any other unintentional conduct.
 
  	    (4) No reference shall be made under this section if-
 
  	

      (a) the making of the reference is prevented by section 156(1); or

  	

      (b) a reference has been made under section 132 in relation to the same matter but has not been finally determined.

  	    (5) References in this Part to a market investigation reference being finally determined shall be construed in accordance with section 183(3) to (6).
 
  	    (6) In this Part-
 
  	

      "market in the United Kingdom" includes- 

  	

            (a) so far as it operates in the United Kingdom or a part of the United Kingdom, any market which operates there and in another country or territory or in a part of another country or territory; and

  	

            (b) any market which operates only in a part of the United Kingdom;

  	

      "market investigation reference" means a reference under this section or section 132;

  	and references to a market for goods or services include references to a market for goods and services.
 
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Techniquest

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I'm informed it's a monster £236,000 a year just to lease and have heavy maintenance done on just one HST power car. This is what I call ridiculous. The TOC is left to do the day-to-day maintenance then, which is expensive enough!

I support this investigation into ROSCO charges. It's about time it was done.
 

Dennis

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So the ROSCO's have invested four billion pounds in new stock (plus a couple of hundred million on refurbs) since privatisation 10 years ago and recieve one billion pounds a year in leasing charges. By my maths, thats something like five billion pounds profit over the years. Thats some rate of return!

The arguement regarding how the average age of stock has decreased since privatisation is also a load of ballcocks - much of this is replacement for slam door stock, originally due for replacemement by 2000 under rulings from the HSE. Much of the remaining new stock was simply replacement of life expired trains (which although we loved them did include 47/mk2 on VXC and 87's on the WCML).

Surely the ROSCO's can't be proud of procuring lemons like the 458's or 180's, late delivery of slam door replacements or allowing HST's to stagger into near life expiry.

When you consider that for several of the regional TOCS's, over half of their income is in the form of subsidy, the government (through DfT, SRA or whoever) must be idiots to have put up with this situation for so long. The obvious way around the problem (short of renationalisation, which is illegal under EU law) would be to have longer franchises to enable the TOC's themselves to invest in new trains. Of course, this would be no guarantee of quality as no doubt this would be bought on price (probably from Turkey or China), but at least it would be more cost effective than renting trains from banks.

(oh no - I'm starting to sound like Christian Wolmar!!)
 

TheSlash

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Well this is issue is something that definetly needs investigating.
I can't say alot against Porterbrook because of they're massive contribution to the preservation world in the last few years
 

bunnahabhain

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TheSlash said:
Well this is issue is something that definetly needs investigating.
I can't say alot against Porterbrook because of they're massive contribution to the preservation world in the last few years
Though it could be said that Porterbrook were just looking after no.1, since it's probably a lot cheaper to sell a unit or loco for £1, than it is to send it for scrap and potentially having to pay more than they get.
 
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