TOC payments to government leap from £40m to more than £800m

[pemma]

There should be no reason that a TOC can't in association with a ROSCO purchase new stock.

If the DFT feels the level of service needs to be maintained that is given by the new stock they can write that into the next franchise can't they?

Well someone (presumably DfT) gave Angel Trains a guarantee that the 350/4s will be used by TPE until at least September 2017, despite the franchise being renewed before then. Although they wouldn't give Porterbrook a guarantee the 170/3s would be used by TPE until North TPE electrification.

 

[3141]

I thought First Great Western bought trains without DfT approval?

They bought a small number of HSTs at a time when many HSTs were in store having been displaced by Pendolinos, Voyagers and Meridians. It's hard to believe, the way things are now, but it was thought that many of them might be scrapped and Alistair Darling, who was the Transport Secretary then, said that would be acceptable.

They probably didn't cost much, and I'm not sure whether First actually used them before they won the Greater Western franchise in 2006.

That's very different from a TOC buying expensive new trains to put in service on an existing franchise, which would affect the financial profile of the operation.

 

[HH]

First are buying Hitachis for Hull Trains (announced yesterday) and will also use them if they persuade the ORR to give them rights for their Edinburgh-London service.

Alliance will also use Hitachis if they get permission to run their Bradford & Cleethorpes services, but are proposing Pendolinos (!) for their Edinburgh one.

 

[ainsworth74]

Alliance will also use Hitachis if they get permission to run their Bradford & Cleethorpes services, but are proposing Pendolinos (!) for their Edinburgh one.

Well aren't they proposing to pay to have TASS installed north of Newcastle (or Darlington) so they can tilt? Would explain the choice of Pendolinos.

 

[Noddy]

Well aren't they proposing to pay to have TASS installed north of Newcastle (or Darlington) so they can tilt? Would explain the choice of Pendolinos.

How much time would they save?

 

[ainsworth74]

How much time would they save?

From their website they're talking about doing Edinburgh to London in three hours and forty three minutes and Edinburgh to Newcastle in one hour and eleven minutes.

However, I would suggest if people want to discuss Alliance Rail's plans further they do so on this existing thread.

 

[HH]

That's a bit of an old thread, but I guess it gets off-topic here. My point was that two "Open Access Operators", who are also owning groups (i.e. they run franchises) are buying rolling stock off their own bats.

This would happen a lot more if DfT:

1. Didn't specify and order so much rolling stock themselves
2. Weren't going away from S.54 protection, hence discouraging non-ROSCO finance just as it was taking off (see the ScotRail deal)
3. Handed out longer franchises (surely better than handing out short ones and then two direct awards)

 

[BantamMenace]

Going back to whether a TOC would take the risk on buying stock, with a ROSCO, off their own back.

Wouldn't the risk involved in whether the trains will be redeployed after the initial franchise has expired be reflected in the leasing cost from the ROSCO to the TOC.

For example the ROSCO must assess the risk and if they believe that the trains wouldn't be used after the franchise expired the initial purchase price would have to be recouped from that franchise period.

Therefore £140m worth of new trains for a 7 year franchise would have to be leased at £20m (+ the various margins for the ROSCO) per year. Hence, the TOC would not go ahead with the order.

Whereas if the ROSCO assessed the risk and found that the trains would be able to find work for 35 years the leasing cost would be £4m (+margin) per year.

Therefore through the ROSCO doing an assessment of the risk weighing up how suited to a route or versatile the stock is and the price reflecting this risk we would end up with the free market ensuring stock was suitable.

We'd end up with a situation where if a short franchise wanted a specialist product with little other use after the franchise ends it'd be expensive for them. But a franchise ordering a sensible product suited to a route or usable elsewhere would get a competitive deal that they would make work profits wise.

 

[Clarence Yard]

A TOC isn't in a position to buy stock itself as, currently constituted, it is basically a time limited cash flow entity with no significant assets to buy or lease against.

The DFT insists in the franchise agreement that all rolling stock related contracts have to be approved by them so any "in franchise" additions go through them for approval. That is so they can control costs and future franchise liabilities. In addition the ROSCO usually wants to see a franchise agreement (or track access agreement in the case of OAOs) before they complete a contract.

There is nothing to stop an owning group buying rolling stock on it's own but it will have to take the cost on it's balance sheet or lease it with some hefty parent company guarantees, which also may affect the balance sheet. I'm not sure many British transport PLCs could get that kind of funding for new rolling stock past their boards.

 

[WatcherZero]

Going back to whether a TOC would take the risk on buying stock, with a ROSCO, off their own back.

Wouldn't the risk involved in whether the trains will be redeployed after the initial franchise has expired be reflected in the leasing cost from the ROSCO to the TOC.

For example the ROSCO must assess the risk and if they believe that the trains wouldn't be used after the franchise expired the initial purchase price would have to be recouped from that franchise period.

Therefore £140m worth of new trains for a 7 year franchise would have to be leased at £20m (+ the various margins for the ROSCO) per year. Hence, the TOC would not go ahead with the order.

Whereas if the ROSCO assessed the risk and found that the trains would be able to find work for 35 years the leasing cost would be £4m (+margin) per year.

Therefore through the ROSCO doing an assessment of the risk weighing up how suited to a route or versatile the stock is and the price reflecting this risk we would end up with the free market ensuring stock was suitable.

We'd end up with a situation where if a short franchise wanted a specialist product with little other use after the franchise ends it'd be expensive for them. But a franchise ordering a sensible product suited to a route or usable elsewhere would get a competitive deal that they would make work profits wise.

The Government usually gives guarentees that new stock will be leased for several years beyond the length of the franchise initially receiving it. The ROSCO also normally factor in a 15 year or so repayment period and the assumption that a nearly new train will be wanted somewhere. The industry as a whole also produces multi-decade forecasts of demand for rolling stock and compiles lists of stock orders which can inform decision making.

 

[HH]

The Government usually gives guarentees that new stock will be leased for several years beyond the length of the franchise initially receiving it.

That's a section 54 undertaking. As I already noted, the DfT are no longer minded to give these.

 

[Class 170101]

That's a section 54 undertaking. As I already noted, the DfT are no longer minded to give these.

Does that not risk new trains becoming more expensive if ROSCOs think they have only 7 years in which to recoup the costs of the investment - thus pushing either fares or government subsidies?

 

[HH]

Does that not risk new trains becoming more expensive if ROSCOs think they have only 7 years in which to recoup the costs of the investment - thus pushing either fares or government subsidies?

I think it highly likely as ROSCOs will be taking more of a risk. Risk costs money.

We already have the situation where it has gotten very hard to buy a new DMU. With the programme of electrification it has not been seen as a good investment by either ROSCOs or manufacturers (although I hear that since the recent delays in electrification one may be on the cards).