The original ROSCOs were given the BR owned rolling stock for free.
There were equivalence values (so they would not be incentivised to not buy newer trains), but there was lack of thought on handing it back to a Government pool for reissue to new ROSCO later, or allowing them to be spot hired if there was short term shortage.
Most of the ex BR fleets were much more universal and not specified to line specific needs, so could have neen spot hired if off lease.
However main reason for high profits is they managed to issue 20-30 year bonds, and got loans with negligible interest during covid period before base rate started climbing. Some of the fleets are cheap to finance, but charged based on current interest rates.
A little bit of factual background to the ROSCO debate…
The original BR passenger rolling stock fleet was divided among the original three nascent ROSCOs which at the time were state-owned. There were competing ideas about the distribution of the stock; for example one ROSCO could have had all the Intercity stock, another Network SouthEast and the third that of Regional Railways. The disadvantage was that they would have been of very different sizes and there would be little or no competition for the supply of stock to the TOCs as much stock was effectively bound to its operating area. An alternative of dividing each class of train three ways - the Treasury’s preferred model - would have made for some very small fleets with all the associated disadvantages so the outcome was that the largest class (the 423) was divided three ways, the remaining large classes were divided two ways and the smaller classes allocated to one of the companies so the totals were approximately the same.
In 1996 terms the direct proceeds to the Government of the sales of the ROSCOs was £1.8 billion with another £800 million being paid in cash. The bidding costs of each of the contenders were estimated to be about £1 million each so the trains were most certainly not free issue.
Rather than use the finance leasing model which had been used previously in the UK and often on the Continent, that is the ownership of the asset transfers to the lessee at the end of the term as the lessor has been fully paid off, an operating leasing model was adopted as it was expected that the stock would outlast the existence of the TOC. In this case the owner of the rolling stock carries the residual value risk at the end of the lease - the asset may not be re-leased or the price may not be what the owner had hoped for. Nevertheless an operating lease has two parts, one covers the amortisation of the capital cost incurred over the lease period and the other the ongoing engineering and maintenance support. In the early days each part made up about 50% of the whole lease cost.
The indifference pricing regime was adopted in the early days to avoid the TOCs from insisting on leasing only cheaper, older trains as would have been the case if the capital charge was based on historic cost. In fact the ROSCOs soon saw the advantages for replacing many of the ‘geriatric trains’ as they were called at the time by buying newer, more efficient and less maintenance hungry stock. Between 1996 and 1999, and starting with the Class 168 for Chiltern, the ROSCOs ordered some 2,360 vehicles for a total cost of £2,372 million, nearly £4 billion in today’s money. Two points are worth noting:
- over the last decade or so of its existence BR ordered an average of some 250 passenger vehicles a year because of limitations in the supply of capital funds from the Treasury. The ROSCOs, not having this constraint, in the first three years ordered some 750 vehicles a year, three times as many.
- The competition between the ROSCOs was never really about the supply of existing BR-built trains to the TOCs but all about getting the best deal for the TOCs for new trains.
The statement that the BR fleets were more universal and not specified to line specific needs needs some examination. The biggest fleets were the 3rd rail dc fleets on the Southern, these were bound to the third rail area and could not be transferred away. This is also true for AC electric trains, they can only operate where there are wires. The Class 91 and Mark 4 coaches were effectively bound to the East Coast Main Line and it was clear that the diesel HSTs were best employed on routes where their full speed could be used. Other examples exist but the bottom line is that the most flexible trains were the DMUs of the classes 150 to 158, for a total of some 470 sets built. The biggest constraints on re-allocation of rolling stock are the costs involved in staff training, depots and their equipment - in this sense Greater Anglia and South Western Railways are harbingers of the future by going for unified fleets.