COMMENT
Transport Secretary Philip Hammond recently said that HS2’s critics were wrong to keep criticising its cost, as so much of it would ultimately be met by the private sector. Corporate fi nance director at PwC, Charlie Johnson-Ferguson, who has writen a report on HS2 fi nancing, explains more.
T
here are competing fi gures in the pub- lic domain on the likely cost of HS2 – some focusing on the London-Birmingham stretch, which was the subject of the now- closed DfT consultation, and some on the longer-term plans to extend it northwards to Manchester, Leeds, and eventually Scotland.
The most common cost assumption is £32bn or £33bn (in 2009 prices) for the primary ‘Y’ shape from London to north- ern England, of which £17bn accounts for phase one, the London-Birmingham link, including the extensive station works nec- essary at both ends. The capital costs of rolling stock procurement and replacement could reach another £5.2bn, with annual operating and maintenance costs estimated at £1.1bn (again in 2009 prices). The cost of phase one without these additional items stands at £13.9bn.
But Philip Hammond, keen to quash one of the more potent attack lines against HS2 – its cost to the taxpayer, especially in regions like the South West and Wales that will feel little benefi t – explained in an interview with the Financial Times: “The fi gure of £
33bn...assumes that we build the stations ourselves, build the trains, build the track, and then, once operating, we keep owner- ship of it. That isn’t going to happen.”
High-speed rail consultants Greengauge21 sought the assistance of professional ser- vices and accountancy fi rm PwC (Pricewa- terhouseCoopers) to get expert analysis on the likely fi nancing of HS2.
Best guess
In order to reach their conclusion – that HS2 could produce a £6bn-£7bn return on the initial £13.9bn investment – the report authors had to make some assumptions. They surmised that HS2 would be sold un- der a 30-year concession from 2029, that a franchisee would run services and lease rolling stock in much the same way as they do on the classic network, and that different access charges would apply, as with HS1: one to cover the operation, maintenance and renewal charge of the line, and another to contribute to the recovery of the costs of having built the line in the fi rst place – the ‘investment recovery charge’. They also as- sume a similar regulatory structure to HS1
20 | rail technology magazine Aug/Sep 11
and that the operator and infrastructure manager will be subject to UK corporation tax. They also assume fares in line with the current network, without a high-speed ‘premium’.
PwC corporate fi nance director and infra- structure expert Charlie Johnson-Fergu- son, report author, admitted that assump- tions are all we can really go on so far.
He explained: “To be honest, no-one knows at the moment: HS2 and the work the Gov- ernment are doing themselves is still all completely ongoing. They haven’t even re- ally started out on this project. They’re still working out the route; they haven’t even got to contract structuring or things like that.
“But a lot of these assumptions that we use here are very similar to what we used when HS1 was sold. And also, having worked in infrastructure for a long time, they make
Lord Marshall, Transport Secretary Philip Hammond and Professor David Begg at the Yes to High Speed Rail campaign launch.
sense: you see a 30-year concession in a lot of other project fi nance partnership ar- rangements. So I don’t think the assump- tions are unrealistic, only they’re not fi nal- ised yet.”
Stage by stage
Although the Government is currently con- centrating on ‘phase one’ of HS2, its true value will only be realised by extending it further north of Birmingham, especially for travel between the capital and Leeds, Newcastle, and Edinburgh, which, unlike Manchester and Glasgow, will not benefi t directly from the improved London-Bir- mingham journey times.
Johnson-Ferguson explained: “This report just looks at the high-speed line from Lon- don to the West Midlands. And so what we’ve tried to do is isolate all the costs and revenues on just that bit of line. We haven’t
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