COMMENT
looked at additional costs beyond Birming- ham, or beyond Lichfi eld, and we haven’t really taken into account impacts on the traffi c network either.
“In practice, there are going to be a lot of different moving parts when this eventually happens, because the Government may, for example, let a franchise that includes high speed and the adjacent classic network and a franchise going all the way up to Glasgow. It’s probably more than likely. What we’ve tried to do for this report is to isolate the costs around the actual high-speed line, to give an illustrative number.”
Fallout
The report notes that other factors will eventually have to be taken into consid- eration, including the impact on the classic network from the construction of HS2, the additional franchise income and premiums from HS2 services north of the point where trains join/leave the existing West Coast Main Line, and the potential for a further ‘re-sale’ of the HS2 infrastructure once the fi rst 30-year concession period is up.
Johnson-Ferguson said: “Consideration will need to be given as to just exactly how the line will be extended, beyond Birming-
ham. We need to make sure that however we structure it, we need to make sure it supports the extension of the network be- yond Birmingham.”
The very reason that selling the HS2 in- frastructure could prove lucrative for the Government is because of the potential revenues from it. Shouldn’t the Govern- ment give more consideration to using it as a long-term revenue stream?
Johnson-Ferguson said that the PwC re- port used the fi nancial fi gures in the main HS2 economic case.
He said: “We’ve looked at the revenue, tak- en off the operating cost of the franchise, you take off rolling stock leasing costs, you apply some profi t for the franchise opera- tor, and what’s left is a big chunk of money to pay for renewals and a fi nancing cost. So if you don’t sell it, in effect, what you get is a highly profi table, high-speed operation, which would pay, if you used a franchise system, a huge premium over the 30 years back to Government. So we’re taking that premium, which would be payable over time, and ‘securitising’ it up front. You could actually work out that number, in practice it shouldn’t be any different. What the Government is saying is that it’s not go- ing to take money over time; it’s going to take it up front.”
Promises, promises
For HS1, Government had to provide cer- tain commitments over service levels – a massive enticement for a potential buyer, as it removes a large risk factor. How im- portant a factor will this be for HS2?
Johnson-Ferguson explained: “Well, I think the key issue here is how robust are the revenues? If you have a line which runs and you have a history of revenue on that line, it’s very stable and predictable, then there’s going to be less need for Govern- ment to support that revenue stream. Where it’s less predictable, or where there’s less of a history, then there’s a risk associ- ated with that which leads to a higher cost of capital. And Government can try to re- duce that cost of capital by stepping in and providing assurances which underpin the revenue projections.
“Actually, in practice, this is probably more risky than HS1, because what you have is the competing classic line, whereas on HS1 really you don’t have that competing line.”
Save the date Johnson-Ferguson continued: “I do sus-
pect that Government, if it does decide to sell it, is going to want to sell it earlier rather than later; and the earlier it sells it, the less revenue history there will be, and therefore the better case there will be for Government saying, ‘we’ll provide some sort of support’.”
But estimating when the Government will want to sell off HS2 is a complicated business.
He said: “We’d assume they’d want to do it three years after services begin; in practice, because of the history of core revenue pro- jection in rail projects, not just in the UK but globally, you’re probably going to need a longer time in order to really build up an understanding of what is actually happen- ing on the line. Three years is a very short time to really understand the mechanics of how these things work, because people are going to start moving nearer to the line, there’s been wider issues about how people respond to one of these lines and so three years isn’t a very long time.
“But that said, depending on Government fi nances and depending on Government policy, they may want to get rid of the line sooner. So it’s very hard to say.”
How much potential money could come to Government while construction is still on- going?
“It may be that the Government think they want to fi nance different bits. Certainly lots of people have talked about the separate stations, particularly if there’s a new one at Curzon Street, and obviously Euston, so that they could be stripped out, fi nanced differently.
“There’s also other fi nancing arrangements that could be investigated: look at what they’ve done with Crossrail, they’ve raised money from raising business rates.
“I think they’ll be look- ing very carefully at all these other ways of putting private fi nance into the deal up front.”
Charlie Johnson-Ferguson FOR MORE INFORMATION
The full report is available online at:
tinyurl.com/PwCHS2
rail technology magazine Aug/Sep 11 | 21
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