Welcome FEBRUARY 2013 ISSUE 189 £3.95 THE BUSINESS MAGAZINE FOR RAIL www.railpro.co.uk The only way is Essex


c2c MD Julian Drury on breaking records and future ambitions


Financing for the future Rail Professional opinion


THE BROWN REVIEW


Has it delivered?


JEREMY LONG


MTR - expanding in Europe By Jeremy Candfield, Director General, the Railway Industry Association PUBLISHER


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U


nsurprisingly, there has been considerable discussion and comment about


the passenger rail franchising system, since the cancellation of


the West Coast Main Line franchise competition last year. The process of letting franchises is obviously an important aspect of the finances and operation of the railway system, and is one of the most obvious to the passenger (and, of course, the media). It must get back to a robust and reliable system as soon as possible, but there are other fundamental aspects of railway finances that are equally, if not more, important. The whole industry depends on a reliable supply chain, which demands a robust financing system, and currently we are seeing very high levels of investment across the railway as a whole. But, despite that, there are significant concerns. All levels of the industry - passenger and freight operators, infrastructure owners and suppliers - need to have a flow of sufficient funding not just to cover their direct costs but to invest in the future. Work being carried out by the National Skills


Academy for Railway Engineering – some jointly with the Railway Industry Association (RIA) - is identifying significant areas of potential skills shortages and planning how these can best be averted. But investing in the skills of the future needs both finance and confidence in future workloads. In the realities of the private sector, costs have to include an adequate margin of return. Unprofitable companies simply cannot attract affordable financing. Investors will go elsewhere. There are growing concerns that, in the drive to reduce costs, the ‘easy win’ of pressure on margins is becoming unsustainable. This came through strongly from an RIA survey last year. Cutting costs through innovation and better working practices is one thing, and very welcome, but simply trying to pay less for more is quite different. There has already been much activity in


achieving efficiencies, with strong supply side engagement, such as more collaborative working to reduce duplication of activities. This continues; for example work on reducing the costs of ‘contingency’ has been looking at how to minimise expenditure on back-up resources that are seldom used. Similarly actions such as enhancing the


visibility of future workstreams enable suppliers to plan the use of their resources most effectively and reduce the waste caused by expensive ‘peaks and troughs’ of activity.


This is particularly important at the moment


with the impending change of Control Period, the five-year blocks by which the financing of the railway system is determined. Control Period 5 (CP5) starts in March 2014. Last time the changeover occurred, in 2009, there was a significant hiatus in many areas of expenditure. Projects funded in CP3 came to a close, but many of the projects of CP4 did not start getting through to delivery until well into the period itself, leaving staff and resources standing idle and causing a severe impact on the supply chain. A principal cause of this was the delay in final agreement of the expenditure package, with the process of reaching settlement between Network Rail and the Office of Rail Regulation dragging on until the last possible moment. All parts of the industry agree that repeating


this scenario would be unsustainable, and much effort has been put into preventing it. For the first time, industry came together to present a unified view of funding needs - the Initial Industry Plan - aimed to inform Government before the start of the process. This has helped the positions of those involved to be much closer than last time round. And there are far fewer constraints being put on the planning of projects and workstreams around the change of Control Period. We must ensure that the administrative system does not interfere with the continuing and essential work of maintaining and improving the railway system. Who runs the train service impacts on some parts of spending - on rolling stock and station enhancements for example - but much more depends on the overall financial settlement, and on the determination of key players to work to a sensible programme. We cannot overemphasise that the supply chain cannot invest in the resources needed, especially in recruiting and training skilled staff, without a good level of confidence in an expenditure programme, and the understanding that reasonable returns can be earned at levels that allow the industry to sustain itself. The Railway Industry


Association represents UK-based suppliers to the world’s railways.


Speciality Greases- making a point of being on time.


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