Intercity Express Programme (IEP) - ongoing discussion

[whole diary]

[stuving]

I think you are right, Andrew1939 - the clue is in the name: Intercity Express Programme, not train. Maybe we forum members should lead the way with Super Express Trains. If they cost much over budget, we could dub them Super Excess Trains...

Confusing the name of a programme and the end product that comes out of it is pretty common. Usually it becomes a problem only when you want to distinguish those two things. 

The trouble with SET^▸ (Super Express Train (now IET)) is not being specific enough; it's already in use for several things, and somehow doesn't sound like a train. Perhaps we could add another letter? We could call it SExT. Now what's all that frantic hand-waving about? Oh, I see - yes, maybe that is a bit unfortunate. OK, we can use SuET, can't we? Now what? You say marketing won't wear it? I wonder why. Oh well, SET it is then ... but we'll say it as a word instead of spelling it out. Then it's a train set. OK?

[ellendune]

But there might be an opportunity to buy Agility Trains out of the contract. Basically the 'Total Train Service' provision contract passes all the risks, engineering and manufacture, operational and financial, onto the manufacturer. If one is unwilling to take any part of the risk of doing something then one will pay through the nose.

Given the reaction of Hitachi and the Japanese government when it was first suggested that the award should be reconsidered way back in the days of the last government I think this is no realistic.

You would not only have to compensate them for the profit they expect make over the next quarter of a century, their design and legal costs so far (given the number of redesigns and renegotiations I dread to think how much that might be) and also the factory that they have now signed a contract to build and are building in Newton Aycliffe.

If you had the remotest idea how much money that might cost you would not have suggested it I am sure.  I would certainly involve a large cut in the money spent on other railway projects to pay for it.

They would also want paying for the new and refurbished depots but I expect most of that would be used by others so that.

And after all that we would have an electrified line with no electric trains to run on it. 

And why should Hitachi be so handsomely compensated?  - Because it was not their fault, that the specification was dreamed up by civil servants with no idea how to run a railway and apparently with very little engineering knowledge. And worst of all as the Public Accounts Committee reminded us recently they were acting in contravention of government policy which is to get train operators to procure rolling stock. 

[Electric train]

Hitachi are part of the financing of these new trains, the same as the Thameslink trains with Siemens; the manufactures recover their investment over the life of the trains, the life span being set out in the tender.  Their profit is earned through reliability, that is presenting a train to the TOC^▸ (Train Operating Company) at the time it is required, if a TOC has to reschedule or cancel a service because a unit is unavailable the manufacture gets penalised.

Will this system work, lets wait and see

[Rhydgaled]

My understanding is that the existing Cotswold Line peak hour trains, currently normally HST125s will be replaced by double 5-car bi-mode IEPs^▸ (Intercity Express Program / Project.) (or SETs^▸ (Super Express Train (now IET))) with more seating. Off-peak CL services are currently mainly 5 car class 180 Adelantes with similar seating capacity to a 3-car turbo. They will, I understood, be replaced in the main by single 5-car bi-mode IEPs which should also have more seats.

I can agree that a 5-car class 800/801 (forget which is the bi-mode) will have more seats than a class 180. However, I believe there are a fair few IC125-worked peak Cotswolds services, the draft diagrams show just one PAD^» (Paddington (London) - next trains)-Hereford 10-car bi-mode in each direction, plus one PAD-Worcester. While they are draft diagrams, and the train operator will have flexibility to change that, strengthening other Cotswolds services as well will mean less strengthening elsewhere.

[TonyK]

And why should Hitachi be so handsomely compensated?  - Because it was not their fault, that the specification was dreamed up by civil servants with no idea how to run a railway and apparently with very little engineering knowledge. And worst of all as the Public Accounts Committee reminded us recently they were acting in contravention of government policy which is to get train operators to procure rolling stock. 

Slightly unfair on the civil servants involved. There will be many at DafT with sound technical and engineering knowledge, who are perfectly capable of drafting at least an outline specification. For other details, they would engage consultants, presumably liaising with Hitachi's own people once they were selected as the lead.

The PAC's criticism is nit-picking. ToCs procuring rolling stock with a useful life of 30 years to run a 10-year franchise is not likely to happen much. A change of franchise usually involves the new company being handed the old company's stock, to cover with their own vinyls. Agility Trains have got what amounts to a 25-year franchise, sure to be extended when the government of the day in around 2034 starts to dither about replacement, plus a procurement programme, so long as they procure what DafT wants them to procure. It's novel, but in deconstruction, it is not that far from the "normal" procedure. In any case, governments never act in contravention of their own policy: they simply rewrite that policy.

Chair of the PAC Margaret Hodge is always the first voice of criticism on Radio 4's "Today". She is, IMHO^▸ (in my humble opinion), too fond of the sound of her own voice.

As to operators procuring rolling stock, that will always be an artificial excercises  

[Rhydgaled]

In any case, governments never act in contravention of their own policy: they simply rewrite that policy.

Not quite true. They are still spouting that their policy is to give franchise bidders more flexibility, including which rolling stock they want to lease, despite having locked the GWML^▸ (Great Western Main Line) and ECML^▸ (East Coast Main Line) franchises in stone as far as Intercity stock is concerned.

[ellendune]

And why should Hitachi be so handsomely compensated?  - Because it was not their fault, that the specification was dreamed up by civil servants with no idea how to run a railway and apparently with very little engineering knowledge. And worst of all as the Public Accounts Committee reminded us recently they were acting in contravention of government policy which is to get train operators to procure rolling stock. 

Slightly unfair on the civil servants involved. There will be many at DafT with sound technical and engineering knowledge, who are perfectly capable of drafting at least an outline specification. For other details, they would engage consultants, presumably liaising with Hitachi's own people once they were selected as the lead.

Perhaps it is a little unfair on the people concerned, but perhaps not the institution as I think the problems are with the way the civil service works that favours the non-specialist, rather than the excellent people who work there. I was however trying to be fair to Hitachi.

Of course we are all looking in from the outside and may have a false view of what has gone on, but the ongoing debate during the procurement, the challenges for an expert journalist and radical changes to the specification and the design do suggest a procurement process that has not gone altogether smoothly. 

[4064ReadingAbbey]

But there might be an opportunity to buy Agility Trains out of the contract. Basically the 'Total Train Service' provision contract passes all the risks, engineering and manufacture, operational and financial, onto the manufacturer. If one is unwilling to take any part of the risk of doing something then one will pay through the nose.

Given the reaction of Hitachi and the Japanese government when it was first suggested that the award should be reconsidered way back in the days of the last government I think this is no realistic.

You would not only have to compensate them for the profit they expect make over the next quarter of a century, their design and legal costs so far (given the number of redesigns and renegotiations I dread to think how much that might be) and also the factory that they have now signed a contract to build and are building in Newton Aycliffe.

If you had the remotest idea how much money that might cost you would not have suggested it I am sure.  I would certainly involve a large cut in the money spent on other railway projects to pay for it.

They would also want paying for the new and refurbished depots but I expect most of that would be used by others so that.

And after all that we would have an electrified line with no electric trains to run on it. 

And why should Hitachi be so handsomely compensated?  - Because it was not their fault, that the specification was dreamed up by civil servants with no idea how to run a railway and apparently with very little engineering knowledge. And worst of all as the Public Accounts Committee reminded us recently they were acting in contravention of government policy which is to get train operators to procure rolling stock. 

I probably wasn't clear enough. I was trying to suggest that Agility Trains be bought out of the really expensive part of the programme - that of financing the construction of the trains until the rental payments start and the on-going financial risks into the future. If the Government bought the trains, just as they are doing with Crossrail, and made progress payments to Agility Trains, all the costs of raising money on the financial markets would be avoided. Crossrail is being done the way it is because it has become clear that PFI/PPP-type procurements are not affordable. Ask the NHS.

I am sure that Hitachi knows how to build trains and they should carry the design, development and manufacturing risks as in any normal programme. But if you, as a customer, are not prepared to carry any risks, then you WILL pay through the nose.

It's these payments that will cripple future investment in the railway - not buying out that part of the Intercity Express Programme that is concerned with the financing of financial risk. Are you clear that, as the programme now stands, the annual payments for the GW^▸ (Great Western)'s tranche of 'Super Express Trains' will be THREE times the amount that fGW pays the ROSCOs^» (Rolling Stock Owning Company - about) for its ENTIRE fleet of trains at the moment? That's the HSTs^▸ (High Speed Train), Class 143s, Class 150s, Classes 165s and 166s, Class 180s and Uncle Tom Cobley and All.

According to the ORR^» (Office of Rail and Road formerly Office of Rail Regulation - about)'s website, in the document ^GB^▸ (Great Britain) rail industry financial information for the year ending 31 March 2013^, fGW's annual rolling stock charges currently total ^68 million. Roger Ford's calculation in the August Modern Railways show the annual charge for fGW's tranche of SETs^▸ (Super Express Train (now IET)) will be around ^300 million.

Do the maths.

I hate to think how the fares will change in order to pay for this civil service cock-up.

[grahame]

According to the ORR^» (Office of Rail and Road formerly Office of Rail Regulation - about)'s website, in the document ^GB^▸ (Great Britain) rail industry financial information for the year ending 31 March 2013^, fGW's annual rolling stock charges currently total ^68 million. Roger Ford's calculation in the August Modern Railways show the annual charge for fGW's tranche of SETs^▸ (Super Express Train (now IET)) will be around ^300 million.

Do the maths.

I would love to do the maths ... but need some more data to put it into context.  And I need to ask are we comparing like for like?   As I understand it, with the trains leased for ^68 million, First then have to have service facilities to look after the trains on which they spend money.   But it's my understanding that the ^300 million includes that servicing facility and all the staff and materials involved therein. 

To do the maths ... let's look at the context.

Income: some wildly guessed figures
Annual passenger journeys say 100 million at at average of 16 pounds = 1.6 billion
Concession fees including parking, outlets, advertising space, sub contracts - guess 0.4 billion
EU^» (European Union - about) and local authority payments for improved services above SLC^▸ (Service Level Commitment) base -

Expenditure:  and I'm not even going to guess here
Network Rail track access:
Staff salaries and benefits:
Train leasing:
Train servicing:
Fuel:
Stations:
ATOC^» (Association of Train Operating Companies See - here) / National Rail contribution:
Publicity and other expenditure:

And on one side and / or the other:
franchise premiums:
subsidy:

Anyone care to fill in figures?  It would be lovely to see how the 68 million (in narrow train leasing) fits against the 300 million in the future (leasing and servicing), what proportion of the total turnover that is (so proportionally how much difference it makes to farebox requirements) and how the higher utilisation that we've heard about will allow more income per seat / carriage per day to be generated. 

[4064ReadingAbbey]

According to the ORR^» (Office of Rail and Road formerly Office of Rail Regulation - about)'s website, in the document ^GB^▸ (Great Britain) rail industry financial information for the year ending 31 March 2013^, fGW's annual rolling stock charges currently total ^68 million. Roger Ford's calculation in the August Modern Railways show the annual charge for fGW's tranche of SETs^▸ (Super Express Train (now IET)) will be around ^300 million.

Do the maths.

I would love to do the maths ... but need some more data to put it into context.  And I need to ask are we comparing like for like?   As I understand it, with the trains leased for ^68 million, First then have to have service facilities to look after the trains on which they spend money.   But it's my understanding that the ^300 million includes that servicing facility and all the staff and materials involved therein. 

To do the maths ... let's look at the context.

Income: some wildly guessed figures
Annual passenger journeys say 100 million at at average of 16 pounds = 1.6 billion
Concession fees including parking, outlets, advertising space, sub contracts - guess 0.4 billion
EU^» (European Union - about) and local authority payments for improved services above SLC^▸ (Service Level Commitment) base -

Expenditure:  and I'm not even going to guess here
Network Rail track access:
Staff salaries and benefits:
Train leasing:
Train servicing:
Fuel:
Stations:
ATOC^» (Association of Train Operating Companies See - here) / National Rail contribution:
Publicity and other expenditure:

And on one side and / or the other:
franchise premiums:
subsidy:

Anyone care to fill in figures?  It would be lovely to see how the 68 million (in narrow train leasing) fits against the 300 million in the future (leasing and servicing), what proportion of the total turnover that is (so proportionally how much difference it makes to farebox requirements) and how the higher utilisation that we've heard about will allow more income per seat / carriage per day to be generated. 

I can fill in some of the figures. Your are quite right that the IEP^▸ (Intercity Express Program / Project.) payments include maintenance and cleaning and the running of the depots - but crucially it also includes the financing costs.

Virgin West Coast also has a 'Total Train Service Provision' deal with Alstom for 140mph tilting trains, the Class 390s. However in this case the finance for the fleet was provided by a ROSCO^» (Rolling Stock Owning Company - about) which is prepared to carry some of the risk, including the 'end of franchise' risk. As a result Virgin pay less than half per diagrammed coach per month (in 2012 prices) than fGW will do for the Super Express Train. The figures are ^32,400 for the Class 390 and are predicted to be around ^75,000 for the SET.

The ORR has published some quite detailed figures of railway costs. Using the document I mentioned earlier, there is a heading 'Other operating expenditure' which for fGW amounts to ^177 million which includes these, and many other, expenses. It would be reasonable to assume a total charge of some ^80 to ^90 million, tops ^100 million, for the current fleet on the same basis as the IEP calculations - with the exception of the financing charges. This is the basis of my estimation that the IEP will cost three times the total for all the current fleet.

Even if all the ^177 million were to be allocated to maintenance and cleaning, the total for operating all of fGW's rolling stock still only comes to ^245 million - ^55 million less than the IEP payments alone.


None of the other incomes and expenditures for fGW are a function of the type of rolling stock, except for the Variable Track Access charges which do vary, and so these will remain essentially the same. As the SET will be heavier (all those under-floor diesel engines!) than a Mk 3 coach, rest assured that the Variable Track Access Charges will also increase. That part of fGW's staff bill for rolling stock maintenance which can be allocated to the replaced HSTs^▸ (High Speed Train) can be reduced, but as all the other trains, and some of the HSTs, will remain with fGW it won't be a huge change.

Some other numbers from the ORR's documents for fGW for year ending 31st March 2013:

Passenger income ^782 million
Other income         ^78 million
      Total income    ^860 million

Fixed access charges to Network Rail       ^79 million
Variable access charges to Network Rail   ^46 million
Other charges to Network Rail                   ^66 million
                                      Total to NR^» (Network Rail - home page)           ^192 million                                     

Other fGW expenditure
Staff costs                                 ^232 million
Diesel fuel                                 ^71 million
Rolling stock charges                ^68 million
Other operating expenditure     ^177 million
plus other headings (which I haven't copied!) for a total of ^704 million.

Franchise premium paid to Govt.                                                      ^435 million
Franchise profit sharing and revenue support received from Govt.  ^270 million
Net franchise payments to Govt.                                                       ^165 million

There are various other incomes and expenditures and balancing items in the ORR's spreadsheet which result in the net premium payments given above.


It doesn't matter how one looks at the figures, this IEP procurement will be a millstone around the railway industry's neck for decades to come unless the Government can find some way to reduce the rents that the TOCs^▸ (Train Operating Company) have to pay. It beggars belief that fGW can increase the income per coach per month by three times - which it will need to do to in order to pay for the train under the existing procurement regime.

The Foster Review into the IEP was published in June 2010. In very polite language it rubbished the programme. The pity of it is that in the last four years none of the senior Civil Servants in the DfT^» (Department for Transport - about) has had the courage to pull the plug on this procurement nor have any of the various Transport Secretaries and Ministers of State of the Coalition Government taken any effective action on the same lines. A cynic might suggest that the Government are using the passengers from Swindon to subsidise jobs in the North-East - I couldn't possibly comment.

[Rhydgaled]

ReadingAbbey, I fear buying out the contract would cost almost as much as proceeding with the insanely expensive procurement. It is probably too late for the railway to save itself from the massive increase in costs that is coming. If so, we had better damn well make sure we are paying for something that is fit for purpose, and get the maximum benifit from the rather over-priced investment. Unfortunately it looks like the DfT^» (Department for Transport - about)'s current plan will fail to acheive either, as well as being far too expensive. Somebody save the 91s, save us from 5-car SETs^▸ (Super Express Train (now IET)) on services which are currently longer and save us from having to buy more new IC^▸ (Inter City) trains (for the MML^» (Midland Main Line. - about), which might even be more 800s/801s, given they seem to be the DfT's pet trains) please.

[grahame]

I can fill in some of the figures. Your are quite right that the IEP^▸ (Intercity Express Program / Project.) payments include maintenance and cleaning and the running of the depots - but crucially it also includes the financing costs. ...

Many thanks for that detailed post (I've not quoted it back fully in consideration of mobile device users!

Very useful to see my guesses turned into something less than a guess - much more clarity in the figures.   I am however going to ask is some of the staffing cost also goes across to the IEP budget.   And perhaps the elephant in the room is the franchise payments - how much and in which direction - which will have such a huge impact on the balance sheet and thus on the required income from the farebox.

Net franchise payments to Govt.                                                       ^165 million

Turn that on your 2013 figures (artificial, because of so many other changes, but probably the best data set we could use) into a net franchise payment of ^65 million instead, and you don't need to load it all onto fares.   Depends how greedy the government is / how much effective tax it wants to apply to train travel.

It doesn't matter how one looks at the figures, this IEP procurement will be a millstone around the railway industry's neck for decades to come unless the Government can find some way to reduce the rents that the TOCs^▸ (Train Operating Company) have to pay. It beggars belief that fGW can increase the income per coach per month by three times - which it will need to do to in order to pay for the train under the existing procurement regime.

Thats assuming the same / proportionately the same franchise payment level, which is a political decision to a degree.  The commercial companies (First, Stagecoach, National Express, Arriva, Go-Ahead, SNCF^▸ (Societe Nationale des Chemins de fer Francais - French National Railways) and the rest) will bid based on what they are guided to believe they can do with fares.

A cynic might suggest that the Government are using the passengers from Swindon to subsidise jobs in the North-East - I couldn't possibly comment.

That, surely, depends again on the sort of bid guidance and franchise payment level.   Heck, we don't yet know whether we're looking at 10 months, 3 years or 5 years from September 2015 for a likely direct award - all we do know it that by EU^» (European Union - about) rules nothing can be finally signed until March 2015 on that front, and we have an election in May ...

[4064ReadingAbbey]

ReadingAbbey, I fear buying out the contract would cost almost as much as proceeding with the insanely expensive procurement. It is probably too late for the railway to save itself from the massive increase in costs that is coming. If so, we had better damn well make sure we are paying for something that is fit for purpose, and get the maximum benifit from the rather over-priced investment. Unfortunately it looks like the DfT^» (Department for Transport - about)'s current plan will fail to acheive either, as well as being far too expensive. Somebody save the 91s, save us from 5-car SETs^▸ (Super Express Train (now IET)) on services which are currently longer and save us from having to buy more new IC^▸ (Inter City) trains (for the MML^» (Midland Main Line. - about), which might even be more 800s/801s, given they seem to be the DfT's pet trains) please.

As I wrote before, I am not suggesting that the Government buys out all the contract - only that part of it concerned with the financing. I am sure that Agility Trains'/Hitachi's costs for designing, building and testing a train will not be far out of line with anybody else's. The part of the contract that costs the money are those payments to cover the risks involved - operational and financial - as the Government is not prepared to accept any risk. (No train - no pay. This means, for a start, that there will probably be two or three SETs on hot standby each and every day. At ^2.5 million per coach that's about ^40 million in capital earning nothing. Someone has to pay for that). In the financial part of the contract Agility Trains is taking a punt on the cost of money up to 27.5 years away - insurance for this sort of time frame (even if the deal is re-financed every five or seven years out to the full term) is eye-wateringly expensive.

It would be interesting to find out how the train rents would be affected if the Government said, in effect, we will take over the financing of the programme. Governments can borrow money more cheaply than commercial companies, even if the rent for the trains is guaranteed by the Government, and a percentage point or two in interest rates can make a huge difference over a period of a quarter of a century. The Government would obviously have to make some sort of payment to the banks financing Agility Trains to cover lost profits, but as none of the rents have yet been paid (and won't be until the train enters service) I would have thought that the banks could re-deploy those funds earmarked for the IEP^▸ (Intercity Express Program / Project.)'s operation quite quickly. (I am assuming that Agility Trains will still need the banks' funding for the design and manufacturing stages and the construction of the depots). The 'loss' of profits from 2018 onwards are more apparent than real as they would be discounted to the time of termination.

I would hazard a guess that, under such an arrangement the rent for the SET would not be far away from those paid by Virgin for the Class 390s. These trains are comparable, both are recent designs, both have similar performance and while the Pendolino has all the tilting gear, the SET has all those diesel engines. Under such circumstances the train would be more affordable and then, and only then, could more coaches be purchased.

If the deal remains unchanged and the DfT follows its stated policy of stepping back from train procurement (which admittedly it seems to find hard to do) then the beneficiaries will be Siemens, Bombardier and CAF and others unless Agility Trains can place further SET builds using a more conventional (TOC^▸ (Train Operating Company)/ROSCO^» (Rolling Stock Owning Company - about)/bank) deal where the TOC and the ROSCO carry some of the risk.

[Rhydgaled]

I don't understand all this financing stuff, I am simply assuming that if company Y has a contract with government Z through which company Y expects to generate X profit then I would suspect that company Y would demand a value similar to X to allow government Y to cancel the contract.

I would hazard a guess that, under such an arrangement the rent for the SET^▸ (Super Express Train (now IET)) would not be far away from those paid by Virgin for the Class 390s. These trains are comparable, both are recent designs, both have similar performance and while the Pendolino has all the tilting gear, the SET has all those diesel engines. Under such circumstances the train would be more affordable

That I can agree with, if SET was procured in the same way as class 390 then I would indeed expect the costs to be similar. We seem to agree that it is too late to avoiding buying Hitachi's class 800/801 trains, the question is whether it is too late to change the way they are procured. I fear that it is too late, but if it isn't we need to know how to get the DfT^» (Department for Transport - about) to change course on this and buy the new trains the cheaper way.

[IndustryInsider]

This means, for a start, that there will probably be two or three SETs^▸ (Super Express Train (now IET)) on hot standby each and every day.

Not wishing to undermine many other of your quite possibly very valid points, but, as far as the passenger is concerned, is having a small number of standby sets necessarily a bad thing to give a little more scope to recover from delays/train failures and reduce the number of cancelled trains?