ECML franchise fails .... again....

[The Stationmaster]

It seems we will be talking about another franchise problem soon,Wales  there are real government toppling problems on the way this will make the ECML small fry.

I understand that the 'problem' with the Wales franchise renewal is 100% down to the Welsh Govt who keep changing their minds about what they want and how they want it.  My informant told me that Arriva basically got rather hacked off with what they were being fed and told so they decided toi do the sensible thing.

[lmsforever]

Agree that the Welsh Government is a problem everytime I look on the Wales page of the BBC news there is always something going wrong and its government driven.Perhaps its time to end this experiment and run services properly and sort out the rail problem in the process.

[Coryton]

A. Flogging off the track authority to a bunch of sharks who sucked out all the money intended in the model to go on infrastructure upgrading and maintenance.

 

But shouldn't there have been safeguards to ensure that didn't happen, rather than expecting a private company not to maximise short term shareholder benefit?

 

On the whole there seems to have been an impressive amount of foresight in setting things up and making sure it worked, but wasn't this a rather big oversight?

[rockershovel]

We don’t seem to be very far apart, overall.

 

Separating the track and operations, and allowing the subsequent operation to be looted by the franchisees - precisely because no meaningful mechanism existed to prevent this happening - was widely predicted at the time.

 

Expecting “improvements in efficiency ... from experienced civil engineering contractors” in that environment was breath-takingly naive. Experienced staff had been packing their bags and walking away from the chaos raging in civil engineering since the early 90s. Wage-cutting and delayed payment were as bad a they had ever been, investment was non-existent.

 

Privatisation was like joining the then-EEC - there were undoubtedly benefits to be had, but the combination of British management and British politics dropped the ball.

[Coryton]

However that is not correct as a hypothesis for the basis of UK rail privatisation.  It was seen by its inventors and proponents as offering a number of things -

 

1. (the good old mantra) that being private it would be more efficient than a nationalised industry - that of course is debatable.

2. The Treasury (or to be more correct some of those from there who were involved in the detail) saw it as partly a way of saving money going into rail but far more importantly a way of channeling rail infrastructure investment more effectively BUT they accepted that initially, and probably for a decade or more it would actually cost more than BR.  They certainly didn't see it as a major way of raising money through the sale of franchises.

3. It was seen very much as a way of improving the efficiency of engineering work and reducing its cost by bringing in experienced civil engineering contractors and this was one of the most important parts in teh view of those involved.

4. There was no particular idea of short term franchises or indeed of 'giving profits to private enterprise'. the only ideas they had was making sure that Branson got something, anything, because he was seen as an incredible entrepreneur and that Sherwood was kept out - seems they were off the mark on both points.

5. The track authority was seen as a better way of funding infrastructure with a more clearly identified cost base and funding channelled via the franchised operators paying access fees.

 

So in reality the real ideas, apart from Major actually wanting to privatise something so that he could claim Maggie's heritage, was rather different from the perception of many people.  And what those actually involved in working out how it would be done were coming up with ideas and proposals which were even further removed from 'Daily Mail' or 'Daily Worker' headlines.  how do I know - I ran table top exercises with many of those who were actually doing the detail work, from the Franchising Director designate through to Treeasury staff and their advisors. 

 

Where did it go wrong?

A. Flogging off the track authority to a bunch of sharks who sucked out all the money intended in the model to go on infrastructure upgrading and maintenance.

B. Not getting the desired results on engineering work efficiency,  and

C. Subsequent political interference with the original Regulator and Franchising Director structure plus the length of franchises.

 

Thinking about this, I'm surprised not to see along with mantra 1 the idea that a private company will be responsive to the needs of its "customers" in a way that a nationalised company won't.

 

(One way this falls down, of course, is that a private company has no incentive to consider all its customers - just the ones that are bringing in enough money to make it worth while.)

[The Stationmaster]

But shouldn't there have been safeguards to ensure that didn't happen, rather than expecting a private company not to maximise short term shareholder benefit?

 

On the whole there seems to have been an impressive amount of foresight in setting things up and making sure it worked, but wasn't this a rather big oversight?

 

I think this was where the loonies took over the asylum.  the financial 'roundabout' of privatisation was very much predicated on the idea that the money to maintain the infrastructure would feed through the franchise system.  As such it was a bad idea as it was quite a clever way of subsidising network costs.  But the financial wizards who came up with the model were forgotten when the politicos looked for a really big sale as part of the privatisation 'return' and flogged off the network/track authority without considering the way the money would have worked round the system.  All it need then was the carpet baggers who got their hands on Railtrack to set too and suck masses of money out of the system as alleged 'profits' when what they were really taking was subsidy for infrastructure costs.  very much down to the politicos.

We don’t seem to be very far apart, overall.

 

Separating the track and operations, and allowing the subsequent operation to be looted by the franchisees - precisely because no meaningful mechanism existed to prevent this happening - was widely predicted at the time.

 

Expecting “improvements in efficiency ... from experienced civil engineering contractors” in that environment was breath-takingly naive. Experienced staff had been packing their bags and walking away from the chaos raging in civil engineering since the early 90s. Wage-cutting and delayed payment were as bad a they had ever been, investment was non-existent.

 

Privatisation was like joining the then-EEC - there were undoubtedly benefits to be had, but the combination of British management and British politics dropped the ball.

 

Although I think many, if not most, within BR thought it was barmy to separate track and operations it was in retrospect probably one of the best things to  come out of privatisation as it finally established the need for clear contractual relationships between train operations/operators and the infrastructure manager and gave something the industry had been crying out for for years - a clear identification if track costs.  the big error was in selling off what became Railtrack, or certainly selling it off without revising the financial model which privatisation had been built around.  It also of course gave the level playing field needed for open access although in reality i suspect the bigger surprise of that was in relation to freight operations rather than seeing new passenger operators emerge.

 

The idea of saving money through privatisation and contracted track etc maintenance was nothing new - it was common, and had been for years, on some European mainland Railways where it worked quite well, and still does.  But the biggest error of all was taking away from Railtrack much of the ability to act as an informed buyer of the various engineering disciplines - something it then managed to divorce itself from even more, with regrettably tragic but hardly unexpected consequences.  The industry has suffered ever since from that sell-off of expertise and in my view it still suffers, with GW electrification being a prime example of some of the things that can happen when you get rid of expertise and familiarity and the learning base that it gives you.

[Coryton]

  All it need then was the carpet baggers who got their hands on Railtrack to set too and suck masses of money out of the system as alleged 'profits' when what they were really taking was subsidy for infrastructure costs.  very much down to the politicos.

 

And also, if I remember correctly, the proceeds from selling off rather a lot of railway land.

[caradoc]

I agree with your points, Stationmaster and Coryton, but I would add that for me (as a Railtrack employee then), the major benefit of the sell-off was the issue of free and discounted shares to staff. This gave every Railtrack share-owning employee a direct stake in the success or otherwise of the company; We all knew that if we each played our small part in running a safe and profitable business we would benefit financially, conversely if we failed the share price would go down and dividends would be reduced. What we didn't expect of course was that the Government would pull the plug on Railtrack (literally) overnight and make all our shareholdings worthless - Some staff (fortunately not me) had bought a lot of shares as, effectively, their pension plan. Ironically, IMHO, the end for Railtrack came just as the company was getting its act together, however it should never have taken the tragedy of Hatfield, and the many other issues beforehand, to bring that about.

[rockershovel]

#580 and #581 above, really bring us back to the key problem. It used to be said of the Labour Party, that they suffered when in government, from not knowing how the “levels of power” worked, how to actually get things done. The Thatcherite Conservatives has the same problem, and resorted to ideology as a substitute... with predictable results.

 

Rail privatisation suffered from being conceived and implemented by people who simply didn’t know how to do things on that scale. They also suffered from the common problem of ideologically motivated projects - reasoning from your conclusions. If experience tells you that privatised owners will simply asset-strip the company, then you have three conclusions; let them do it, control them (by not allowing free market forces to operate) or don’t privatise at all. None of these are consistent with the key decision you have already taken...

 

It’s the same with the sell-off and run-down of expertise, referred to above. How much easier, to simply rid yourselves of the troublesome people who cry about “necessary expenditure”!

Edited February 12, 2018 by rockershovel

[Coryton]

I agree with your points, Stationmaster and Coryton, but I would add that for me (as a Railtrack employee then), the major benefit of the sell-off was the issue of free and discounted shares to staff. This gave every Railtrack share-owning employee a direct stake in the success or otherwise of the company; We all knew that if we each played our small part in running a safe and profitable business we would benefit financially, conversely if we failed the share price would go down and dividends would be reduced. What we didn't expect of course was that the Government would pull the plug on Railtrack (literally) overnight and make all our shareholdings worthless - Some staff (fortunately not me) had bought a lot of shares as, effectively, their pension plan. Ironically, IMHO, the end for Railtrack came just as the company was getting its act together, however it should never have taken the tragedy of Hatfield, and the many other issues beforehand, to bring that about.

 

While I have sympathy with employees caught up in the situation, my recollection is that "pulling the plug" consisted in not coming up with additional funding to bale them out.

 

If that was the case, I don't see why the government should have helped out a private company (that was quite happy to act in the short term interests of its shareholders and, I believe, paid out good dividends when times were good) unless it was strongly in the public interest - and in this case I suspect it wasn't.

 

(Again, my memory is that their strategy to get back into profit involved deferring all non-safety related and some safety related investment for a considerable number of years which is probably not what the railways needed).

 

As for the incentives to run a safe and profitable business, it seems that at management level the desire for the second aim far outweighed the first. 

[cheesysmith]

Isn`t on if the problems with the wales franchise is that at the moment the DaFT have control, but will not sign off on the next franchise as they would be financially liable (tory Westminster) for what the welsh gov decide (labour run). And the welsh gov cannot sign off on the next franchise until control has been signed off from Westminster, along with the monies, which the civil servants in the DaFT are reluctant to do yet. So you have both sides of opposite parties blaming each other, whilst the 2020 deadline for the rolling stock keeps getting nearer.

[The Stationmaster]

I agree with your points, Stationmaster and Coryton, but I would add that for me (as a Railtrack employee then), the major benefit of the sell-off was the issue of free and discounted shares to staff. This gave every Railtrack share-owning employee a direct stake in the success or otherwise of the company; We all knew that if we each played our small part in running a safe and profitable business we would benefit financially, conversely if we failed the share price would go down and dividends would be reduced. What we didn't expect of course was that the Government would pull the plug on Railtrack (literally) overnight and make all our shareholdings worthless - Some staff (fortunately not me) had bought a lot of shares as, effectively, their pension plan. Ironically, IMHO, the end for Railtrack came just as the company was getting its act together, however it should never have taken the tragedy of Hatfield, and the many other issues beforehand, to bring that about.

 

Regrettably even post-Hatfield Railtrack's boss was still refusing to sign off for the amounts of money his senior PerWay people considered necessary to maintain a safe railway.  At least one of them resigned in order to show his displeasure with the failure of the man at the top who personally refused to agree the requested budget for track maintenance.

[4630]

While I have sympathy with employees caught up in the situation, my recollection is that "pulling the plug" consisted in not coming up with additional funding to bale them out.

 

It was a little bit more Machiavellian if I recall. In essence the Rail Regulator, Tom Winsor was willing to recommend an ‘Interim Review’ that would have granted additional funding to Railtrack. Stephen Byers MP, Secretary of State for Transport, wanted to place Railtrack into administration but had no clear legal process to achieve that as responsibility, protected by legislation, lay with the Rail Regulator.

 

Despite the Rail Regulator’s independence guaranteed under legislation, Stephen Byers threatened to pass legislation amending the Railway Act to prevent the Rail Regulator from granting an interim review, effectively starving Railtrack into administration.

Edited February 12, 2018 by 4630

[rockershovel]

While I have sympathy with employees caught up in the situation, my recollection is that "pulling the plug" consisted in not coming up with additional funding to bale them out.

 

If that was the case, I don't see why the government should have helped out a private company (that was quite happy to act in the short term interests of its shareholders and, I believe, paid out good dividends when times were good) unless it was strongly in the public interest - and in this case I suspect it wasn't.

 

(Again, my memory is that their strategy to get back into profit involved deferring all non-safety related and some safety related investment for a considerable number of years which is probably not what the railways needed).

 

As for the incentives to run a safe and profitable business, it seems that at management level the desire for the second aim far outweighed the first.

 

It’s all rather American, isn’t it? I often get the feeling that for all the enthusiasm for “small government” and “low taxes”, the general prevalence of more-or-less bogus commercial promotions in which public utilities (say, transcontinental railroads) are funded by individual investors who are then “busted” and replaced by another round of the same thing, operates in much the same way.

 

Look at the financial shenanigans surrounding the construction of the Union Pacific, and its subsequent serial bankruptcies. I seem to recall that TML was the subject of some fairly unsavoury accusations of the sort, at one time.

 

Indeed, looking at the history of investing in railways starting with Gurneys Bank and Hudson the Railway King, it rather seems that investing in railways should be avoided..

[jamie92208]

It’s all rather American, isn’t it? I often get the feeling that for all the enthusiasm for “small government” and “low taxes”, the general prevalence of more-or-less bogus commercial promotions in which public utilities (say, transcontinental railroads) are funded by individual investors who are then “busted” and replaced by another round of the same thing, operates in much the same way.

 

Look at the financial shenanigans surrounding the construction of the Union Pacific, and its subsequent serial bankruptcies. I seem to recall that TML was the subject of some fairly unsavoury accusations of the sort, at one time.

 

Indeed, looking at the history of investing in railways starting with Gurneys Bank and Hudson the Railway King, it rather seems that investing in railways should be avoided..

The UP and TML were almost identical in their problems, both of them got a concession to build their railway and then set up a construction company to build it with the actual investors being the companies that had won the concession. In the UP's case it was Credit Mobilier and for the tunnel it was TML.

 

Jamie

[Coryton]

It was a little bit more Machiavellian if I recall. In essence the Rail Regulator, Tom Winsor was willing to recommend an ‘Interim Review’ that would have granted additional funding to Railtrack. Stephen Byers MP, Secretary of State for Transport, wanted to place Railtrack into administration but had no clear legal process to achieve that as responsibility, protected by legislation, lay with the Rail Regulator.

 

Despite the Rail Regulator’s independence guaranteed under legislation, Stephen Byers threatened to pass legislation amending the Railway Act to prevent the Rail Regulator from granting an interim review, effectively starving Railtrack into administration.

 

OK but isn't "starving them into administration" another way of saying "didn't hand over more money to keep them afloat"?

 

I think what I'm missing here is what the grounds would have been for giving them additional funding.

 

I can understand it if it was agreed that the financial models were wrong and the income they were getting wasn't sufficient to manage the infrastructure. But hadn't they taken considerable amounts of money intended for that and handed it over as dividends?

[4630]

Sure, but the context here is that Railtrack was placed into administration as a political act, rather than as an accounting event like, say for example Carillion.

 

I’m not suggesting that Railtrack was well managed. But from what I recall from the time, the Rail Regulator wanted to avoid the uncertainty and disruption to the industry that would result if Railtrack were placed into administration.

 

At the time DaFT had much less involvement in the day to day running of the railway. The Railway Act that gave rise to privatisation vested that responsibility with the Office for Passenger Rail Franchising (OPRAF) and the Rail Regulator.

[phil-b259]

At the time DaFT had much less involvement in the day to day running of the railway. The Railway Act that gave rise to privatisation vested that responsibility with the Office for Passenger Rail Franchising (OPRAF) and the Rail Regulator.

 

Quite - and the railways were better for it.

 

Its something those calling for nationalisation like the loony RMT leadership fail to appreciate because it doesn't fit with Government = good, Private sector = evil ideology.

[Coryton]

Sure, but the context here is that Railtrack was placed into administration as a political act, rather than as an accounting event like, say for example Carillion.

 

I’m not suggesting that Railtrack was well managed. But from what I recall from the time, the Rail Regulator wanted to avoid the uncertainty and disruption to the industry that would result if Railtrack were placed into administration.

 

At the time DaFT had much less involvement in the day to day running of the railway. The Railway Act that gave rise to privatisation vested that responsibility with the Office for Passenger Rail Franchising (OPRAF) and the Rail Regulator.

 

So what was the overt act that the Government carried out that forced them into administration?

 

If they had just sat on their hands and done nothing, would Railtrack not have gone into administration Carillion-style?

[4630]

So what was the overt act that the Government carried out that forced them into administration?

 

 

 

Byers petitioned the High Court to place Railtrack into 'Railway Administration' which was granted on 7th October 2001.   

 

 

 

 

If they had just sat on their hands and done nothing, would Railtrack not have gone into administration Carillion-style?

 

 

 

That's more difficult to say definitively.  Railtrack was certainly up against it post-Hatfield and also at the time with the spiralling costs and delays of the West Coast Mainline upgrade.  To that end it was obviously the author of its own demise.

 

If Railtrack had received an Interim Review however then arguably it might have continued - but for how much longer, who knows.  In any event Government had had enough and wanted a different structure for the ownership, development and maintenance of the infrastructure.  Which set us on the path (track might be better!) that we have today.

[Coryton]

Byers petitioned the High Court to place Railtrack into 'Railway Administration' which was granted on 7th October 2001.   

 

That's more difficult to say definitively.  Railtrack was certainly up against it post-Hatfield and also at the time with the spiralling costs and delays of the West Coast Mainline upgrade.  To that end it was obviously the author of its own demise.

 

If Railtrack had received an Interim Review however then arguably it might have continued - but for how much longer, who knows.  In any event Government had had enough and wanted a different structure for the ownership, development and maintenance of the infrastructure.  Which set us on the path (track might be better!) that we have today.

 

OK thanks. I do remember that there was a special status of "Railway Administration" (which I assume made sure that it didn't all end up in track being sold for scrap to pay the creditors...)

 

But so far as I can see unless the government had given it extra money (and perhaps not even then) it would have gone into administration anyway though I can see why people were unhappy at the way it was done.

[jamie92208]

I can't remember the details of 'railway Administration but I think that it effectively brought it back under Government Control. They may have had some sort of Golden share.

 

Jamie

[rockershovel]

I do remember Stephen Byers being much criticised for this, and he certainly appeared to have a facility for failing to endear himself to people; but I haven’t heard anyone make a credible case that SOME sort of failure wasn’t inevitable, and probably not far in the then-future.

 

This was a crucial case. There were, indeed, accusations that Railtrack had preferred payment of dividends over execution of its contractual and statutory duties. This would have been an ideal opportunity to make a serious example, to “.. encourager les autres”, but nothing was done..

[phil-b259]

I can't remember the details of 'railway Administration but I think that it effectively brought it back under Government Control. They may have had some sort of Golden share.

 

Jamie

 

Nope - in an effort to frustrate any Labour plans ALL the shares in Railtrack were disposed of to private investors / staff by the Conservative Government who could see they were going to lose the subsequent general election.

 

However even the Conservatives realised that allowing the trains to simply stop running (as would be the case with any 'normal' private sector business going into liquidation) wasn't an option (just as declining to extend the Virgin West Coast contract that was originally due to finish in a couple of months time wasn't a remotely realistic possibility either).

 

As such special clauses were written into the privatisation legislation that would ensure the railways kept going if a TOC or Railtrack 'went bust' and these are the powers which the SOS for transport used at the time to effectively nationalise Railtrack.

Edited February 13, 2018 by phil-b259

[Coryton]

However even the Conservatives realised that allowing the trains to simply stop running (as would be the case with any 'normal' private sector business going into liquidation) wasn't an option (just as declining to extend the Virgin West Coast contract that was originally due to finish in a 

 

 

I think that as well as making sure the trains kept running, it was probably even more important to prevent administrators from selling off railway lines to developers to raise money to pay creditors.

 

I could be wrong but I believe that the infrastructure was sold off lock, stock and barrel to Railtrack rather than it remaining in government ownership and just managed by Railtrack.