My ideas to stop ROSCOs and other companies making profits

[theironroad]

Moderator note: Split from https://www.railforums.co.uk/thread...and-redeployment.127422/page-128#post-4102004

Oh OK. Thanks, I'm not too good with rolling stock owners.

-Peter

In general no TOC owns any of the rolling stock , the ROSCOs own it all, and they are just finance companies trying to get as much profit as they can out of their 'asset'. Welcome to the privatised railway........

 

[coppercapped]

In general no TOC owns any of the rolling stock , the ROSCOs own it all, and they are just finance companies trying to get as much profit as they can out of their 'asset'. Welcome to the privatised railway........

Er, not quite.
The ROSCOs have several functions, but the one thing they are not is a finance company. The function that you seem most concerned about is the raising of money to buy new trains. In this case the ROSCOs are intermediaries in the arrangement of funding. They have huge borrowings - in the case of Eversholt for example well north of £2 billion - which they have arranged from one or more finance houses (banks, investment companies, pension funds and the like). This money goes to the rolling stock manufacturers to pay for the trains and the leasing fees service the debt.

They also have an engineering function and administer the on-going leases for their trains.

 

[theironroad]

Er, not quite.
The ROSCOs have several functions, but the one thing they are not is a finance company. The function that you seem most concerned about is the raising of money to buy new trains. In this case the ROSCOs are intermediaries in the arrangement of funding. They have huge borrowings - in the case of Eversholt for example well north of £2 billion - which they have arranged from one or more finance houses (banks, investment companies, pension funds and the like). This money goes to the rolling stock manufacturers to pay for the trains and the leasing fees service the debt.

They also have an engineering function and administer the on-going leases for their trains.

Sure, I'll concede they're not actually finance companies but these are companies making very healthy profit margins off of their leasing agreements with TOCs and definitely not providing stock at cost.

 

[43096]

Sure, I'll concede they're not actually finance companies but these are companies making very healthy profit margins off of their leasing agreements with TOCs and definitely not providing stock at cost.

Why would they provide stock at cost? You seem to just be pedalling the usual, wearisome anti-ROSCO rhetoric that actually doesn’t stand up to scrutiny.

 

[Peter C]

No, presuming you are referring to rolling stock procurement and ownership, it's actually very simple.

Oh OK. Thanks on that one. But would you be able to explain it to me in a simple way? Thanks.

-Peter

 

[theironroad]

Why would they provide stock at cost? You seem to just be pedalling the usual, wearisome anti-ROSCO rhetoric that actually doesn’t stand up to scrutiny.

So sorry I'm wearisome to you, but I believe that the UK wide railways should be run as public service, where the rural and sonically useful services are cross subsidised by those routes that are profitable. Railways as a complete socially and publically useful network are not profit making.

Money that leaks out of the system , whether that is Rosco profits, TOC profits are the millions of pounds spent in the failing franchising process is all money that could be used to provide actual rail services.

Yes, it would mean that the State would have to have rolling stock assets on its books , but that's not an issue for me.

I'll get my coat and go off and be a little bit less wearisome elsewhere.

 

[samuelmorris]

So sorry I'm wearisome to you, but I believe that the UK wide railways should be run as public service, where the rural and sonically useful services are cross subsidised by those routes that are profitable. Railways as a complete socially and publically useful network are not profit making.

Money that leaks out of the system , whether that is Rosco profits, TOC profits are the millions of pounds spent in the failing franchising process is all money that could be used to provide actual rail services.

Yes, it would mean that the State would have to have rolling stock assets on its books , but that's not an issue for me.

I'll get my coat and go off and be a little bit less wearisome elsewhere.

There is still a net subsidy requirement as the routes that make a loss far outweight those that turn a profit, even with the higher fares the UK pay compared to the rest of Europe. Increasing the subsidy to the areas that may need it does require a net increase in spending from the government which, when most likely heading for a recession, is understandably something they are reticent about.

TOCs really don't make much money from the franchises at all, the margins are tiny, and you can see how often they in fact make a loss despite their franchise agreements. The cost saving to be made from nationalisation (or at least, changing how the franchising system works as very few people would stand up for it as it is now) is not from not giving private companies all these so called profits to take abroad, it's from reducing the incredible inefficiencies in the system from the tender and bidding process, as well as the costs associated with changing control of a TOC, rebranding and so on. From the figures posted on the previous page, ROSCOs make a tidy profit but it isn't exactly enormous either. That said, ROSCOs have done some rather daft things recently, so I'm no fan of their role in the process either.

 

[43096]

So sorry I'm wearisome to you, but I believe that the UK wide railways should be run as public service, where the rural and sonically useful services are cross subsidised by those routes that are profitable. Railways as a complete socially and publically useful network are not profit making.

Money that leaks out of the system , whether that is Rosco profits, TOC profits are the millions of pounds spent in the failing franchising process is all money that could be used to provide actual rail services.

Yes, it would mean that the State would have to have rolling stock assets on its books , but that's not an issue for me.

I'll get my coat and go off and be a little bit less wearisome elsewhere.

I love the naivety that thinks if the whole lot was nationalised then any savings from it would be spent on the railway and not on hospitals, schools or whatever public spending is priority of the day.

Perhaps you’re not aware of the subsidy cuts that BR had year on year?

 

[theironroad]

I love the naivety that thinks if the whole lot was nationalised then any savings from it would be spent on the railway and not on hospitals, schools or whatever public spending is priority of the day.

Perhaps you’re not aware of the subsidy cuts that BR had year on year?

There is always going to be finite pot of money from the treasury , and sure there are other equally worthy uses.

 

[Bletchleyite]

I love the naivety that thinks if the whole lot was nationalised then any savings from it would be spent on the railway and not on hospitals, schools or whatever public spending is priority of the day.

Perhaps you’re not aware of the subsidy cuts that BR had year on year?

Network Rail already is nationalised and is not suffering any such funding cuts. It's a different political climate now - railways are in vogue.

 

[coppercapped]

Oh OK. Thanks on that one. But would you be able to explain it to me in a simple way? Thanks.

-Peter

Yes.

The Government contracts a Train Operating Company (TOC) to operate a train services in a defined area for a given length of time. At the end of this period the intention is to run another competition to see if an alternate supplier can offer a lower subsidy/higher premiums/higher quality service for the next period.

The given length of time for a franchise (more correctly called a 'concession') is usually for a period of between seven and ten years. This is much shorter than the expected life of the rolling stock which is usually expected to last between thirty and forty years.

The Rolling Stock Companies (ROSCO) were therefore created to own the rolling stock for the whole of its life. They started life owning the ex-BR stock, the bulk of which has since been scrapped. The present value of the stock which has been purchased since then is somewhat north of £10 billion - this does not include the trains contracted by the Department of Transport under the IEP and Thameslink contracts. These latter two train types were financed by the manufacturers, estimates give the present value of both fleets to be around £3.5 to £4 billion.

The TOCs lease the trains from the ROSCOs.

End of story.

I would add that since making the private sector responsible for the procurement and ownership of the trains there have been a number of consequences:

• It enabled the Government to deem slam-door stock to be unsafe and demand that it be removed from service prematurely. This was possible because there was no cost to the Government - ask yourself if the Treasury would have funded a large number of trains to meet an artificial, DfT imposed deadline
• Ask yourself if the Government would have committed itself to a deadline for the Persons of Reduced Mobility modifications to be made to the rolling stock if it itself had to pay (No other Government in the EU required existing stock to be modified)
• Ask yourself if there would be as many trains available as there are at the moment if the Treasury had to fund their construction.

To add some meat to my points above. Governments are always under pressure to spend money - they have only one source of income (various taxes) and there are incessant spending demands for both ongoing (pensions, health care, education, local government, police, civil service wages and salaries, etc., etc.,) and capital spending on all those parts of the national infrastructure for which the Government is responsible.
Historically railways have always come way down the list of priorities.

Edit: Added last sentence for context to railways.

 

[Peter C]

Yes.

The Government contracts a Train Operating Company (TOC) to operate a train services in a defined area for a given length of time. At the end of this period the intention is to run another competition to see if an alternate supplier can offer a lower subsidy/higher premiums/higher quality service for the next period.

The given length of time for a franchise (more correctly called a 'concession') is usually for a period of between seven and ten years. This is much shorter than the expected life of the rolling stock which is usually expected to last between thirty and forty years.

The Rolling Stock Companies (ROSCO) were therefore created to own the rolling stock for the whole of its life. They started life owning the ex-BR stock, the bulk of which has since been scrapped. The present value of the stock which has been purchased since then is somewhat north of £10 billion - this does not include the trains contracted by the Department of Transport under the IEP and Thameslink contracts. These latter two train types were financed by the manufacturers, estimates give the present value of both fleets to be around £3.5 to £4 billion.

The TOCs lease the trains from the ROSCOs.

End of story.

I would add that since making the private sector responsible for the procurement and ownership of the trains there have been a number of consequences:

• It enabled the Government to deem slam-door stock to be unsafe and demand that it be removed from service prematurely. This was possible because there was no cost to the Government - ask yourself if the Treasury would have funded a large number of trains to meet an artificial, DfT imposed deadline
• Ask yourself if the Government would have committed itself to a deadline for the Persons of Reduced Mobility modifications to be made to the rolling stock if it itself had to pay (No other Government in the EU required existing stock to be modified)
• Ask yourself if there would be as many trains available as there are at the moment if the Treasury had to fund their construction.

To add some meat to my points above. Governments are always under pressure to spend money - they have only one source of income (various taxes) and there are incessant spending demands for both ongoing (pensions, health care, education, local government, police, civil service wages and salaries, etc., etc.,) and capital spending on all those parts of the national infrastructure for which the Government is responsible.
Historically railways have always come way down the list of priorities.

Edit: Added last sentence for context to railways.

Thank you very much for explaining that.

-Peter

 

[coppercapped]

Network Rail already is nationalised and is not suffering any such funding cuts. It's a different political climate now - railways are in vogue.

We don't yet know if the railway will suffer from funding cuts.

Network Rail's funding for Control Period 6 covers operations, maintenance, renewals and the cost of servicing its debt. The amount agreed seems quite generous - but...

...it does not include spending on enhancements (flyovers, extra platforms, electrification and so on) which will be approved by the DfT on a case to case basis. (In previous CPs enhancement spending was included in the total).

So this means that;

• we won't know how much money will actually be made available until several of these enhancement projects have been announced and probably won't be able to come to any definite conclusions until the end of the control period
• it is likely that if the DfT's budget is being stretched for any reason the announcement of enhancements will be delayed - and nobody will be any the wiser. Unless, of course, some insider spills the beans!

 

[pigs bay]

In general no TOC owns any of the rolling stock , the ROSCOs own it all, and they are just finance companies trying to get as much profit as they can out of their 'asset'. Welcome to the privatised railway........

Yeah that sounds about right.....profit before paying passengers, that are travelling on trains standing and cramped when there is stock at eastleigh and papworth just rusting out!!!

 

[cjmillsnun]

Yes.

The Government contracts a Train Operating Company (TOC) to operate a train services in a defined area for a given length of time. At the end of this period the intention is to run another competition to see if an alternate supplier can offer a lower subsidy/higher premiums/higher quality service for the next period.

The given length of time for a franchise (more correctly called a 'concession') is usually for a period of between seven and ten years. This is much shorter than the expected life of the rolling stock which is usually expected to last between thirty and forty years.

The Rolling Stock Companies (ROSCO) were therefore created to own the rolling stock for the whole of its life. They started life owning the ex-BR stock, the bulk of which has since been scrapped. The present value of the stock which has been purchased since then is somewhat north of £10 billion - this does not include the trains contracted by the Department of Transport under the IEP and Thameslink contracts. These latter two train types were financed by the manufacturers, estimates give the present value of both fleets to be around £3.5 to £4 billion.

The TOCs lease the trains from the ROSCOs.

End of story.

I would add that since making the private sector responsible for the procurement and ownership of the trains there have been a number of consequences:

• It enabled the Government to deem slam-door stock to be unsafe and demand that it be removed from service prematurely. This was possible because there was no cost to the Government - ask yourself if the Treasury would have funded a large number of trains to meet an artificial, DfT imposed deadline
• Ask yourself if the Government would have committed itself to a deadline for the Persons of Reduced Mobility modifications to be made to the rolling stock if it itself had to pay (No other Government in the EU required existing stock to be modified)
• Ask yourself if there would be as many trains available as there are at the moment if the Treasury had to fund their construction.

To add some meat to my points above. Governments are always under pressure to spend money - they have only one source of income (various taxes) and there are incessant spending demands for both ongoing (pensions, health care, education, local government, police, civil service wages and salaries, etc., etc.,) and capital spending on all those parts of the national infrastructure for which the Government is responsible.
Historically railways have always come way down the list of priorities.

Edit: Added last sentence for context to railways.

The bulk of the ex BR stock scrapped?

Were the Mk1s the bulk?

Aside from that and a few PEPs most of it is still around.

 

[Clip]

There is always going to be finite pot of money from the treasury , and sure there are other equally worthy uses.

And its those - especially the NHS - which then end up having money spent on them with the extra money pulled from elsewhere - I think the last time it was the railways that got starved of money and had to make do...

So the money you think would be better spent on the railways would indeed go into some other public function.

there is simply no easy answer. Unless you just give echo quotes

 

[coppercapped]

The bulk of the ex BR stock scrapped?

Were the Mk1s the bulk?

Aside from that and a few PEPs most of it is still around.

If I had written 'a large proportion' would that have been better?

As far as I understand it all the Southern Region electric stock was replaced - all the CIGs and BIGs and VEPs and the remaining CEPs and BEPs and the odd-ball reformations. The ac emus up to Class 312 also went as did those Mark 2 coaches that didn't make it to preservation. The last of the 1st generation dmus were also withdrawn. I don't have the time to work out the totals - but I suspect somebody here has kept records which will give the exact numbers.

 

[coppercapped]

Yeah that sounds about right.....profit before paying passengers, that are travelling on trains standing and cramped when there is stock at eastleigh and papworth just rusting out!!!

The logic is curious!

As the ROSCOs only earn money when the stock is in use, how does having stock idle help the income flow and therefore their profits?

 

[43096]

The logic is curious!

As the ROSCOs only earn money when the stock is in use, how does having stock idle help the income flow and therefore their profits?

It's worse than that, not only are they not earning when stock is out of use, they actually lose money as they have to pay to store it.

 

[pdeaves]

If one argues that any given business should not make profit, should other businesses also not make profit? Personally, I would go for bakeries. I would happily have more, cheaper cakes! Seriously though, the businesses that make profits are usually those invested in by pension funds and the like in one form or another. Allowing profit ensures you can afford to live when you retire.

 

[tbtc]

So sorry I'm wearisome to you, but I believe that the UK wide railways should be run as public service, where the rural and sonically useful services are cross subsidised by those routes that are profitable. Railways as a complete socially and publically useful network are not profit making.

Money that leaks out of the system , whether that is Rosco profits, TOC profits are the millions of pounds spent in the failing franchising process is all money that could be used to provide actual rail services

By the same token, any money spent on staff/ fuel/ toilet toll could be said to "leak out of the system". It's a cost for something that the railway benefits from.

And the idea that nationalisation would stop this... it's over fifty years since British Rail entered into a commercial contract with English Electric to supply Deltics that's not a million miles away from the arrangement with Hitachi today with the 801/802/802s...

If everything that is socially and publicly useful has to be non-profit making then that'll be interesting news to my local newsagent, who provide a service that ticks those boxes.

As ever with the railway, it's easy to say that no company shouldn't make a profit but where are you going to draw the line... should the companies who sell the fabric for seats be permitted to make a profit, or is that going to leak out of the industry? What about the companies who provide the yellow paint used near the edge of platforms? Should we nationalise them too? Simply saying something like "nobody should be able to profit from something that is a socially and publicly useful thing" is just empty sloganeering.

Network Rail already is nationalised and is not suffering any such funding cuts. It's a different political climate now - railways are in vogue.

...only by dumping *billions* of pounds on its "credit card" (rather than having to deal with it like normal budgets). This can't carry on for ever.

 

[158756]

The logic is curious!

As the ROSCOs only earn money when the stock is in use, how does having stock idle help the income flow and therefore their profits?

Idle stock could suggest the ROSCOs aren't willing to drop prices to get them out of the sidings, thus keeping the value of the trains and the lease rates on all those in service high.

 

[coppercapped]

Idle stock could suggest the ROSCOs aren't willing to drop prices to get them out of the sidings, thus keeping the value of the trains and the lease rates on all those in service high.

Partly. If the idle stock consists largely of HSTs and what the operator really wants is more 323s, then the HSTs could be offered for free and they still wouldn't be taken up.

The real constraint is the contractual agreements for the franchises between the DfT and the franchisees. These defines all sorts of things like the number of seats to be offered on each route and, crucially, what the franchisee may spend on trains if it affects the subsidy required or the premiums to be paid.

If the trains on offer are not a good fit (maintenance, spares, route availability, staff knowledge) the extra costs to introduce them, and the time necessary for this, will be significant.

If taking on more trains breaks the terms of the contract the DfT will simply say 'no'. It might be possible to re-negotiate parts of the contract but that will always take a lot of time.

So, as usual, it all comes back to the DfT.

 

[PeterC]

Did the people who designed all this actually grasp that trains are no longer "go anywhere" commodities like cars, lorries or buses?

The original concept seems to have been predicated on the idea that a ROSCO could just hire you a few more coaches / MUs / locomotives if you are short of stock regardless of where you want to run them.

 

[coppercapped]

Did the people who designed all this actually grasp that trains are no longer "go anywhere" commodities like cars, lorries or buses?

The original concept seems to have been predicated on the idea that a ROSCO could just hire you a few more coaches / MUs / locomotives if you are short of stock regardless of where you want to run them.

This was not the original concept - and the people planning it were not that stupid. A very detailed book was published in 2000 entitled 'All Change British Railways Privatisation' (edited by Freeman and Shaw and published by MacGraw-Hill) and I referred to it when I wrote in another thread:

It is clear from the way the ROSCOs were structured and the allocation of rolling stock between them that there was little or no expectation that the ROSCOs, at least in the short term, would be competing to supply the TOCs with trains.

Why three Roscos? It was felt that three was the minimum number of substantial companies needed to make future markets competitive. Although the Treasury would have liked more, it accepted the Department for Transport’s argument that to create too many ROSCOs may have rendered the new companies unsaleable; selling two would have been less difficult but on the other hand only two wouldn't have created the conditions for competition.

The preference within BR was for the three companies to reflect the identity of the existing business sectors. This was quickly ruled out however on the grounds that it would not promote competition, moreover the number of numbers of vehicles allocated to the companies would have differed widely with the ex-Network SouthEast company having by far the largest number. The Treasury’s preference was to divided every type of rolling stock into three but this was problematic because it would have meant replicating numerous functions in all three companies and subdividing some very small classes. The outcome of the discussion was that one large class of vehicle (Class 423, 4VEP) was divided between the three companies, the remaining large classes were divided between two companies and the smaller classes were allocated to one or other of the companies.

It was also clear from the start that the rolling stock that existed was, except at the margins, fully utilised. It was not expected that a TOC could phone a ROSCO and ask if they could send over a couple more 4VEPs (other rolling stock is available) for next month please.
To cope with anticipated growth the structure was constructed so that the TOCs, when necessary would lease more stock which the ROSCOs would purchase. Until Richard Bowker of the Strategic Rail Authority - which took over from the Office of Passenger Rail Franchising (OPRAF) - started writing more prescriptive franchise agreements the franchisees would have been able to do this without reference to OPRAF or the DfT as long as the subsidies from that franchise did not increase. And in the early days none of the TOCs paid a premium - and this was also anticipated and planned for by Government.