Shaw report - future shape and financing of NR

[The Planner]

This has now been published as an initial scoping report at 76 pages.

Shaw report

...This document – the ‘scoping document’ – sets out some of the complexities of the issues – drawing on our analysis of the areas which require development. It takes the following form:

Chapter 1: Sets the context with historical background to rail organisational development.

Chapter 2: Describes the terms of reference and the approach we are taking.

Chapter 3: Describes Network Rail’s functions, how it is organised to deliver those functions, how it is funded, and how it is held to account.

Chapter 4: Covers the three perspectives we are using to assess the structure of Network Rail: customer, devolution and growth.

Chapter 5: Sets out more details of the funding and financing issues.

Chapter 6: Presents an overview of the risks and the implementation issues.

Chapter 7: Asks you to contribute to the conversation and presents various ways for you to do so. In particular, please sign up for one of the discussion sessions between now and the 18th of December and submit your formal written responses before Christmas.

At the end of this work, I would like to be able to propose changes to Network Rail’s structure and financing which will, among other things, help Britain...

 

[thealexweb]

Page 59. I cannot believe privatisation, in any form, is being examined once again. Do we want another RailTrack?

 

[PHILIPE]

Perhaps the authors have never heard of Hatfield or Potters Bar

 

[LNW-GW Joint]

Perhaps the authors have never heard of Hatfield or Potters Bar

Hatfield is actually mentioned up front in the timeline on page 7.
Page 59 has a chart of all the funding options, from full privatisation to full nationalisation.
Overall, the document poses a lot of questions for consultation, and doesn't dictate any answers.
Solving NR's £34 billion debt problem, and finding new funding for enhancements, is not a trivial matter.
If there is a trend in what I have read, it is that external funding is most easily obtained for new developments, and not for routine management/maintenance.

 

[DarloRich]

They are asking for contributions so send in your comments about the report.
--- old post above --- --- new post below ---
interesting: This is probably the most important item on this board today and has so little comment.

 

[The Planner]

Because it isnt about reopening a closed line or involves HSTs. Maybe the report has windows that line up with the pages?

 

[ainsworth74]

Because it isnt about reopening a closed line or involves HSTs. Maybe the report has windows that line up with the pages?

Nah it's because it doesn't mention 442s or how terrible things are in the North compared with the South.

More seriously this is going to make for interesting reading when I get chance to get to grips with it (and at seventy-two pages I wonder if that isn't part of the reason it's taking a while for people to comment ).

 

[Philip Phlopp]

I lost the will to live, and certainly to read further when I realised Nicola Shaw can barely string a coherent sentence together. Her introduction could only be more painful to read if you had to stick pins in your eyes to do so.

Privatisation - if it wasn't for the disaster that would result, I'd enjoy watching that process collapse in an enormous, ferocious money consuming bonfire on DfT's lawn. Investors don't want Railtrack II and without buyers, nothing is happening.

 

[yorksrob]

Nah it's because it doesn't mention 442s or how terrible things are in the North compared with the South.

More seriously this is going to make for interesting reading when I get chance to get to grips with it (and at seventy-two pages I wonder if that isn't part of the reason it's taking a while for people to comment ).

It could do with an Executive Summary.

 

[WatcherZero]

Nah it's because it doesn't mention 442s or how terrible things are in the North compared with the South.

More seriously this is going to make for interesting reading when I get chance to get to grips with it (and at seventy-two pages I wonder if that isn't part of the reason it's taking a while for people to comment ).

I spent yesterday reading the 1,000 pages of Greater Manchester Spatial Strategy Vision consultation, I had been putting that off for 3 days

 

[ainsworth74]

I spent yesterday reading the 1,000 pages of Greater Manchester Spatial Strategy Vision consultation, I had been putting that off for 3 days

hock:hock:hock:

It's not a competition

 

[backontrack]

Ridiculous! It doesn't even mention Brighton once! :P

 

[Murph]

So, the solution to the problem of NR being a money pit, is to turn it into a money pit which skims 10% off to shareholders?

 

[WatcherZero]

hock:hock:hock:

It's not a competition

Merely saying im reported out.

 

[DarloRich]

Privatisation - if it wasn't for the disaster that would result, I'd enjoy watching that process collapse in an enormous, ferocious money consuming bonfire on DfT's lawn. Investors don't want Railtrack II and without buyers, nothing is happening.

perhaps not but they DO want the NR property portfolio and certainly the juicy commercial developments and the large stations. NR can keep the grotty railway arches and tea kiosks on minor stations! They are also quite keen on getting their hands on the telecoms network.

 

[Philip Phlopp]

perhaps not but they DO want the NR property portfolio and certainly the juicy commercial developments and the large stations. NR can keep the grotty railway arches and tea kiosks on minor stations! They are also quite keen on getting their hands on the telecoms network.

The telecoms business has been round the houses several times now, BRT then onto Racal, Racal bought out by Thales, rail telecoms sold to Network Rail. It should be a money spinner, but it's one of those businesses that is difficult to actually make money out of because there's the inconvenience of having to run a railway getting in the way.

The NR property portfolio is an interesting thing - for certain, NR shouldn't be investing man hours and money into developing some sites - selling a 50% stake in the business and leaving much of it in the hands of a proper property developer, collecting half the profits would probably be the most efficient and profitable way to monetise the real estate.

 

[HH]

I lost the will to live, and certainly to read further when I realised Nicola Shaw can barely string a coherent sentence together. Her introduction could only be more painful to read if you had to stick pins in your eyes to do so.

I thought your comment mere hyperbole - until I opened the document. It's appallingly written - makes Brown look like Browning.

Must dash.

 

[tbtc]

Overall, the document poses a lot of questions for consultation, and doesn't dictate any answers.
Solving NR's £34 billion debt problem, and finding new funding for enhancements, is not a trivial matter

It's pretty sobering and depressing in equal measure.

Railtrack didn't work (not just about a couple of horrible accidents - I sometimes think that fixating on these ignores the underlying problems with Railtrack).

However, Network Rail isn't working either. IF they were running up £34n of debt but at least meeting their CP4 commitments, I could try to defend them. IF they were efficient at what they did (but overspending) I would try to be supportive.

I bought into the idea of a "public" infrastructure - I'd love it to work. But it isn't. Privatisation didn't work and nationalisation isn't working. I don't know where we go from here.

interesting: This is probably the most important item on this board today and has so little comment.

Because it isnt about reopening a closed line or involves HSTs. Maybe the report has windows that line up with the pages?

Does say something about priorities on here - fixing the big problems of the real world isn't as much fun as crayoning in 1960s maps, clearly.

I spent yesterday reading the 1,000 pages of Greater Manchester Spatial Strategy Vision consultation, I had been putting that off for 3 days

hock:hock:hock:

It's not a competition

Wait, is the Forum going down the route of Real Ale obsessives, where someone comes along to say that they'd never read anything as mass produced and mainstream as the Greater Manchester Spatial Strategy Vision consultation - the only report they read is an artisan one written on hand crafted paper that you've never heard of because it's so niche

 

[pdeaves]

Investors don't want Railtrack II and without buyers, nothing is happening.

Thing is, though, put together an impressive-looking prospectus and people WILL buy shares. After all, just about every utility ever sold was under-valued so those in first made a packet selling on very quickly.

For example, point out how much land NR owns and how valuable it is and people interested in playing the property market and no understanding of railways will pay up. Just like Railtrack.

 

[LateThanNever]

Thing is, though, put together an impressive-looking prospectus and people WILL buy shares. After all, just about every utility ever sold was under-valued so those in first made a packet selling on very quickly.

For example, point out how much land NR owns and how valuable it is and people interested in playing the property market and no understanding of railways will pay up. Just like Railtrack.

Very true. In the current 'zombie' economy there is a never ending desire for rent extraction, which is also very simple, backed up by the law and remunerative.
Ensuring the safe and efficient running of a railway is far too difficult for the bogus entrepreneurs of the privatised world. I cannot see anyone buying it - indeed is there anywhere in the world where the track is not state owned?

 

[LNW-GW Joint]

Ensuring the safe and efficient running of a railway is far too difficult for the bogus entrepreneurs of the privatised world. I cannot see anyone buying it - indeed is there anywhere in the world where the track is not state owned?

Japan; USA; CP and CN in Canada.
Bill Gates is said to be the largest single shareholder in CN.

 

[LateThanNever]

Japan; USA; CP and CN in Canada.
Bill Gates is said to be the largest single shareholder in CN.

Is it another one of his charities?

Well I'm surprised. But Canada and the US are fairly simple (if long) railways. In Japan is it just the high speed that is private I wonder because that is also relatively simple? If it's the whole lot in Japan then I'd have to deduce that their system could work in Britain...

 

[LNW-GW Joint]

Is it another one of his charities?
Well I'm surprised. But Canada and the US are fairly simple (if long) railways. In Japan is it just the high speed that is private I wonder because that is also relatively simple? If it's the whole lot in Japan then I'd have to deduce that their system could work in Britain...

I have no first hand knowledge of Japanese railways, but the Wiki write-ups suggest the 7 regional JR companies which were privatised in 1987 actually own their infrastructure.
https://en.wikipedia.org/wiki/Japan_Railways_Group

The Japan Railways Group, more commonly known as JR Group, consists of seven for-profit companies that took over most of the assets and operations of the government-owned Japanese National Railways on April 1, 1987. Most of the liability of the JNR was assumed by the JNR Settlement Corporation.

Although the US/Canada railways are "simple" and are essentially freight lines, the big four (UP, BNSF, CP, CN) are each as big or bigger than Network Rail (and are integrated businesses, not just infrastructure); eg for UP: https://en.wikipedia.org/wiki/Union_Pacific_Railroad

The Union Pacific Railroad (reporting mark UP) is a Class I line haul freight railroad that operates nearly 9,000 locomotives over 32,000 route-miles in 23 states west of Chicago, Illinois and New Orleans, Louisiana. The Union Pacific Railroad network is the largest in the United States and is serviced by more than 50,000 employees

Profit is in the billions of dollars (not a charity!).

 

[pemma]

Page 59. I cannot believe privatisation, in any form, is being examined once again. Do we want another RailTrack?

Remember we have a Conservative government who are convinced almost everything is better in the private sector.

They gave the HS1 concession to Ontario Teachers' Pension Plan and sold 30% of their stake in Eurostar to Caisse de dépôt et placement du Québec. They're probably expecting some company in British Columbia to start waving money at them if they put Network Rail on the market. :roll:

 

[FordFocus]

If I was a billionaire investor as part of a consortium, would I ever see a return on running Network Rail?

Not without severe cuts to renewals, resignalling, staff, electrification, maintenance, selling off property assets, stations and then eventually bailing out when the network falls to bits and government steps in (again). Then liquidate. Network Rail MK2 is formed.

 

[ChiefPlanner]

Or more likely - Chinese money.

Of course - the debts incurred from 1948 with BR were written off way back - hardly likley to happen in this scenario. Difficult times.

 

[LateThanNever]

Or more likely - Chinese money.

Of course - the debts incurred from 1948 with BR were written off way back - hardly likley to happen in this scenario. Difficult times.

So Gideon would have us believe.
But in fact there has never been a better time for the government to borrow money. Indeed low interest rates is the main reason he's spent less than his original forecast. He must be delighted that Brown and Balls kept us out of the Euro, but yet he fails to take advantage of Britain issuing its own sovereign currency. If only he could be persuaded to do quantitiative easing for infrastructure rather than keep doing it for banks we'd start to get out of the clutches of the City and begin to give engineering the respect it deserves.

But it seems the Tories are too frightened of losing party support from their friends in the City...

 

[LNW-GW Joint]

If I was a billionaire investor as part of a consortium, would I ever see a return on running Network Rail?
Not without severe cuts to renewals, resignalling, staff, electrification, maintenance, selling off property assets, stations and then eventually bailing out when the network falls to bits and government steps in (again). Then liquidate. Network Rail MK2 is formed.

HS1 has been "monetised" by selling a concession to Canadian investors (who seem very active in this area).
The same is in prospect for HS2.
IEP has been monetised (it's basically a PFI scheme).
Wherever a project has definite costs and benefits, with a definite return, there will be people to lend money for it (even the union pension funds!).

I quite agree that BR/Railtrack/NR performance does not inspire confidence in their management ability to deliver the returns.
But you could imagine some of the big ticket items being promoted/monetised/privatised, whatever the term used, to save HMG forking out the cost on the Public Debt.
It can then spend the money on things like hospitals and schools, without breaking the national bank.
Meanwhile NR gets the discipline of having to deliver the returns promised by their professional input.
Currently they have got off scot-free from bungling the £6 billion electrification programme.

 

[yorksrob]

I quite agree that BR/Railtrack/NR performance does not inspire confidence in their management ability to deliver the returns.
But you could imagine some of the big ticket items being promoted/monetised/privatised, whatever the term used, to save HMG forking out the cost on the Public Debt.
It can then spend the money on things like hospitals and schools, without breaking the national bank.
Meanwhile NR gets the discipline of having to deliver the returns promised by their professional input.
Currently they have got off scot-free from bungling the £6 billion electrification programme.

The problem is, it's the things that people want to buy that subsidise the nuts and bolts of the infrastructure. You sell them off and get one big hit then it's gone.

Land developments are the easy sells, and it is suggested that these are sold off to the private sector to develop because "NR doesn't have the expertise to do this". Yet, if you do this, you inevitably sell before the developed value of the asset has been realised and lose the potential income stream anyway.

If NR requires the expertise to do this, it would be better for it to allow a developer to take a stake (20 - 25%) and for NR to retain the rest of the ownership. At least it would then get the income stream. With regards to stations and retail, this seems to already be a nice little earner for NR, so needs to be kept.

As for the body of the railway. Well, the majority of the income comes from track access charges which are never going to fluctuate wildly, so it's never going to provide exciting great profits for anyone, which suggests it's not suitable in any shape or form for equities. Any theoretical investment returns (if at all) are more likely to be the low, slow and steady type (like a Government bond), but even then, it's hard to see how a complicated Victorian infrastructure is ever going to generate more funds from access charges than it takes to upkeep and maintain, so sell-offs seem firmly in the bad category to me. Infact I seem to recall that this was the reason for Railtrack's reputation as a retail property empire with a railway attached.

I need to read the report in detail, but that might be a Sunday thing.

 

[LateThanNever]

HS1 has been "monetised" by selling a concession to Canadian investors (who seem very active in this area).
The same is in prospect for HS2.
IEP has been monetised (it's basically a PFI scheme).
Wherever a project has definite costs and benefits, with a definite return, there will be people to lend money for it (even the union pension funds!).

I quite agree that BR/Railtrack/NR performance does not inspire confidence in their management ability to deliver the returns.
But you could imagine some of the big ticket items being promoted/monetised/privatised, whatever the term used, to save HMG forking out the cost on the Public Debt.
It can then spend the money on things like hospitals and schools, without breaking the national bank.
Meanwhile NR gets the discipline of having to deliver the returns promised by their professional input.
Currently they have got off scot-free from bungling the £6 billion electrification programme.

I'll probably be unpopular but we must realise that the government not only uses Sterling, it issues (prints) Sterling. So they can do for the railways what they do for the banks. It's easier for rail infrastructure than many other areas because you get a commercial income.
It's not PFI but it is GFI (Government Finance Initiative).
So a National Infrastructure Bank could oversee the investment and get investment from pension cos and individuals and banks who would have a long term guaranteed (by the government, as they guarantee the banks) income and the electorate would end up with properly financed infrastrucure which would provide an end to the stop go of much of the current government eminated investment. Proper employment for people working on infrastrucure projects with a plan for the future! How different is that?
Provide pension funds with public debt - which they have said they do - it's ultra safe. Then the only public debt we need is on the import/export level. So we can create the money electronically in bad times - like now - and rely on pension funds (a la Canada) in better times for UK public spending!