Isn't it also because they can borrow money cheaper? Although maybe the TOCs▸ shouldn't need to borrow much money because they are so thinly capitalised. The serious borrowing is done by the ROSCOs» , and it is scandalously stupid that we have the current situation where the government specifies the new rolling stock (think Intercity Express) and who should use it and then steps aside and gets a private firm to arrange finance for it. Private firm then goes to bank and bank offers a private firm a higher rate of interest than it would offer to HMG.
Nice work if you can get it, this ROSCO business. You are told what to buy, and who to lease it to. There is never any leftover stock. You can charge what you want, aiming for a return on investment well above the normal rates, because you can rely on the fiction that you need to recover the capital cost of the stock during the lifetime of the franchise, not over the lifetime of the asset. Dividing the cost of a train by the 15 years of a franchise gives double the return that dividing it by the 30-year life does, and you still have the train to rent to the next franchisee. After refurbishment no longer works, as should happen soon with Pacers, you can flog them to some emerging country overseas, where they will seem ultra-modern.
At the time of privatisation the decision to adopt a leasing structure for passenger rolling stock reflected trends in the transport industry generally (think aircraft leasing for example) and answered a long-standing criticism that public sector spending restrictions had limited investment in rolling stock. There were three main reasons underpinning the decision:
- separating train ownership from operations would drastically reduce the barriers to entry facing a potential franchisee by limiting the amount of capital required to acquire a TOC
- it enabled franchises to be let for periods much shorter than the life of the rolling stock, allowing regular competitive tendering for the TOCs
- as the ROSCOs were outside the public-sector spending limits, they would be free to invest.
Your contention that the ROSCOs aim to recover the capital cost of new trains within the lifetime of the first franchises is disingenuous. The period over which assets can be amortised varies with the type of asset and the current legal and financial frameworks - from 3 years for a computer to 50 years or more for civil engineering structures. 15 or 20 years to write off a train seems about right in view of the increasing number of unknowns the further into the future one goes. It is quite possible that, for example, existing diesel trains may be unusable after, say, 2035 because of changes in emission or noise regulations or the price of fuel even if the basic vehicle structure is good for another 15 years. It's all a question of trying to balance risks - and the further ahead the more difficult it gets. These risks do exist and are priced into the leasing costs.
All prediction is difficult - especially about the future.
BR▸ , of course, didn't include such risks in its financial reporting - but the risks and the costs still existed. The classic example is the continued building of steam locomotives when they were already obsolescent - the costs of the abrupt change of course were not carried by the railway but by the taxpayer.
Apart from the original three ROSCOs, there have been other entrants into the market. For example the Voyagers are owned by a specialist company set up for the purpose (the Class 222s are however owned by Eversholt) and Beacon Rail owns the Class 68 diesels and will own the Class 88 electrics when they are delivered.
The
IEP▸ /
SET▸ and Thameslink procurements fall outside this framework completely. In the case of the SET the assets are owned by Agility Trains (a joint venture but with Hitachi owning the lion's share) and will be supplied to the TOCs by two subsidiary companies Agility Trains West and Agility Trains East. The
DfT» has
not ordered any trains nor has it transferred any trains to the ROSCOs - it has contracted for a number of operational diagrams based around a nominal future timetable. This contract will be transferred to the selected franchisee, but the train service provision payments will be guaranteed by the DfT.
With the current model of letting franchises with very detailed requirements, the DfT does effectively control the number of trains a franchisee can operate (and in the case of the Invitation to Tender for the next Northern franchise has essentially defined the the make up of part of the fleet). However the bidder can negotiate with the train builders and ROSCOs for any new stock and will build these quotes into its bid. A partial exception to this is the procurement of the interim Thameslink trains by Southern which has essentially acted as DfT's agent because of the delay in the signing of the train service provision contract with Siemens as Siemens tried to raise the capital to cover the design, development, and manufacture of the trains and the costs of the depots.
Trains are expensive - not only in capital cost but in on-going maintenance and safety checks so it is not surprising that there are few spare trains available. On the other hand the DfT was slow to react to the growth in passenger traffic and found it difficult to re-negotiate the franchise deals to allow the franchisee to acquire more trains. One hopes that now as the financial support to the TOCs (taken as a whole) is tending to zero, because of the increase in revenue due to a combination of increasing number of passengers and higher fares, the TOCs would have more freedom in procuring trains. I would suggest that the order for the Class 707 Desiro Cities by
SWT▸ is a harbinger of the future - SWT pays a premium of some ^450 million a year to the DfT and this procurement did not seem to suffer the delays which have been seen in the past - and the recently let deals for Scotrail and TSGN.
The profits made by the ROSCOs are not excessive. Eversholt, for example, manages assets worth about ^1.5 billion and has an annual turnover of around ^90 million. It made a profit before tax of about ^13.5 million, paid ^3.5 million in income tax and finished with a profit of about ^10 million. Seems about par for the course.
And finally(!) which trains, apart from some Pacers sold to Iran and some Mark 2 coaches sold to New Zealand, have been sold abroad? Why would anyone 'abroad' want to buy stock to the restrictive
UK▸ loading gauge when they can buy full size trains from any other railway in Europe? It's a straw man argument.
