GB RAIL TIME FOR CHANGE?

Transcription

1 DB Symposium on Competition & Regulatory Affairs Berlin GB RAIL TIME FOR CHANGE? Ian Dobbs Deputy Chairman, RVfM Study 27 January 2011

2 Value for money Terms of Reference 1. To examine the overall cost structure of all elements of the railway sector and to identify options for improving value for money to passengers and the taxpayer while continuing to expand capacity as necessary and drive up passenger satisfaction. 2. In particular, to examine: what legal, operational and cultural barriers stand in the way of efficiency improvements; the incentives across different parts of the rail industry to generate greater efficiency; the role of new technology, processes and working practices in fostering greater efficiency; ways of generating more revenue, e.g. car parking, gating at stations, better utilisation of property; and to make recommendations. 1

3 Value for money Terms of Reference (cont d) 3. The study will examine the whole industry costs and revenues and their composition. In doing so, it will look at comparable industries in the UK and abroad. 4. The Office of Rail Regulation will be a joint sponsor of the study. ORR will remain responsible for delivering efficiency improvements by Network Rail and for safety regulation. The study should look at the benchmarking work the ORR did for the current control period targets that it has set. 5. The work will divide into a scoping study and a detailed report, the former to be completed by the end of March

4 What is the RVfM Study finding? 3

5 What is the RVfM Study finding? An industry that, in many ways, has been performing well: Volume growth Safety Punctuality Investment Customer satisfaction BUT Unit costs have increased, rather than decreased; and The level of public subsidy is unsustainable 4

6 Revenue and patronage are up % +59% % +11% Revenue Pax Pax-km Train-km Rev per pax-km 5

7 Performance has improved 95 P P M - % of tr a in s on tim e

8 Safety has improved P e r b illio n p a ss k m Killed Injured 7

9 Total passenger rail expenditure has increased significantly, largely as a result of increased capital spending CAGR% 96/97-08/09 bn Increase 96/97-08/09 bn prices Total: Train operating costs* Infrastructure opex and maintenance Infrastructure enhancements ROSCO charges Infrastructure renewals Notes: * excludes Network Rail access charges and ROSCO charges 8

10 Unit costs are little changed despite large increase in patronage per pax-km Pax-km Operating Maintenance ROSCO costs Other TOC costs Renewals Enhancements Pax-km 9

11 But government subsidy has increased substantially Privatisation (includes proceeds from privatisation sales) % 50% 40% 30% 20% 10% 0% 10 b prices Passenger revenues Government subsidy LCR capital grant % of total cost* Source: National Rail Trends Table 6.2a, 6.2b and 1.3 Note: * Excludes LCR capital grant

12 How are we organising the Study? 11

13 Areas of Study A. Industry objectives, strategy and outputs B. Industry leadership, planning, and decisionmaking C. Interfaces, incentives and structure D. Revenue E. Asset management F. Supply chain management G. Innovation, standards and safety H. People 12

14 Timescales View today June July August Sept Oct Nov Dec Jan Feb March April Evidence Gathering Phase 1 Phase 2 Solutions Development Implementation Planning Dialogue with Government and Industry Workshops Second Cross Submissions Industry Workshop First interim submission Third Cross Industry Workshop Final Study Report 13

15 Reducing Costs, increasing VfM 14

16 The GB rail cost problem The problem for Government Public subsidy for rail 5.5 billion The problem for passengers High fares The problem for taxpayers High subsidy THE ROOT CAUSE HIGH COSTS IN GB RAIL GB costs per Train km are relatively high GB costs per Passenger km are relatively much higher 15

17 Cost to Government of Rail Sectors Long-distance franchises London and South East franchises Passenger miles (bn) Net cost to Government Pence per Passenger Mile m m 4.8 Regional franchises 6.0 1,873m 31.1 Long distance franchises London and South East franchises Regional franchises 7.3p per passenger mile 4.8p per passenger mile 31.1p per passenger mile 16

18 Why did the structures set up at Privatisation not deliver the efficiencies required? Train Operators found Revenue Growth a much easier and more profitable option than Cost Reduction Railtrack as a concept was not a success In recovering the situation post-railtrack, Network Rail needed to spend a lot more money The ways in which train was separated from track & the introduction of multiple actors & contractual interfaces in the industry has given rise to complexity, constraints and a LACK OF FLEXIBILITY Incentives have not been sufficiently strong or aligned between players, indeed some players have been set against each other There has been a notable lack of industry leadership in recent years, leading to incoherent strategy & a lack of cohesion 17

19 No silver bullet 18

20 Can major reductions in costs be achieved? In any activity, cost savings can always be made GB Rail is no exception HOWEVER Pre-requisites for cost reduction need to be in place e.g. Leadership from the top Clear objectives Right values Good financial information Culture which continually questions status quo Structures that help drive cost reduction Incentives that encourage cost reduction Constancy of purpose 19

21 Some areas where solutions might be found Clarity and alignment of high-level objectives Roles of Government and Industry Improved planning and decision-making Focus on costs and cost reduction Leadership from Government and Industry Industry structures which assist cost reduction Stronger, better aligned, incentives to reduce costs 20

22 Some areas where solutions might be found (cont d) Reform of franchising Standards, safety, innovation Major improvements in Asset management Programme & project management Supply chain management HR management Whole system approach to asset & programme management People productivity 21

23 Industry structures which assist cost reduction Move from silos to partnering Study s current direction of travel: 1) Devolution/decentralisation within Network Rail (NR), compatible with running a safe and effective network 2) Contestability within infrastructure services 3) Alignment/partnership between NR and TOCs 4) Safeguards for freight and open access operators 5) One size does not fit all 22

24 23

25 Other value adding areas Property income Ancillary income Stations management Franchise reform Fares reform - Level of fares is primarily a decision for Government Possible scope for fares reform Possible scope for fares de-regulation Scope for point of sale reform Demand management 24

26 Safety, Standards & Innovation 25

27 Safety, Standards & Innovation a model National/ European S&S Regulation Interpretation Standards Context Society Industry Structure Expectations Req ts S&S Governance Feedback Targets Spec & Design Req ts Feedback Acceptance and Implementation Innovations Implemented Safe, reliable and cost efficient Rail System Culture and Behaviour Perceived Actual Industry Response Performance Achieved Context Sector Industry Outcome 26

28 Safety, Standards & innovation - barriers Inconsistent standards regime National/ European S&S Regulation Conservative interpretation Standards Context Inconsistent Fragmented expectations industry structure Media profile Perceived Reqt s S&S Governance Actual Fear of Prosecution Lack of challenge Inconsistent goals Fear of Media Loss of reputation British Rail legacy Lack of clear reqts and acceptance criteria Spec & Design Lack of challenge Acceptance and Implementation Risk aversion Lack of commercial incentive Culture and Behaviour Industry Response Slow/non - implementation of cost saving Innovations Safe and reliable but costly Rail System Performance Achieved Context Sector Industry Outcome 27

29 Context Fragmented industry structure Media profile Perceived National/ European Safety, Standards & Innovation possible initiatives Inconsistent expectations Consolidation of standards ownership, create systems and standards body Translate research into de - risked technology demonstration S&S Regulation Reqt s S&S Governance Actual Fear of Prosecution Lack of challenge Inconsistent goals Fear of Media Loss of reputation British Rail legacy Conservative interpretation Performance Achieved Inconsistent standards regime Standards Lack of clear reqts and acceptance criteria Spec & Design Standards unification and guidance Lack of challenge Acceptance and Implementation Risk aversion Lack of commercial incentive Culture and Behaviour Industry Response Improve acceptance processes Slow/non - implementation of cost saving Innovations Accelerate promising operational and technology projects Safe and reliable but costly Rail System Change safety leadership and goal setting, new guidance and education Context Sector Industry Outcome 28

30 On-going work 29

31 On-going work programme Capacity management and utilisation Rolling stock Cross-industry information systems Asset ownership Regulation Legislation (if required) Fares policies Franchise specifications Quality of service (punctuality, overcrowding) Demand/capacity balance Subsidies and what they are buying How affordability is assessed 30

32 Implementation Not yet addressed in any detail, but some thoughts emerging: A well developed plan for transformational change Buy-in from Industry, Government, ORR etc a powerful guiding coalition Effective leadership from the top An independent, and adequately resourced, Change Agent to drive implementation in the early phase Progressive transition to the permanent governance arrangements Effective leadership from the top Transparent reporting of progress 31

33 Implications for the Rail Industry 32

34 Implications for the GB Rail Industry Opportunity to remove a lot of barriers Substantial degree of change is likely The key is getting the various players working together more effectively (partnering) - Government / Industry / Regulators Network Rail / TOCs & FOCs Procurers / Suppliers Industry / Workforce Costs have to be reduced substantially (Plan A) The only alternative would be less investment and a radically smaller network (Plan B) 33

35 GB RAIL TIME FOR CHANGE 34