The revenue model for the Wales and Borders franchise, as with all rail franchises across the 海角视频, has collapsed due to the Covid-19 pandemic with passenger numbers initially down more than 90% and prior to the latest two week ‘fire breaker’ restrictions had only got back to around 30%.
Transport for Wales, the Welsh Government’s transport body, which awarded the 15-year franchise to KeolisAmey – a joint venture between French global transport firm Keolis and Spanish infrastructure consultancy firm Amey — in 2018, has already provided £60m in emergency support for the franchise since March.
And with the Welsh Government continuing to provide a public subsidy for rail in Wales of more than £200m a year (all 海角视频 franchises receive subsidies), the thinking would have been why pay even pay a management fee to KeolisAmey when it could bring day to day running of the Wales and Borders franchise under public control?
In England, through now extended for a further 18 month Emergency Measures Agreements (EMAs) the 海角视频 Government, has taken on the revenue risks while paying the train operating companies a flat management fee of around 3%, with some scope for more based on performance. This is effectively nationalisation.
The Welsh Government has gone much further than the 海角视频 Government by putting in place a much longer-term new publicly-owned rail operating arrangement (through a new subsidiary of Transport for Wales). In a post Covid environment this will allow it to fully align rail services with economic development policies, and with bus services too, with the aim of reducing car journeys and carbon emissions.
Pre-Covid, with some carrot and stick based on performance, KeolisAmey could have expected to have generated around a £15m a year margin from running the franchise, which also includes services across the border into England.
Under a flat management fee that would have been reduced even further. Now KeolisAmey will not get anything and is effectively handing back day to day rail operations in Wales to the new publicly own entity, which will be operational from next February.
Only last month chief executive of Keolis in the 海角视频, Alistair Gordon, was publicly saying it had no plans to hand back the franchise, but this pandemic and its economic fallout means that things can change, and quickly.
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However, this is strictly not a nationalisation of the franchise, but the enacting of the condition of the operator of last resort – with the Welsh Government the legal backstop to ensuring continuity of rail services.
In theory it could put the franchise out for tender again, but that is extremely unlikely in the current climate, despite which the current 海角视频 franchise model was already set for a major overhaul prior to the pandemic through the work of the yet to be published Williams Rail Review.
Staff
The 2,500 staff working for KeolisAmey, through the Transport for Wales Rail Services banner, will transfer to the new stand alone publicly-owned day to day rail operating company.
This will not be an issue. Don’t forget that the most of the current staff were transferred over to KeolisAmey having worked for the previous operator of the Wales & Borders franchise in Arriva Trains Wales.
The Metro project
Through a separate infrastructure company, KeolisAmey will continue to deliver the next phase of the Metro project, with electrification of the Core Valley Lines into Cardiff, as well as the Coryton and City Lines in Cardiff. That project, for which Transport for Wales has requested HMRC to exempt from VAT, has a ring fenced budget of £738m (including 20% VAT).
The Metro is being delivered by a joint venture company, called AmeyKeolis Infrastructure.
The projected profit margin for delivering electrification of the Valley Lines is not impacted by the franchise operational changes.
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The Welsh Government, longer term, wants to see the Metro extended, as well as similar integrated transport Metros for Swansea Bay and North East Wales, with early stage thinking also around improved public transport in North West Wales. Both Keolis and Amey could be involved in extensions and new Metro projects, although they would be expected to go through procurement processes.
New trains
New rolling stock across the Wales & Border franchise, including new tram-trains and trimodes, which can switch between electric, diesel and battery mode, for the Metro, are on order. The financing of the new rolling has been met by Keolis, a contractual agreement that will remain in place.
What is already nationalised
While train operating firms through franchises have made profits, and in fairness shouldered risk too, the railways in the 海角视频 are in public ownership.
In Wales that means that the Department for Transport, through Network Rail, is responsible for the maintenance and the upgrade of the publicly-owned rail network.
However, in March, in a complex deal, the Core Valley Lines, part of the City Line and the Coryton Line, were devolved to the Welsh Government, to allow it carry out, via KeolisAmey, the next phase of the Metro.
The Welsh Government continues to push the case for the whole rail network to be devolved, with a funding deal that takes account of several billion pounds of under investment in rail enhancement projects going back several decades.
Last month Transport Secretary Grant Shapps, announced £343m rail enhancement projects in Wales in the current five year spending period up to 2024. However, Economy and Transport Minister Ken Skates, in a letter to his 海角视频 Government counterpart, said that there was little new in the funding and that by 2029 Wales is facing a multi-billion pound underspend.
From 2001 to 2029 the Welsh Government has calculated £100bn invested, or commitments to invest, from the 海角视频 Government on rail enhancement projects including those by Network Rail, as well as Crossrail in London and the high speed two project from London to Birmingham, before it reaching cities in the north of England.
It said the most generous spend in Wales is put at £2.2bn, which includes a £755m Barnett consequential from a Department from Transport increase in its overall budget in 2015.
Based on 5% of the population of England and Wales, this it says represents an estimated underspend of £2.9bn, but which rises to nearly £8bn based on Wales having 11% of the England Wales rail network.
Over the same period (2001-29) the Welsh Government has invested or is committed to spend £1bn in rail projects in Wales. Although not a devolved spending matter, it can do so.