Official Government figures have shown that private sector investment in rail dipped from £3.79 billion in 2004-05 to £4.59 billion in 2005-06. At the same time, government investment in rail increased from £3.79 billion in 2004-05 to £4.59 billion in 2005-06.

Transport union TSSA said the private sector figure was a cause of concern, particularly at a time when the future of East Coast Main Line operator GNER was in doubt because of the financial problems of its Bermuda-based parent company, Sea Containers.

TSSA general secretary Gerry Doherty said: "It should be a great concern to Government that the private sector appears unwilling to deliver stable investment flows for building the 21st century rail network that our economy needs."

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Capitalising On Private Investment

International Railway Journal: September 2006
David Briginshaw, Editor-In-Chief
 
THE news this month that French Rail Network (RFF) is considering public-private partnerships for future rail investment projects and the British government’s decision to approve only half of Manchester’s plans to expand its light rail network, are indicators of the increasing difficulty that governments face in trying to fund capital projects. It is timely, therefore, to consider the roles that governments and the private sector should play in railway investment schemes.

Investment in the construction of new lines is rarely made to enhance the profitability or financial performance of the railway or transit operator concerned because of the sheer scale of the project and because it is often a means to an end.

Most of Europe’s high-speed rail network is being funded publicly because the cost is so high that there is little chance of earning sufficient revenue to pay back the investment, and because most governments realise that such schemes have much wider economic benefits.

The same is true of other major projects such as the huge new tunnels being driven under the Alps in Switzerland. The Channel Tunnel should be a dire warning to any government that believes a major railway infrastructure project can be funded entirely by the private sector. Eurotunnel has now been granted protection from its creditors while it tries to find a way to pay off its crippling debt burden, but the prospects for this look bleak.

There are certainly opportunities for the private sector to fund projects, such as the construction or redevelopment of a station if the work can be linked to be a commercial property development.

The big challenge comes when a government or railway tries to get the private sector to fund a project that is unlikely to make a profit. Experience so far paints a stark conclusion: transferring risk to the private sector will increase the cost of the project. The British government fell foul of this. The cities of Leeds, Liverpool, and Portsmouth spent many years and several million pounds planning light rail networks, while Manchester had its big-bang expansion scheme.

Britain’s Department for Transport played a long “cat-and-mouse game” with the cities trying to get them to secure financial contributions from contractors while keeping the overall cost within a set budget. Unsurprisingly, costs increased as risk was transferred to the private sector which had already had its figures burnt with earlier light rail projects in Britain, such as Croydon Tramlink. The schemes became unaffordable in the government’s eyes, and only Manchester was allowed to proceed with a cut-down version of its original plan. Frustratingly, the money wasted on planning the aborted projects would have been sufficient to build several kilometres of new line.

The question has to be asked: what is the purpose of a new light rail line? Is it to reduce traffic congestion and pollution, and regenerate the city, or is to make money? Dublin’s Luas light rail network has been so successful that the subsidy set aside by the Irish government to cover expected operating losses will not be needed. But the operating profit is far too small to make a dent in the capital cost. Nevertheless property developers near planned extensions are now willing to contribute towards the cost of building them. But this is after the first two lines have demonstrated their success in attracting passengers, and the developers will not shoulder any of the risk.

France is Europe’s largest investor in light rail as more and more cities recognise the ability of light rail to get people out of their cars—something which buses rarely achieve. The French also use the opportunity to revitalise their cities, often to striking effect.

Unfortunately, too many politicians are happy to waste large amounts of money and time trying to put together financing packages that are so convoluted and expensive they make the project unaffordable, or doomed to failure. Politicians must not lose sight of the real long-term benefits of investing in rail. They must learn how to use the resources of the private sector to best effect.