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London Underground happy with first private train deal

01 Jun 1997

Two years into the 400m lease-and-maintain agreement under which GEC Alsthom is building 106 trains for the Northern line, Richard Hope explains why London Underground expects a growing proportion of investment to be privately financed

WITH LABOUR replacing the Conservatives in the May 1 general election, plans to privatise the London Underground (RG 4.97 p197) have been aborted. This does not mean, however, that deep cuts in capital grant funding for London Transport imposed last November will be restored, as Labour is committed to respecting limits on public spending set in the November 1996 budget statement.

Setting aside the Jubilee Line Extension, which is partly funded by property developer Canary Wharf Ltd, LU's first major deal under the government's 1992 Private Finance Initiative was signed on April 7 1995. This provided for the complete replacement of trains on the Northern line by 106 six-car trains offering higher capacity and performance.

In fact, GEC Alsthom agreed to build and maintain sufficient new trains to provide a 25% increase in capacity on parts of the Northern line - once new signalling had been installed allowing 36 trains/h to operate reliably on the busiest section between Kennington and Morden. Payments, linked to performance measured primarily in terms of train availability, are spread over 36 years - if an option to extend the contract beyond 20 years is taken up.

A remarkable feature of the deal was that GEC Alsthom agreed to assume responsibility for the two depots at Morden and Golders Green where Northern line trains are stabled and maintained. Depot staff were transferred in November 1995 to GEC Alsthom Railway Maintenance Services Ltd, a subsidiary company set up with this project in view.

Since then, RMS has been responsible for maintaining and cleaning the 1959 and 1972 stock used on the Northern line, and making the specified number of trains available for traffic each day. LU makes a baseline payment for train provision, and RMS pays compensation in the event of train failure in service.

As John Harker, LU's Train Service Contracts Manager, explains, 'we did market testing for Bakerloo line train maintenance and cleaning in 1992 but the in-house team won it, so prior to the Northern line PFI we had experience of tendering but not of actually transferring a depot to outside management.' The new Stratford depot for the extended Jubilee line will also be managed by train manufacturer GEC Alsthom, through RMS, but this was agreed after the Northern line deal was closed. LU has three more service-provision PFI deals in the pipeline covering traction power, revenue collection and communications (panel, p12). The first, known as Power, is in the final stages of negotiation with the Seeboard Powerlink Consortium comprising Seeboard (a privatised regional electricity supplier), BICC and ABB. Valued at 200m to 300m, it would cover the supply of power to the Underground for 30 years, and require the consortium to take over LU's two power stations and distribution network.

Four consortia were shortlisted for the Prestige PFI deal, which involves the replacement of tickets coded with a magnetic stripe by contactless smart cards. Three withdrew last year leaving LU to negotiate with the TranSys consortium comprising Westinghouse Cubic, EDS, ICL Enterprises and WS Atkins.

Connect, a communications package covering an optic fibre network and train radio, is still at the bidding stage and no decision is expected before the end of the year.

There may be a short delay while the new Transport Secretary reviews the detail of the Power and Prestige deals, but both are likely to go ahead in the second half of 1997.

While Labour will replace PFI deals with what it calls 'private-public partnerships' the basic principle is unlikely to change much. In essence, LU contracts out investment and maintenance over a period corresponding to the probable life of the assets that its private 'partner' is expected to provide and install. Output is measured in terms of the service delivered. The risk that investment will be delayed or equipment will fail to perform as specified is thus transferred to the contractor.

Proposal came from supplier

Faced with a dearth of orders for new trains owing to privatisation of British Rail, ABB Transportation (now Adtranz) offered to supply and maintain Northern line trains in return for on-going performance related repayments late in 1993. After the Treasury had been persuaded that train suppliers could not be expected to assume more than a minority share in the revenue risk as well, the Transport Secretary (then John MacGregor) authorised LT on March 29 1994 to invite bids.

The fact that it took a further year to close the deal underlines the comment made by LT in its evidence to the House of Commons Transport Committee in February 1997 that 'PFI projects are complex and relatively new. Consequently, they take a considerable time from inception to agreement (eg 18 months to 2 years) and do not lend themselves to making prompt adjustment for annual changes in grant.' This is a reference to the fact that LU is currently funding some 200m of annual investment out of operating profit (gross margin) with the bulk coming from government as grant. PFI deals were originally presented by the last government as a means to bring in additional investment. LT still takes this view, saying in February that it regards them as 'supplementary to its investment funded through grant and gross margin contributions.

'By 1996, the government had started to treat PFI as a mechanism for replacing capital grants with future repayments out of gross margins. Thus its projection in November 1996 that LU's core investment (which excludes JLE spending) would 'average around 525m a year' to March 2000 included notional sums for Power, Prestige and Connect even though the outcome of these negotiations was still uncertain (left).

Economic efficiency goal If PFI were simply a matter of deferred payment it would undoubtedly cost the taxpayer more than capital grants. However, the theory behind such deals is that giving the contractor flexibility to design trains for minimal whole life cost, and making him assume the risk of failure, would lead to greater economic efficiency overall.So far so good seems to be the verdict to date, notwithstanding the fact that delivery of the trains has slipped by several months.The first train arrived in December 1996, and after a programme of tests elsewhere was expected to begin trials on the Northern line on May 15; it is due into service in September, and the last of the old trains should be replaced by January 1999.The good news is that RMS is achieving and sometimes exceeding availability and reliability targets for the 1959 and 1972 stock despite the fact that it is having to remain in service longer than had been planned. Current targets are based on levels previously being achieved by the two depots under LU management.Once the new trains come in, RMS has to make up to 96 six-car trains available each weekday and hit a reliability-in-service target that is much higher than at present. Income from train delivery is reduced when the reliability target is missed, as trains not available are not paid for. RMS receives no bonus for being able to beat the target - the choice of building 106 trains was a commercial decision taken by GEC Alsthom, not LU.Harker says RMS 'took over the two depots very successfully and people seem to be happy.' He accepts that 'the 1959 stock is at the end of its design life and deteriorating rapidly ... the delay means that RMS has to work that much harder.'In fact, had the PFI not gone ahead, Northern Line train replacement would not have occurred until 2005-06, with the 1959 stock being refurbished to extend its service life to 45 years.Shorter trainsWhile the new trains are similar in many respects to the new Jubilee line fleet (RG 1.96 p30), the AC motors are powered by insulated-gate bipolar transistors instead of GTO thyristors. One advantage is that IGBTs operate at higher frequencies and immunisation of signalling is therefore less of a problem.Six-car trains were dictated by the short tube station platforms. The seven-car trains currently project into the tunnel at each end, a practice that HM Railway Inspectorate would not be willing to see continued with a new fleet. Harker says there will be no loss of capacity, even at existing headways of 27 trains/h, because of the high density layout and replacement of two intermediate cabs by a locked panel for use in depots. The cars are also slightly longer.Safety is enhanced by better crashworthiness, and security by internal video recording if the alarm handle is pulled. Automatic announcements during stops will advise the name of the next station and the train's destination and route, which can vary. The Northern line is the last on the LU network to have guards, so driver-only operation will be universal from early 1999.Peter Campbell of the Northern line development team points out that LU has had to fund restoration of minimum standard clearances in a number of places. Although the Northern line cars are built to the standard tube profile (which is slightly smaller than the Jubilee stock), 'the tunnels have distorted in places and we are restoring those sections where they no longer meet the gauge.' Some sections were opened almost a century ago, although the original City & South London portion (the world's first deep tube dating from 1890) was enlarged in the 1920s.In fact, the 400m generally quoted as the capital value of the Northern line trains deal in net present value terms excludes a further 120m of conventional investment by LU. Apart from clearances, this covers immunisation of the existing signalling by replacing some track circuits, upgrading traction power supplies, and track work required to meet standards specified in the PFI deal for the trains. All this is due to be completed 'before we get the full complement of new trains', according to Campbell.Modernisation phasedWhile the early arrival of new trains will certainly benefit passengers, an unfortunate consequence of the PFI deal is the way it has forced LU to phase upgrading of the Northern line over a decade or more instead of renewing trains, track, power supplies and signalling simultaneously in order to elminate wasted work. In fact, some ancillary works were included in the PFI deal and are therefore the responsibility of GEC Alsthom. 20m has been spent on upgrading the depots to enable them to handle the new trains efficiently. Expansion of overnight stabling sidings at High Barnet, Highgate and Edgware is not in the PFI deal, but forms part of the enabling works carried out by LU. RMS is responsible for putting trains into service from these points. The location of inspection and cleaning work is a matter for RMS to decide.GEC Alsthom is also charged with procuring and installing any lineside equipment which forms part of a system that is partially on the rolling stock. The list includes: in-cab CCTV for viewing platforms during door operation by the driver, upgrading the present VHF train radio prior to a new UHF system being introduced, and 'right-side door enable' which prevents doors opening on the non-platform side.Train control packageStill to come - when LU can find the money - is Phase 2 of the whole project. The most important element will be complete replacement of the existing two-aspect colourlight signalling with a train control package that may take the form of a 'private-public partnership' - or whatever the favoured term may be three years hence. LU will assess conventional capital funding options as well as PPP/PFI options.Signalling is likely to be transmission-based with a new control room constructed to replace Cobourg Street, which was built in the mid-1960s for the Victoria line. In line with LU policy, ATO will be specified for the new train control package. Harker says it will be up to the supplier to make proposals in line with the performance specification.To match the GEC Alsthom train service contract, the signalling must support a reliable flow of 36 trains/h between Morden and Kennington within a specified journey time. The contractor will doubtless be expected to maintain the equipment within a framework of performance standards, which means that he assumes the technical risk.Track and stationsPhase 3 covers comprehensive upgrading of track, structures and stations. The PFI trains contract defines a minimum standard of track that they will be expected to run over without GEC Alsthom being able to claim compensation for extra maintenance costs or damage to the bogies. This has been achieved under the 120m Phase 1 works now nearing completion. There are ten stations on the southern leg, refurbishment of which is complete at Balham, Clapham Common and Clapham South, with four more to be completed in 1997-98 (Clapham North, Tooting Broadway, Tooting Bec and Oval). Cutbacks in grant funding have forced LT to defer refurbishment of three stations (Colliers Wood, South Wimbledon and Morden) until 2001, while work on other stations, such as Kennington, has been postponed indefinitely.A price to payWhile LU is quite willing to press ahead with PFI/partnership deals in an effort to improve efficiency and close the grant funding gap, Campbell notes that a great deal of effort was required to secure the Northern line PFI deal. However, 'this has allowed the acceleration of our investment programme, which would not have been possible otherwise.'Harker points out that there are technical problems too, despite the design responsibilities and risk transferred to the contractor. There are still interfaces to be watched, and performance specifications are not as simple to write as some people assume ... 'you have got to create a jigsaw puzzle with pieces that fit, and make sure you don't get caught out somewhere in the middle.'oLU PFI deals in progress Equivalent investment Deal signed 1995:Northern line trains plus maintenance 400mDeals for decision in 1997:Power generation and distribution (Power)Ticket sales and checking (Prestige)Radio and optic fibre communications(Connect)Combined total 400m to 600mInvestigation and Assessment:East London line extensions 120mPiccadilly line extension to Heathrow Terminal 5 70mCroxley Link 25mEscalator renewal and maintenance (LU has 303) -Northern line modernisation Phases 2 and 3 -District line, refurbished trains -Victoria line, new trains -Wembley Park, rebuilt station -Upgrading of track -Government estimates of core investment funding available to London Underground 1997-98 1998-99 1999-2000 TotalsPFI projects1 247m 124m 104m 475mOther sources 345m 314m 436m 1 095mTotals 592m 438m 540m 1 570m1. Northern line trains, Power, Prestige and ConnectOne of the first trains for the Northern line stands on the test track at GEC Alsthom's Metro-Cammell works. Power for test running is delivered from a skate running along an overhead railGraph showing net adverse impact of Northern line PFI deal on LU's Gross Margin to 2006-07. (data from LT memorandum to the Transport Select Committee)Trains for the Jubilee line are also being built by GEC Alsthom at its Metro-Cammell works in Birmingham, but they are likely to be the last substantial build to be owned outright by LU