2016 was a busy year for rolling stock procurement. Among the year’s headline announcements were large new fleet orders coming in for the Northern, TransPennine Express and Greater Anglia franchises.
Shortly before the end of the year, Merseyside added its name to the list of regions that will now receive new trains after Swiss manufacturer Stadler beat off rival bidders to secure a £460 million contract to deliver a new fleet of 52 electric multiple units by 2020-21 (RAIL 817).
But this was an order with an added twist. Instead of a train operating company (TOC), rolling stock company (ROSCO) or the Department for Transport (DfT) leading the procurement process (as has been the conventional route since privatisation in 1995), it is the Combined Authority of the Liverpool City Region itself that is calling the shots, via its Passenger Transport Executive Merseytravel.
This unorthodox strategy of public sector intervention was borne from the devolution deal struck with the DfT in 2002. This granted full franchising authority to Merseytravel and placed the Merseyrail concession outside of the national franchising system, handing the City Region unrivalled freedom to decide on matters relating to its operation.
In July 2016, RAIL outlined to what extent Merseytravel has exercised this rare localised autonomy, to shape an impressive transformation of a once run-down network notoriously dubbed ‘misery rail’ by its long-suffering users (RAIL 804).
In partnership with Merseyrail Electrics, which has operated the Merseyrail concession since it was handed a 25-year contract by Merseytravel in 2003, more than £40m has been spent on sprucing up and renewing the dingy 1970s decor of the network’s five city centre stations. A similar amount has been spent on refurbishing the ageing fleet of Class 507s and ‘508s’, which entered traffic from 1978.
Yet despite this significant investment, acquiring new trains has long formed the cornerstone of Merseyrail’s bespoke improvement plan, to facilitate ever-rising passenger numbers and Merseytravel’s ambition to have the most accessible network in the country. It is also a key priority of the City Region’s Long Term Rail Plan, published in April 2014.
“Looking at the average age of fleets per TOC, we stick out like a sore thumb,” says Merseytravel Rolling Stock Project Director David Powell, who has overseen the EMU procurement process since it began in October 2015.
“The only operator with an older fleet is Caledonian Sleeper, who are, of course, getting new trains. But nonetheless our current fleet continues to serve us very well, so there isn’t a sense of ‘just because they’re old they must be appalling’… because they’re not.
“We are routinely top of Which? rail satisfaction surveys, and score highly for punctuality and reliability with Transport Focus . But we wanted our fleet to be safer, faster and able to carry more passengers, and future-proofed to enable our railway to expand.”
Also breaking from conventional train procurement is Merseytravel’s decision to own the trains itself - it prefers to directly lease them to Merseyrail rather than its current arrangement involving Angel Trains.
This might seem an unnecessarily expensive decision, given that the City Region must now source almost £500m to bring the new fleet into public ownership, but Powell stresses that it will pay dividends in the long term.
“The management of the railway is devolved to us. At the moment we have an arrangement where we lease the current Class 507 and ‘508’ trains from Angel Trains and then lease them in turn to Merseyrail. That deal works fine, but we wanted to look at lots of different ways we could construct the deal differently. We looked at the pros and cons of owning the fleet instead, and it is a very efficient way of doing it.
“That was a big decision, but it means you can start to look at procuring a train that works specifically for your network. There’s no need for us to think about cascading it around the country and making these ‘go anywhere’ units that can be used by lots of different operators.
“This potential to customise what we’re buying to meet the specific needs of our network then becomes a reality, and that’s been a pretty significant part of our procurement. We understand it could potentially bring cost in as well, but value for money for the public purse has been thought about through all of this, and the economics that underpin it are very efficient.”
Funding became an even bigger challenge for Merseytravel following the City Region’s decision to bar any raids on local council taxpayers or fare-paying passengers to increase locally raised revenue, meaning that an alternative formula had to be found.
Most of the cash will therefore be found from the Liverpool City Region Combined Authority’s external borrowing facility, which recently yielded a £190m low-interest loan from the European Investment Bank for this purpose, while anything else will come from what Merseytravel describes as “self-financing”. It calculates that the capital outlay will eventually be recouped from lower energy and maintenance costs than those required by the older trains that are being replaced, and through the 2.5% annual growth in passenger numbers that the new fleet will be better equipped to handle.
‘Tax take’ is also expected to increase across the City Region, and find its way back to local authorities by other channels stemming from the economic stimulus that will be provided by the fleet (it can carry 60% more passengers than current units, and will shave 10% off journey times thanks to superior acceleration and braking technology).
“This will improve people’s ability to move around the city quickly, and there’s a big increase in capacity which creates potential for the railway to grow,” adds Powell.
“We’ve had this assessed by economists, and their view was that this is worth an extra £70m per annum of GDP for the City Region and will lead to the creation of 1,000 new jobs. If you invest £460m that’s what you get back, which is a pretty healthy equation.
“The red lines I was given (for raising capital) put us in quite a challenging financial environment, but we’ve been able to work the business case through so that over the course of its life these units are self-financing. That’s done through a combination of reducing the cost of maintaining and operating them, and we believe that providing a faster, higher capacity and more attractive environment will provide a significant amount of additional patronage.