Posted 2nd December 2008 | 1 Comment

West Coast modernisation: Counting the REAL cost of progress

AS Virgin’s new high frequency timetable launches on the modernised West Coast main line this month, a new book tracks the protracted – and for the taxpayer, hugely expensive – course of events leading to its introduction.

Professor Terry Gourvish, director of the Business History Unit at the London School of Economics, who has already produced two editions tracing the history of the nationalised British Railways, has now written a third volume looking at the first 10 years of railway privatisation.

Among the ever-changing scene of colourful and controversial personalities, privatised companies and franchisees, the book shows how the West Coast main line – originally planned as an upgrade, but later downgraded to a modernisation project – contributed largely to the downfall of Railtrack as the initial cost, £2.2 billion, soared to an estimated £13.2 billion.  

And if the usual contingency allowance required by the Treasury for major projects were to be added, the runaway cost of up-grading the WCML for Virgin Pendolinos to run at 140 mph would have been valued at £22 billion…about the price now estimated for a new high-speed line between London, Birmingham and Manchester.

In 1997, Virgin Trains’ then co-chairman Richard Bowker and then legal adviser Tom Winsor negotiated the modernisation deal, known as Passenger Upgrade 2 (PUG2) with Railtrack to allow for 140mph running.

Professor Gourvish’s book refers to both men later having conflicts of interest. Winsor went on to become rail regulator until 2004, while Bowker be-came chairman and chief executive of the Strategic Rail Authority from late 2001 until 2004.  
Under Bowker, the SRA ‘de-scoped’ and ‘de-risked’ the WCML project, while creating more track access for non-Virgin train operators, including freight – so reversing an earlier decision by Winsor. Even so, Virgin will still have up to 12 ‘paths’ an hour on the WCML from 14 December.

The final cost of the physical West Coast Route Modernisation, comprising a mix of renewals and enhancements, is now quoted at around £8.5 billion, (although a recent Virgin Trains’ press release put it at £9 billion).

But Gourvish’s book shows the wider cost over the past decade has been even greater, as the Government was forced to replace Railtrack with a not-for-dividend company, Net-work Rail, and bail out Virgin Trains to the tune of almost £1 billion – and face collapse of the original plan’s promise of “substantial premium payments from 2002/3 to 2012/13”.

Gourvish writes “in the two years to March 2004, overall support for the ‘profitable’ West Coast amounted to £517 million and to CrossCountry £448 million, a total of £965 million.”

Gourvish describes the situation between 2002 and 2004 as “a débacle” – and says its origins “lay in the over-optimism of the initial franchise bids (for CrossCountry and West Coast), the nature of Virgin’s contract with Rail-track for the WCML upgrade, and the late delivery of the new Pendolino trains”.

There were further problems for Virgin with the revised CrossCountry timetable – ‘Operation Princess’ – and for other franchise owners, including National Express whose nine franchises then included Silverlink and Central Trains, both of which made use of the West Coast main line.

Eventually, the SRA reined back the scale of the upgrade, and its costs, including lowering the maximum speed on the West Coast route to 125mph.

Gourvish says “the PUG2 deal, which Bowker had negotiated for Virgin, with Winsor’s help, had exposed Rail-track to considerable risk”.

Railtrack’s structure and culture after privatisation “left the company with…insufficient expertise in railway technology and project management at the top,” he says.

“Nowhere were the ‘legacy’ effects of this omission more evident than in the signing in 1997 of the ‘PUG2’ contract.”

At the time, John Edmonds, a former BR board member, was chief executive of Rail-track. Gerald Corbett, who succeeded Edmonds, recognised the ‘PUG2’ deal to have been a disaster “almost before the ink was dry”, says Gourvish, who believes that the deal contained the seeds of the problems which ultimately brought Railtrack down and materially damaged Virgin at the time.

Virgin’s two franchises went on to be operated under ‘management contracts’ with the SRA – but, says Gourvish, in 2003/4 and 2004/5 Virgin exceeded the budget for West Coast by £110 million and for CrossCountry by £68 million.

He also says Virgin was criticised by the SRA for taking a £22 million dividend from CrossCountry in 2003/4.

By July 2005, the Cross-Country franchise, which had been cross-subsidised from the West Coast franchise, was facing insolvency. Consideration was given to re-profiling the subsidy but the Department for Transport, which took over from the SRA, decided instead to re-let CrossCountry (it was awarded to Arriva from November 2007).

Today Virgin is left only with the West Coast franchise, which this month finally gets its chance to operate an intensive service of tilting trains on Europe’s longest, busiest mixed-traffic railway.

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  • Magellan, London

    It sounds like an interesting read. I wonder if it looks at the wider effects the project had on other engineering projects which were competing for Railtrack resources at the same time.