VTEC “bid too much”
Transport Secretary admits DfT mistakes in the East Coast franchise, and suggests VTEC won’t last to 2020.
SECRETARY of State for Transport Chris Grayling says he does not expect the current Virgin Trains East Coast franchise to last until 2020, telling MPs that VTEC was “overambitious in what it thought it could deliver in terms of its marketing” - and admitting Government mistakes.
Asked at a Transport Select Committee hearing on January 22 why the franchise was struggling, Grayling said: “In the case of VTEC, there is not much of a commuter base - I think they were just overambitious in what they thought they could deliver in terms of their marketing.
“This is not a failing railway, but it has not met very ambitious revenue forecasts. The problem is that it bid too much.”
But he admitted Government got it wrong as well, saying: “This is a franchise which clearly we haven’t got right, the company hasn’t got right - it’s extremely frustrating.”
Grayling told MPs: “As of today, there is no change in contractual arrangements. We have been putting in place contingency plans - hence the East Coast Partnerships.”
He said taxpayers would continue receiving premium payments from the franchise after 2020, warning: “I have no intention of protecting operators at all. I will fulfil my contractual obligations to the letter. There is no question of bailing anyone out. VTEC will be held to every last inch of that contract.”
Challenged on whether other operators on the East Coast Main Line would be protected from discrimination, Grayling confirmed that the Department for Transport is working with the Office of Rail and Road to assure this.
“Am I happy with the current East Coast situation? Not at all,” he said.
Grayling pointed out to the committee that the franchise is currently fulfilling all of its contractual obligations. Referring to NR’s capacity enhancements, he said that “the franchise difficulties are way before we get to that point”.
He explained VTEC majority shareholder Stagecoach has supplied a £165 million capital bond, some of which has been drawn on. To date, Government has received £860m in premium payments from the franchise.
Asked why the franchise had run into difficulty, he said: “The reason that this franchise has run into difficulties is about revenue that it has received, and the fact that it has used up more than half of the parent company capital bond. The issues are entirely due to revenues received or not received.
“The reason we are dealing with an issue is because they overbid… and I do not expect this franchise
to make it to 2020.”
In a letter to the TSC, Network Rail’s London North Eastern & East Midlands Route Managing Director Rob McIntosh said that the settlement for Control Period 5 (2014-19) did not include delivery of the power supply upgrade north of Doncaster for the Intercity Express Programme trains, and that “accordingly we have yet to commit to delivering the works, and we presented options for design to the Department for Transport in October 2017”.
He added that the East Coast Connectivity Fund, which calls on NR to work with industry to “develop plans to deliver works with a maximum CP5 expenditure of £247m on the East Coast Main Line to improve capacity and reduce journey times”, was at an early stage of development when the InterCity East Coast franchise was bid for and awarded, with funding for delivery not then committed to individual projects.
“This was made clear to all bidders in the information provided as part of the bidding process by NR,” the letter explained, adding: “It was also made clear that any capacity increases in the future would be a result of the combination of infrastructure enhancements, new rolling stock and a revised timetable, all agreed by the industry through the ECML Programme Board. NR was not asked to endorse the final assumptions used by the successful East Coast bidders at contract award stage.”
Grayling reassured the TSC: “I have taken action with Network Rail, who I expect to deliver power supplies for trains to operate north of Doncaster. We have plans in place to make that happen.”