Associate feature: Down the track

It is almost 20 years since Railtrack – the company that was at one time responsible for the UK’s rail infrastructure – failed and was taken into public ownership, but UK transport secretary Grant Shapps has big plans for passing the management of British railway assets back into private hands. 

Railtrack, set up in 1994, managed everything from signalling and tracks to stations and bridges, bringing them back into private ownership following a period of nationalisation that had begun nearly 50 years previously.

Railtrack’s life was a limited one, though, with a 2010 report prepared by House of Commons transport specialist Louise Butcher noting that the troubles that led to its ultimate demise had begun almost as soon as the company was established.

“Privatising an industry that continues to need large subsidies leads to problems; the form of privatisation chosen involved a mass of complicated and antagonistic relationships between Railtrack and its customers and the regulator; and no account appeared to have been taken of the poor state of the railway,” she wrote in the 2010 report.

“Poor management and inadequate direction did not help; nor did the three major fatal rail accidents that occurred on its watch – all attributed to factors under the company’s overall control.”

Yet despite these failings, Shapps, who earlier this year published a report co-authored by Royal Mail non-executive chairman Keith Williams, believes private sector finance is what’s required to transform the rail network into a system fit for the 21st century, with the re-privatisation of rail infrastructure sitting at the heart of the 116-page ‘Great British Railways: The Williams-Shapps Plan for Rail’.

“Great British Railways will be expected to learn from the best elements of the public and private models, and to be entrepreneurial and actively promote the railways and the many businesses that serve it and support it,” the report states.

“Hundreds of innovative, competitive private businesses filled the gap of British Rail’s research and development arm in the 1990s, not least the dynamic rail freight operators who have transformed that market as coal and steel traffic declined.

“The government wants to ensure that rail combines the best of the public and the private sectors in future. The railways have huge potential to deliver innovation, attract investment and help lead the digital transport revolution that has already begun, rather than becoming a victim of it.

“This requires a culture change and a willingness to challenge old ways of working and to empower people within the industry and outside it to solve problems, modernise and adapt. Our country succeeds when its public and private sectors work in tandem.

"Just as the partnership that created the Oxford-AstraZeneca vaccine procured hundreds of millions of vaccine doses and rolled out jabs faster than any other country in Europe, our new model for the railways will take the very best of the private sector – innovation, an unrelenting focus on quality, outstanding customer service – and harness it under the single guiding mind of the public sector.”

It is a bold vision that Brioney Thomas, head of the transport team at law firm Burges Salmon, says the private sector is ready to play its part in – not least because of the huge levels of investment that will be required to decarbonise the railway as part of the government’s green agenda, though she stresses that huge barriers to entry remain. 

“Over the last five years in particular there has been an increased appetite and interest in getting private sector financing into the railways, she says. “There are good reasons for that – these are assets that are of national importance and there is a really clear demand case for them.

“Where it becomes difficult is that railway infrastructure in this country is heavily regulated and you quickly get into a bit of a tangle over what a financier will require in terms of certainty and security of their money and how that interfaces with the regulatory regime, for example making sure [the assets are] available for public use.

“There’s a tension between those two things that can cause the discussions to become too difficult too quickly and people decide that if it’s that hard there are other asset classes they can go and fund.”

Despite the challenges, Branko Bajatovic of consultancy Avistum says the path to investment could be eased by the fact the UK is further ahead than other countries in terms of its readiness to work with the private sector.

This is in part because Britain’s first public railways were built and operated by private companies and, despite recent nationalisations, pockets of private partnerships have continued to evolve – a number of stations on the Crossrail route have been privately funded as well as sections of HS1, the rail line that connects London to Paris via the Channel Tunnel. 

“The UK is probably the most advanced place in the world in terms of the institutional set-up and regulatory capabilities because of the free market,” Bakatovic says. “Whether that’s good or bad I don’t know, but elsewhere in Europe where there’s been private investment in infrastructure it’s mainly been in rolling stock [trains].”

Yet, despite funders already being given a taste of what it is like to have an interest in UK infrastructure projects, Thomas says their involvement in the sector remains limited. Because of that, the government is going to have its work cut out for it convincing financiers that the Williams-Shapps plan for Great British Railways is one they can safely back.

“There are tools at the government’s disposal that, if it’s serious, it might want to deploy to attract the right kind of investors in,” she says. “It could give, similar to existing Section 54 undertakings, a commitment that there will be a revenue stream backing any investment up.

“Traditionally that has only been used for trains but that’s because it’s only trains that are privately financed …. [but it could help] to get an understanding of what the private sector will take risk on. That’s a key part of the problem, if you’re looking to fund projects at the building phase the railway has a chequered history of being able to deliver on budget and on time.”

For Jacqui Nelson, managing director of financial advisory business Centrus Advisors, because electrification and digitisation hold the key to the decarbonisation of the railways, attracting private finance has never been more important for Britain’s rail network. Despite this, she remains unconvinced that the government will be able to bring the Williams-Shapps plan to fruition any time soon.

“I can’t see it happening soon,” she says. “Civil servants are not really incentivised to push the envelope. Unless there’s a real will and we’ve got some people with expertise, experience and vision to drive it forward it will not happen.

“Great British Railways is supposed to be taking on everything run by Network Rail, the Department for Transport and the train operating companies, and it’s all supposed to be done by the end of 2023. There’s a huge amount of work to do and not much of it has happened yet.

“That makes me wonder whether there’s any bandwidth to consider seriously whether [the government] can start progressing the private financing of infrastructure. With rolling stock they know who the players are – it’s time consuming but it’s well-trodden territory. Private sector finance for infrastructure is not a well-trodden path.”