Wales railways caught in the business case trap

Professor Stuart Cole, CBE. Emeritus Professor of Transport Economics and Policy, Prifysgol de Cymru / University of South Wales

Several local groups in Wales have gathered support for rail reopening schemes and some have been successful because of land developments with new houses or industrial/commercial premises, or resulting from pre-election political manifesto commitments. Many however have hit the buffers.

There is a daunting process facing local campaigners and in this column I will look at how many hurdles they have to overcome through admirable tenacity.

In the cases of, for example the Ebbw Vale Line, it was successfully re-opened (but at Welsh not UK government expense and was a Senedd election manifesto commitment) and has exceeded its passenger demand forecasts.

The rail routes between Bangor and Afon-Wen and Carmarthen and Aberystwyth are in early stages of any reopening process.

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HM Treasury Green Book

I admit that this column has been somewhat realistic (some might say pessimistic) in terms of reopening lines especially in rural Wales and I have referred to the HM Treasury Green Book and to the business case process.

The Green Book’s objective is to provide a common set of criteria to evaluate investment projects taking into account costs and economic, financial, and social benefits. Then it aims to deliver a priority list within the budget available.

Despite working in transport economics for fifty years with considerable reliance on economic evaluation of schemes, this columnist will play devil’s advocate to show what hoops have to be gone through to reopen a railway.

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Strategic Outline Business Case

The first stage is the Strategic Outline Business Case (SBOC) which considers two key elements:

• Does it solve a transport problem (e.g. road congestion)?
• Does it fit into the government’s strategic transport plan?

A potential stumbling block is – which government must be persuaded? National roads are the concern of Welsh Government. Railway infrastructure in Wales (outside Cardiff Valleys) is the responsibility of England’s Department for Transport (DfT).

This dichotomy has affected the North Wales Main Line (NWML) electrification and line speed increase despite being a strategic route for Welsh Government.

Since the 1970’s the DfT has not appeared to see the NWML or Valley Lines electrification as strategic routes.

HS 1 (London to the channel Tunnel), the Ebbw Vale to Newport/Cardiff, line the Dartmoor Line (Exeter to Oakhampton rural/tourism railway), the Borders railway (Edinburgh) and another eleven schemes  all came out on budget.

Many lines in Wales and England have been suggested for reopening but have not been successful in persuading the DfT to invest despite many plans and evaluation. Transport for Wales spent over £300,000 on a feasibility study the for the Carmarthen – Aberystwyth line with no impact on the DfT and commissioned transport consultants Atkins Realis to include the Afon-Wen to Bangor line in its recent north Wales rail study.

Outline Business Case

Such feasibility studies provide much of an SBOC which if it shows a potentially workable scheme it progresses to an Outline Business Plan where, I understand, the Swansea District Line proposal has lain for six years at DfT though it reduces journey times between Cardiff and west Wales by up to 22 minutes.

At this stage there is serious quantified analysis (still in London, not Cardiff) of detailed costs and benefits.

Even though HM Treasury made changes to the Green Book in 2018 to give greater emphasis to the strategic case, it is the guardian of the public purse and the benefit cost ratio (BCR) that  becomes a key factor in approving the scheme. Using funds outside its own resources (e.g. borrowing) Welsh Government would have to apply HM Treasury criteria.

The Treasury will look for a typical BCR of 2:1 or above although as we have seen with many schemes this may have been the original figure but fell as construction progressed.

Final Outline Business Case

Any group will need some combination of Welsh Government, local authority and private funding support in preparing the OBC. Producing an approved result at this stage is critical to the scheme going forward to the Final Outline Business Case (FOBC).

A quicker and easier process

This is a long process and can take many years. But does it need to take so long and be so complex?

Many plans and papers are prepared which may show the value of re-opening a line and this generates further frustration amongst local supporters. It requires considerable resource and expenditure. There can be a simpler, quicker, approach than the existing modelling process.

During this columnist’s fifty years of transport economic analysis it has been possible for experienced transport economists, engineers  and planners using DfT criteria, on a less complex basis, to assess the local land position for the route and can use other economic models to forecast future costs and overall market demand/revenue.

Cost inflation will be much the same for any railway scheme. This would be sufficient to show if the scheme has value.

The evaluation process is no different from that for private sector commercial developments. The business case for  a retail park must estimate costs, the construction period, and will its tenants attract/satisfy demand sufficient to generate revenue for the developer and the retail park commercial users.

A parallel is where Network Rail provides the new railway and the train company provides sufficient revenue to cover the track access charges and operate within the revenue support resource available. These represent economic growth, reduced road congestion and air quality elements

Risk-averse paymasters

However as so many schemes have exceeded budget and time scale the DfT has become risk-averse and so requires robust revenue forecasts including modal shift from road to rail for both passengers and freight. DfT and Welsh Government want value for money from the Afon-Wen to Barmouth route which Lee Waters has reasonably estimated will cost £2 bn.

Considerable work (unpaid in their own time)  is being carried out by local group members at Afon-Wen /Bangor and Carmarthen/Aberystwyth. Welsh Government, local authorities and others will spend money on expert advice. Hopefully that does not come to naught.

However,  DfT and Welsh Government will  ultimately use travel time saving as a key criterion because most travellers want to get to their destination in the shortest possible time and their message has been extended to political decision makers.

For the paymasters, (currently the DfT for Wales’ rail infrastructure) journey time saving is the key criterion rather than economic growth through tourism or employment.

This column would advise a close look-between-the-lines at the Dartmoor Line. After many years that hard-working group had employment creating schemes to put forward but had to put an emphasis on what the DfT want to see – an acceptable BCR – for their scheme to be considered.