Could rail public private partnership make a comeback in the UK?
With Britain gearing up for a wave of major rail projects amid Brexit uncertainty, will public private partnership (PPP) come in from the cold?
The bar was already set high – and then Brexit lifted it higher. Britain’s construction industry is due to deliver a series of highly ambitious rail projects in the next decade, from the completion of Thameslink and Crossrail to the Great Western upgrade and the start of HS2.
Yet all this is due to happen against the backdrop of the UK’s exit from the EU. The uncertainty triggered by the vote for Brexit has increased the risk of reduced overall infrastructure spending and forced those planning major projects to think laterally about contingency funding models.
Turner & Townsend is playing a lead role in the construction of rail schemes around the world, from light to high speed rail. We’ve observed that while many of the challenges involved in delivering a high quality rail network are universal, the means of funding and procuring them can vary substantially.
Universal challenges and multiple solutions
Wherever it is, the sheer size and complexity of a major rail programme means that seldom will a single contractor be able to design and build it alone. The division of the work into multiple packages is now a common solution for procuring clients around the world.
Project sponsors – whether governments or regional authorities – must also secure substantial investment up-front to develop and assure the project to a level where bidders are comfortable that it is deliverable and worthy of investing bid costs.
They must also sustain public and political support during long-lead times – which can extend over several electoral cycles – and manage multiple stakeholders along the proposed route.
Despite these fundamental similarities between global rail projects, there is a wide variety of different approaches taken to funding.
In broad terms, the sources of funding typically considered include capturing development gain, private sector investment, public funding (whether at central government or regional level, either as grants or soft loans), or new legislative transport allocations. Typically a portfolio of funding contributions is developed for the most significant projects.
Around the world in 80 funding ways
However the funding mix will vary from country to country and project to project, and recent years have seen increasing sophistication of the models used. These include contracts such as: Germany’s ICE – which remains in government ownership – and Japan’s Shinkansen HSL Network, which has been fully privatised.
France’s TGV network used a hybrid approach – it was funded with a mixture of state and regional funding, and complemented by public-private partnerships. Meanwhile the Netherlands’ HSL Zuid was funded on two levels – state funding for the substructure and PPP for the superstructure.
One of the most current models in an ever-evolving market is that used on Australia’s biggest public transport project, Sydney Metro Northwest, which uses a blend of PPP with traditional funding.
It delivers the higher risk elements such as tunnelling and major excavations through traditional means and uses PPP to provide the operations, trains and systems – thus providing the balance of risk that encourages market interest and delivers value for money for the public purse.
It’s striking how many overseas rail projects are using some form of PPP, which though used on HS1, has been less of a feature in UK rail projects in recent years with the notable exception of standalone LRT schemes where external risks can be more easily managed.
As the UK’s leading construction contractors prepare to compete for and build a series of major rail projects, we should never lose sight of the fact that the project’s long-term operational priorities and objectives should drive the delivery strategy
Any major rail project should be driven from the perspective of the long-term operator, as a transport business, and not solely from the perspective of the contractor building the infrastructure or the manufacturer of the rolling stock.
Operations and maintenance is the long-term core business of a rail enterprise and they need to be in the hands of a competent entity. The entity must not only build massive infrastructure and high technology rolling stock to operate on it, but also create an ongoing transport company able to run the service and maintain its assets.
The recent profile of PPP in UK infrastructure projects may have been lower than it was in its 1990s heyday, but it has continued to evolve and improve in other markets. With alternative routes back on the agenda due to ongoing uncertainty, PPP is once again likely to feature as an option in the rail funding mix.