The moment of truth for Welsh rail services

Published 23/05/2018   |   Last Updated 27/05/2021   |   Reading Time minutes

This morning Cabinet Secretary for Economy and Transport, Ken Skates, announced that KeolisAmey has beaten MTRCymru Ltd to win the contract to operate the Welsh rail franchise and develop South Wales Metro services from October 2018. This brings an end to a long and complex procurement process, described as “heroic” (PDF 1MB) by Russell George, Chair of the Assembly’s Economy, Infrastructure and Skills Committee (EIS Committee).

While the Welsh Government has said its “minimum requirement” for the bidders “is that services will at least be equivalent to those currently provided”, details of what the new era will bring remain to be confirmed.

However, public expectations for this home grown Welsh franchise will be high – particularly since, with a total public investment estimated at about £5 billion over 15 years, this will be the biggest contract awarded by the Welsh Government, and surely one of the biggest ever in Wales.

So who is KeolisAmey when will we know their plans?

KeolisAmey is a joint venture between French transport group Keolis, and UK based infrastructure consulting and support service provider Amey.

Keolis, 70% owned by France’s state owned rail operator SNCF, currently operates a range of UK rail and light rail services. It describes itself as “the UK’s largest light rail operator”, for example operating London’s Docklands Light Railway and Manchester Metrolink. Amey, owned by Spanish multinational Ferovial, has a range of UK interests, which include work in Wales.

Welcoming the announcement, Alistair Gordon, Chief Executive of Keolis UK, said:

This will be a transformative new rail service for Wales and its borders which will see Keolis once more combine its worldwide expertise in passenger operations with Amey’s engineering excellence.

Similarly, Andy Milner, Amey’s Chief Executive said:

This is a great opportunity for us to use our joint capabilities to deliver a first-rate service for Wales. We will be focused on working with Transport for Wales to transform the existing infrastructure and introduce new trains to significantly improve the passenger experience, as well as creating hundreds of new jobs and apprenticeship opportunities.

It will be a few days before we know exactly what Wales can expect. The reason for this was set out in a letter from the Cabinet Secretary to all Assembly Members on 16 May 2018. Following today’s initial announcement, a “10-day standstill period” is required “to allow for a possible legal challenge by the unsuccessful bidder”. However, the Cabinet Secretary has promised further information following this period, and has previously committed to publishing both the tender specification and a redacted version of the franchise contract.

Figure 1: Metro Phase 2 – the Core Valleys Lines

What do we know now?

While hard information is currently thin, it is already clear that the Welsh Government expects that KeolisAmey will not just operate a standard rail franchise.

Instead, the Welsh Government has procured an Operator and Development Partner (ODP) not only to deliver rail services, but also to develop proposals for Metro Phase 2 – rail or light rail services on what are being described as the Core Valleys Lines (pictured) to be fully operational by 2023.

The Welsh Government has promised a great deal for Wales and Borders rail services. In Rail Services for the Future, published in September 2017, it set out ambitions for: enhanced services; enhanced comfort and service quality; a transformed experience on the train; improved ticketing, technology and fares; improved stations; and environmental benefits.

Expectations for Metro Phase 2 will also be high. Writing to all Assembly Members (PDF 212KB) in March 2018, pointing to an expected £750m investment in the Core Valleys Lines, the Cabinet Secretary said:

Phase two involves transferring those lines to Welsh Government ownership and in partnership with the new franchise operator completely modernising them so they become the platform on which we can deliver the ‘turn-up and go’ upgrade we have promised with a minimum of 4 services per hour. Indeed, some valleys stations will see 12 services per hour. The journey time savings and carbon reductions of this will be an important economic driver for the region, as well as help us play our part in reducing CO2 emissions.

The public will also be looking for improved value for money from the franchise. In 2015 the Welsh Government established Transport for Wales (TfW), initially to manage the procurement process. However, the Cabinet Secretary has said he wants TfW to do much more:

There will be mechanisms in the new approach, that will operate similar to a concession, to ensure that excess profit is reinvested back into the transport system here in Wales, incentivising choice and driving down costs for the passenger. Our plan is that Transport for Wales will only let those contracts that it has to on a commercial basis. Where they do, the profits from those services will be at a capped margin with excess profits reinvested back into the wider transport system.
Those services that can be run through a directly not for profit model will be run that way. We hope to see many more services, such as ticketing, marketing, station management and car parking operating in new and innovative ways under that new approach. That model, which is used by Transport for London, will allow the flexibility to incorporate further devolved powers as they come.

With big plans emerging for TfW beyond the rail franchise and Metro, the company will have a busy summer preparing for the new franchise to go live.

A complex process

The procurement process has not been short of drama – not least the withdrawal of two of the four pre-qualified bidders, Arriva Rail Wales in October 2017 and Abellio in February 2018. Some pretty crunchy issues remain to be clarified.

The process of devolving franchise powers has been slow. While agreement with the UK Government on devolution was reached in November 2014, the draft Transfer of Functions Order was only recently laid in Parliament on 28 February 2018. Without legal powers, the Welsh Government is relying on an Agency Agreement with the Secretary of State for Transport during the procurement process. The Cabinet Secretary has said a further Agency Agreement will be needed covering “cross-border services” which will remain the Secretary of State’s responsibility.

The process of transferring ownership of the Core Valleys Lines from Network Rail is continuing – a complex process requiring careful assessment of this Victorian infrastructure to minimise risk of transferring unforeseen and costly liabilities. The Cabinet Secretary wrote to the Chair of the EIS Committee in January 2018 outlining the approach taken to managing this process, making clear “this work will be concluded as part of the due diligence work over the next 18 months”.

Finally, in August 2017 it became clear in correspondence from the Secretary of State for Transport to the Cabinet Secretary that the Welsh and UK Governments were in dispute over a total of £1billion of revenue funding for the new franchise over its fifteen year lifetime. This amounts to £67m per year from a total Block Grant allocation for the franchise of about £155m.

On 25 April 2018 the Cabinet Secretary told the EIS Committee that his relationship with the Secretary of State in discussions to resolve this funding gap has been “positive”, and that he expected “to receive a proposition on the proposed funding arrangements shortly”. However, while agreement on funding has presumably been reached before today’s announcement, it remains to be seen how much of the disputed £1 billion Wales will receive, and whether any shortfall will affect fares and services.

While today’s announcement signals a new era in Welsh rail travel, the travelling Welsh public will be waiting impatiently not just for details of the contract but for more and better trains, better fare and ticketing options for more frequent services that integrate with the other modes of transport they use daily.

While the First Minister’s recent media comments that rail improvements in the new franchise might “take some time” may be realistic, it remains to be seen how far the patience of commuters on the overcrowded Valleys network can be stretched.

Article by Andrew Minnis, National Assembly for Wales Research Service

Source: Welsh Government Metro Brochure (PDF 1.88MB)