Sale of Valley Lines sets precedent

Rail Freight Group

In late February, Network Rail started the process of sale of the Valley Lines, which are set to be operated by Transport for Wales (TfW) from later this year. The internal industry consultation set out the parameters of the sale, and sought industry consent to the disposal, in line with Network Rail’s licence conditions. The transfer to TfW forms a core part of its aspirations for a South Wales Metro, with significant plans for modernisation of the routes, as a centre point of TfW’s rail strategy.

The Valley Lines were once of course all about coal traffic, but today the majority of the traffic has ceased. However, there are still some freight trains, mostly conveying open cast coal from Cwmbargoed to a number of industrial locations. The volumes are not significant – a handful of trains a week – and operationally there is no reason why this cannot fit with the passenger service perfectly happily. Yet the transfer creates a new infrastructure manager in TfW, and the information to date has been silent on how this will work, legally, contractually and in regulation.

Such details are boring, and it seems almost churlish to raise them in the face of exciting new developments for the railways. Yet for freight operators it matters absolutely, because they cannot operate without legal certainty. So, for example, will freight operators now need a separate access contract with TfW? Will it be regulated? How will access rights be aligned between the TfW and Network Rail contracts? Who will set the access charges for the Valley Lines? Will they be regulated? Will there be a TfW regulatory review process? Who will payment be made to? Will the same standards still apply, for example, in loading gauge and rolling stock acceptance?

Of course, there are already other infrastructure managers, including HS1, Rail for London (for the East London lines) and Heathrow Airport Ltd for the Heathrow branch. Each of these has a separate framework which recognises the distinct nature of their operations. The Office of Rail and Road has helpfully summarised this in its recent response to the Williams Review, with an annex setting out the different elements of regulatory policy and how it applies or otherwise. It is clear there is no ‘standard’ framework for non-Network Rail tracks which can be replicated easily for TfW.

HS1 is perhaps the best illustration of this. Structurally it is unique, being the only true infrastructure concession on the UK railways, owned and operated in the private sector. It offers train paths on a commercial basis to Southeastern and Eurostar and to freight overnight. For these, freight operators have a separate access contract with HS1, and pay a different level of charge to that on the core network. Those charges are set in HS1’s own five-yearly control periods, with some level of regulatory oversight on a ‘light touch’ basis compared to the scrutiny that is undertaken on Network Rail.

The regulatory review of HS1 for its Control Period 3 has just commenced with the publication of its first consultation. This proposes that freight charges should double from the current level from April next year! The increase is driven by a new approach to assessing long-term renewals, such that contributions to the ‘escrow account’ must rise to ensure it has sufficient funds to do the necessary work in future.

We will of course be challenging these increases and seeking assurance that freight costs have been properly assessed and allocated. But unlike the CP6 review for Network Rail, there is little that Government can do to help ameliorate this increase and freight operators will be faced with paying the increase or stopping the services. Hardly ideal given the expected disruption of Brexit!

However unacceptable these increases are, freight operators do at least have a choice of route, and can use the conventional network through Kent for at least some traffic. That choice is not there for Cwmbargoed, and nor would it be if other parts of the network were divested. Speaking at the Bradshaw Address, Keith Williams was clear that his review is looking at all structural models, including infrastructure concessions, so there is a very real prospect that such changes could be on the table in future. This makes it all the more important that proper consideration is given to getting the right framework in place now.

Such a framework must act to protect private sector operators, give the confidence to invest and, above all, it must reduce and not increase the very fragmentation that many cite as the root cause of today’s problems. An opinion column of the

Rail Freight Group, www.rfg.org.uk