Wednesday, April 18, 2018

More Controversy Over HS2 as Rail Freight Boss Just Keeps Asking the Right Questions

Somebody's Sums Are Going to Be Wrong So Why Doesn't Parliament Have the Final Say?
Shipping News Feature
UK – There exists, in both public and corporate minds, some serious doubts about the viability of the entire HS2 project. What may prove to be a very significant part of the current, and probably future government, legacy has questions hanging over the actual costs of bringing the scheme to fruition, and both passenger and rail freight lobbies have expressed concerns, with much of the flak emanating from Lord Tony Berkeley, an undisputed expert in such matters.

In the latest exchange between government, in the form of Secretary of State Chris Grayling MP and the Chairman of the Rail Freight Group (RFG) and a director of the European Rail Freight Association (ERFA) have been disagreeing on what the bill for HS2 is liable to total. Berkeley sees a figurative train wreck approaching in terms of cost, and asked questions in a letter last month which we published at the time.

Grayling replied on April 6 and his letter decries the position of opponents who quote the 4,000+ page analysis by quantity surveyor Michael Byng that puts the price at circa £51 billion, way over the £24.3 billion government estimate. The situation is of course compounded in that various adjustments to the original scheme muddy the waters, but Berkeley was insistent last month that the whole matter needed a full Parliamentary investigation prior to spending tens of billions on the plan.

Grayling states that the tenders for the work so far received are broadly in line with his department’s estimates and that a ‘significant’ contingency fund is in place when, as is usual with these big public contracts, the actual price rises significantly during construction. He has assured Berkeley that ‘the combined cost estimate for Phase One remains within the funding envelope’. That apparently is Sir Humphrey speak for ‘we know what we are doing’.

This week Tony Berkeley has written back once more and, as usual, his letter is more than worthy of consideration. He comments that the contingency proposed equates to just 35%, a figure he points out is at odds with the Department of Transport publication, the ‘Optimum Bias Study’ which suggests a minimum uplift of 65% for such works at the time they are officially approved. He further comments that when he raised the same issues regarding the GW electrification, costs rose from the £800 million estimate to £4 billion, and this despite a reduction in scope!

The RFG boss again calls for an independent report before taxpayers money is put into a scheme over which so many continue to hold doubts. He goes on to say the other difference between the GW Electrification and HS2 Phase 1 is that ministers were able to reduce the scope and make other changes to enable some of the benefits to be achieved. With HS2, there are no benefits to be achieved until Phase 1 is open and operational so, if costs are seen to rise above contingencies allowed, ministers will have no option but to ask for more money from the Treasury or cancel a half-finished and useless project.

Furthermore he feels there is evidence that the problems raised by the scope and programming of the enabling works contracts has exposed strong disagreements between HS2 Limited and its contractors, as well as further differences between members of joint venture suppliers, who do not believe that the project, as notionally designed, can be built within the funding envelope or within the Government's published programme for opening and operation. In his letter to Grayling, he concludes:

”Is it therefore wise to push on even with the enabling works before Government has a much better idea of the outturn cost? Does the Secretary of State believe that the Treasury will find an extra £10 to 40 billion to cover the out-turn cost increase of Phase 1? This is a very large and expensive project to be funded by the taxpayer and I am sure you will agree that it is essential to ensure that funding requirements are known with more certainty before it received its notices to proceed”.