Out-Law News 2 min. read
12 Nov 2013, 4:52 pm
The proposal forms part of a speech to be given to the Royal Town Planning Institute tonight by former deputy Prime Minister Lord Heseltine, author of last year's Government-commissioned regional growth review. According to the Guardian, Heseltine will claim that the cost of the project to the taxpayer could be cut by £10 billion by selling the right to operate the line, in an approach mirroring the operation of HS1 between St Pancras station and the Channel Tunnel.
"We have a clear precedent," Heseltine will say, according to the Guardian. "This Government sold a 30-year concession in 2011 for HS1 to a Canadian pension fund for £2.1bn. I understand that at the same ratio, something in the order of £10bn could be realised for a similar concession on HS2."
"Sir David Higgins, the incoming chair of HS2, has been asked to report on how to reduce the £42.6bn cost. He should consult appropriate institutions about the financing of the project in part during construction in order to ensure their participation in the long term concession. He should also explore the possibility of acceleration of the whole project, thus offering further savings," he will say in his speech.
Projects expert Patrick Twist of Pinsent Masons, the law firm behind Out-Law.com, said that having a private sector firm operate the route through a concession agreement was the "right answer" to the question of how best to reduce the costs of the project.
"It is surprising that the Department for Transport (Dft) and HS2 Ltd have not brought this issue up before as it clearly reduces the net cost - perhaps because they were unable or unwilling to put a figure on it at this stage," he said. "However, the sale of a concession for HS1 was referred to and suggested as a possible way forward for HS2 in the Strategic Case for HS2 report, published by the DfT a few weeks ago."
However, he added that the sale of concessions and other private financing arrangements had generated negative publicity for the Government in the past; both in relation to the sale of HS1 and adverse reaction to the Private Finance Initiative (PFI) model of project financing, which has now been replaced.
The initial London to Birmingham section of HS2 is currently scheduled for completion in 2026 and will cut journey times between the two cities to 45 minutes, according to the DfT. A proposed second phase of the project envisages the construction of an onward 'y network' connecting the line to Manchester and Leeds, as well as to Heathrow Airport, by 2033.
According to the latest estimates, the project is expected to cost £46.2bn with an additional £7.5bn for rolling stock. The DfT has commissioned Sir David Higgins, the new head of HS2 Ltd, to report on how the project could be delivered earlier and for a lower cost through better planning and early engagement with industry. He is due to present his findings to the Transport Secretary before the second reading of the Hybrid Bill in the House of Commons in March.
The Government published its updated business case for HS2 at the end of last month, following criticism of the scheme from business bodies and public spending watchdogs. In it, it said that it was "carefully considering the future operating model for the railway", although it has not yet decided whether to pursue the concession model.
The report also included a revised benefit to cost ratio (BCR) of the line, valuing it at 2.3 or providing £2.30 worth of benefits for every £1 spent. The BCR was revised downwards since earlier reports to reflect that business travellers are often productive on long train journeys; however, it is said to increase to 4.5 if rail demand continues to rise until 2049.
In his speech tonight, Heseltine will criticise government guidelines on the calculation of BCRs, which state that any assumptions of growth in demand must be frozen after 20 years. He said that the reported figures assumed that growth would stop "just three years after the service is fully operational".
