The reason for building HS2 can sometimes be obscured in the fog of argument about whether people work on trains, benefit-cost ratios (BCR) and the like. Writes Tim Smart, Head of Engineering and Operations, HS2 Ltd
There have been a number of negative comments in the media during the latter part of the summer concerning the likely outturn costs of HS2. Some from notable sources, but it is far from clear on what real basis these comments have been made.
It seems to me they were made more on the narrow and short sighted view that big infrastructure projects are not successful in meeting cost targets than a proper understanding of the proposals and strategies behind HS2.They also ignore recent successful projects such as the Heathrow Terminal 5, 2012 Olympics and the Channel Tunnel Rail Link – HS1.
Looking back at HS1
As the first truly high speed rail project in the UK and drawing heavily on the French TGV experience, HS1 faced a number of challenges on technological, commercial and environmental grounds – all similar to those HS2 is facing today.
Despite some early issues, Section 1 of HS1 from the Channel Tunnel through to Fawkham Junction, with the challenges of passing through Ashford, was delivered on time and under budget in 2003. In 2007, Section 2 through to St Pancras was opened on time and within budget.
By employing sound engineering techniques, modern commercial strategies and with a better focus on project control brought about by more up to date management, HS1 was able to deliver to plan.
Furthermore, in the final analysis, the HS1 financial model that eventually emerged proved very effective. It delivered an investment grade piece of infrastructure and an associated income stream for the Government, following the successful conclusion of a competition for the sale of a 30 year concession (and yes, the Government gets to sell it again) to a joint venture of Canadian pension funds. In doing so, this subsidised the building of the railway for the taxpayer by over £2.5 billion.
Additionally, pension funds need steady, predictable and relatively risk free investments. By purchasing HS1, two of the wealthiest pension funds in the world who are in the business of making canny economic decisions have voted with their dollar in support of high speed rail investment in the UK.
Preparing the figures
HS2 is currently in the final stages of preparation for the Hybrid Bill for Phase 1 (London to Birmingham). This, amongst other things, means we must have a reference design in sufficient detail to ensure we can build, operate and maintain HS2 to provide the expected benefits.
To do this, a more significant amount of engineering has to be carried out than that directly evidenced by the spatial arrangements articulated on the drawings, plans and sections which form the key engineering documents underpinning the Hybrid Bill. This has involved designing all the key elements along the route in sufficient detail to deliver the required railway parameters and balance the engineering proposals with other important environmental factors, associated mitigation and of course cost.
HS2 has been working with some of the world’s leading consultants and contractors to make sure we have robust railway engineering design proposals with associated construction plans appropriate for the reference design of the Bill. This forms the foundation for the initial cost estimate and it is a matter of fact that, as the engineering design develops and responds to consultations, so a more advanced understanding of the engineering solutions and risks emerges and the cost profile will change.
The estimate for Phase 1 was established in the Baseline 3 cost review. The Secretary of State announced in June this year a target cost of £17.16 billion (at 2011 prices) including a 10% risk allowance. During the spending round process the Chancellor agreed an indicative budget of £21.4 billion (2011) for Phase 1. The increase reset the cost to take account of scope revisions and allowed an appropriate and prudent contingency for the future ‘unknown unknowns’ which any project of the scale of HS2 simply must include at this stage.
One thing this is not is an open cheque book. This is about making proper and reasonable allowances for the emerging design and other issues that large infrastructure projects demand based on sound engineering and commercial principles and judgement. As more detailed information and data accumulates through the life of the project this contingency, can and must be effectively managed – and managed does not necessarily mean spent.
Opportunities for efficiencies will be identified and managed. HS2 is under no illusions concerning the challenge for achieving effective delivery. As the programme of any infrastructure project moves forward, the inevitable conflicting priorities of cost, time and quality will emerge. It is critical that the client organisation steps up to the plate to ensure the path through the cost-time-quality triangle is the right one, and costs will be under the closest scrutiny.
It is an understatement to say this has its challenges, and anybody who has delivered a successful infrastructure project will tell you that this will require firm, responsive, nimble and highly competent client management demanding sufficient autonomy and empowerment from a Government sponsor.
Dealing with this challenge is something HS2 Ltd and the Department for Transport already have well in hand. HS2 has established a framework plan to deliver 20% efficiencies going forward, realising that this starts with the client and key commercial and governance strategies. It also involves aligned incentives and working collaboratively with the supply chain and other key stakeholders such as Network Rail.
They too must be capable of rising to the challenge and delivering on it. I have no doubt that they will and this has already been affirmed in a letter to the Daily Telegraph in early September by a number of CEOs of the UK’s leading consultants and contractors. So to those who assert that HS2 will cost significantly more, I would ask – on what basis do you make these statements? Have you done the work that HS2 has done?
Connectivity not speed
There has also been much chatter within the media about HS2 either diverting money from other infrastructure projects, or that the money allocated for HS2 would be better invested in enhancing the existing rail network. Again, to my mind this demonstrates a further misunderstanding of what HS2 will deliver. It is not about getting to Birmingham or Manchester, Leeds or any other northern city faster. It is about capacity and connectivity. Network Rail has stated that it cannot provide the future capacity the nation will require by piecemeal upgrades.
It is an immovable fact that passenger numbers have doubled to 1.5 billion over the last two decades and the demand for freight has grown by 60% since privatisation. As the UK population expands we must find sustainable solutions to underpin our transport need which is vital to ensure a thriving and vibrant economy across the UK and not just London. HS2 provides the backbone to achieving this and will work in harmony with other transport solutions.
In terms of capacity over the distances proposed, HS2 can move more people per hour more sustainably than other forms of transport. The distances between London and the northern cities which HS2 will serve are particularly well suited to high speed rail as the most efficient means of moving people. It is not practical to enhance our highways or airports for these distances and we must look to encourage a modal shift from short haul air to rail. This also has the not insignificant advantage of handing capacity back to our airports to serve other longer haul destinations for which rail is not so well suited.
The West Coast main line, Britain’s busiest intercity route, will be full within 15 years despite the fact that it has already been upgraded at a cost of some £9 billion by Network Rail between 2004 and 2008. Further enhancements are simply not practicable and cannot deliver the capacity which the nation requires. We must take a long term view on the solution to our rail network issues as we have seen in other parts of Europe, Asia and now even in the US.
HS2 will be the long required step change for UK rail and enhance the existing network by releasing significant capacity which pretty well forces a complete recast of the national time table. The published August 2012 economic case for HS2 set out a modelled train service and there have been comments from some quarters about possible reductions in service in some areas. However, this boils down to a debate on how best to utilise this released capacity and this is a very good position to be in for the UK’s transport planners.
This released capacity also means there is much better proposition for freight services which of course takes goods off our congested road network and helps relieve capacity here too. All this reinforces the point that HS2, by its very existence, enhances and complements existing transport systems and not just the rail network.
Top down or bottom up?
Some of the criticism in the media has also dwelled on the economic case for HS2. To my mind this is always a difficult area, as to obtain a true picture one must look at the wider economic benefits and these are more difficult to predict and therefore not always adequately accounted for in traditional cost benefit analysis.
In the UK, Europe and many other parts of the world rail projects are typically financed ‘top down’ from Government money. The BCR predictions for infrastructure projects under these arrangements typically focus on the demand side economics which, to my mind, often do not take sufficient cognisance of the supply side benefits.
In the US the significant element of financing for infrastructure projects comes ‘bottom up’ from local sources such as the individual states and cities and is therefore raised via local taxes. Under these circumstances there is much more of an incentive placed on demonstrating regional benefits in terms of growth and job creation which brings into sharper focus the supply side of the economics equation. Consequently, in the US, methodologies have been developed to provide a better understanding and predication of the regional benefits of infrastructure projects at a much earlier stage.
This is something I would like to see developed further in the UK. Fortunately, in the case of HS2, this has been addressed in the KPMG 100 report. This report shows benefits to the UK from HS2 of up to £15billion per year, with regions in the north benefiting twice as much as those in the south. As an engine for growth, HS2 will be a significant opportunity for the UK to realise these wider benefits and, with the announcement that Lord Deighton is to lead the growth task force, these will become even clearer in the future.
A report published in 2009, after the construction of HS1, revealed £4 billion of regenerative benefit along its route. This is evidenced right now by the impressive new development for higher education, affordable housing and commercial property currently being constructed at the back of St Pancras. One can point to the success of the 2012 Olympics, the economic boost the Stratford area has received following the opening of the Westfield shopping centre and the growing retail success at Ashford as examples of how high speed rail has underpinned regional transformation. This provides the real, hard evidence of the stimulation and regenerative benefits caused directly by high speed rail.
In terms of potential for growth I would also cite the often maligned Jubilee Line Extension Project (JLE) in this regard. This did not have the highest BCR and did run late and over budget. However the JLE opened up the development of Docklands with its associated significant economic benefits for London. Furthermore, as well as providing critical connectivity for East London, it delivered a fabulous architectural heritage to the underground system. Would we suggest now that the JLE has not been important for London and we should not have built it?
So as HS1 and the JLE have provided important economic and regional growth for London and the south east, HS2 will deliver these benefits to the great cities in the midlands and the north which have long been deprived of decent connectivity. It will promote growth and more importantly the jobs associated with this growth.
As a nation, we need to get firmly behind HS2. Dealing with the solution to our transport problem is a big ticket item for the UK and demands serious infrastructure and serious decisions. I wonder, where would we be now if the Victorians had shied away from this responsibility?