Capital costs of Heathrow Southern Railway are estimated at £1.2 billion, including substantial allowances for specific risks and an overall 30% contingency.
We envisage construction will be privately financed, with HSR’s ownership remaining in the private sector after completion. HSR is a great example of implementing the recommendations of the Shaw Report into the future of Network Rail which envisaged that ‘projects that are separable from the core of national infrastructure… which could be structured to be attractive to the private sector and deliver value for money would also represent an attractive opportunity… in these cases financing by third parties can be structured against the funding of a predictable future long term revenue stream…’ (para R6.32). We have set up a new company (Heathrow Southern Railway Ltd) to take this project forward.
Whilst ownership would remain with HSR Ltd, the infrastructure would be regulated by the Office of Rail and Road (ORR), and we would expect that its operation and maintenance would be contracted out, on a similar basis to High Speed 1.
HSR Ltd would be at risk for the costs of planning, construction and availability of the new railway, in return for contractual commitments from the Department for Transport to purchase a defined quantum of train paths at a predetermined price. The price would be negotiated in advance with the parties involved and with the full participation of ORR, and would reflect an appropriate return on capital at the various stages of the project. The initial expenditure in promoting the project is high risk and would therefore justify a high rate of return, with a lower return during the construction phase, while still reflecting the inevitable uncertainties during a major construction programme. After completion, maintenance and renewal costs would be significantly lower risk, and subject to periodic review by ORR.
We do not envisage Heathrow Southern Railway Limited taking direct revenue risk for the project. The franchising structure already provides effective transfer of revenue risk to the private sector, and would enable management of the revenue risk as a coherent whole, rather than being based on an allocation of revenue to the new infrastructure, which in turn would be dependent on the overall pattern of train services on the relevant parts of the rail network. To maximise passenger benefit, fares from Woking and beyond to Paddington should be identical with Waterloo fares.
We’re confident that this is an imaginative, well thought-out project that will serve a number of major new rail markets and bring great benefits to passengers and communities whilst being financed and built by the private sector. Our development work to date has been fully supported by professional consultancy, including First Class Partnerships, Aecom, Gardiner & Theobald and Dentons.
When announcing the Government’s decision on Heathrow in Parliament on 25 October 2016, Chris Grayling, the Secretary of State, stressed the importance of accelerating the construction of southern rail links to the airport. But Heathrow Southern Railway does much more than that: it’s a smart scheme – with just 8 miles of new railway, it connects the South Western and Great Western networks to provide new journey opportunities for both airport and non-airport passengers, with significant crowding relief to the South Western network. Heathrow Southern Railway is surely the best possible prospect for developing private sector investment in rail infrastructure in Britain.