Official Report 237KB pdf
Good morning and welcome to the 11th meeting of the Edinburgh Tram (Line One) Bill Committee. This morning, all that we have on the agenda is oral evidence on the general principles of the bill, and the committee will consider the updated preliminary financial case. We have two sets of witnesses today. I welcome Alison Bourne and Patricia Craik, who are representing the group submission that members will find at B4 in their files. I also welcome Bill Raynal and Douglas Brown, who are representing the Wester Coates Terrace action group. Members will find their submission at B5. I gather that both sets of witnesses would like to make an opening statement for five minutes each. I suggest that they do that. Then I will open up the meeting to questions from committee members.
We thank the committee for allowing us the opportunity to speak this morning on behalf of the six objectors in Groathill Road South and Groathill Gardens East.
Good morning. We thank the committee for giving us the opportunity to speak at the meeting. I will make a short, joint opening statement on behalf of Douglas Brown and me.
Let me lead you gently into the questioning. Obviously, both groups of objectors on the panel are concerned about a possible funding shortfall in the construction and operational costs for line 1. Can you, having considered the updated preliminary financial case, summarise what you perceive the level of risk of that funding shortfall to be and what the consequent implications would be? I am picking on Mr Raynal first.
Thank you very much. I am no expert on the capital costs of construction. I would leave that to TIE and I have no reason to disbelieve Arup's report, which says that TIE has done a thorough job in getting the best estimates that it can get. I guess that much depends on what is commonly known in the game as optimism bias—the committee is considering that aspect—and what element needs to be added to that.
What are the implications of the shortfall?
There are two possible implications. First, the council or the Parliament might have to decide to take money from elsewhere, which would become a funding question for the Parliament about what it wanted to spend money on in relation to Scotland and the environment. Secondly, it could come down to borrowing, which would become a question of how to fund on-going borrowing requirements. However, as I said, I am not an expert on public finance.
We have a few points to make. As I said earlier, one of the main problems is the level of optimism bias. My reading of a Department for Transport report that comments on the complexity of the technical aspects of rail and light rail schemes is that line 1 should be regarded as a non-standard civil engineering project and that, therefore, the optimum bias starting point for line 1 should be 66 per cent. However, TIE chose the standard civil engineering optimism bias starting point of 44 per cent for line 1.
We will explore some of those points in more detail.
Paragraph 25 of the submission from the group represented by Alison Bourne and Patricia Craik says
While Alison Bourne and Patricia Craik look through their notes, I advise the panel that the first section of our questioning will be directed at them, so Bill Raynal and Douglas Brown can relax just now.
Sorry—which paragraph?
Paragraph 25. You say that
It is unclear to us exactly how much the Scottish Executive is prepared to allocate to line 1 alone. The background paper seems to suggest that the allocation is £210 million; however, in its response to objectors, TIE has suggested that the whole £375 million could be used to construct line 1. I think that TIE has said the same thing for line 2, and we are confused about that. If there is a shortfall to be met and TIE borrows money from the private sector, a premium will be charged on that money—it will be much more expensive. Arup went into the costs of hybrid options, private finance initiatives and that sort of thing. The cost of going down that route could turn out to be much higher than the £210 million from the Scottish Executive.
You say that it could be much higher, but I suppose that it depends which model is adopted. A bond model could be used.
Absolutely. We are no financial experts and we do not claim to be experts on PFI or hybrid options. However, you have only to consider how much more expensive it was to go down the PFI route for the new Royal infirmary to see that it would be cheaper to get a whole grant.
I can only agree; however, the committee must explore the potential of different models as we may have to ask questions about them in the future.
Yes, I mentioned in my statement the bus passenger counts that we have undertaken. We are very concerned about the patronage figures that are being put forward. At the start of the consultation, TIE said that line 1 would have a patronage of about 20 million passengers; however, that figure has come down and down. That suggests to us that expert and detailed modelling is far from being an exact science. The figures do not seem to be being adjusted upwards; they are progressively coming down.
It is important to project ahead for different patterns of transport use that could develop for a lot of reasons, not least because of congestion charging, for example.
My understanding is that the tramline has been modelled without congestion charging or anything else being taken into account. Our figures reflect how it would be if the tramline were in place now, taking account of future developments in the north of the city. We can see no explanation for the differences between the figures for the Lower Granton Road stop. TIE has said that it has based its patronage projections on patronage coming from a zone and that there may be displacement between one tram stop and the next tram stop down the line. However, in the case of Lower Granton Road, we are talking about the difference between 369 to 559 passengers and 17 passengers, which is the number that we counted. That is a huge displacement. We would have thought that displacement to stops on either side would be in the region of 10 or 15 per cent, not 170 people. As I said, the alighting figure that we counted was one person, not the 124 or 156 people whom TIE anticipates. That is a big, big difference.
You are concerned on two fronts: the construction aspects and the running and revenue aspects. You just made a comment about PFIs in reference to the Royal infirmary and you referred to the important fact that the costs of projects are perhaps overstated at the beginning, so that they gain in popularity. It is quite ironic that you say that while sitting in this building, which is a good example of such an approach—although I must point out that it was not a PFI.
I did not mention it as being one.
No, I am aware of that. However, the cost overrun and the optimism about the cost lend some credibility to your comments. In paragraph 82, you refer to computer models. Do you have any information about the date on which the models that have been used were based?
To be honest, it had not occurred to us to ask for that date. We would have assumed that the most recent date was used. We note that Arup seems to have spotted that a model dating from 1997 was used despite a more up-to-date version being available. That bothers us. Why was that the case? Why not use the most up-to-date version? We are talking about trying to model a scheme years before it is going to come to fruition. We would have thought that it would be important to use the most up-to-date model available. We do not understand why a 1997 model has been used for a scheme that will not be up and running for another 12 years.
On that basis, would you care to hazard a guess in relation to your concerns about the 30 per cent margin of error?
TIE was very reluctant to give us the bit of information to which you are alluding, and its representatives categorically refused to answer questions about that. We had to go to Mr Andrew Burns and ask him to elicit a response. TIE's reluctance deepened our suspicions. If the modelling was all right, could not someone stand up and speak for it? What was the problem with giving us the name of the model that was used? If it carried a 30 per cent margin of error either way—there could be an underestimate of 30 per cent as well as an overestimate—that would mean a big risk. Patronage figures of 30 per cent lower than TIE is anticipating for a scheme that already seems to be pretty finely balanced with regard to the requirement for subsidy could make a big difference to the revenue forecasts.
You referred earlier to the Craigleith stop and suggested that there would be very little development in that area. You presented figures demonstrating that usage would be extremely low. Have you passed those figures to TIE—in a helpful manner?
No. I will explain what has happened. We have been asking questions about patronage for quite some time, especially at the Craigleith community liaison group. TIE deems the issue a matter of principle and so has been unwilling to discuss it at the CLG's meetings. We considered that the matter was of local relevance, however. It would be surprising if the tram stop at Craigleith achieves the figures that are being anticipated. We can see the number of people who get on buses in the area, and it is nowhere near the number of people that TIE says will get on the tram there. For TIE to achieve its figures, there must be a certain number of commuters involved. That has implications for the area with regard to parking problems and so on.
What you are saying to us now contrasts with the evidence that we took from Lothian Buses last week, which suggested that virtually no contact had been made on the issues. That deepens the mystery.
Yes, it does. I read the evidence from Lothian Buses. TIE and the promoter are keen to demonstrate how thoroughly line 1 has been assessed and appraised from the beginning. In preparing for today's meeting, I have been reading all the reports from the start and noticed that the Anderson report—the first report—contains a list of people who took part in a steering group at the beginning of the process. Lothian Buses is prominent on that list. However, in its evidence to the committee, Lothian Buses said that it was not consulted at all.
I would like to move on to the issue of modern tram buses and high-tech guided buses such as the Irisbus Civis, which your evidence suggests could produce a step change in public transport provision in Edinburgh. In what way do you believe that those modern buses can address the speed and capacity gains that the promoter believes only trams can deliver?
The Civis bus is interesting, but my personal favourite is the StreetCar, which is coming on line. I have all the information about it here. It is receiving a great deal of publicity, and when I spoke to the manufacturers last week they told me that representatives of the City of Edinburgh Council had been down to have a look at it and were quite interested. It is going to be trialled in Manchester and South Yorkshire. It looks for all the world like a tram, but the difference with the StreetCar buses is that Wrightbus Ltd and FirstGroup will sell those buses only to cities that are prepared to put in priority measures such as green lanes and priority at traffic lights. They have the image of a tram and they look like a tram inside, but the big difference is that they do not require the infrastructure that a tram requires.
In paragraph 72 of your submission, you refer to the effect of inflation and rising construction costs. Could you explain what you believe those effects to be and how you believe they will impact on the project?
I cannot predict what is going to happen to inflation or to construction costs. We have just done a rough calculation that is based on TIE's figure of 3.75 per cent, which breaks down into 2 per cent for inflation and 1.75 per cent for construction inflation. My calculation is only for the three years between 2003 and 2006, but that already accounts for £28 million. Edinburgh's construction industry is booming and I believe that 3.75 per cent is a conservative estimate of the rate of inflation. Given how low the optimism bias is, we worry that the effects of inflation have been underestimated.
We move on to the Wester Coates Terrace action group. I hesitate to say this, but although the session is not about governance issues, we thought that it would be appropriate to let you put on record your concerns about governance. Can you explain your concerns about the relationship between TIE and the City of Edinburgh Council with regard to the status of the updated preliminary financial case?
The Wester Coates Terrace view is that we can have all the models and all the best advice in the world, but the success of this venture will come down to the people who will be responsible for delivering it. We have asked questions about accountability, but it is unclear who is accountable for the figures that are before us today and those that have been presented previously. That remains a significant issue for Wester Coates Terrace residents. If the tram venture is to be a success, accountability for delivery must be clear. As Phil Gallie said, we need look no further than the feedback to the Fraser inquiry on the Holyrood building—immaculate as it is—to see the force of the point about accountability.
Can you say more about your concerns in relation to the promoter's operating surplus figures, given the potential annual life-cycle replacement costs?
There is a fine balance in the projections between the operating revenues and the operating costs, which leads to a fairly marginal overall business case, particularly when the life-cycle replacement costs are taken into account. According to the projections that we have seen, it will be 2017 before operating revenues will cover operating costs and life-cycle costs.
When our group submitted its response, we did not have access to the detailed cash-flow figures to which I alluded in my opening statement. We now have those figures and we can see what the life-cycle replacement costs are.
In section 3 of your submission, you express concern about the robustness of the predicted revenue. What are your specific concerns about the predictions and, from the financial case document, on whom do you believe the risk of not meeting the revenue predictions will fall?
First, I will cover our view of the risks in terms of the predicted revenue. As I said, we are not experts on financial modelling. It is clear that a lot of work has been done on the detailed models, but we all understand that a model is only as good as the information that is put into it. If one looks at the predicted revenue more from the commonsense point of view and on anecdotal evidence from other tram schemes, one can see a huge number of associated risks.
It was fine.
Can I add a couple of quick points? We did not have full details of the patronage figures—they have not been made available publicly, and I am not sure that they can be found on any of the websites. However, to be fair to the promoter and TIE, on either Thursday or Friday last week we got access to those data. It would be fair to say that going from zero patronage to 7 million passengers practically overnight would be a big step. I commend the Arup report, which says that an analysis with a more gradual ramp-up might be more valid. However, I do not think that it would make that much difference to the end-of-the-day cash flows that the project is forecasting.
Thank you. Your thoughts on such things are valuable to us for our future questioning.
I accept the fact that you are not experts on modelling, but we are just trying to flesh out as many points as we can, as Rob Gibson said. You have made it clear to us that the updated PFC does not enable anyone to say a great deal about projected capital and revenue costs. Indeed, you are pretty much telling us that it is virtually of no use. My question is twofold. First, in addition to what you have talked about, what would you like to see in the detail of the PFC? Secondly, is it fair to expect that sort of detail to be included in the PFC at this stage of the project?
We would have expected someone somewhere to have put their name to the figures and to have been prepared to support them before we got to the point of discussing the project in this building. I would have expected to see that sort of information, but we appear to be running in a parallel process. I am sure that the promoter and TIE will say later that there will be an outline business case, and they have clearly commented that that is the general procedure that will flow in March. At that point, the figures will be somewhat more crystallised and people's feet will be more nailed to the ground in relation to delivering on them. Until then, the matter remains a little unclear.
I accept that point, but let us have some blue-skies thinking. Accepting the fact that you are not modellers, do you have any suggestions for us? What sort of information might be useful?
For some time, both Arup and I have called for a simple table that says how many people will get on each year who are new to trams, who switch from cars and buses and who use public transport because of developments. A simple table such as that would enable us all to take a commonsense approach to deciding whether the scheme was viable. The buying-in of Lothian Buses to the process of the patronage numbers would also be very useful; I guess that that is now happening. Those are the two main things. We could model from here until eternity and we would probably get no better figures. We need accountability and a simple table that tells us how many people will switch from which areas. My understanding from the Arup report is that that information is not yet available.
We may pursue those points later.
Alison Bourne identified figures that TIE released on potential usage at Craigleith and Lower Granton Road. She has checked those figures and found a disparity. On reading your submission, we find that 45 per cent of the economic benefits of the scheme will come, in essence, from car and freight displacement. Could the differential in Mrs Bourne's figures have come about because the people from the areas to which she refers all currently use cars, but will do an about-turn once the tram is introduced?
I do not think that that is the case at all. Transport initiatives throughout the country are considered according to the same process that the promoter and TIE have followed. That process is outlined in the second Scottish transport appraisal guidance document—the STAG 2 document—which endeavours to highlight the real economic benefits of the scheme. Those benefits are wide and varied—that might be the best way of describing them, from what I can read into the document. We would profess that TIE and the promoter have taken on board and followed those processes at face value.
Thank you for that helpful clarification.
The view of the Wester Coates Terrace action group is that, with a circular line no more than 2 miles from the centre of Edinburgh at any point, it remains to be seen whether economic benefits will be generated as a result. A circle line has existed in my native city for a long time, and I do not necessarily believe that it has helped to regenerate that city—or rather, I do not view it as having been a vital component in that regeneration. The service could help, but I do not view it as vital, as has been suggested in some of the evidence that has been given.
I have read the evidence from the Edinburgh Chamber of Commerce about all the benefits and future prosperity that it sees flowing from the introduction of trams to Edinburgh. That made me laugh. It backed up something else from the report that I have been reading from the Department for Transport website. That report says that businesses are generally in favour of anything that they get for nothing. The business community welcomes the tram scheme because it is not costing it a dime—it is all coming out of the public purse.
It is fair to say that most businesses feel that they pay too much to local government already.
I suspect that they might just feel that way.
The money is not paid in a localised way. That gives some validity to your point.
Such a measure has been taken in France. I am trying to point out the differences that exist. The Department for Transport's report suggests that, whenever the Government gives money towards a major construction project, all the key actors tend to be delighted: they practically bite the Government's hand off. The report also highlights the fact that promoters try to contain the true implications of construction costs and potential subsidies until the construction scheme concerned has reached the point at which it would be very difficult, politically, to withdraw from it. That is a worry in this case.
It is my understanding that the business community in Nottingham was not as keen as you suggest is generally the case. I reinforce Phil Gallie's point that businesses already contribute to the public purse.
Meeting suspended.
On resuming—
I welcome the second panel: Graham Bissett and Mark Bourke from TIE, John Watt from Grant Thornton UK LLP and Les Buckman from Steer Davies Gleave.
Steer Davies Gleave led the demand forecasting and appraisal for the scheme. We pulled together the STAG appraisal.
That is helpful. I needed to be clear in my own mind about that. I understand that you do not want to make a five-minute opening statement.
That is correct.
Excellent. I will lead straight into our questioning.
That is a question for Les Buckman. Before I hand over to him, I will make one comment, which is that the NAO report was very useful to TIE. In a sense, we in Edinburgh are getting the benefit not only of its findings but of the experience on the ground of existing schemes—on the whole, English schemes, but to some extent schemes overseas, too.
As far as I understand it, the question is, if demand forecasts were—let us say—25 per cent lower than those in the STAG appraisal, what would happen to the promoter's economic case. In broad terms, one would see a 25 per cent reduction in the benefits to public transport users—the transfers to tram will drive the bulk of the benefits. On the highways side, one would get much the same answer, as there would be the same level of modal shift. It could be argued that the highways side would be less affected. I am sure that the figure would go down by a small amount, but not by the full 25 per cent.
I guess that the question that I am asking is what that does to the preliminary financial case. If there is drop in patronage by a quarter, how does your preliminary case stack up?
It is worth noting that the preliminary financial case is based around a build-up in the initial three years of the project and that a 25 per cent reduction is built into year 1. Therefore, if we were to experience a shortfall in the first period, that would have no economic impact on our case and no impact on our financial case.
It is also worth noting that the development partnering and operating franchise process that we went through included early operator involvement. One of the NAO recommendations was for such early private sector involvement and we have therefore had the benefit of Transdev's views. Transdev is saying that the numbers that it is seeing at the moment are base case numbers and that it expects to see an enhancement of those. The process of external market testing is already under way.
You referred to the fact that you had benefited from the NAO report. Will you remind me of when the report came out? What changes have you made to your financial figures, if any, because of the report?
The report came out in April and we produced the updated PFC—the one that is on the table today—in September. It would be fair to say that the report did not change our financial projections materially. However, the relevant issues that it contains—which you might not want to go into in detail—concern, for example, the procurement strategy and how the risk can be taken out of the process until the latest possible stage. Another issue that is relevant to Edinburgh is the almost complete lack of integration dialogue between bus and tram operators in all the English schemes. That dialogue is under way in the Edinburgh scheme. We have not changed what we are going to do; in a sense, the report validated what we thought was the right thing to do in any case. We would not have directly changed the numbers that are in the PFC at this stage.
If you thought that it was the right thing to do, why did you not do it before? Last week, Lothian Buses said that there had been no dialogue.
There could not have been, as we appointed Transdev as the operator only in May, when the contract was formally signed after a lengthy period of selection through the normal procurement process. Transdev needs to get round the table with Lothian Buses to have a meaningful dialogue, which is way ahead of what is being done in most of the other UK schemes. In those schemes, the operator was not a feature of the dialogue until the day when the tram began to run. In most cases, the operator was part of the construction consortium; in Edinburgh, we have brought the operator in, effectively, five years ahead of time so that we can have a meaningful dialogue on bus integration and a range of other important matters, including the design of the system. That dialogue has now commenced, but it could not have commenced until Transdev was formally appointed.
Sticking with patronage, let us move on to the nature of the people who will use the tram system. I believe that, although we have asked for that information, we have yet to receive it. I am looking for relatively simple details, absolute numbers and percentages for line 1 demand that would result, first, from modal transfer from cars; secondly, from modal transfer from buses; thirdly, from generated demand; and, fourthly, from new housing or business developments. Please do not give me a flurry of figures now; you can put those in writing. However, I need an absolute assurance that we will get that information.
By and large, we can help you with your request. There is a slight issue over the fact that the framework for the modelling does not explicitly enable us to separate out car transfer and generated trips; it does not enable us to extract that information in broken-down form.
On the basis of your experience, you could give us a reasonable guess, could you not?
Absolutely. I could give you a ballpark estimate of what those figures would be.
That would be very helpful.
Let us turn to central Scotland traffic model 3 and detailed assignment modelling. In some cases, TIE has indicated that it has updated the data that are used in patronage and revenue forecasting. To ensure that the underlying data are sufficiently robust to base line 1 forecasts on, can TIE provide details on the updating of the CSTM, which represents traffic movements in central Scotland and which was used to derive revenue and patronage forecasts for line 1?
The basis for the detailed assignment models is the CSTM 3 model from 1997. The model development reports for that model are publicly available documents of which I have copies in my office. I can provide those after the meeting. I am not sure what you might want beyond that.
Given that we are holding this oral evidence session to discuss a matter on which there have been close questions, it would be helpful if we could discuss the matter instead of having to pore over figures. We are trying to establish why there were no formal checks of the results of the DAMs, to forecast the impact of line 1 on road and public transport.
The DAMs were based on CSTM 3 in 1997 and were updated to 2001. In relation to public transport, a series of bus counts were undertaken about a year and a half ago to check flows against the base-year flows for 2001 and the flows were found to be broadly in line with the flows in the model. That is the basis for the contention that the 2001 model is robust enough to forecast the ridership for line 1.
Have you carried out checks against an independent data set, to ensure that the models accurately reflect the current transport conditions?
The bus counts provided that independent data set.
Who carried out the counts?
Traffic-count consultants carried out a series of bus counts.
We are concerned that the data from 1997 are quite old. It is helpful that you updated the model to 2001, but we want to understand how you did that. You provided examples and I am sure that Arup noted the offer to follow that up. The committee will pursue the matter.
This is a pretty straightforward question. Can TIE provide information on other UK studies on which the mode factor was based? If you cannot do so now, it would be useful if you could do so in writing.
I think that we can do that.
Yes.
Will you follow that up?
Yes.
There are in-principle issues about the mode constant that is applied. Can you expand on those or give us any background on the matter? Given that you are here to give evidence, it seems daft that you are just going to write to us. The figures can be understood, but there are principles to be considered.
You ask about mode constants. Transport models use a computer-based representation of the transport network in the real world. For example, the model knows that bus 22 runs every eight minutes from Ocean Terminal, up Leith Walk, along Princes Street and on to Haymarket and further west and takes X amount of time to make that journey. We have such information for the entire public transport network. There is a similar representation of the highways network, which includes details about the road layout, junctions and other matters.
I was not being perverse in asking you to explain what a mode constant is. It includes a bundle of soft measures of matters such as comfort, reliability and quality. As that is about what local people think, why did you model against other UK cities rather than research what Edinburgh residents think? I do not suggest that they are dramatically different from other people, but I would have thought that local research was more useful to you than examining other UK cities.
That argument has some merit, but many studies tend to produce broadly comparable numbers. In my experience, up to eight or 10 minutes' travel time preference is typical for tram compared with bus. Some outliers may exist but, broadly speaking, the figures tend to be in a relatively narrow band.
Having let the subject go, I now want to return to it. I hear what you say about what the convener called soft measures, which compare a dirty old bus—those are your words, not mine—with a nice clean tram that has a smooth take-off. Surely such aspects can be quantified in Nottingham and Manchester. Hard evidence must exist.
Are you asking whether we can expand the notes?
Can we have details, coherent explanations and information to show that what you have said about soft issues is right? I suggest that you can quantify things such as old bus—to use your words, not mine—versus new tram, as you have experience of what has happened in Nottingham, which surely must be an indicator to help with planning here.
Unfortunately, information of real-world experience is relatively thin on the ground. Very little post-implementation monitoring of such factors is done, for whatever reason. I cannot say why. Going back to check the assumptions that have been made is not a standard practice.
I find that statement surprising, but I will let the matter go at this point.
It would be helpful to understand what the assumptions were and why you did not consider local research. It would also be helpful if you could come back to the committee to amplify your comments.
What has been said sounds surprising, but it relates to one of the NAO's findings. One of the NAO's criticisms of the mainly English schemes was that post-implementation monitoring was not more comprehensive and effective. I am afraid that the NAO report backs up the paucity of on-the-ground information.
Given the image of Edinburgh running 20-year-old ramshackle buses on bumpy roads, I am not sure whether my questions are now appropriate. That said, the TIE executive summary clearly states that one risk will be that tram and bus services are not well integrated. Work on the "innovative structure" that is being put in place to ensure integration is at an early stage. I am sorry to hark back to the evidence from Lothian Buses last week, but it seemed to me that we are not at any stage at all with Lothian Buses, which has not been brought into the picture until now. In view of what I have said, is TIE absolutely confident that the assumptions on bus reorganisation that are used in the central case are robust?
I will spend a moment explaining the process. The point has been reinforced that the process is at an early stage. The mechanism that we have established with Transdev and Lothian Buses—which is a major part of the integration dialogue, although not the totality of it—is a company that has been set up called Transport Edinburgh Ltd, which members may have heard of. That company is 100 per cent owned by the council, so it is still within the family. The intention is that it will, in effect, gather management and a board of people—which I hope will be limited in number, but highly qualified—and that those people will orchestrate the service integration dialogue mainly between Lothian Buses and Transdev.
You must acknowledge that we are considering the financial case now and that a figure has been presented by TIE as the capital cost for the scheme. It seems to me that we have problems when issues of critical importance—to use your words—have not been cleared before we come to the expectation of the overall financial cost. Perhaps there are other issues that can be taken on board. What would happen if, for example, the bus operators were to adopt a more competitive response to any approaches from TIE? I recognise that, to a degree, we are looking at a monopoly at present, but that might change in future. People have been told how much the tramline will cost, so we are talking about a fixed sum of money. However, are we in a situation in which the committee will look pretty bad in four years when we find that the costs have gone through the roof?
The risk factor is not so much the cost, which is likely to be stable at the current level. However, if there was a serious competitive reaction to the introduction of the tram—to take your scenario—the figure that would be most at risk would be tram revenue. That has been the case in a number of the English cities. I will not name names, but a number of the schemes suffered badly because the bus companies immediately reacted to the introduction of the trams, ran buses at subsidised fares against them and took tram patronage below the planned levels.
You have answered the follow-on question for me, because I was going to ask about the implications of single-market trading requirements. Have you included those in considering the overall trading feasibility?
Yes, more to have the process that we are going through approved than for any conclusions. However, we have opened a dialogue with the Office of Fair Trading to keep it informed of what we have been discussing. Those communications will become more tangible as the planning and the integration ideas become more tangible over the next few months and the years ahead.
My question is about the increases that you project in the use of line 1 between 2011 and 2026 and the sources of that increase. Will you confirm that car use is forecast to grow by around 50 per cent between 2001 and 2026?
Yes, by around 50 per cent.
Can that level of growth in car use be accommodated during peak periods or will the growth spread into the interpeak periods?
That aspect of behavioural response is reflected in the modelling, which, at the strategic level, takes a series of time slices through the day and forecasts how many travellers there would be in each of the time slices. As part of the process, travel costs for each of those time slices are considered. Clearly, if the costs become excessive, trips move to the next time slice. The modelling reflects and picks up that peak spreading. The answer to the question whether the network can accommodate peak travel is, in effect, yes—the excess demand within the modelling framework spills over to the adjacent time periods.
The crowding function is used to reflect the fact that travelling on uncrowded services is preferable to travelling on crowded ones—we all agree about that. I accept that the crowding function that is used in the detailed assignment model is reasonable, but demand is forecast to be above capacity by 2026. Will TIE outline how the apparent overcapacity on tramline 1 by 2026 will be catered for and say whether other modes, particularly bus, will be overcapacity?
The forecasts for the trams for 2011 are fine, but, as you say, there seems to be an issue with crowding by 2026, particularly on the western leg coming into town in the morning peak. We assumed the blanket figure that eight trams an hour will go round the loop throughout the day. If overcrowding occurred at particular points or times of the day, the timetable and the service pattern for the trams would be adjusted to cater for that. It would be pretty straightforward to tweak the system to give a lower level of service on Leith Walk—where there will be spare capacity in 2026—and run an extra tram or two on the western arm. Alternatively, an extra tram an hour might be run by using one or two of the spare vehicles.
Will TIE explain the justification for including the monetary economic benefits to car users in areas that are seemingly remote from line 1? For example, trips from west Edinburgh to south and east Edinburgh have been included as well as those from east Edinburgh to south Edinburgh. The STAG report highlighted that the figures presented on that issue were an overestimation. Will you explain why they were included in the first place?
The travel time benefits to car users will be more broadly spread than those to bus and tram users. There will be a domino effect, working out from the city centre. As congestion is relieved in the area of tramline 1, car trips will reroute to take advantage of that, which will have a broader impact on car users than there will be on public transport users. The areas that we included are quite large. If one looks at a map, one sees that they cover a lot of trips that would pass through the city centre or close to it. Therefore, it was felt that it was valid to include those benefits.
But they are a major element of the economic benefits. Previous reports have identified them as, I think, 45 per cent of the economic benefits. It is hard to identify major car journey savings for those who use the inner circle route of tramline 1. How on earth can you justify the figure of 45 per cent, when it is acknowledged that tramline 1 will not have a major effect on car users?
We will get a lot of small-time savings for a large number of car users.
But why? If people living around tramline 1 do not use their cars at present for the type of journeys they would take on the tram, how will savings be produced, even in time?
I am not quite sure that I follow your point. The driver for travel time savings is that when the tram goes in we will get mode shift from car to tram. That will free up an element of road space, which will make car journeys faster, so time will be saved.
That is the very point that I am making. Today's evidence does not show that there will be a mode shift from car to tram on tramline 1.
Are you saying that between west Edinburgh and south Edinburgh there will be no mode shift?
Not from car usage. People are not going to go from car to tram.
Exactly. The number of trips will probably be the same from the outlying areas, but car users in those areas will benefit from having faster journeys, because the trips that will be taken by tram instead of by car will release some of the road space and therefore the highway network will become less congested.
I understand the bypass argument, but I cannot understand why there would be car journey savings between Leith and Haymarket. Perhaps some of your colleagues could comment on that point.
I am not sure that we can do better than Les Buckman has done. We are talking about a modelling issue, the assumptions that go into the model and the outputs that flow from them.
I would like TIE to explain why benefits to movements from Haymarket to all other areas are some £36.6 million, while movements to Haymarket experience a disbenefit of £25.9 million.
That is on the highway side. The issue there is the nature of the highway network. The way in which the road layouts and junctions operate will differ depending on which way someone is travelling. If, for example, they come to a junction and turn left, the delay in their travel time might be different from the delay that might arise if they turned right. It is conceivable that, in certain locations, there might be junctions where there is a benefit to turning in one direction and a disbenefit to turning in the other direction—for example, where a tramline has taken out a lane that used to be used for turning right. Strange as it seems, it is reasonable to expect different impacts depending on which way people are going.
Will the differences be of that magnitude? We would have expected the numbers to be broadly similar, but there is quite a difference.
That takes us back to my earlier point: we are talking about a large number of journeys being made. The morning peak-hour matrix contains 120,000 car journeys. Okay, that covers the whole of Edinburgh; however, the numbers in the PFC are projections over 30 years. If only 10 or 20 seconds are added on to each of those journeys, it soon starts to add up.
My second question has probably been answered but, for the sake of clarity, can you confirm whether any allowance was made in the model process for generated highway trips taking up some of the available road space caused by car drivers diverting to tram? I think that you have touched on that, but can you please clarify that for the record?
The short answer is yes. If there is a change in travel times for public transport or cars, the modelling framework will reflect that in terms of whether the level of demand goes up or down. There can be an element of new car trips in there.
Let us turn to the costs. It is important that we understand the relationship between the projected costs of line 1 on its own and the projected costs of line 1 and line 2 together. I ask the scheme's promoter to confirm that, if both lines proceed, the proposed allocation of Executive grant for the line 1 works is £210 million.
Sorry, could you please repeat the last part of your question?
Can you confirm that the proposed allocation of the Executive's grant for line 1 works is £210 million?
That is the allocation that we put in the PFC—it is £210 million out of the £375 million.
What sources and amounts of additional funding are considered likely to be available to cover any additional costs that are incurred due to contingencies, optimism bias, revenue risk or other factors during the lifetime of the concession?
I will explain the sources that we are looking for, as it is a complex equation. Some of the points that were made earlier—apart from being entirely sensible questions—were a good example of the fact that this is quite a complex financial project involving several interactions. It is important to underline the fact that, although the word "subsidy" was used a couple of times this morning—and I understand why it was used—it is not a word that TIE uses or that has been used in any conversation that I have had with the council. The underlying financial objective is to demonstrate that the tram project will not require consistent or continuing subsidy, assuming that the projections are robust. Clearly, if that does not work out, that is a different issue and contingencies will be needed.
In your answer, you seemed to move between talking about line 1 on its own and lines 1 and 2 together. We are in a situation in which we must establish in our minds what benefits line 1 on its own would produce. I asked you whether the £210 million from the Executive's grant would be sufficient, but it strikes me that the extra income from the things that you mentioned would be much smaller if we were talking about just line 1. It appeared that you jumped between talking about line 1 and talking about lines 1 and 2 together; I will read the Official Report to check that. I am not yet clear about whether the additional revenue will be sufficient to meet contingencies.
I apologise if I did not make that clear.
That is all right. It is a factor in your overall thinking, but it is essential for us to know what the benefits of line 1 in particular will be.
Absolutely. There is a basic difficulty arising from the fact that the grant is proposed as one totality and we have made an assumption that we would split it in the way that we have set out. That is not mandated in any way but it gives us a benchmark. For clarity, however, the situation is that the aggregate of the funding sources, the costs and the contingency stack up for line 1 and line 2 on their own, using that allocation of grant—£210 million to line 1 and £165 million to line 2. I am sorry if I confuse the two sums, but the numbers stack up when line 1 and line 2 are considered individually.
It is not a case of confusing the two sums but of confusing a project that includes both of them and a project that includes only the sum relating to line 1, which is what we have to deal with.
I would like to ask some daft questions to ensure that I am clear about what you are saying. First, I take it that the figure of £11.6 million that we have for the private developer contribution is the aggregate, over 30 years, of the sources that you have talked about. Is that correct?
No, that is an additional source of funding over and above what I have mentioned. That relates to in-principle agreements that have already been reached between the City of Edinburgh Council and developers, involving free land that has effectively been contributed as an asset. Our capital costings are taken at the gross level, as if we had to pay cash for all of that. That reduces the capital cost to that extent. The money that I was speaking about is over and above that sum of money.
Were the other sources for revenue purposes?
The other sources that I mentioned will be revenue flows over 30 years.
I have another daft question. How is the amount of money that you thought you might generate from advertising affected by the fact that the route goes through a world heritage site?
We started off with bigger ideas than we ended up with. The ideas that are now being costed are in keeping with the design manual for the trams and the stops in the world heritage site.
I understand that you made an estimate of the costs relating to utility companies and utility diversions in December 2003. I am not aware that there have been any updates on that, so I hope that you will share any with us. At that time, some companies gave you detailed estimates, others gave a global figure and others were completely silent on the matter. As the matter is significant, can you provide us with an update of the cost of the works? Can you summarise details of the estimates from each utility company?
We have set aside £31.8 million for utility diversions. For line 1, we approached each of the utility providers to obtain a quotation for the scope of diversions that we anticipated.
That is helpful, given the position in December 2003. I take it that all the utility companies have responded in detail.
All the utility providers bar one responded. I am not sure whether the committee wants to know which one it was.
Was it Telewest?
Yes, it was.
There you go. We have done it for you.
We made all reasonable efforts to obtain a quotation from Telewest. As it stands, the scale of diversions that will be required for Telewest utilities is small, and we made allowances for them by using rates that were similar to those we obtained from other providers.
The committee has not received any of that information, so it will be helpful if you share it, particularly the information on everything that you have done post-December 2003. Could you give us an idea of the timetable? The work will have to be defined more than it is currently, so what timetable is stretching out to the horizon?
The timetable up to operating a tram is complex to navigate. At this stage, we have examined the potential construction strategy that can be employed; that is, the way different stretches of the tramline can be constructed in a phased manner, by employing in parallel a number of teams to construct the tramline. The output from that is being further expanded and developed to account for our overall procurement strategy. Reassurance can be taken from that fact that the rates of diversion and construction that we employed to generate our overall programme take account of the rates that have been employed in other schemes in the UK. We believe that the overall programme that we have laid before the committee is robust.
I return to revenue. If there is any reduction in revenue and you do not meet your costs, you will be in trouble. Three specific areas arose from my questioning of Lothian Buses plc last week on quality contracts. Lothian Buses seemed bullish about the fact that other operators would not be swooping in.
The revenue per tram kilometre is indeed more than the revenue of existing systems, although not a great deal more. Based on the other revenue indicators that we have, it is within the range of existing systems—there is one example where the amount is higher. There are issues about the figures being a forecast for 2011, whereas the revenue figures for existing systems are current. There will come a point when the revenue will grow—
It will inflate itself by 2011 to achieve the sort of figure that has been quoted.
Yes. I did not catch your third question.
There is a lot of competition along Leith Walk, so will you explain the split of passengers between the eight trams and 27 buses? I am particularly interested in the 27 buses. Lothian Buses said, "Oh, we can do it; we won't need quality contracts, everything will be fine." Yet, in my mind's eye, I can see people buying an old bus, swooping in and offering competition on Leith Walk, which will have been freed up. How do we know that that will not happen?
Currently, 49 buses an hour run on Leith Walk in the morning peak. If we put on eight trams an hour, each tram will have approximately three times the capacity of a bus. So, we will withdraw or cut back some of the bus routes and restructure them to pull back down the available capacity on Leith Walk. The panel has said that the scheme will endeavour to put in place an integrated network with Lothian Buses whereby the bus network in the line one area will be adjusted to reflect the presence of that line, although perhaps not to duplicate it completely.
This might not be a question for Mr Buckman alone, but he has just suggested that the forecast cost and revenue that will be earned per tram kilometre is an inflated figure and an estimate for what the earnings might be four or five years from now. Will someone on the panel advise me whether the costs that have been identified in the financial plan are based on current-day valuations or on inflated valuations?
The reference was in the context of tram revenues in 2011 as compared with comparable systems today, which is a slightly different matter. However, to answer the bigger question, the revenues, costs and so on that we have been looking at are either all consistently based on 2003 prices and are thus comparable, or the numbers have been indexed in a different set of revenues. However, we have not mixed or compared indexed revenues and fixed-price costs, if that was your concern.
Thank you, I wanted that clarification.
To be absolutely clear, are you giving us a cast-iron guarantee that all the numbers that you are looking at for 2011 are inflated figures to predict costs, expenditure and income, and that the playing field is entirely level in that context?
I will be corrected if I am wrong, but the revenue figure that we have referred to reflects 2003 prices. The underlying driver is patronage. The point that was made was that the patronage projection for 2011 is still in the ramp-up period, whereas we are comparing the patronage with other UK systems, which are more mature. Therefore, one would expect further relative growth in the Edinburgh number. We are not talking about a price issue—I think it was to do with patronage volumes.
I will wrap things up at this point, gentlemen. We have some remaining questions, and it is our intention to hold a wrap-up session next week. I know that other questions will flow—in addition to the remaining questions from today—once we have studied the Official Report of the evidence that we have taken. I am conscious that you kindly offered to provide us with information in writing. I will be awful and ask whether that can be done by Thursday. It would be enormously helpful to have that detail to examine before we call you back next week. If it will be difficult to provide it by Thursday, I will leave the negotiation behind the scenes with the clerks; however, we are keen to have as much as you can give us by Thursday of this week, if possible.
Thank you.
I am sure that we will find something for you to answer next week, so do not take today as an indication of things to come.
Meeting closed.