UK: Market-Led Proposals Update

Last Updated: 27 March 2018
Article by Zara Skelton, David Moore and Matthew Hanslip Ward

On 20 March 2018 Dentons held a "Restoring our Railways" seminar looking, amongst other things, at the "Beeching reversals" outlined in the government's November 2017 paper "Connecting people: a strategic vision for rail" and the challenges faced by and progress made with the initiative. The seminar panel comprised Rob Brighouse from East West Railway Company, Graham Cross of Heathrow Southern Railway, Rupert Walker of Network Rail and Roy Pinnock of Dentons and was chaired by Daniel Hanson of PwC. The seminar coincided with the Department for Transport's (DfT) "Call for ideas" in respect of rail market-led proposals (MLPs) and related guidance on rail MLPs (the Guidance).

An MLP is defined in the documents as "a project promoted by the private sector which addresses an opportunity not necessarily identified or prioritised in a department programme or through the Network Rail-led long term planning process". The DfT's call for ideas asks "promoters and investors to bring forward proposals which are financially credible without government support" and the Guidance seeks to "provide clarity on what the [DfT] is looking for in future MLPs and the process by which it will consider them". The DfT has scheduled industry engagement sessions in May and is looking for initial proposals to be submitted in June and July, with government's initial responses to the proposals planned for autumn 2018.

A package of guidance for investors and promoters

The Guidance is part of a package to be read alongside:

MLP categories

There are two main categories of MLP, used throughout the Guidance, which, in broad terms, are:

  • Category 1 – the MLP does not require government support by way of either direct or indirect funding, changes to regulated agreements, financing guarantees or guarantees of asset exclusivity; and
  • Category 2 – the MLP does require government support in at least one of the forms outlined in relation to Category 1.

Category 2 MLPs are then further broken down depending on their funding and financing arrangements.

DfT priorities

For Category 2 MLPs, the DfT has identified four priorities (the Priorities) for investment and action that will contribute to the strategic vision of creating a more reliable, efficient and modern railway. The Priorities are (not in order of significance): keeping people moving safely and smoothly; delivering the benefits from programmes and projects already committed to; new and better journeys and opportunities for the future; and changing the way the rail sector works for the better. The Priorities must form the basis of any business case for a Category 2 MLP and the Guidance breaks down each priority, outlining what a business case must consider in relation to it. For example, in relation to priority 4, "changing the way the rail sector works for the better", any business case must consider: how the scheme will be delivered to introduce efficiency; how the scheme will increase UK supply chain efficiency and productivity; and how the scheme will support the development of novel technologies and techniques. Category 1 MLPs do not have to address the Priorities.

Funding, financing and procurement

MLPs that minimise impact on government and maximise the use of alternative funding will be given priority by the DfT. Those promoting MLPs must outline a credible funding plan and demonstrate that any private financing structure employed is feasible without having a negative impact on the value for money of the project. Any scheme will also need to demonstrate a fair balance of financial incentives and risks between all involved, including government. Potential sources of alternative funding are discussed, including local authority funding, as is private financing and the various models which allow capital costs to be spread over the life of an asset. In short, however, the DfT makes it clear that government is open to considering any credible funding source and financing structure.

With regard to procurement, Category 1 MLPs are not required to go through a formal procurement and should follow the processes laid out by the ORR and Network Rail to move forward. Category 2 MLPs must undertake a procurement process once they enter the design stage – the exact process applicable will depend on the detail of the proposal concerned. The Guidance also outlines provisions allowing intellectual property to be protected in certain circumstances when a Category 2 MLP is undergoing a procurement process.

Criteria for assessing MLPs

Category 1 MLPs need only limited consideration by DfT as they do not require exclusive use of railway assets. Thus a promoter of a Category 1 MLP can simply apply for approval to deploy following liaison with Network Rail and the ORR to obtain necessary licences and safety approvals.

With regard to Category 2 MLPs, the DfT will assess them against the Priorities at five key stages, known as: Determine; Develop; Design; Deliver; Deploy. There is also the potential for assessment to be undertaken at intermediate stages as required, e.g. pre-design or pre-deliver procurement. Detail of the applicable criteria matrix in respect of the Priorities, the process and its likely focus at each stage is given in the Guidance along with indicative timescales for projects, depending on their size and complexity.

Wider application and impact

It is clear that this initiative is not confined to the rail industry – government is looking to engage private money and ideas across the entire transport sector, having seen success from similar schemes in relation to roads, airports and ports. Whilst the Guidance is specifically for rail MLPs, the assessment criteria set out within it are applicable across all modes of transport. Government recognises that this approach may be a way to progress other government initiatives in the areas of housing and air quality, as well as meeting local transport needs.

Overall, the fact that there are now detailed procedures in place is likely to be viewed as a positive development by the market and potential investors and promoters. Whether the package of measures put in place will have the effect of stimulating and speeding up outside investment remains to be seen, but having a target to aim at and a framework to work within will definitely increase the chances of success.

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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