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DISCUSSION FORUM Arguing for the UK High Speed 2 project Mar 2014
Tim Smart, HS2 Ltd, UK
In light of debates over the cost and benefits of the UK High Speed 2 (HS2) project, Tim Smart, Head of Engineering and Operations for HS2 Ltd, addresses negative comments in the media concerning the likely outturn costs of HS2 and explains why now is the time for the UK to get behind this controversial project.
The reason for building the UK HS2 can sometimes be obscured in the fog of argument about whether people work on trains, benefit-cost ratios (BCR) and the like. While some negative comments regarding HS2 come from notable sources, it is far from clear on what real basis these comments have been made. It seems to me, as Head of Engineering and Operations for HS2 Ltd, they were made on the narrow and shortsighted view that big infrastructure projects are not successful in meeting cost targets, rather than on a proper understanding of the proposals and strategies behind HS2. They also ignore recent successful mega-projects completed in the UK such as the new Terminal 5 at Heathrow Airport, preparations for the London 2012 Summer Olympic Games and construction of HS1, the Channel Tunnel Rail Link.
HS2 Phases 1 and 2

HS2 Phases 1 and 2

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 Kent to Fawkham Junction, with the challenges of passing through Ashford, was delivered in 2003 on time and under budget. In 2007, Section 2, under the River Thames and through to St Pancras Station in north London 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 UK Government, following the successful negotiation of a 30-year concession to a JV of Canadian pension funds (and yes, at the end of that concession the Government gets to sell it again). In doing so, this subsidised the building of the railway for the taxpayer by more than £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, which 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
The Hybrid Bill for HS2 Phase 1 (London to Birmingham) was submitted to Parliament on 25 November 2013 on behalf of the Department for Transport. This, amongst other things, required 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 had 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 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.
The HS2 development team 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 progresses and responds to consultations, a more advanced understanding of the engineering solutions and risks emerges and the cost profile will change.
The estimate for HS2 Phase 1 was established in the Baseline 3 cost review. The Secretary of State for Transport, Patrick McLoughlin, announced in June 2013 a target cost of £17.16 billion (at 2011 prices) including a 10% risk allowance. During the spending round process the UK Government Chancellor, George Osborne, 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.
HS2 will enhance and complement existing transport systems

HS2 will enhance and complement existing transport systems

Further efficiencies
One thing this cost estimate 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 managed effectively - 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 have well in hand already. 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, the owner and operator of most existing rail infrastructure in the UK.
It 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 2013 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 the HS2 development team has done?
Connectivity, not speed
Another topic of chatter within the media is about either HS2 diverting money from other infrastructure projects, or the money allocated for HS2 being better invested in enhancing the existing rail network. Again, to my mind, as someone closely associated with the project, 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 of the rail services. 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 - not just London. HS2 provides the backbone for achieving this and will work in harmony with other transport solutions.
In terms of capacity, over the distances proposed, HS2 can move more people/hr more sustainably than other forms of transport. The distances between London and the northern cities that HS2 will serve particularly are 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 railway line, Britain's busiest intercity route, will be full within 15 years, despite the fact that it has been upgraded already and 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 that 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 that will enhance the existing network by releasing significant capacity. This released capacity means a better proposition for passenger as well as freight services, which 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.
The solution to the UK transport problem demands serious infrastructure

The solution to the UK transport problem demands serious infrastructure

Top down or bottom up?
Some of the criticism in the media has dwelled on the economic case for HS2. This is always a difficult area, as to obtain a true picture one must look at the wider economic benefits, which are difficult to predict and therefore not always adequately accounted for in traditional cost benefit analyses.
In the UK, Europe and many other parts of the world, rail projects are typically financed 'top down' from government money. The benefit-cost ratio(BCR) predictions for infrastructure projects under these arrangements typically focus on the demand side economics which often, to my mind, 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 KPMG100 report. The report shows benefits to the UK from HS2 of up to £15 billion/year, with regions in the north benefiting twice as much as those in the south.
Proven benefits
A report published in 2009 after the construction of HS1 revealed £4 billion of regenerative benefit along its route. This is evidenced by the impressive development behind the HS1 St Pancras Station in London. One can point also to the success of the 2012 Summer Olympic Games, the economic boost the Stratford area of East London, 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 London Underground 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 the once derelict area of the Docklands with its associated significant economic benefits for London. 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?
References
'Speed up delivery to cut costs' says HS2 boss - TunnelTalk, March 2014
HS2 Hybrid Bill launched in UK - TunnelTalk, November 2013
Making a business case for UK high speed rail - TunnelTalk, September 2013
New tunnel added to UK high speed rail scope - TunnelTalk, May 2013
New 9km tunnel for UK high speed rail - TunnelTalk, April 2013
UK High Speed Rail 2 needs 56km of tunnels - TunnelTalk, January 2013
UK appoints high speed rail Phase 2 consultants - TunnelTalk, January 2013
Extra tunnels seal UK high speed rail approval - TunnelTalk, January 2012
CH2M-Hill selected as HS2 Phase 1 development partner - TunnelTalk, January 2012
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A version of this article originally appeared in Rail Engineer magazine

           

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