Contract 6 Financial and Economic Analysis Norway High Speed Rail Contract 6 Financial and Economic Analysis Warwick Lowe Commission Director Note

Overview Subject 1: Impact on road and aviation Subject 2: Rail cost model Subject 3: Funding and operational analysis Subject 4: Socio-economic assessment Subject 5: Uncertainty analysis

Subject 1: Impact on road and aviation including: - airport terminal handling efficiency - multi-operator scenario DIVIDER Pictures (left to right) - our work on Heathrow T5 - inter-city bus in Norway - airport in Norway - Flytoget tra

Impact on air and road sectors Required because: Demand evaluated on end to end journeys Modal shift will impact on appraisal, e.g. Co2(e), potential air/road capital programme & tax. Air traffic and airport capacity review, London

Interaction with other modes HSR Immediate impact Other modes demand Other modes revenue Commercial response from other modes HSR will abstract demand from other modes. This will have a revenue impact on these other modes. The operators of these other modes will respond Depending on their responses, there are implications on their costs and the socio-economic impacts of these modes, e.g. pollution Meanwhile, depending on their responses, there could be impacts on HSR demand, revenue and socio-economic impacts While the revenue pressure on other modes can be established with a degree of certainty, second-guessing of response strategies from (particularly) air is harder The exception to the above logic is road – HSR will lead to fewer cars, less toll revenue, and less requirement for investment on roads Impact dependent on response of other modes Other modes costs Other modes socio-economic impacts

Airport terminal handling efficiency Part of the overall travel time by air (competitiveness against HSR) Many elements to the overall transit time Each element is subject to time variability Improvements to target times in one or more elements needs to be supported by overall reduction Time through security and baggage handling can improve with technology but can deteriorate due to regulation Air transit process (courtesy IATA) We will undertake sensitivity tests to establish the extent improvements here can affect HSR demand Airports have an interest in allowing passengers sufficient in their shops Improvements to transit time have costs associated e.g. how many staff at how many desks and how many security gates

Market segments and services Time People – market segment Transport service Speed Ferry Student backpackers Bus Train Rich Retired directors Slow Ordinary office workers Poor Fast The interaction between HSr and other modes depends on the market – different markets may attract more HSR on track competition HSR ? Business executives Plane Poor Rich Cheap Expensive Money Price

Multi-operator scenario Premium long-distance services? Revenue maximising “open access” operator(s)? New entrants for under-served markets? International operators? Airport express? Tourist / special services? Station and facility upgrades for target customers? Multiple operators can result in increased investment and innovation – and increased market targeting. Operators may make small scale investments in ticketing, marketing and rolling stock, but tend to be averse to infrastructure. Some rail services will require subsidy to achieve desired socio-economic aspirations. If cross-subsidised they may need protecting from competition. Picture: two ticket machines – creating confusion for (new) passengers?

Subject 2: Rail cost model DIVIDER Picture: our work on TGV costing for technical due diligence

Model development (Faithful + Gould) A “top down” capital cost model Driven by quantum and quantified risk assessment Appropriate for use on all scenarios HSR cost data review (Europe) F+G in-house expertise Whole Life Cost Atkins (with Faithful + Gould) has: Undertaken a review of High Speed across Europe Constructed a “top down” capital cost model Driven by “quantums” & quantified risk Suitable for all scenarios and alignments Constructing a (simplified) “opex” model Driven by timetable for each scenario A (simple) operating cost model Driven by timetable for each scenario

Subject 3: Funding and operational analysis Funding (paying for) projects will involve some kind of financial structure Financing a project will create new incentives Atkins (with Ernst & Young) is building a financial model to quantify these. Builds on work by PWC – Fed by F+G, Quantifies outcome for different costs, scenarios and market conditions

Model development (Ernst & Young) Demand Capital cost Operating cost Financial model Impact on different parties under different market and project scenarios Commercial organisation Market and regulation

Subject 4: Socio-economic assessment DIVIDER Pictures: top left, down - using GIS on rail benefit analysis, Thameslink example - population density in southwest Norway - city centre station in Norway - access time to Bergen city

“Alternative” (extended) assessment Approach Assessment period Norwegian state (JBV) methodology International experience Discount rate and early-stage “optimism bias” Alternative (extended) approaches Values of time Real “value” growth e.g. values of time Review existing Norwegian state methodology Calibrate “core” model as appropriate (for High Speed rail) Review International and Norwegian alternatives. Construct “alternative” (bespoke) model Prepare to appraise on “core” and “alternative” model Some of the issues: - Assessment period: Norway current: 25 years. Longer? 40 years? - Early stage cost estimates can be optimistic, so add optimism bias while reducing the risk element of the discount rate? - Current Norwegian rail values of time are low. HSR users values of time should be a lot higher. We are investigating what their values could be - Current Norwegian approach: no real growth e.g. value of time. Perhaps this should grow in line with per capita GDP growth - other aspects include distributional analysis, treatment of impact on other modes, qualitative discussions on Wider Impacts “Core” assessment “Alternative” (extended) assessment Other aspects

Subject 5: Uncertainty analysis Cost estimation includes quantified risk assessment But these concentrate on “knowns” & construction Uncertainty analysis captures wider risks including e.g. market, regulation, legislation Review of previous High Speed projects Consideration for scenarios Framework for policy considerations

Demographic and economic Population growth The public’s environmental concerns Economic growth The public’s funding concerns Human factors Employment growth Passengers’ priorities Demographic and economic Travel patterns Perception of HSR Technical standards Policy on HSR Policy and legislative Dealing with climate / terrain HSR technology HSR cost Safety and security standards Maintenance solutions Exchange and interest rates Competition from other modes Wider policies Supply market maturity Price inflation Interface with other modes

Range of demand forecasts QRA Optimism bias Route options Cost data Cost model Demand model Demand data Risk-adjusted costs Range of demand forecasts Scenario testing Sensitivity tests Sensitivity tests Structuring options Financial data Financial model Economic model Economic data Financial indicators Socio-economic indicators Range of financial results Range of economic results Informed decision-making on HSR

Thank you! and Questions? Warwick Lowe Director Woodcote Grove, Ashley Road, Epsom, Surrey, KT18 5BW Tel: +44 (0) 01372 756895 Mobile: +44 (0)7917 636587 Email: warwick.lowe@atkinsglobal.com www.atkinsglobal.com