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

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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?

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

10. 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

11. 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

12. 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

13. 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

14. “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

15. 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

16. 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

17. 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

18. Thank you! and Questions?
Warwick Lowe
Director
Woodcote Grove, Ashley Road, Epsom, Surrey, KT18 5BW
Tel: +44 (0)
Mobile: +44 (0)