Study of HS1 Escrow Arrangements

Overview HS1 Ltd holds a concession (until 2040) to operate, maintain and renew the railway network between London St Pancras and the Channel Tunnel. HS1 Ltd's revenue comes from track access, investment recovery and miscellaneous charges. These are paid by train operators to use the rail infrastructure. Arrangements for funding are set out in a Concession Agreement between HS1 Ltd and the Secretary of State which specifies that funds for renewals are held in an Escrow account managed jointly by HS1 Ltd and the Department for Transport. In addition, the Concession Agreement sets out obligations on HS1 Ltd to ensure the sustainability of the asset. These asset stewardship obligations require HS1 Ltd to deliver operation, maintenance, renewal, replacement, and upgrade of the infrastructure as if the company were responsible for the stewardship of the infrastructure for 40 years following the date at which any activities are planned or carried out. Many of the functions which HS1 Ltd must perform as infrastructure manager are currently contracted out to Network Rail (High Speed) Ltd (NR(HS)). The relationship between HS1 Ltd and NR(HS) is governed by an Operator Agreement, a commercial agreement between the parties. Escrow Account ORR is currently undertaking a periodic review of HS1 Ltd (PR19), which determines the level of charges that the company can levy for operations, maintenance and renewals. A key component of our determination requires us to set the quantum of funding required for future renewals expenditure (that is, how much should be deposited in the Escrow account). This requires us to take into account assumptions on many factors, including interest rates and the profile of the required renewal spend over the life of the concession. While the mechanism for the funding of renewals is constrained by the contractual arrangements set out in the HS1 Concession Agreement, it is important to us that the process is as transparent as possible. The Requirement We require a study to independently analyse the current arrangements around the Escrow account to: - identify issues and possible improvements to the allocation of risk between those involved (including train operators, HS1 Ltd, NR(HS) (as current principal contractor) and DfT), including an assessment of whether the current arrangements reflect best practice; - assess whether the governance of these arrangements is best practice; and - analyse the transparency and clarity of these arrangements. A Final Report is to be delivered to ORR by 19 July 2018. 2.2 Project Objectives & Scope Purpose The project is intended to deliver an independent analysis of the arrangements set out by the Concession Agreement between HS1 Ltd and Government for funding of renewals on the high speed network. It should also assess how these arrangements are working in practice.