Wales' major rail electrification of project is being hit by soaring inflation
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The project to turn the network of rail lines in Cardiff and the Valleys into an electrified South Wales Metro is now expected to be significantly over its £734m budget.
The Welsh Government's transport body, Transport for Wales, said at this stage it couldn’t give any indication as to the expected overspend, with a range of projections currently being worked through, but it is likely to run into tens of millions of pounds. The project is not expected to be finished until 2024, a year later than previously expected.
The Metro, with its complex supply chain, has been impacted by the pandemic related material availability issues and surging construction inflation which is running higher than the official rate of inflation - which the Bank of England said is expected to hit around 10% this year.
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The Metro is the electrification of the Core Valley Lines (from Treherbert, Aberdare, Merthyr and Rhymney into Cardiff), as well as the Coryton and City Lines through the capital down to Cardiff Bay. The original budget of £743m consisted of £164m from the European Union, £445m from the Welsh Government and the £1.3bn City Deal for the Cardiff Capital Region and £125m from the UK Government.
With the project’s contingency for an overspend exceeded, any shortfall will have to be met by the Welsh Government. While a funding contributor to the project, the UK Government is unlikely to agree to take on a proportionate overspend liability.
A Transport for Wales spokesperson said: “Like similar organisations undertaking major infrastructure programmes, we have a potential cost impact from the current rates of inflation and availability of materials. We continue to work through various mitigations, contractual obligations and potential cost impacts with our supply chain partners and the Welsh Government which, due to the complexity of the programme, will take time to conclude.”
Last year Transport for Wales took over the running of the Wales & Borders franchise from KeolisAmey - a joint venture joint venture between French transport firm Keolis and Spanish infrastructure consultancy Amey, when it invoked the operator of last resort mechanism. The pandemic and its devastating impact on passenger numbers meant the business model for KeolisAmey was no longer commercially viable, despite more than a decade still left to run on the franchise.
However, a Metro infrastructure company between the partners, which is mainly being led by Amey, is still overseeing the electrification project on behalf of Transport for Wales.
With a large number of sub-contractors there was never a possibility of KeolisAmey agreeing a contract where it would be liable for all costs associated with any budget overspend.
A Transport for Wales spokesman said: “Due to large and complex nature of the programme to transform the Core Valleys Lines for the South Wales Metro, there are a number of different contractual models across the different packages of work and delivery partners. This includes different apportionment of cost risk dependent on the nature of the specific contract. We are working hard with our partners to manage that risk as much as possible to ensure we deliver efficiently within the current circumstances.”
The delay in completion of the Metro will also mean Transport for Wales having to run less operational efficient diesel trains on the Valley Lines for longer than first planned - which will also have a financial cost implication.
New rolling stock for the electrified lines with tram trains and triodes, that can switch between diesel, battery and electric mode, are on order from Spanish firm CAF and Swiss train maker Stadler. The £800m cost is being met by the Welsh Government via a leasing company financed by Sumitomo Mitsui Banking Corporation (SMBC).
Transport for Wales it not currently anticipating any increase in the cost of the new rolling stock.
A spokesman said: “The lease contracts with CAF and Stadler have not varied due to Covid-19 and are not directly exposed to RPI (retail price index) or other inflation mechanisms and commence on specific dates within the contract. We are working with the rolling stock manufacturers to ensure that the impact of Covid-19 and other factors on delivery and introduction of the new trains and on sustaining fleet operations and maintenance frameworks are managed effectively.”
In total around 170 kilometres of track will be electrified. Plans to only electrify the Rhymney Line as far as Ystrad Mynach have been dropped.
Despite seeing a sea change in the frequency, capacity and increase in speed of services - including 12 trains an hour both in and out of Pontypridd Train Station - the lines serving the most densely populated parts of the network in the City and Coryton lines, which run through Cardiff, will see no improvement on the current service offer of just two train an hour.
In the rail sector, even with healthy contingencies for overspend, it is not usual for projects to run over time and budget.
The electrification of the Great Western Mainline from London to South Wales is a case in point. When originally announced by then Prime Minister David Cameron in 2012, it was expected to cost £900m.
Latest figures show that even with the abandoning of electrifying around 60 miles of track between Cardiff and Swansea, it has incurred a cost £2.8bn.
The final overspend on the Valley Lines in percentage terms will be a fraction of that on the Great Western Mainline project overseen by Network Rail - which wasn’t hampered by a pandemic and soaring inflation.
The decision not to electrify as far as Swansea required the commissioning of different rolling stock in bimode Hitachi trains, which can switch between electric and diesel modes, but are operational less efficiency then if solely electric.
From Cardiff to Swansea, and vice versa, they have to operate in diesel mode. Despite having a speed limit of 125mph, on the Welsh side of the Severn Tunnel, the average speed of the trains are well below 100mph.