HS2 commercial viability
According to the October 2013 HS2 Commercial Case, “Early stage modelling indicates that HS2 will deliver a significant operating surplus and consequently a commercial case could be made for the transfer of relevant parts of the operation of HS2 into the private sector.”
[Department for Transport, October 2013 HS2 Commercial Case]
9. Such a sale could generate a significant income to the UK exchequer. However, government will need to strike the optimum balance between upfront income from an HS2 concession, noting that this could create a net subsidy requirement for classic rail, and taking ongoing financial benefit from annual improvements to the level of premia generated by GB Rail overall.
10. The commercial analysis (the high level findings of which are set out in the Financial Case) carried out on the ‘reference case’, which assumes demand stops growing in 2036-37, shows an overall additional operating surplus across GB rail of around £0.3bn a year on average in the medium term once HS2 is operational.
What does ‘operating surplus’ mean?
‘Operating surplus’ = operating revenues, minus operating costs and an allowance for a commercial profit margin. This analysis assumes that initial construction and rolling stock costs have been met in full and written off. Once renewals are required (initially from 2041/42), these are assumed to be added to a notional RAB and are financed through TOC operating charges.
As was the case with Eurostar / HS1, in the HS2 Commercial Case, the track and trains are deemed to be a ‘free gift’ from the public purse.