HS1 and HS2: Learning lessons

Two very different commercial models were used to deliver the UK’s first two high speed rail projects. What can be learnt for future developments?

The Channel Tunnel Rail Link: the UK's first high speed line (Credit: Getty)

There has been much in the press over recent months on HS2, and I continue to be asked lots of questions on HS2 when delivering business case training.

One point that doesn’t seem to be raised is ‘what is HS1?’ High Speed One (HS1) is perhaps better known as the Channel Tunnel Rail Link, running between King’s Cross St Pancras in London and the tunnel to France at the Kent coast.

I worked on HS1 for the Department for Transport, focusing on the financial implications of the commercial delivery model adopted.

So, whilst I could write on the Green Book-based economic appraisal approach to HS2, instead I am going to focus on the commercial model for HS1, which is very different from HS2.

HS1 can be seen as a public-private partnership (certainly under the World Bank CP3P definition) where the private sector put up a significant proportion of the financing.

Under PPP theory and the current Green Book, this private finance / project finance will be more expensive, but the value for money case is made because: it is offset by risk being held by the private sector (assuming they are the party best able to bear it); innovation is brought by the private sector; there are advantages of an integrated design, build, operate and maintain approach; and the extensive due diligence required with project finance.  Under PPP theory, the use of private finance is not about a lack of government money - it is to drive project delivery / commercial behaviours.

I would argue that HS1 has been a relatively successful project. Yes, the UK government did need to step in and provide support to the private partner. Costs did escalate to over £7bn and it was late. 

However, it has brought good economic benefits and is generally well used - albeit the rise of the low-cost airlines was not foreseen, but given the focus on the climate emergency travellers might switch back to rail. Furthermore, it has improved connectivity in Kent and has supported regeneration, especially at King’s Cross. Meanwhile, an HS1 operating concession running to 2040 was sold to a consortium of two Canadian pension funds in 2010 for circa £2bn (in 2017, those two funds sold their stakes to funds advised and managed by InfraRed Capital Partners and Equitix).

We will never know if the HS2 story would have looked different if an alternate commercial model had been adopted. Interestingly, the use of private finance linked to the regeneration around London Euston is now seen as key to ensuring that HS2 runs to that station rather than stopping at Old Oak Common.

As always with the UK PPP/PFI debate, in my view we should take a pragmatic view on its success or otherwise. We should recognise that PPP is being used very actively around the world and follow the Green Book advice and explore a range of commercial and financing models to see what offers optimal public value. 

This contrasts with the charge of “it’s the only game in town” that was levelled at PFI historically and now seems to be the case for public sector led projects planned / delivered with central funding / grant monies / control.