How can Translink reduce losses and restore viability?
Operating public transport services in Northern Ireland last year, within the allocated financial limits, was difficult. Translink knew, in advance, that in the year to March 2015 it would be required by the Department for Regional Development to operate at a loss partly funded from reserves. In contrast, passenger numbers increased.
In the middle of this financial year, Translink forecasts that the best that can be expected is that financial management will remain very difficult. The critical underlying question is whether the scale of the financial losses can be reduced and viability restored.
The three-year corporate plan suggests that an existing £14m deficit in 2015-16 will be followed by another deficit of £3.7m in 2016-17 but with a return to profits of £2.5m in 2017-18.
The recent poor trading results have several explanations.
The financial results for Translink were seriously affected by reduced funding support imposed by DRD. The annual support for NI Railways through the Public Service Obligation (PSO) was reduced by another £9m, following a £3m reduction a year earlier. This year, £2.5m of that reduction may be restored, leaving a continuing £6m shortfall in 2016-17.
In addition, the rebate on fuel duty has now been cancelled. That reduced funding by £6m compared with last year. However, lower fuel prices have largely cancelled this out.
A third financial cut came in a fall of £3.6m in the subsidy from government to help meet the deficit on the main pension fund. This sits starkly alongside a revised actuarial deficit on the pension fund which has now increased by £71m to a frightening £152m in March 2015.
In 2014-15 Translink was ironically hit by the fall in fuel prices.
A purchasing deal, buoyed by hedging through advanced purchasing agreements using financial derivatives (which would usually be a safety device) went wrong when oil prices fell significantly. The profit and loss account shows an unwelcome charge of £6.9m from this trading.
If the Stormont budget, as now approved, is implemented in 2015-16, Translink budgeting can expect no significant relief.
The financial reductions (except a small offset for the PSO) will remain.
The best improvement in the financial situation could come from improved passenger numbers and improved revenue from fares alongside stricter cost control policies affecting employment numbers and average earnings. Every 1% revenue increase would bring an extra £2m. Every 1% reduction in the wage bill (not necessarily job losses) would reduce operating expenditure by £1.3m.
Passenger numbers have increased by 6.6% in the past three years or an average of over 2% each year. Employment numbers have remained stable.
The search for service improvements and consideration of a modest self-funding voluntary exit scheme may make the agenda as the year unfolds.
As yet, Translink is reluctant to contemplate early fare increases whilst there is the prospect that a stronger regional economy could lift passenger numbers and fare revenue.
The Translink annual report identifies several different knock-on effects of the funding reductions including changes for passengers in particular routes and services.
Also, consideration is needed of some service cuts as already on the table with the trade unions.
An emerging risk is that funding reductions could delay upgrades or maintenance work resulting in speed restrictions on the railway network.
In addition, projects such as Belfast Rapid Transit and the development of a new advanced transport hub in Belfast may be delayed.
One revelation in the report, affecting the capital programme, is that, because the chief executive could not assure the 'value for money' in the project, the minister was asked to give a direction to accept the contract for the Coleraine-Londonderry track relay. The costs of the project exceeded the level previously estimated.
Given the sensitivity arising from political scrutiny, the minister has had to show extra commitment.