Why Minister must consider a Translink price increase
Translink is the parent company of Ulsterbus, Metrobus and NI Railways. These subsidiaries are normal trading companies whose performance can be gauged in terms of the overall acceptability of their public services, but also in terms of the degree of financial assistance needed from Government.
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Translink and the individual subsidiaries operated at a loss in the last complete financial year to March 2015. The consolidated accounts showed a pre-tax loss of £16.6m on collected revenue of £198m.
In summary, the results for 2014-15 show:
Metrobus revenue £37.6m, pre-tax loss £3.1m
Ulsterbus revenue £97.7m, pre-tax loss £10.4m
NI Rail revenue £59.5m, pre-tax loss £2.7m
Superficially, losses on bus services are close to 10% of the revenue collected, whilst for the railway services, losses are nearer to 5%.
This simple comparator is misleading. Some of the revenue collected is indirect public sector funding and some of the operating costs are adjusted by subventions to the capital costs of each of the three entities. For a better understanding of the financial performance of Translink, the trading figures should be adjusted for the degree of official support as a contractual 'public service obligation' (PSO) which is allocated to NI Rail or in terms of concession fares earned from Government for passengers entitled to free travel.
If the PSO in 2014-15 is deducted from NI Rail revenue (£15.7m) as well as the concession fares (£13m) compensation, the revenue from fare payers was nearer to £31m, making the pre-tax loss nearer to 10%.
Concession fares in 2014-15, amounted to:
Metrobus £11.3m or 30% of passenger revenue
Ulsterbus £16.5m or 17% of passenger revenue
NI Rail £28.7m including the PSO, or 48% of passenger revenue
In defence of the trading results for NI Rail in 2014-15, the results were adversely affected by an unexpected cut in the PSO allocation because of the exceptional budgeting cuts imposed by Government taking £5.5m from what might have been allowed in the PSO. A policy of temporarily drawing on internal financial reserves was adopted.
Other exceptional costs included an added £63m in the balance sheet to offset the actuarial pension fund deficit and £6.9m as the cost of fuel price hedging.
If the Minister, Michelle McIlveen, had set a formal performance target, presumably it would have been for the companies to operate at near to a break-even result after taking account of revenue from concession fares and the PSO.
There are other special features in the financing of Translink. Particularly important is the accounting treatment of capital spending.
Although there is no explicit link, capital spending on fixed assets, trains and vehicles is largely offset by Government capital grants. In consequence, the three subsidiaries are essentially asked to pay for running costs, but with only a notional contribution to capital costs.
With this subvention, the financial performance of Translink companies recognises the social value of public sector provided transport services. A target of balancing passenger revenue and operating costs would make an objective performance test which also builds in an acknowledgement of the social value of the services.
On that basis, the minister should now, justifiably, consider a fare increase to match the financial targets.
There are also some particular difficulties still to be tackled. A performance target is needed to assess the multi-million major investment in a transport hub on the Great Victoria Street site, to include an enlarged rail terminus and new bus facilities. Will the minister make available the economic appraisal of the project during the consultation?
Translink, as with other pension providers, is facing large actuarial deficits on its pension funds. Is the minister prepared to carry these deficits indefinitely whilst awaiting a possible recovery in asset values?
Finally, Translink has been caught, understandably, with financial losses as it hedged fuel costs in an unusual period of falling fuel prices. Although unwelcome, this was a sign of prudent management, not a blameworthy mistake.