Belfast Telegraph

Financing transport gives Translink successful year

Analysis

By John Simpson

Translink has traded successfully for the year to March 2018. With a near-monopoly in the provision of scheduled public transport services in Northern Ireland and the assurance of protection to deal with possible new competition, Translink is able to make decisions on support for the social merits of non-viable bus routes.

A feature of the accounts for the year 2017-18, published by the public transport operator, is an acknowledgement that an extra £13m (over and above the original budget) was made available specifically to help sustain rural services. This unbudgeted support (equivalent to a monitoring round allocation) allowed Translink to finish its financial year with a small trading profit and maintain modest cash reserves.

Translink is a business with an annual turnover of £220m employing 3,821 people. The Translink businesses offer a range of public services where financial accountability is an important constraint, but the decision making also reflects social criteria. Total revenue from fare-paying passengers must balance against the allocation of public sector funding.

In essence, Translink must 'balance its books' knowing, usually in advance, the type and scale of financial support from Government. The financial support from Government is considerable although the directors of Translink would probably see further benefits for public transport if it was larger.

In 2017-18, the main financial flows were current revenue of £220m of which £138m came from passenger fares, about £42m to offset concessionary fares, £13m as a one-off rural bus subsidy and £18m to meet the Public Service Obligation payment for NI Railways. However, the funds for capital spending, for buildings, permanent way, vehicles and trains, came from Government and cost nearly £91m.

Of this £91m, just under £50m was alongside depreciation charges, leaving nearly £41m as equivalent to a capital grant.

The basic principles underpinning the operating framework for Translink are that Government provides a large part of the cost of capital assets. Translink carries no capital debt which it must repay. Excluding the costs of maintaining the permanent way of the railways, if Translink were a private company paying off any borrowing, it might need to finance another £20m+ pa (depending on the assumptions made).

There is no expectation that Translink should adopt normal private sector financing rules. The relationship with Government is an implicitly agreed balance of a contribution by Government to the social value of public transport services with the balancing contribution expected from passenger fares.

Within that working relationship, there is then a challenge to Translink, as the operator, to satisfy the tests of efficiency and allocation of resources that make up the Translink part of the budget. On a day to day operating basis, that challenge is being met.

Some of the most difficult challenges for public transport lie in the justification of maintaining the current operating subventions and the cost-benefit evaluations of new major capital projects.

If Government needed to reduce current subventions, whether by transferring more capital charges, reducing the range of concession fares, or simply increasing fares by more than inflation, that would generate an important public debate on whether fares should increase to offset the loss of Government funds.

As an illustration, a £20m adjustment would mathematically be a search for 15% higher fares revenue and allowing for fewer passengers could mean a fare increase possibly of over 20%.

Translink has plans for a new Belfast hub at Weavers Cross, where public funds of nearly £200m will be part of a larger commercial development, and a new North West hub, alongside the River Foyle, costing £27m, largely from EU funding.

Translink expects to inherit these facilities debt free and ready to operate.

Next month, Translink will launch the first extended Belfast Rapid Transit (BRT) route. The capital investment has largely been Government-funded.

BRT will be a fare paying service and the expected profitability has not been publicly forecast. Could there be a pleasant surprise?

Belfast Telegraph

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