Docklands Light Railway (Hansard, 10 March 1997)

§ Mr. Gummer

Following an open competition, the operation of the docklands light railway will be privatised today through a seven-year franchise to Docklands Railway Management Ltd.—a consortium of Serco Group plc and a team of DLR Ltd. managers. DRML will take over full responsibility for DLR operations in April.

Safety on the DLR remains the first and overriding priority. Before DRML takes over DLR operations, its safety case must be approved by Her Majesty's railway inspectorate.

The franchise will embrace the operation and maintenance of trains, track and other equipment on the DLR network as well as marketing and revenue collection. The franchisee will also operate train services on the new 4.2 km extension of the DLR to Lewisham, 79W which is being built under the Government's private finance initiative by City Greenwich Lewisham Rail plc, when it opens to passenger service in 1999–2000.

I announced my intention to franchise the DLR in October 1994. I said that the Government's aim was further to improve the DLR's efficiency, reliability and quality of service and ensured that the railway continued to develop as a customer-oriented public transport service. I also said that I aimed to reduce the DLR's dependence on public subsidy. All of these objectives will be achieved through the contract DLR Ltd. will let to DRML today.

The franchise insists upon service levels to be maintained to meet customer expectations and to underpin the Government's regeneration policies in Docklands and the Thames Gateway. DLR services must, as a minimum, be operated between 5.30 am and 12.30 am Mondays to Fridays, 6.00 am to 12.30 am on Saturdays and 7.30 am to 11.30 pm on Sundays. Frequent train services must be operated. Quality of service must continue to be provided in terms of train reliability, cleanliness, availability of escalators and lifts, and so on, safeguarded by DLR's existing passenger charter standards.

The DLR will remain part of London's integrated ticketing arrangements and travelcards will continue to be valid for travel on the DLR.

DRML will receive three main types of remuneration: a fixed fee payable by DLR Ltd., set in advance for each of the seven years of the franchise, indexed to the retail prices index, to meet the operating deficit DRML expects to incur on the existing DLR network; and to meet DRML's forecast costs in operating services on the Lewisham extension; the fare revenue from passengers on the existing DLR network; ancillary income from commercial activity on DLR stations, such as shops and merchandising.

If the operating deficit is greater than DRML has forecast, the fixed fee will not be increased to compensate for the shortfall.

Financial incentives will also play a part. The fixed fees payable by DLR Ltd. to DRML will be reduced if minimum service levels are not achieved or if quality standards are not met. No fee will be paid if DLR services are not run through the default of DRML. Balanced against that, DRML will receive incentive payments if it delivers a quality of service above the charter standards.

Capital investment in the DLR will continue throughout the franchise period to ensure that the DLR's longer-term needs are not overlooked—£45 million is earmarked for this in total. Moreover, safeguards for DLR Ltd. in the form of performance bonds and a retention account, with termination rights in the contract, will ensure that the DLR is properly maintained for the period of the franchise and handed back to DLR Ltd. in good condition.

Through these arrangements, significant operational and commercial risks will be transferred to DRML in relation to DLR's future costs and income, thereby giving DRML incentives to achieve cost efficiency, maximise income and deliver quality of service to customers. The taxpayer will benefit too. By bringing in private sector expertise on a risk-taking basis, DLR's dependence on public subsidy will also be reduced by 24 per cent. over 80W the franchise period. In the three years covered by the 1996 public expenditure survey, Government grant to DLR Ltd. will be reduced by around £8.5 million.

DRML will be regulated by the residual DLR Ltd., which will regulate minimum service levels, quality standards, investment in maintenance and so on.

The successful outcome of the DLR franchise competition is a further demonstration of the benefits that privatisation can deliver. I have thanked the chairman of DLR Ltd., Sir Anthony Gill, and his board, for achieving significant improvements in DLR reliability and cost efficiency over recent years, in line with my requirements, and for their success in letting this franchise to deliver continuing benefits in higher quality of service.