Update on LSER train paths and fixed cost recovery agreement

Due to the impact of the Covid-19 pandemic, HS1 Limited (“HS1” or the “Company”), the rail sector and transportation industry face unprecedented challenges, which have increased the uncertainty around the recovery of train travel in the UK.  Whilst recent press coverage has highlighted the risks faced by the sector, other news regarding the roll out of the vaccination programme is more promising.  In light of these developments, the management of HS1 is providing an update on recent developments.

As previously communicated, HS1 has certainty of its current domestic timetable until May 2021. However, in January 2021, the Department for Transport (“DfT”) requested Train Operating Companies (“TOCs”), reassess the appropriate service levels, in the light of current demand. Following this announcement, on 5 February, HS1’s domestic customer, London & South Eastern Railway Limited (“LSER”), submitted a timetable approximately 16% below the government underpin level for the next timetable period of mid-May to mid-December 2021. The impact of this lower booking level is largely mitigated by the HS1 underpin arrangement, whereby recovery to the underpin level is received directly from the DfT. Eurostar International Limited (“EIL”) submitted a nil timetable, as expected.

Subsequently, HS1 undertook a reapportionment of its fixed Operations, Maintenance and Renewal Charges (“OMRC”) to ensure that it recovers these costs over the lower number of train paths than were originally forecast at the start of the Control Period. This process is described as the “Volume Re-Opener”. The Volume Re-Opener’s revised charges were agreed with the TOCs and approved by the Office of Rail and Road. The Volume Re-Opener contains an expected recovery curve for EIL and LSER train paths over the Control Period. HS1 will undertake further annual Volume Re-Openers for the duration of the Control Period, thus protecting HS1’s ability to recover fixed OMRC.

The Volume Re-Opener for the timetable year between December 2020 and December 2021 (the “2020 Timetable Year”) recognises that:

  • LSER’s fixed charges have been calculated on the basis of 54,134 train paths over the 2020 Timetable Year – being comprised of the ‘full’ timetable that LSER has already booked in respect of the first half of the year (December 2020 - May 2021) and the underpinned level of train paths for the second half of the year (May 2021 - December 2021); and
  • EIL’s fixed charges have been calculated on the basis of a commitment to pay for 2,444 train paths over the 2020 Timetable Year – this is notwithstanding the fact that EIL has made a ‘nil’ timetable submission.

LSER pays OMRC and the Investment Recovery Charge (“IRC”) quarterly in advance because it has made timetable submissions. EIL pays OMRC and the IRC following the end of each railway period (at a rate of 188 train paths per railway period) because it has made a ‘nil’ timetable submission. If either TOC “spot bids” any additional train paths above the numbers described above, it will pay for the variable OMRC and the additional IRC per path.

HS1 continues to actively manage the negative impact of the Covid-19 pandemic, in particular those related to financial covenants and liquidity. The business is currently reviewing its forecasts in the light of the information above and expects to give a further update in in due course. HS1 has identified a number of initiatives, including a renewal/extension of our bank facilities, which we will also provide an update on at that time as well.  HS1 expects to provide a further update later in the year when full year financial statements are finalised and the financial covenants are submitted.

The underlying concession is considered to remain robust over the concession life and is also operationally ready for a return in domestic and international passengers and paths. This is expected to occur as public health measures such as the national lockdown and quarantine restrictions are eased, following the vaccine roll-out.