Payments to passenger rail operators under emergency measures agreements (EMAs), March to September 2020
Summary of franchise payments made by the Department for Transport (DfT) to train operating companies (TOCs) from March to September under emergency measures agreements (EMAs).
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The Department for Transport (DfT) put in place Emergency Measure Agreements (EMAs) with privately owned franchised train operating companies (TOCs) to mitigate the financial impacts resulting from the COVID-19 pandemic and ensure that key rail services could continue to operate.
The EMAs were agreed in March 2020, and took effect from 1 April 2020, with their financial provisions back-dated to 1 March 2020. For the majority of TOCs, the EMA applied until 20 September 2020 and operated as a temporary amendment to the underlying franchise agreement, which remains in place.
From that date onwards, the EMAs were replaced by Emergency Recovery Measures Agreements (ERMAs) for the majority of TOCs. The ERMAs are a further temporary amendment to the underlying franchise agreements, and they vary in length from around 6 months to around 18 months.
While there are several differences between them, under both EMAs and ERMAs the DfT receives revenue collected and pays most costs incurred by TOCs through a regular franchise payment.
There are some exceptions to these arrangements for certain TOCs. These are described in more detail in the section below.
This document provides key franchise payment data from March 2020 to September 2020 (that is, the whole term of the standard EMAs) and describes how these payments are calculated and made.
Payments made by TOC and by railway period, July to September 2020
Many rail industry processes, including payments under franchise contracts, occur once each ‘rail period’. There are 13 such periods per financial year (each ending at 1:59 am on the day after the final date given).
This table of payments to franchise passenger rail operators under EMAs shows payments made over the first 7 periods for which EMA financial provisions were in effect, namely:
- financial year 2019–20, period 13: 1 March to 31 March 2020
- financial year 2020–21, period 1: 1 April to 2 May 2020
- financial year 2020–21, period 2: 3 May to 30 May 2020
- financial year 2020–21, period 3: 31 May to 27 June 2020
- financial year 2020-21, period 4: 28 June to 25 July 2020
- financial year 2020-21, period 5: 26 July to 22 August 2020
- financial year 2020-21, period 6: 23 August to 19 September 2020
How payments are calculated and made
A similar budgeting process continues to apply under the ERMAs as under the EMAs. Specifically, the DfT agrees on a budget for each period with each TOC. This budget contains forecasts of costs, capital expenditure and revenue, and it’s reviewed by the DfT in every period.
Franchise payments are generally made from the DfT to the TOCs on the first weekday of each period. Each periodic franchise payment initially comprises a ‘forward-looking’ forecast for costs and capital expenditure for that period, less a ‘backwards-looking’ estimate for revenue received for the previous period.
The forecasts of costs and capital expenditure are taken from the TOC’s periodic budget. The revenue estimate may come from either the TOC’s budget or the DfT’s own estimates based on the most recently available industry data on ticket sales.
Each periodic franchise payment also includes an adjustment based on the difference between these initial values (for costs, capital expenditure and revenues) and the actual values as reported in the management accounts submitted by the TOCs to the DfT.
While the initial payment is made on the first weekday of a period, the management accounts are submitted within 10 weekdays following the end of the period. Under the EMAs there was, therefore, a 2-period interval between the initial payment and the adjustment.
This adjustment interval has now been extended to 3 periods under the ERMAs to allow more time for adjustments to be calculated and reviewed. The Period-6 payment (the final period of the EMAs) was the first to be affected by this change.
This adjustment process can lead to either upward or downward movement in the franchise payments as actual values for costs, capital expenditure and revenues can be higher or lower than the initial values.
For any given period, the total franchise payment is therefore made in 2 stages:
- the first is made on the first weekday of the period, based on forecast costs and estimated revenues
- the second is made 2 periods later (extended to 3 periods following the introduction of ERMAs) and ensures the total net payment reflects actual costs and revenues as reported in TOC management accounts
Scope of the periodic payment data
The data published here includes both stages of the payment, as described above, for all periods shown. However, it does not include any allowance for the effect of future payments, and future adjustments that may partly relate to these periods unless explicitly stated. These future payments and adjustments may include:
- EMA management fees paid to the TOCs, which are due as a single payment made after the end of the EMA term, subject to appropriate reporting being provided by the TOC: the process for determining the performance-based element of these payments is still ongoing, and no such payments have yet been made
- longer-term retrospective adjustments to reconcile payments to full audited TOC accounts
Exceptions to standard arrangements
There are 2 franchises that are currently in public ownership – East Coast and Northern. These 2 franchises are not operating under emergency agreements as the DfT already had full responsibility for their costs and revenues. Their payment data is shown here for completeness and comparability. Payments to these franchises continue to be made under their existing services agreements.
Two further franchises – Great Western and Southeastern – were previously operating under franchise agreements that expired on 31 March 2020. They’re now operating under new franchise agreements, beginning on 1 April 2020, that were signed alongside their EMAs in late March. The South Eastern franchise agreement has a longer core EMA term of around 18 months duration.
The Great Western franchise agreement provides for one or more extensions to the EMA term and it has now been agreed to extend the term until June 2021, with further extension possible thereafter. Besides the differences in their EMA term lengths, both franchises also have other smaller differences to standard EMA arrangements.
One franchise – Cross Country – had an EMA that was 1 rail-period longer than the standard term to coincide with the end date of its previous franchise agreement in October 2020. A new directly-awarded franchise agreement, of 3 years’ duration with an extension option of up to 1 year, came into effect when this ended on 18 October 2020.
This agreement includes various bespoke requirements specific to this franchise, but the core commercial arrangements – whereby DfT receives revenue collected and pays most costs incurred through a regular franchise payment – are consistent with those used in the EMAs and ERMAs.