Time to buy a refinery?

Time to buy an oil refinery?

The financial woes of Petroplus and the temporary closure of the gates at the firm’s Coryton oil refinery has once again put the spotlight on the supply of petrol and diesel in the UK. The picture it reveals gives some cause for concern.

Between them, the eight refineries in the UK produce about 76 million tonnes of oil-related products, ranging from road fuels, through kerosene, jet fuel and LPG to things like bitumen. The only trouble is that the demand for these products is closer to 85 million tonnes, creating a shortfall which has to be met by imports.

More specifically domestic petrol and diesel production amounted to some 45 million tonnes in 2010, split very roughly – in weight and volume terms – 50/50. But where as we actually produce about 20% more petrol than we consume (with the excess exported, predominantly to the United States) there is a diesel deficit of around five million tonnes and that has to be brought in from overseas, predominantly from Russia and India. (India is gearing up for the road transport boom that is coming its way, but while it waits for this to happen it is sending its over-supply to the West.)

As far as resilience of supply is concerned, it is estimated there is probably a week’s worth of fuel in storage tanks. But this buffer is based on normal levels of consumption. In the face of panic buying the reserves would be used up much faster.

In theory you might think that controlling the supply of oil products is a licence to print money. But those who do it for a living beg to differ. In the past year two of the eight refineries have changed hands; one more is on the market; and a fourth has just come off the market after eighteen months because of a failure to find a buyer.

According to the UK Petroleum Industry Association (UKPIA) – which represents companies including BP, Esso, Shell and ConocoPhillips who between them supply 90% of the petroleum products sold in the UK – globally the “demand growth for oil will remain strong through to 2035, largely from developing economies, but is forecast to fall in the UK and other OECD countries.”

And the UKPIA would also argue that whoever is making money out of the financial hardship imposed on drivers at the pumps it is not necessarily their members. In the first part of last year – leaving aside taxation – there was less than a 7p gap between the price at which petrol left the refineries and that at which it was sold to the public. Out of that 7p the retailers had to meet the costs of storage and distribution, and running a filling station.

The spread for diesel was about 5.5p.

It seems that now might be a good time to buy a refinery at a knock-down price, but if you believe the UKPIA – hard though it might be to believe – don’t expect it to make you rich.

 

Commons misunderstanding about parking charges?

Opening a debate on parking charges in the House of Commons yesterday, Labour MP Karen Buck said, ‘I entirely accept that parking income is a legitimate source of revenue-raising for local government, particularly given the severe constraints on the raising of income by other means, and the critical importance of maintaining services for residents.’ http://bit.ly/wATWU6, 12.59pm

Why should only one group of residents, in this case those with cars, have to support disproportionately the rest of the community when money is short? It’s not fair – and the law recognises that. Many who need to access town centre shopping, health and education centres, churches, and sports’ facilities by car are simply supporting the local economy and normal community activities.

The RAC Foundation has long argued that cars cannot expect to park for free in busy areas where space is at a premium. On-street parking has to be managed to allow everyone a share, and to avoid the congestion caused by double parking, thoughtless parking, and obstruction. That management has to be paid for, as do the signs and lines that tell us where we can and cannot park. But that’s it. No more. No revenue-raising. Regardless of what Ms Buck said yesterday, both the law and operational guidance make it clear that parking charges are a tool to manage the demand for parking and should not be used as a revenue-raising measure.

(The Department of Transport issues operational guidance to local authorities on parking policy and enforcement. That guidance was revised in November 2010, and it supports and complements the statutory guidance published under section 87 of the Traffic Management Act 2004, to which local authorities must have regard.)

HS2 – it’s a number game…

For official reports, those published today assessing the economic cases for HS2 actually make simple reading. Simple and depressing.

The first thing which stands out is that in the past twelve months the ratio of benefits to costs for both the London to Birmingham scheme and the full Y network have fallen: from 2 to 1.7 and 2.6 to 1.8-2.5 respectively.

There is also a warning that these numbers could fall further still:

“We judge that while some of the non-monetised impacts would place downward pressure on value for money e.g. heritage and biodiversity, others would contribute to improving value for money e.g. improvements to accessibility and to station facilities at Euston. However, we cannot say whether taken together the net impact would be sufficient to move the scheme into the low value for money category, although there is a risk that this could be the case.”

Given that these numbers are, at best, mediocre why has the scheme been given the go-ahead? That’s where the politics comes in. Whilst the experts try and quantify the figures and provide a basis for rational decision, the final say so lies with our policy makers and they are quite within their rights to ignore the bald figures and make their choices as they see fit. That is the way the system works. But this is one choice we do not support.

While it is good news more money is being spent on infrastructure, it is a profound disappointment it will go on a project for which the economic, business, social and environmental case is marginal.

There are scores of other transport projects, big and small, both road and rail, which would deliver greater benefits much sooner.

By going with HS2 the Government is essentially sidelining many better value schemes and condemning people across many parts of the country to a bleak travel future.

Large chunks of the existing road and rail networks are literally at breaking point. You only need look at the chaos caused by the closure of the crumbling A4 flyover in Hammersmith to see the grim reality we face on many routes. We should be doing more to preserve what we already have before committing to a vanity project of dubious merit.

Still there is still a long way to go before the first shovel is put in the ground. Let’s see what happens.

Will inattentive drivers now be caught on film?

A day rarely goes by in the Foundation office without someone reporting a close encounter with a driver using a mobile phone whilst behind the wheel.  And similar lack of attention to other road users by texters and talkers alike is reported by road safety organisations across Europe.  Writing  in The Times today, ‘Lorry drivers fight their lonely nights at the wheel by taking in a road movie’ , Adam Sage describes how the number of HGV drivers watching DVD’s on laptops in their cabs has got so worrying in France that officials have demanded harsher punishments for offenders. The fine for watching a film while in charge of a vehicle was increased this weekend from €135 (£111) to €1500 (£1240). Police were also given powers to confiscate DVD players. A total of 324 hauliers were caught watching a DVD in France in 2010, the last year for which full figures are available. The signs are that the offence is becoming more prevalent. But the guilty drivers are not all French.  When police in Montpellier focused on the matter last month, during the course of one hour they reported stopping a Pole, a Spaniard and a Lithuanian viewing films in their cabs.  Nor is the practice confined to mainland Europe: although the issue is particularly sensitive in France, which has more trucks on its roads than any other European country, there have also been cases in Britain. Last year, a German driver was stopped in North Wales watching Das Boot, the 1981 movie about a Second World War U-boat. Such practices put the use of the mobile phone in perspective, and it may be the thin end of the wedge.  But it is one which is keeping the door open to unnecessary death and injury on the UK roads.  Switch it off.

 

 

 

Potholes. So how big is yours?

Size matters

Did you know that to be defined as a pothole, a dent in the road surface needs to be at least 40mm deep? No? Well you’re not alone. According to the interim report of the DfT’s independent pothole review there is a worrying lack of consistency amongst local authorities as to 1) what constitutes a pothole and 2) how the problem should be addressed. This second issue is made worse by the lack of a reliable appraisal system to help councils determine which course of action is best.   

The report says there is a tendency to fix those roads in the worst condition first. This is understandable but not necessarily the best way of halting the ongoing physical decline of our highways.

There is a case for saying that tackling a problem early on – and also carrying out preventative maintenance – is the best way forward as it not only protects the physical and financial health of road users but costs councils (and hence taxpayers) less in the long-term. Yet with an existing backlog of work running to over £10 billion it is hard to see how the cycle of neglect can be adequately broken.

The authors of the report remind councils of their legal responsibility to make roads safe, but at the same time warns that the budgets needed to achieve this will at best be frozen (in reality we know they are to be cut). Even with the endeavours of local authorities to make efficiencies it is unlikely road conditions will improve significantly if there are not the funds to clear the current huge backlog of work.

Many of our local roads are fragile having evolved over many decades, accumulating a variety of surfaces along the way, rather than being constructed using the latest materials and design standards, and thus resilient to increasing amounts of severe weather.

Even if we have a relatively dry and warm winter that does mean things will improve greatly on the roads, only that they might not get significantly worse. At least not for a while.

 

Can the car save the high street?

Watch anyone unloading a shopping trolley into the back of a car in a supermarket car park and it becomes obvious why they have just spent many times more than they would in a small high street food shop.  There is a limit to the number of bags that can be carried any distance on foot, balanced on a bike, heaved onto a bus and squeezed past fellow travellers. For the majority of household shopping, the car is the transport mode of choice – indeed necessity. For food shopping in particular, the generous flat, and often free, parking provided by out of town-centre supermarkets has proved irresistible.  Undoubtedly, ease of parking determines many people’s shopping destination.

As the number of out of town-centre supermarkets has increased, smaller high street food outlets have closed – along with non-food outlets situated close-by.  When shopping for groceries in a high street you are much more likely to see a greater variety of food and other goods such as clothes and furniture than if you shop in an out of town supermarket and consider their purchase. But if parking nearby is difficult or perceived as expensive, you are unlikely to make the trip in the first place. Analysis carried out by the RAC Foundation of the most recent National Travel Survey statistics http://bit.ly/ut7MHQ shows that cars account for 65% of shopping trips and over 82% of shopping miles. Six years ago these figures were 60% and 80% respectively (Shopping and Transport Policy, RAC Foundation 2006). This does not mean we should encourage car-packed high streets. That people like to browse in a traffic free environment is evidenced by the popularity of shops in pedestrian zones, shopping centres, malls and arcades. The key to attracting shoppers in cars is to provide good, secure, clean parking a short walk or bus ride (to accommodate park and ride) from their destinations.  The parking need not be free, but it must be attractively priced.

As Mary Portas has said today  in her report for the Government into the future of our high streets, ‘The Portas Review’  http://bit.ly/tSNzFz    ‘It just wouldn’t be possible to tackle the challenge of the high street without looking at parking. I know there are many very sensible environmental arguments as to why we shouldn’t be using our cars. But to remove controlled free parking from our town centres puts them at a massive competitive disadvantage. Cars are an intrinsic part of the way many people shop and so many of our high streets simply aren’t catering for our 21st century shoppers.’

Cars have brought society many advantages and as they get smaller, greener and quieter they are coming into their own as environmentally friendly and flexible  transport. Local Authorities must tackle congestion through measures including better car park management, sustainable transport initiatives such as park and ride, and travel plans.  Shoppers in cars are the life blood of the high street and should be welcomed – not sent packing elsewhere.

Good riddance to bendy buses?

I’m not saying I felt particularly strongly about bendy buses, but should we really be cheering their departure? Tomorrow the last of them will disappear from London’s streets. Some of its predecessors have already ended up on the streets of Leicester, Merseyside and Malta, though given the photos we have seen of Bendy Bus graveyards it is probable more than a few will be destined for the scrap yard.

A total of 350 of the flexible vehicles were once on the Capital’s roads. They have been replaced by 500 new ones. At what cost one might ask? Part of the reason for the culling of the bendy bus was the supposed number of fare-dodgers who used them as their transport method of choice. Yet TfL’s own figures show the replacement of the fleet will only result in £7m worth of evasion being eradicated. Criminals should not get away from their crimes but one wonders how many pounds are being spent to save a pound? Perhaps those Londoners who have borne large fare increases in the past couple of years and face another one in January will have their own view.

There is also a claim – which I have some sympathy with – that they were too big for London’s streets and added to congestion. On the face of it this must be correct; they couldn’t even fit into most bus stops for Heaven’s sake, leaving their less than shapely rears hanging out in the carriageway. Yet on the plus side they were quick to load and unload, and could carry 140 passengers each. By contrast double deckers carry little more than half that number and while the view from the top is something to behold it does take people longer to get up and down the steps.

It also worth noting that the replacement buses are longer than the front section of the bendy version, so how will their manoeuvrability actually compare with that of their articulated predecessors?

TfL says a tenth of the replacement buses will be powered by hybrid diesel-electric engines which will be good for the environment. But does that really offset the CO2 emissions of the 450 others which will still rely on the internal combustion engine? And what about the carbon emissions and natural resource use associated with building all these vehicles?

It is too late to reverse the change, but that does not mean it should not still be questioned.

 

 

Spot the difference: funding and financing

“Because the Government cannot afford to fix the ailing system, it wants private investors to help foot the bill”.  Sounds familiar? This was Tony Blair speaking in 2002 in defence of his proposal to rebuild the London Underground under a public-private partnership.

We have been here before. One of the reasons it did not work as expected in the past and may not work this time round is a fundamental confusion between “funding” and “financing”. Funding is who pays in the end. Financing is who lends the capital in order to get the thing built in the first place, for a return on the loan and in the confident expectation that the capital will eventually be repaid.

On Monday’s [28th November 2011] BBC Radio 4 Today Programme Danny Alexander related how Birmingham Airport is constructing a new runway which is being “paid for” by Canadian pension funds.  No it isn’t. Pension funds are helping with the financing but it is the airlines that pay for it (i. e. fund it) through charges to use it.

This confusion was endemic throughout New Labour’s attempt to involve private investors in the provision of public infrastructure. There was a hope that private investors would “step in” to pay for things the taxpayer would not.

The hospital building programme under the Public Finance Initiative is an example. That was a way of committing the taxpayer to fund capital and interest over a thirty year term of a contract. We got new hospital buildings quickly but they were not paid for by the private sector.  They are paid for by the taxpayer and it should come as no surprise that we are now facing  a pile of annual bills for many years to come.

Infrastructure UK’s first National Infrastructure Plan (October 2010) had it right.  It identified £200 billion of new infrastructure necessary to serve our growing population and replacing worn out assets.  But it pointed out that in the case of power, water, airports and telecoms there is a mechanism to fund this without involving the taxpayer: through charges to users. That is how investment in infrastructure is paid for ion these industries.

They have a “Regulated Asset Base”.  The regulator agrees a set of charges to users which will pay a fair return on the amount pension funds and others have tied up in holding shares of the companies, an amount to maintain and replace the assets, and an amount to fund  expansion. All this is on the presumption that the industries behave in an economic and efficient manner—if not they do not get paid for their inefficiencies.

These industries are owned by the shareholders and at the end of the day investment in their  infrastructure is paid for—funded—by charges to users.  Not by taxpayers.

Pensions funds are pleased to invest—finance—because utilities are long-term, relatively safe investments with a reasonable rate of return, so they match fund managers’ requirements.  The demand for electricity or water is not going to unexpectedly disappear.  The main risk is that policies or politics will change and cause an unanticipated movement of the goal posts.
Whether investors are Canadian pension funds or the Chinese they will only invest if there is a “bankable” return.  That can only come from one of two places: taxpayers or charges to users.

For airports it is relatively easy: there is sufficient demand that charges to customers (airlines) can support new investment.  That is what is proposed for the new airport in the Thames. The aviation industry is entirely funded and financed by the private sector. The constraint on airport development is to do with planning permissions, not shortage of capital.
The same is probably true of most power and water investments.

The difficulty comes in cases where there is not enough new income from charges to fund the capital cost, or no new income at all.  Many railway investments are not financially viable: High Speed 2 is estimated to cost £32 billion and to leave £17 billion to be funded by the taxpayer. It can be financed but not funded by private investors. HS1, the rail link to the Continent was built largely at the taxpayers’ expense: now it has been possible to sell a thirty year operating concession to a pension fund for £2.1 billion because charges to users are enough to show an operating profit.

A new, free-standing toll road or bridge may be able to generate enough new cash to be entirely privately funded and financed. Whilst there are situations where this approach will work for roads , many of the required improvements are maintenance schemes or relatively small enhancements. It is impractical to charge for these individually. Similarly, prisons, hospitals and schools have no easily identified new cash flow.

In these cases, if no new charging regime is to be introduced, then either the taxpayer pays more or the infrastructure is not built.

So, as the government publishes its priority shopping list of new infrastructure, the question to ask in each case is “how is it going to be funded?”  Without a plausible answer, it is pie in the sky to hope the private sector will invest.

Grinding to a halt

Let me give you a vision of the future.

In little more than twenty years time there will be ten million more people in the UK. Because of this there will be at least four million more cars – probably a lot more when you also take into account the continued growth of ownership amongst the less well off sections of society and the elderly.

Traffic – the total amount of miles we travel as a nation – will be up by well over 40%. Average delays will be up by more than 50% – on the busiest routes the congestion will be much greater still.

Simply put, if we think our roads are busy now, we ain’t seen nothing yet.

This is not the RAC Foundation scaremongering. The projections come from government, though today we publish them in a report called Keeping the Nation Moving.

What is not coming from government is any sort of plan for how to deal with this scenario. For all the talk of High Speed Rail between London and Birmingham and beyond it is large parts of the road network which face the real capacity problems.

At this point it is worth remembering just how fundamental the roads are to the way this country functions. 91% of all mechanised passenger miles take place on the roads: some in buses, coaches and taxis; a little by bike and motorbike. But the vast majority is by private car. In contrast rail use accounts for just 8% of passenger miles. Even if this figure were to double – which it won’t – train travel will remain a marginal activity.

So why are ministers committed to a £17 billion scheme that will allow predominantly rich businessmen to get between the capital and the West Midlands a few minutes quicker, while at the same time there are 96 major road schemes sitting on the Department for Transport’s shelves waiting for funding?

The majority of these projects will deliver big returns for every pound spent and improve the lives of people across the country. Importantly, many of these schemes are about local improvements to existing infrastructure; they are not about creating brand new routes and scarring the countryside.

If government is serious about the growth agenda then it should surely be paying much greater attention to those areas where the money spent will give the best value. It should not be lavishing cash on things that risk being little more than vanity projects.

It is about time we regarded the road network for what it is: a vital utility, as important to the economic and social well being of this country as the power, water and telecoms sectors. People need relatively easy movement to go about their daily lives. Businesses need to be able to efficiently and reliably move the goods they make.

Yet the numbers show this will become increasingly difficult.

Currently, ministers are happy to take £30 billion each year from road users in fuel duty and VED alone without even offering them an explanation as to how they will best manage, maintain, enhance and fund this great national asset. Surely that must change.

The UK’s 34 million drivers have been the silent majority, soaking up the drip, drip, drip of rising fuel prices and greater congestion. Most know they are not getting a fair deal. Ministers would do well to recognise it too.

Direction given for signs and lines

The Department for Transport’s signs and lines review took two years to complete (and forty years to get round to doing according to Norman Baker the transport minister) but after being safely delivered to Marsham Street back in the Spring the Department for Transport has now published its response in the shape of Signing the Way.

The RAC Foundation welcomes many of the findings, indeed we sat on the steering group of the original review, not least the intention to simplify signage associated with often confusing parking regulations.

There are other things to be positive about also:

· Allowing councils more freedom to choose the best signage options for them (though under a national framework)

· Simplifying Traffic Regulation Orders

· Giving better cycle route information on signs and road markings

· Providing better warning for HGVs that the road ahead might not be suitable for them

But there is one particular aspect which will, at least on the face of it, concern all property owners – the possibility that a law already being extended in London will come to apply nationwide and mean local authorities can fix signs to the side of buildings without owners’ consent.

Such a regulation already exists in the City of London and the London Local Authorities and Transport for London (No.2) Bill is set to give the same powers to all boroughs in the capital. If this is deemed a success then ministers say they will:

“ … give consideration to introducing these powers nationally.”

The Foundation is all for removing unnecessary or hazardous clutter from the roadside but not if it will simply be relocated somewhere else nearby without permission of property owners.