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The ORR has ‘no teeth’ says critical NAO report

by Paul Clifton

The Offi ce of Rail Regulation has been criticised for having ‘no teeth’ by Margaret Hodge of the Commons Public Accounts Committee. She said that Network Rail was able to ‘set its own terms’ on funding. The MP spoke out following publication of a National Audit Offi ce report that criticised ORR, which has been in existence for 15 years. The NAO report found that the regulator has

insuffi cient information to understand Network Rail’s costs, and does not know how much it pays to carry out set units of work. Therefore, it said, the regulator is incapable

of challenging the company’s assessment of how much it needs to spend, or of challenging whether its targets have been met. The NAO said that government guarantees for Network Rail’s debt ‘blunts the incentives’ for the company’s management to operate effi ciently. It said that the company’s net debt at the end of March 2010 was £25.6bn. Between 2009 and 2014, it intended to raise new debt of £4.4bn on an unsupported basis. There were no shareholders to ‘exert pressure on Network Rail management to fi nd effi ciency savings more quickly’. The NAO report found that the regulator

‘needs to develop a better understanding of the reasons for the effi ciency gap relative to more effi cient operators’. The ORR has calculated that Network Rail’s

unit costs remain between 34 and 40 per cent higher than those of the most effi cient operators in Europe.

The NAO concluded that the main incentives

for the company to meet regulatory cost-cutting targets are its directors’ desire to maintain their reputations and the bonus scheme of senior directors. It went on to say that even when ORR had been critical of generous bonus payments to directors in years when key targets had been missed, Network Rail had gone ahead with the payments. Last year the company’s directors were awarded performance-related bonuses totalling more than £2m. The NAO said the ORR had found it ‘diffi cult

to reconcile the levels of management bonuses with its own assessment of NR’s performance’. It said that Network Rail should be forced to

take into account the regulator’s view of whether it should be paying bonuses. The publication of the report coincided with a decision by Network Rail’s members – the individuals meant to hold directors to account, in place of shareholders – to approve plans for a new executive bonus scheme. This will potentially cut the highest annual

payouts by 40 per cent. An ORR spokesman said: ‘We welcome this report, which rightly highlights the effectiveness of ORR’s work to assess Network Rail’s effi ciency, including our use of innovative international benchmarking. ‘The regulator has been successful in ensuring

that Network Rail delivers substantial effi ciency savings on a scale that compares favourably with other regulated industries.’

Contractors carrying out work at Swindon on behalf of Network Rail

Hitchin track improvements to go ahead ■

A scheme to reduce a bottleneck at Hitchin,

Hertfordshire, has got government approval to go ahead. At the moment, trains going

from King’s Cross to Cambridge have to cross three other lines when they leave the East Coast Main Line to move onto the Cambridge line. But a grade- separated solution will see 2km

of electrifi ed line go over the ECML – using both a viaduct and embankment – to improve capacity on the line and reduce delays. Richard Lungmuss, Network Rail route director, said: ‘It’s essential that we maintain investment in our rail network to provide extra capacity and support economic growth.

‘The new rail link at Hitchin

will benefi t passengers across Cambridgeshire, bringing quicker and more reliable journeys on the line to Cambridge and King’s Lynn, and helping reduce delays on the busy East Coast Main Line to Huntingdon and Peterborough.’

Meanwhile, Cambridge station is to get a refurbishment as part of

a nearby property deal, which has seen developers provide funding to improve the station as part of an agreement to build a 26-acre development close to the station. The cash will be used to

enlarge the ticket hall. Work is also due to start at

Cambridge station in April to build two new platforms and a footbridge.

Mock-up of the new section of line at Hitchin

PAGE 8 MAY 2011

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