NEWS
ORR suggests cut of £2bn to Network Rail’s CP5 delivery plans
of around 40% achieved over the last two control periods.”
ORR chief executive Richard Price
(pictured left) said: “This
determination is stretching but achievable and it gives Network Rail incentives to build on past successes, and do even better than the challenges we have set.”
The ORR has said Network Rail should deliver its plans for CP5 for £2bn less than it had wanted.
In its Strategic Business Plan (SBP), Network Rail proposed spending £40.1bn on running and expanding the railways from 2014 to 2019, but the ORR, after extensive analysis, says the cost should be £37.9bn.
The ORR says that savings can be made through better use of new technology, more efficient ways of working and better management – but not at the expense of safety.
Below: CP4 spending (column 1), Network Rail’s proposal (column 2), and the ORR’s draft determination (column 3).
The ORR has criticised aspects of Network Rail’s submission, saying “a number of documents were submitted late and with significant inconsistencies”, but said overall the organisation had made “much more realistic assumptions about the cost reductions that could be achieved” compared to CP4.
The ORR said it had “largely protected Network Rail’s maintenance expenditure so that the delivery of a high-performing railway is not compromised”, while suggesting additional funding for civils upgrades and level crossings improvements and closures.
The ORR’s assessment suggests the day-to- day operational cost of running the network for CP5 should be £21.4bn.
It has proposed “tougher” regulatory targets, saying at least nine out of ten trains must run on time on each individual route.
Network Rail has said the ORR draft determination “needs careful and detailed thought” before it gives its formal response in September. A spokesman said: “Getting the balance right in making the choices between performance, growth and value for money is critical if we are to build on efficiency savings
The main £12bn enhancements programme has been approved, though the ORR wants to see better-developed plans before it releases funds for those still in the early stages of planning, which amounts to nearly £7bn worth of projects. £67m of funding to upgrade and close level crossings in England and Wales has been approved.
Below: A summary of the ORR’s expenditure assumptions compared to PR08, forecast CP4 outturn (adjusted to make it more comparable to this determination) and the SBP.
The ORR is “expecting Network Rail to deliver a further 20% efficiencies” in CP5, meeting the McNulty efficiency challenge.
But it says: “We have also carefully considered the lessons of CP4. When Network Rail tried to make efficiency savings in maintenance in CP4, it did not manage the change well in some respects.
“We have reduced the level of efficiency improvement required at the start of the control period for maintenance compared to Network Rail’s SBP to give the company more time to plan the necessary changes and implement them effectively. Effective delivery is essential if longer term efficiency gains and service quality improvements are to be secured and locked-in for the future.”
On access charges, the ORR estimates that in real terms the average total franchise passenger variable charges and open access variable charges will each increase by 1% from CP4 to CP5 in real terms.
To read the ORR’s draft determination, visit:
www.rail-reg.gov.uk/pr13/consultations/draft- determination.php
Network Rail’s debt could be ‘unsustainable’
The ORR used the draft determination to raise the issue of Network Rail’s debt mountain and the cost of servicing it. It notes: “Network Rail’s debt is forecast to rise from £30,242m at the end of 2013-14 to £40,118m by 2019, although its assets will also grow in value. The rise in debt largely reflects the funding of renewals and the large enhancement programme.
“We forecast that Network Rail will spend on average around £1,200m a year servicing the debt in CP5. Under reasonable assumptions debt could continue to rise in future control
4 | rail technology magazine Jun/Jul 13
periods and there will need to be a debate within government and the industry about how sustainable this is.”
A similar point was made by Network Rail chairman Richard Parry-Jones in his Railtex 2013 speech. He said: “Much of [our] money comes from borrowing from the national bond market against our asset register. That’s great for awhile, but I don’t know if it’s ultimately infinitely sustainable.”
More from his speech on page 22.
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