Runaway railway debt

Network Rail net debt has now passed the £30bn mark, 11.3% up on last year.

That’s the main news from the 2012/3 preliminary financial results published last week. The full results should be available on 20 June 2013.

Network Rail, the rail infrastructure provider, is a not for profit organisation financed by government guaranteed loans. Its debt, therefore, falls outside the public sector.

Net debt has nearly doubled since 2005 (£15.7bn) and more than trebled since the first set of Network Rail accounts in 2003 (£9.7bn). It now stands at £30.4bn. Where will it be 10 years from now?

The previous year’s accounts (2011/2) show that annual finance costs (including interest) came to £1,369m (about £3.75m per day). That equates to around 5% of the then £27.3bn net debt. We shall have to wait and see what the latest figures show.

Capital expenditure is up 9.8% to £5.1bn (2011/2, £4.6bn), increasing overall asset value to £46.4bn (2011/2, £43.1bn). Much of this has been soaked up by the 2,000 plus investment and improvement projects under way.

These include the £900m Reading station redevelopment, Birmingham New Street’s rebuilding, the Edinburgh Waverley upgrade, and, of course, Thameslink.

The sharp rise in debt is a cause for concern among some analysts. The gearing ratio – the net debt: asset value (RAB or Regulatory Asset Base) ratio (set by ORR) has crept forward from 63% in 2011/2 (£27.3bn: £43.1bn) to 65% in 2012/3 (£30.4bn: £46.4bn).

However, Network Rail is quick to reassure everyone that this falls ‘comfortably’ within the maximum 75% cap imposed by the Regulator.

Other News

Network Rail reports that revenue has increased by 3.2% to £6,197m (2011/2, £6,004m), however this has been negated by a larger 8.8% rise in operating costs, £3,980m (2011/2, £3.657m). Operating profit is 5.5% down at £2,217m (2011/2, £2,347m), and profits after tax are £8.1% down to £699m (2011/2, £761m).

Staff costs increased 6% from £1,679m to £1,779m despite a <1% decrease in numbers.

Since this announcement, ORR has published (12 June) its 2013 Period Review, covering funding and outputs for Network Rail CP5 (1 April 2014-31 March 2019). It has identified savings of £2bn and is determined to drive down costs to £21.4bn during this time. This will be done through better management, more efficient working and newer technologies.

However, net debt could reach £40.1bn by 2019 at the end of this control period.

Though declining, NR’s main source of income still remains the taxpayer. Turnover was £6.2bn in 2011/2, but government grants accounted for £4bn (63%). TOC access charges brought in £1.7bn (28%), with the remaining 0.5bn (9%) coming from property, freight and other sources.

The high level of debt has been highlighted by economists in the recent critical TUC Great Train Robbery report. While acknowledging that the RAB (Regulatory Asset Base) has broadly kept step with ever increasing debt, it claims there is little to show for it by way of enhancements, as maintenance and renewals have prior claims.

624/Jun 13







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