Revaluation could add £100bn to Network Rail accounts

Network Rail could be revalued by at least £100bn says a Sunday Telegraph report.

The national rail infrastructure provider has been in the public sector since reclassification in September 2014. The current valuation for property, plant and equipment was £54.1bn (according to the last NR annual report FYE 31.03.15). This is much lower than the £111.9bn valuation for Highway England, the body responsible for England’s motorways and major A roads.

The Telegraph states that Network Rail’s current valuation was due to an ‘accounting quirk of privatisation’ on historic cost, whereas the Highways England figure is based on a replacement cost.

The change is being made to bring NR accounting into line with the Government Financial Reporting Manual (aka FReM):

“Network Rail is being consolidated for the first time in the 2014-15 Whole Government Accounts (WGA) . . . The only residual issue with Network Rail is the valuation of their infrastructure assets. These are currently valued on an income basis which is not in accordance with the FReM and this may lead to a qualification for WGA in 2014-15. We are working on this issue with the Department for Transport and the NAO,” according to a paper issued by the Financial Reporting Advisory Board (part of HM Treasury).

The Telegraph has not disclosed where the £100bn figure comes from, though claims sources close to the government believe it will result in a massive increase. The government is currently struggling to cope with NR’s burgeoning debt, currently at £37.8bn but expected to reach £50bn by 2020.

It’s not sure at this stage what the implications of this move will mean for NR: If assets have been undervalued in the past, the cost of replacing them could result in more debt or more depreciation (or both) being added in future to bring things up to full replacement cost basis. That could have a knock on effect on charges. Also, it would also increase the cost of privatisation (should that option still be on the table). Critics will probably argue that it proves the railways were sold off on the cheap.


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