Tough choices ahead for Network Rail – ORR warning

Network Rail may have to make tough choices in meeting all its investment commitments in the next control period says ORR’s initial PR18 (2018 periodic review) consultation document.

“There are now around £9.5bn of enhancements planned for control period 6 (CP6). When combined with planned asset sales – which would reduce future income streams (e.g. from property rents) over CP6 – and uncertainty about the performance and efficiency levels that Network Rail can achieve by the end of CP5, this may imply some tough choices,” the ORR warns.

The ORR is concerned that asset sales could lead to increases in track charges: “By CP6, Network Rail plans to have raised £1.8bn from its assets in England & Wales, including potential disposals of its commercial estate and freight sites. This would imply an increase in total track access charges to offset the fall in Network Rail’s annual property income.”

A periodic review (PR) takes place every five years. It decides what Network Rail has to deliver in the next control period and how it is to be funded. The initial consultation closes on 10 August, and it is the first stage in a lengthy process.

Network Rail is struggling to cope with increasing traffic; train-kilometres have grown by nearly 25% since 2005-06. The freight train metric has improved, but overall passenger performance – as measured by the public performance measure, PPM – has fallen to a 10 year low and is now under 90%.

Since reclassification as a public sector body, NR has borrowed directly from the government. It now no longer has a ‘credit card’ to fund its spending, which means the government has become more closely involved in the decision-making process.

NR’s burgeoning debt is also a matter for concern; it is forecast to reach £51bn by the end of CP5 (March 2019): “The financial sustainability of this debt is an issue, particularly as the funding needed to service the debt will likely also grow.”

The ORR says the 2018 periodic review will be significantly different from previous ones. PR18 places much emphasis on devolution. This process is already underway as NR has devolved some operational management to the eight routes recently created.

Network Rail's eight routes
Network Rail’s eight routes

But ORR would like to see this development taken much further: “We propose to set separate requirements for individual routes, with routes having separate regulatory accounts, and debt and RAB apportioned to them (consistent with the suggestion in the Shaw report).”

The routes would be expected to show: income received from access charges; payments and receipts from Schedules 4 & 8; property and other income; and any network grant.

ORR says this would enable comparisons to be drawn between the different routes (instead of relying on comparisons with international railways). It would improve transparency and should drive up efficiency. The routes would be annually monitored, and the ORR suggests that route performance and the remuneration of senior staff should be linked.

Some functions would still be centrally managed: timetabling, capacity allocation and long term planning, for instance. The ORR maintains that these core functions – which it labels system operations – need to be better monitored as they are not yet specifically subject to ORR regulation.

The ORR is scheduled to make its final determination in October 2018.

Periodic review 2018 (PR18) initial consultation:

 

http://orr.gov.uk/__data/assets/pdf_file/0009/21996/pr18-initial-consultation-document-may-2016.pdf

 

 

 

 

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