Railway control periods are a lot like the World Cup. They come around every few years, cost billions to deliver and the performances aren’t always up to the high standards we demand.
The publication by the Office of Rail and Road (ORR) of its draft determination for CP6 last month completed an important step in establishing what Network Rail will ultimately have to spend on maintaining and renewing the railway between 2019 and 2024.
The process began with the ORR launching its Periodic Review for 2018 (PR18) in May 2016. Statements of Funds Available (SoFAs) were then produced by the DfT and Transport Scotland which helped to shape Network Rail’s Strategic Business Plan (SBP), which was published in February (Issue 161, March 2018).
What the ORR says
In terms of investment in the railway, the SBP included £47.8 billion to operate, maintain, renew and enhance the network in CP6. This was split into £18.5 billion for operations and maintenance, £18.5 billion for renewals and £10.1 billion for enhancements. It was described as a budget that focused on reliability and efficiency, but Network Rail has said that it will continue to pursue major enhancement schemes.
The majority of the CP6 plan (£34.7 billion) will come from the government, with the remaining £13.2 billion generated from train operators and Network Rail’s property portfolio.
The ORR appears to largely support the SBP but, while it believes that Network Rail has improved the way it plans and costs work, the draft determination also suggests that some of the issues that Network Rail had in estimating future cost levels could still exist.
Having reviewed Network Rail’s plans, the ORR has given the organisation a list of points it needs to address ahead of the final determination later in the year.
In some cases, the ORR has been quite specific, directing Network Rail to add around £1 billion to its renewals budget by making savings elsewhere. The ORR has also suggested Network Rail allocate an extra £80 million for safety, including level crossings and workforce safety campaigns.
Although the ORR has proposed a £10 million performance innovation fund, it has recommended that R&D funding should be reduced overall (from £440 million to £100 million) to focus on renewals.
The ORR said it was also in discussions with the Department for Transport (DfT) to determine how an estimated £250-300 million from the Crossrail supplemental access charge could be spent. This income wasn’t included in the SBP but the ORR believes it could be used to improve ‘asset sustainability’.
Boom and bust
The ORR also wants to see an end to the current peaks and troughs of the control period structure and has told Network Rail to smooth out its funding profile for CP6. The Rail Industry Association (RIA) welcomed the ORR’s stance and tentatively supported the announcement as a whole.
Peter Loosley, policy director at RIA, said: “We understand that the £30 billion relating to operations, maintenance and renewals expenditure for England and Wales is consistent with both the SoFA and Network Rail’s Strategic Business Plans.
“It does not, of course, contain any provision for ‘Hendy Tail’ enhancements (those left over or delayed from CP5) which we understood to constitute roughly £9 billion of the £47.8 billion SoFA and which is a matter for the Department for Transport. RIA will need to examine the Draft Determination in detail and discuss with RIA members, ORR and others as necessary to inform our more detailed response.
“We are pleased, however, to see the ORR commitment to increased renewals expenditure and that they have included a commitment for Network Rail to review its spending profile to smooth rail investment over the five years of CP6. This is something the Railway Industry Association and its members have been calling for over many years and, in particular, since the downturn in renewals expenditure over the last 18 months of CP5.
“We therefore applaud this reaction from ORR. Aside from its damaging impact on rail suppliers, ‘boom and bust’ in the rail funding system results in a more expensive railway too. So we urge Network Rail, the DfT, Treasury and the rail supply sector to work with us and the ORR to deliver a smoother pipeline of work in the years ahead, to the benefit of the sector, the passenger, and ultimately the taxpayer as well.”
Where CP6 will differ substantially from CP5 is the way it manages its newly devolved route structure. The network is now split into eight geographical routes, each with its own budget and performance targets.
The ORR believes these targets need reviewing for the Wessex, South East and Anglia routes to “ensure they are robust and set consistently with other routes”. It has also recommended distributing £0.9 billion currently held centrally as contingency to the routes and allow them to determine how it should be spent.
According to the ORR, Network Rail also needs to strengthen the monitoring and financial controls for the new Rail System Operator (SO) function – which is in charge of planning and timetabling.
Joanna Whittington, chief executive of ORR, said: “The entire rail industry, including passengers, freight customers and train operators, relies on Network Rail to deliver a high-quality service.
”ORR’s initial assessment of Network Rail’s five-year plans shows that the transition from a centrally run company to one structured round eight geographic routes has improved the quality of the plans but we want to see £1 billion more spent on renewing the railway to improve reliability and boost safety.
“ORR will be monitoring and enforcing delivery by each of the routes, so that passengers and freight customers will be able to rely on the railway for the essential service it provides.”
Variable access charges
The draft determination includes good and bad news for freight operators. While the ORR confirmed that increases to variable access charges for freight and charter operators would be capped, operators carrying biomass for energy production will be subject to new charges in CP6 and some new open access operators will have to pay charges related to network costs. The ORR estimates that the average annual increase in the total variable charges over CP6 will be 2.1 per cent for freight and 1.2 per cent for charter, in real terms.
Maggie Simpson, Rail Freight Group’s executive director, said: “We are pleased that the Office of Rail and Road have listened to the significant concerns of rail freight customers and operators, and propose to limit the increase in freight charges over the next control period. Although we need to understand the detailed impact on different markets, this should provide a stable framework for the next five years.
“We are however disappointed that ORR have chosen to increase charges for biomass traffic.
“In the longer term, Network Rail must now deliver on its efficiency targets so that the potential for further price increases in CP7 is reduced.”
What happens next?
Network Rail’s response to the ORR needs to be submitted by 31 August. The final determination will be published in October and Network Rail will use this to produce its final delivery plan for CP6.
Mark Carne, Network Rail chief executive, said: “We welcome the regulator’s general support for our plans for Britain’s railways, delivering a more reliable service that passengers can rely on. It has accepted the majority of our plans, strongly supporting the changes we have been making including our focus on bringing track and train closer together, supporting devolution, the creation of the System Operator and incorporating customer-focused scorecards into its monitoring during CP6.
“We will consider the detail carefully over the coming months as there are still some areas of concern that we will need to work with ORR on before it publishes its final determination in October.”
Read more: Return of the Rail Partnership Awards