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Monday 3 Jul 2006

COSTS OF RUNNING THE RAIL NETWORK TO FALL BY MORE THAN £4 BILLION

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National

Network Rail today published its ‘initial strategic business plan’ which outlines the company’s emerging plans for operating, maintaining and developing the rail network from 2009 to 2014. The plan shows Network Rail reducing its costs of running the existing rail network by £4.2 billion over the period, from £25 billion to £20.8 billion (based on 05/06 prices) and further outlines the extra investment the company believes is needed to accommodate predicted 30% growth in passengers and freight across the 20,000 mile network. John Armitt, Chief Executive said: “In the future we are going to be able to run today’s railway for almost £1 billion less each year – a huge saving for the taxpayer.  The standard and level of service will not drop, but the efficiencies we are delivering month by month, and the progress we are making on catching up on decades of under investment, will see costs fall further.” Network Rail’s ‘initial strategic business plan’, published today, signals the beginning of a two year process to determine the needs of the UK’s railway network in the five year funding period - 1 April 2009 to 31 March 2014.  The submission is made to the Office of Rail Regulation and then involves an iterative process between Network Rail, the Office of Rail Regulation (ORR) the Department for Transport (DfT) and Transport Scotland that looks to determine how much money Network Rail will receive to operate, maintain, renew and enhance the nation’s rail infrastructure in what’s called ‘Control Period 4’ (CP4) - April 2009 to March 2014. Network Rail’s initial assessment sets out two alternative strategies:

• ‘The baseline’ provides an understanding of the efficient minimum cost to run the railway in its present state for the next five year regulatory period (known as Control Period 4 or CP4), with little provision for development and growth

• ‘The base-case’ builds on the baseline plan by suggesting development plans that respond to predicted growth in passenger and freight demand

Both plans look to deliver almost 18% of efficiencies over the five-year period and will reduce the cost of running railway by more than £4 billion.  The base-case funding requirements include:

• Renewals: £10,442m (was £13,403m in CP3)
• Maintenance: £4,587m (was £5,711m in CP3)
• Operations (controllable): £3,711m (was £4,108m in CP3)
• Operations (non-controllable): £2,036m (was £1,705 in CP3)
• Total: £20,766m (was £24,927m in CP3)

In addition to the baseline scenario, Network Rail also outlines a strategy to deal with the forecast 30% growth in demand on Britain’s rail.  This base-case details almost £8bn of development projects that would grow the network to accommodate predicted passenger and freight growth. John Armitt said: “The time has come to deal with the growing demands being placed on Britain’s rail network. We have seen remarkable growth over the past 10 years, 40% more passengers and 60% more freight, and we’re predicting similar increases, some 30%, over the next ten years. “The railway needs to develop and grow to accommodate this increasing demand and our proposals today go some way to ensure the future prosperity of rail use and of the UK economy in the years ahead.” Some examples of these likely projects include:

• Thameslink Programme (CP4 cost = £3.2bn; total Network Rail cost = £3.5bn)
• Waterloo redevelopment (CP4 cost = £385m; total Network Rail cost = £400m)
• Birmingham New Street (CP4 cost = £77m; total Network Rail cost = £142m)
• Southampton to West Coast freight upgrade (CP4 cost = £60m; total Network Rail cost = £60m)
• North London Line capacity enhancements (CP4 cost = £100m; total Network Rail cost = £200m)
• Airdrie-Bathgate line reinstatement between Edinburgh and Glasgow (CP4 cost = £75m; total Network Rail cost = £300m)
• Edinburgh and Glasgow airport rail links (CP4 cost = £380m; total Network Rail cost = £770m)

Mr Armitt concluded: “There has been significant investment in the railway over the last few years, but the network has not yet reached a steady state and our plan therefore continues the high levels of investment in the five years from 2009 to 2014. “Beyond 2014, however, we are forecasting a significant reduction in the spending necessary as the years lost to sustained underinvestment are finally regained.  “This is only the beginning of a two year long process to determine investment and expenditure plans for 2009 to 2014.  There remains a great deal to be done, working with other industry stakeholders, to improve the robustness of our plans and to assess alternative options for the railway.”