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Wednesday 26 Nov 2003

NETWORK RAIL PUBLISHES RESPONSE TO RAIL REGULATOR’S DRAFT CONCLUSIONS

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National

Network Rail today published its response to the Regulator’s draft conclusions, the latest step in the ongoing interim review of track access charges.  This document represents Network Rail’s formal response to the draft conclusions, which were published on 17 October, 2003. The response welcomes the Office of the Rail Regulator’s (ORR) acknowledgement that we have adopted an open and transparent approach to the review, that we have responded constructively to the challenge of identifying ways of reducing costs while improving performance, and that we are already making progress in addressing many of the issues identified in the draft conclusions.  The ORR’s draft conclusions imply unprecedented efficiency savings over the next five years.  Whilst we have made clear our determination to transform the efficiency of the company, and have committed to meeting demanding targets, it must be recognised that this is extremely challenging.  Network Rail remains of the view that efficiency savings at around the bottom end of the proposed range in the third consultation document are challenging but realistic. Today’s document suggests that there appear to be a number of inconsistencies which need to be addressed to set outputs, activities, unit costs and, therefore, revenues which must, in the final conclusions, be consistent with each other.  - more - Response – 2 The substantial reductions in renewal activity proposed in the draft conclusions have significant implications for the volume of maintenance activity that needs to be carried out if the output targets are to be achieved.  The proposed volume reductions would, for instance, limit the effectiveness of high-output track renewal equipment and reduce the scope for savings.  The Regulator appears to have made no allowance for additional maintenance where he has proposed further reductions in renewals. In relation to the West Coast Route Modernisation project, the document emphasizes that the interim review must provide appropriate funding and an appropriate allocation of risk for agreed outputs. Network Rail agrees with the Regulator that it is important that the interim review places the company on a sound, stable and sustainable financial footing.  We have worked closely with the SRA to explore whether it would be possible to reduce our charges through increased borrowing compared to the draft conclusions.  We are not yet in a position to confirm that this is possible.  Network Rail has therefore proposed a twin-track approach to the interim review conclusions, which would allow a pre-determined reduction in charges to be implemented if specified regulatory criteria are met. Network Rail Chief Executive John Armitt said: “The interim review process is nearing its completion.  It is essential that railway finances are placed on a sound, stable and sustainable basis.  We will continue to work closely with the ORR in the coming weeks.”