HS2

DfT promises CP6 renewals boost, but pushes funding deal to October

Transport secretary Chris Grayling has agreed to a higher volume of renewals activity in CP6 in order to “maintain safety and improve on current levels of reliability and punctuality” – but has pushed back the announcement of a funding envelope for the control period, citing the need to review Network Rail’s poor approach to efficiency.

In a statement, Grayling stated that while it is important to boost the volume of renewals supported by “appropriate volumes of operations and maintenance activity”, Network Rail’s progress on improving its own efficiency in recent years has “fallen short” of his expectations.

As a result, he has published the High Level Output Specification (HLOS) document for CP6 without committing to the specific levels of funding required.

“I have decided that the government requires more assurance on the likely costs of the work programme,” the secretary of state explained. “The government will therefore carry out further work to examine the approach to setting appropriate levels of maintenance and renewals activity for CP6 and to improving Network Rail’s efficiency.

“This will enable me to confirm the extent of government’s funding envelope through the publication of a Statement of Funds Available by 13 October 2017. This work will draw on a number of sources, including the new independent review of progress on efficiency planning which the regulator has commissioned.”

Subject to satisfactory conclusion of this review – which will seek assurances on how sensible and affordable the costs of operations and maintenance activity are – the government believes it is “likely” to have funds available to meet “reasonable requirements subject to reasonable efficiency savings and deliverability”.

Grayling does not intend for Network Rail to obtain any further loan during CP6 from whatever source, and promised to provide adequate funding to meet the obligations the infrastructure owner has to its bondholders.

He also advised Network Rail to seek other “non-rail specific sources of public funding” to support its CP6 activities if desired, as well as encouraged third-party funding contributions – including from land use planning.

Alongside the HLOS document, the DfT issued a new statutory guidance setting out regulation priorities intended to support the ORR’s work in improving the infrastructure owner’s efficiency.

The publication of the long-awaited HLOS closely follows warnings from the Railway Industry Association yesterday that the future of renewals work is in jeopardy due to poor performance in CP5, which saw costs soar beyond planned levels. In August last year, the ORR estimated that work had cost almost £2bn more than expected due to underperformance and higher renewals prices.

Beyond just leaving Network Rail in a weaker financial position at the start of CP6, this also poses a threat to the wider supply chain, whose confidence to invest in projects, staff and productivity might take a hit.

The HLOS also comes on the same day as the ORR’s annual review of Network Rail for 2016-17, which found that the organisation is carrying out core work 5% less efficiently than it did three years ago. It has also postponed chunks of work to the next control period in order to remain within its budget, which will naturally have implications for passengers and customers unless the issue is addressed in CP6.

As well as confirming that the government will need to examine Network Rail’s approach and cost estimations for the next five years, Grayling revealed that the DfT is currently developing a new process for delivering enhancements – more information on which will be available shortly.

“The government is already delivering significant enhancements to the railway, including HS2 and Crossrail, and it expects to continue to invest in the enhancement to the wider rail network in the next control period,” he said.

“In light of the findings of the Bowe Review, which emphasised the need to enable better planning, cost control and alignment with the needs of users of the railway, government will take forward the funding of these enhancements separately. The government is developing a new process for delivering enhancements and intends to publish more information on this in the autumn.”

HLOS: Renewals and performance

The HLOS document, which deals only with operations, maintenance and renewals of the existing railway rather than committing to infrastructure enhancements, said the transport secretary accepted the ORR’s advice on the need for higher volumes of renewals compared to CP5. In fact, the DfT said it is expecting “considerable progress” in this area.

But Grayling is still concerned about the affordability of the initial cost estimates since they do not allow for efficiencies, particularly of operations and maintenance.

On performance, the transport secretary noted that he expects Network Rail to continue working closely with TOCs during CP6 to both deliver better services for users and manage the resilience of the network. He did not propose setting national top-down performance targets, and instead vouched for route devolution as the best way to determine appropriate metrics and “stretching yet realistic target levels for each part of the network”.

He has asked the ORR to develop and implement regulatory route-level performance targets reflecting this new approach, an issue which the regulator’s director of railway markets and economics, John Larkinson, talked to RTM about earlier this year.

In response to these announcements, Gordon Wakeford, chair of the Rail Supply Group, reiterated that companies are committed to working with Network Rail, TOCs and the government to deliver investment schemes as efficiently as possible.

“What allows us to deliver efficiently is certainty about future priorities, programmes and spending levels, to enable the industry to work together and invest in skills, technologies and innovation for the future,” he noted. “Going forward, we urge government and Network Rail to pay careful attention to the issues that can be caused at the end of a control period and the start of another, but we welcome today’s first major step in the CP6 process and, as a supply chain, look forward to working with them on this basis.”

(Top image c. Dominic Lipinski, PA Wire)