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26.11.15

Network Rail to sell £1.8bn of ‘non-core assets’ to fund enhancements

Network Rail plans to raise £1.8bn through the sale of “non-core assets” to meet the increased costs of its enhancement programme. 

Sir Peter Hendy, Network Rail’s chairman, has finally published his long-awaited review into the organisation’s CP5 funding programme, which found that the original plan was “unrealistic” and “undeliverable”

However, he has concluded that the majority of the programme can go ahead as planned, although some projects will be completed later than originally scheduled. 

The former commissioner of Transport for London (pictured) added that extra investment to fill the funding shortfall will be generated primarily from the sale of non-core railway, which includes considering options for the sale of property assets, including retail units in managed stations, on the telecoms network and depots. 

543 Peter Hendy c. Stefan Rousseau PA

Yesterday’s Spending Review revealed that the he government intends to allow Network Rail to sell assets and re-invest the proceeds in rail infrastructure, subject to a value for money assessment. 

Additionally, the DfT has agreed to increase the limit on Network Rail’s government borrowing by a further £700m. The result is that the vast majority of programmes and projects will go ahead for delivery by 2019. 

Sir Peter has concluded that the core business can be managed within the borrowing limit that has been set for CP5. But the principal change to achieve this will be a reduction in renewals activity, which Network Rail “considers can be managed safely and does not create a backlog that cannot be caught up in subsequent control periods”. 

Two projects which will now be completed in CP6, as we knew before the review’s publication, include the electrification of the Midland Mainline from Sheffield to Bedford now set for completion in 2023, and the TransPennine line between Manchester and York by 2022. 

Mark Carne also revealed recently that the expected cost for Great Western electrification had increased by up to £1.2bn from the £1.6bn agreed in 2014. This means the cost range is now between £2.5bn and £2.8bn. 

Sir Peter said work to update the programme for Great Western Electrification “is being concluded as this report is completed”. 

He added that completion of electrification to Cardiff is planned to be completed in CP5 within the estimated total cost of £2.8bn. And the electrification beyond Cardiff is expected to be completed in CP6. 

279 Electrification

Sir Peter’s report revealed there were two principal issues relating to the increased cost estimates that have been seen across the portfolio: inadequate planning and scope definition of a number of projects in their early phases; and poor cost estimating – particularly on electrification projects. 

He added that the cost and deliverability challenges are restricted to a small number of programmes. Before adjusting for the impact of deliverability and affordability, around 80% of the increase, relates to five programmes. 

“These are electrification schemes which were still in development when ORR concluded its review of Network Rail’s 2014-19 plan. The cost of schemes that were already well developed, represent around 10% of the increase, with the majority of this relating to the Thameslink programme. The remaining 10 per cent includes activity that was rolled over from CP4 for delivery in CP5 and additional scope that the DfT has requested since the start of CP5.” 

The 44-page report provides information on what will be delivered in each part of the country. And an eight-week consultation on the findings of the report will start in early December. 

Lilian Greenwood MP, Labour’s shadow transport secretary, said: “Ministers are cynically trying to hide bad news by publishing this report late on the day of the Comprehensive Spending Review. 

“It’s an insult to taxpayers that incompetent planning has created a £2.5bn budget black hole that will be funded by £1.8bn of asset sales, along with £700m of additional borrowing. Labour and the Transport Select Committee repeatedly warned the Government that its rail electrification programme was in jeopardy, but Ministers refused to address the issue until after the election. 

“We now know that electrification costs have risen by over 70%, and after already announced delays to ‘Northern Powerhouse’ projects of up to four years, other important projects will also be delivered late. Ministers could have got a grip on these issues much earlier, and passengers and taxpayers are paying the price.” 

Sir Peter said: “This new Railway Upgrade Plan is a more robust and deliverable plan but it is not without its own risks and challenges which Network Rail will work tirelessly to address.” 

He added that the changes to the business plan will need to be reflected in our CP5 Enhancements Delivery Plan subject to agreement with ORR through the formal change control process. The draft updated Enhancement Delivery Plan entries will be published in early December.

Comments

Frank Middleman   27/11/2015 at 08:21

Didn't Railtrack do the same thing - sell off everything it reasonably could, all in the name of extra income. Their agenda was to keep the shareholders happy, but I can't help but feel this is a very short-sighted move & that Network Rail is painting itself into a corner, selling off everything around itself. It's fundamentally unsustainable.

John   27/11/2015 at 11:39

It would be interesting to know what is up for grabs; one can only imagine corridors of land being sold off. There would need to be robust processes in place to ensure that in the current climate of projected increases in passenger and freight, scope for capacity enhancement is not being impaired. Once the land is sold off and built on, they will never get it back.

Pedr   27/11/2015 at 16:09

Where may we read the document? It would be interesting to see if the Bletchley and Bedford to Oxford line is on the programme. Looking back, I see this was scheduled in 1997 for completion about 2003. It doesn't need to be jam tomorrow - double track or electrified in the first place - a single line, even with a Pacer, would do. 'Get something running' is the old rule. Then add the rest by instalments as needed.

Pete The Cheat   27/11/2015 at 17:54

The company has lost in excess of 900 million by gambling to the tune of 1.2 billion in the derivatives market. If I or anyone else for that matter gambled like this, we'd be torn apart by the system. So, does this justify financial irresponsibility just because they can sell assets off? What a joke!!!!!

Gavin Silvey   27/11/2015 at 18:56

I heard that Westwood training centre might be part of the sell off. Shame if true, as great facility.

N Giles   27/11/2015 at 20:46

I had heard it's station sell off time, possibly Reading up for grabs? if so, who will buy? Reading Emirates Interchange? Reading Etihad West London Parkway?

Henry Law   27/11/2015 at 21:05

In 1985 I was the co-author of an article in Railway Magazine proposing electrification of the GW main line on the 3rd rail DC system. Perhaps it was not such a stupid idea after all.

Simon J   27/11/2015 at 21:57

Several projects which are going ahead are the wrong ones - Carlisle station refurbishment for example but we need capacity improvements - eg Ely North Junction but we don't need Norwich in 90 for 2 trains a day but we do need electrification from Ely to Trowse. Meanwhile I remember your article Henry Law - it made sense then and still does, Crossrail and direct plug into the Met and District in the London Area - 'S' Stock to Marlow, Heathrow and Reading - why not -it goes to Amersham and Chesham Now! As for long distance DC goes to Weymouth with few issues as for speed we are already talking of 110mph Bi Mode on Diesels and 125 on surface contact is quite feasible as the Japanese have shown experimentally. It is cheaper and more robust too.

Nick K   28/11/2015 at 10:20

Why are we spending all this money on electrification? Yes, I know all the arguments but the £££s would be better spent on new power stations NOW. You've only to look at the spare capacity now in the evening rush hour (http://clivebest.com/rgraph/Wind.html) to see, on still evenings, that all the power stations are already at their limits, and it's not even cold. Welcome to power cuts!

Helmsman   30/11/2015 at 00:20

I thought Maggie Thatcher had flogged off all the 'non core' assets - hotels, ships & workshops, etc back in the 1980s. So what is there left to sell? The Report is very vague. The suspicion remains that NR will increasingly come under pressure from this cash-strapped government to sell assets that it may well have later cause to regret. I can see no problem with leasing - at least the asset ownership would (presumably) remain with the state - or to minority shareholdings, but when something is sold it's gone for good. When all the family silver has been sold what will there be left to sell?

Cocis   16/12/2015 at 14:12

They cannot estimate the cost of projects correctly. They go over budget and over time on their undertakings. They sell off their assets to fund their own inadequacy. Only 9 out of every 10 trains run on time. Time to give the Execs a bonus I think, we don't want this expertise going abroad.

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