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11.04.16

Network Rail’s value could increase by £100bn due to change in government accounting

Network Rail’s value could increase by an estimated £100bn this summer due to a change in government standards.

The Government Financial Reporting Manual is set to be updated so that Network Rail is no longer valued according to estimated future passenger fares.

Instead, Network Rail will be valued at the amount it would cost to replace railways, stations and equipment. This would bring it in line with how Highways England is valued.

The Daily Telegraph estimates that Network Rail is currently valued at £54.1bn and that the changes could raise that amount by at least £100bn. It added that the new valuation would make Network Rail worth more than Highways England, which is valued at £111.9bn.

Minutes from a meeting of the Financial Reporting Advisory Board, say: “The Treasury also brought the Board’s attention to the consolidation of Network Rail in WGA [Whole of Government Accounts] for the first time, a complex exercise particularly around the valuation of infrastructure assets.

“The only residual issue with Network Rail is the valuation of their infrastructure assets. These are currently valued on an income basis which is not in accordance with the FReM.”

The potential increased value to Network’s Rails assets comes as the organisation is considering selling off its assets, including 18 major stations, to help plug its predicted £50bn debts.

RMT general secretary Mick Cash said: “The revaluation of Network Rail is set to pump up the UK's national balance sheet to the tune of around £100bn and should silence those on the right who have been agitation for re-privatisation of our ‎rail infrastructure.

“The revaluation also exposes again the whole twisted nature of rail privatisation that systematically under prices public assets to load the dice in favour of the private sector. Today's news should kill that nonsense off once and for all.”

Last month’s Shaw report ruled out privatisation as an option for Network Rail, but recommended that the company explore more rail devolution and private sector investment.

A DfT spokesman said that valuing the rail network on a Depreciated Replacement Cost (DRC) basis is considered appropriate by the Financial Reporting Advisory Board.

He added that the department is working with Network Rail on valuing the rail network on this basis, “and the valuation will be published within the department’s accounts in summer 2016”.

Comments

Lutz   12/04/2016 at 01:47

Perhaps not unexpected, but still when it comes to being broken up the yield will need to reflect the higher risk due to the reduced ability to cover any excessive increase in the debt level. Some think that is one way of blocking privatisation, but they are in for a shock.

Jerry Alderson   12/04/2016 at 13:22

There is an inherent flaw in valuing anything at its replacement costs - it assumes someone would want to replace it. It works for insurance policies, because that is the sensilbe approach. A business is not valued on the cost of its assets to the current owner, but the value of those assets to a purchaser, hence the share price. Thankfully the Beeching mentality no longer exists but if the intention was to close down the railway then Network Rail's value is very low indeed. It consists of some incredibly valuable city sites, 20.000km of almost worthless linear tracts of land, and lots of scrap metal.

Cameron Mcarthur   12/04/2016 at 20:16

20 years I have worked on railtrack /network rail. Little more than fraud and incompetence. Hhhmmn.

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