05.09.13
ORR cuts ‘unrealistic’ – Network Rail
Network Rail has labelled the ORR’s draft determination for CP5 “unbalanced and unrealistic”, and says £1.4bn of the £2.4bn cuts demanded by the ORR need to be restored.
The regulator published its determination for 2014-19 in June, proposing a cut of £2bn from the delivery plans, from £40.1bn to £37.9bn. The net revenue requirement would be £27.4bn, the ORR said, down from Network Rail’s proposed £29.2bn in its Strategic Business Plan.
The ORR says the chances of Network Rail reaching the targets it had set were less than 50%, and announced a planned increase in the level and degree of regulatory oversight.
In its response to the draft determination, Network Rail has criticised the scale of proposed cost savings and performance, and raised concerns about the proposal to cut the renewals budget by a further £594m.
The determination also outlined the expectation for Network Rail to deliver an additional £800 of property income and enhancements, whilst cutting the planned IT upgrade budget from £614m to £338m and research and development from £300m to £50m.
The expectations on track and signalling renewals unit costs are “unrealistic”, Network Rail says, backed up with independent analysis from Turner & Townsend, who “found the reductions in track and signalling unit costs in the Draft Determination relating to risk and contingency to be incorrect. In their opinion, the 2% reduction for track unit cost is not appropriate as the opportunity for cost reduction through central management of risk and contingency that is implied by ORR will not exist in CP5. The consultants have also concluded that the three per cent reduction in signalling unit costs would reduce costs to an unmanageable level for CP5.”
The proposed regulatory regime should also be reviewed, Network Rail said, to avoid adding cost through duplication of effort and denying the company and wider industry flexibility.
Sir David Higgins, Network Rail chief executive, said: “The regulator’s determination provides the opportunity for Network Rail and the industry to build on the progress and success of the last decade, but whilst there are many aspects of the draft which we welcome, taken as a whole we believe it is unbalanced and, therefore, unrealistic."
“We had already set ourselves tough, challenging targets for the next five years in terms of further improving performance, safety and continuing high levels of investment to grow and expand our railway. The ORR’s response to our plans calls us to deliver too much, too quickly and is, overall, simply unrealistic. It would be irresponsible for us not to be open and honest about the scale of the challenge that would pose for us as an organisation.”
The table below sets out CP4 spending (column 1), Network Rail’s original proposal in its Strategic Business Plan (column 2), and the ORR’s draft determination in June (column 3).
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