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Network Rail knew in March it might defer CP5 schemes – and told DfT

RTM has seen a letter from Mark Carne sent to shadow rail minister Lilian Greenwood MP that makes clear ‘deferral’ of major schemes was being considered back in March 2015.

Transport secretary Patrick McLoughlin MP has repeatedly said the information that led him to order a ‘pause’ in Midland Main Line and TransPennine electrification because of spiralling costs in the CP5 enhancements programme was only given to him after the election, in June.

But the letter says: “[From September 2014] we continued to keep the DfT and ORR fully informed about the continuing cost pressures. It is very frustrating that these continued to emerge, but again I am afraid that this is a direct result of the immaturity of the programme – as designs firm up it is only then possible to be more definitive about costs.

“In mid-March 2015, Network Rail informed DfT that decisions may need to be made in the coming months about the deferral of certain schemes. But we recommended that, before any specific decisions be taken, we first work with ORR to make a full assessment of the whole enhancement programme to review the latest position on each scheme and thoroughly explore the options for bringing costs down while retaining core benefits. By mid-June 2015 it had become clear that savings were not possible while protecting those core benefits, and this led to the Secretary of State making his statement to the House.”

Carne acknowledged that it was “bitterly disappointing to passengers that expectations have been raised and that certain projects will have to be re-phased”, and: “There is clearly a lot to learn from the whole way in which the CP5 plan was put together and I therefore welcomed the Secretary of State decision to commission the wide ranging Bowe review which will no doubt shed light on what we all need to do differently for future funding periods.”

Carne also specifically blamed the decision to reclassify Network Rail as part of the public sector for some of the current difficulties, because it affected its ability to borrow.

He explains: “Before Network Rail was reclassified, ECAM could have resulted in Network Rail being able to borrow additional money. It was this funding flexibility, overseen by the independent regulator, which mitigated the known risk associated with the high levels of uncertainty regarding project costs. As you will be aware, we are now more restricted in this regard than before Network Rail’s reclassification as a public sector body. As a public sector body we now have a loan agreement with DfT that sets a maximum level of borrowing in CP5 and it is within that level that we will be trying to deliver as much as we possibly can for passengers.”

Carne’s figures gel with what McLoughlin told the Commons transport committee earlier this week: that by September 2014, a funding shortfall of £2.2bn in the £12bn CP5 enhancements programme had emerged, “but we believed that this could be reduced significantly to c. £200m if certain decisions were taken in the future”.

Carne is careful to say that these “decisions” were about efficiencies, not deferring core electrification schemes.

His letter to Greenwood concludes: “In the meantime, Network Rail has a huge, complex and difficult programme to deliver. It is in all our interests that the dedicated people delivering these amazing projects are given our support and trust.”

In an article written earlier this week, Greenwood said: “The government must now set out a clear account of who knew what and when, which it signally failed to do yesterday. Otherwise the perception that the Midlands and the North were knowingly deceived will only become more entrenched.”


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