04.03.16
Network Rail scopes out sell-off of electrical power assets
Network Rail has triggered the potential sell-off of its electrical power assets in a consultation to test the industry’s interest in buying thousands of its overhead lines, substations and pylons.
The organisation, which owns around 120 power substations and thousands of cables, could sell its parts of its power network in a bid to plug its £42bn debt. It could result in private firms buying these assets and running them on Network Rail’s behalf, which the organisation’s chief, Mark Carne, said brings “no passenger disadvantage”.
Network Rail’s boss told the Daily Telegraph that the UK has a “highly complex network” boasting a “whole range of different possibilities for the way in which the electrical market could participate”.
He added in a statement this morning: “Our approach is all about financial discipline, with a renewed focus on our core activities while being open and innovative about new sources of finance to fund our growing railway.”
Other assets being put up for sale or long-term concessions include telecoms, surplus land, depots, car parks, advertising signage, stations and freight yards. A further £1.8bn is expected to be raised from 7,500 commercial property sales over the next three years.
“While no decisions have yet been made, if there are investors or others with expertise in key areas who can help us do that, then we should look to embrace those opportunities,” Carne said.
The consultation and market testing exercise was launched following a review by accounting company KPMG started six months ago, and comes just a few days ahead of the long-awaited Shaw Report – which is expected before the chancellor’s Budget on 16 March.
But Carne ensured that nothing will be sold off unless he can “demonstrate firstly that it’s value for public money”, and that power firms can demonstrate to him that “they can operate those assets in a way which is superior and better to the way we operate them”.
The Network Rail boss also said the sounding exercise was designed to “maximise commercial opportunities and inject private capital into the railway to help fund investment”.
He also made the case for streamlining Network Rail’s “overly complicated” operations, allowing it to focus solely on maintaining track, bridges, tunnels and level crossings.
This is largely in line with Network Rail’s separate and ongoing market exercise into selling off its 18 major stations. It recently hired Citigroup bankers to sound for investors that could potentially run parts, or all, of the stations – or even just run it in concessions, similarly to the London St Pancras model.
Lord Ahmad of Wimbledon recently told Lord Bradshaw in a Parliamentary question that nothing is certain yet, but that Network Rail is “exploring new models for station management and ownership with the goal to bring improvements”.
“They have engaged Citigroup as advisors to consider a range of potential options but no decisions have been taken at this early stage. Any decisions on such potential future options will take account of the findings of Nicola Shaw's report into the longer term shape and financing of Network Rail,” he added.
Clashing with the Shaw Report
Carne does not expect that selling the company’s power network will contradict with the imminent Shaw recommendations. He told the Daily Telegraph: “I think we’re all agreed that having smaller organisations that deliver services that are much more closely aligned to what passengers and customers want is a good thing to do.
“So I feel very confident that we’re going to be completely aligned with her [Nicola Shaw’s] findings in that area.”
At a rail event yesterday in the Westminster Forum, the head of the Shaw Team, Emil Levendoğlu, told attendees that despite general perceptions, they should not be looking at the report as a review into re-privatising Network Rail.
He guaranteed that the team is looking at all sides of the debate, with dozens of consultation events taking place across the country and over 10,000 written responses feeding into the final report.
While stakeholders won’t agree with every element of Shaw’s recommendations, Levendoğlu said her mission is to gain broad consensus across the industry.
Asked about the report by the Daily Telegraph, including if major routes such as Greater Anglia and Wessex could be sold off, Carne said he will not “pre-judge what [he thinks] the outcome of it will be”.
“We have a very clear strategy about how we want to improve the performance of the company and provide a better service to passengers and I think it’s right that we crack on and do that,” he added.
“We all acknowledge that the old way of funding the railway has got to change. Attracting more private investment into rail projects is an absolute pre-requisite for the future of the railway.”
The Department for Transport has also come forward saying it is not ruling out any options in the report, arguing it will “not be dogmatic” about Network Rail’s future.