Railtrack responds to the Regulator on its financial framework
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Railtrack responds to the Regulator on its financial framework
type Press release
Railtrack is disappointed by today's statement from the Acting Rail Regulator setting out his preliminary conclusions on the financial framework for the periodic review of Railtrack's access charges. This is part of a wider process culminating in final decisions in July 2000 and should be the beginning of the debate, not the conclusion.
Railtrack has specific concerns about the standard utility model approach he has adopted which is more suited to an industry such as water. It is less appropriate for rail, where there is now significant growth and major investment needed to deliver the Government's integrated transport policy which seeks to place rail at the heart of the nation's transport system.
Since privatisation, Railtrack has delivered against the objectives set by the Regulator. It has delivered on investment, spending substantially more than the sums originally envisaged. Last year Railtrack's investment of £25 billion was six times more than its after tax profits. This year's investment will be over £4 billion. This is one of the largest UK capital investment programmes ever undertaken and needs a strong level of profitability to support the required funding.
The company has delivered on train performance, with infrastructure attributed delays down by over 40%. It has delivered on growth with passenger miles on the system increasing 16% over the last three years and a big increase in freight tonne miles. The railway safety record has also continued to improve.
In addition, work is underway for a major upgrade of the West Coast Main Line and plans are being taken forward for Thameslink 2000. These projects are part of the already committed ? billion, 10 year programme set out earlier this year. On top of this, plans are now being developed for further rail enhancement projects needed to address current capacity issues, as agreed at the Rail Summit meeting held with the Deputy Prime Minister on 26th November. These plans will be published in the March 1999 Network Management Statement which will form the basis for reaching final conclusions on Railtrack's future access charges. In addition, Railtrack has helped rescue the Channel Tunnel Rail Link which requires investment of around ?billion to complete.
Gerald Corbett, Chief Executive, Railtrack PLC said: "Every ?million of profit supports ? million investment. Railtrack believes that profit and investment are two sides of the same coin and that decisions on the rate of return cannot be taken in isolation from the investment needed to deliver the Government's integrated transport policy."
Looking at what has been achieved, Railtrack estimates that by the end of this control period, it will have invested over ?billion on infrastructure above that allowed by the Regulator in setting Railtrack's current access charges, to meet renewal needs which were not identified when the existing access charges were set. The need for this additional expenditure, which was set out in the Prospectus and supported by detailed engineering assessments, has not been disputed by the Regulator. Despite this, he now proposes that investors should not earn any return nor even be reimbursed for it. Railtrack finds his arguments on this unconvincing.
Railtrack is keen to bear increased risk through developing commercial partnerships with Government and train operating companies in order to develop the network - as it has already demonstrated with the upgrades of the West Coast Main Line and Channel Tunnel Rail Link. However Railtrack has concerns over the mechanisms proposed by the Regulator for remunerating enhancement investment. The proposition to only review investment returns retrospectively at the end of the next control period hardly provides a stable base for Railtrack to sensibly plan its investment programme. Railtrack will be putting alternative proposals to the Regulator.
On the face of it it is difficult to see how the Regulator's proposals contribute to the Government's aspirations for growth in the use of railways as part of its integrated transport policy. Furthermore the ability of the Railtrack Group to enter into projects such as its prospective participation in the public-private partnership of London Underground may be impaired.
Under Section 4 of the Railways Act 1993 the Regulator has a duty not to make it unduly difficult for Railtrack to finance its activities. Railtrack is concerned that these proposals have been made prior to reviewing the investment programme and may not be compatible with the scale of the financing requirements needed.
Mr Corbett concluded: "It is 18 months before the Regulator reaches his final conclusions. The key issue for debate is what type of railway do we want - a growing one that solves the increasing problems of congestion on the road system and provides a real alternative for passengers and freight - or a railway starved of investment and unable to meet the needs of Government, train operators, rail users and the wider community. The railway needs a strong Railtrack able to invest. We fear that today's report which takes an old style utility approach will lead to a weakened and underfunded Railtrack which cannot deliver what everyone agrees has to be done. The good news is that we have two and half years before these ideas are implemented and we shall use this time to win the argument that a different approach is needed for the good of the travelling public and the country."
For more information or an interview, contact the Railtrack press office on 0171 557 8292/3
Railtrack has full ISDN broadcast facilities available. Interviews can normally be arranged on request.
All recent press releases can be found on the Railtrack web site at the following address: http://www.railtrack.co.uk./corporate/notice
Railhub Archive ::: 1998-12-09 RTK-001