Railtrack's performance targets: statement by the Rail Regulator (ORR, 1999)

Railtrack's stewardship of the network (ORR, 1999)

1999-11-25 Railtrack response to the Rail Regulator's stewardship of the network document (Railtrack plc)

_______________________________________________________________

date 25 November 1999
source Office of the Rail Regulator
type Press release

note ORR/99/52

Rail Regulator announces his response to the report on Railtrack's stewardship

The Rail Regulator, Tom Winsor, today announced further action to improve the
regulation of Railtrack and its stewardship of the national railway network
following publication of his reaction to a highly critical report on the
company's record.

Today's announcement covers:

(a) the Regulator's reaction to the report by Booz Allen & Hamilton Ltd on
Railtrack's stewardship of the national railway network;

(b) the actions which the Regulator has already taken in relation to the
issues which it raises, including action on the rising trend of broken rails,
Railtrack's freight capacity plans, the company's track quality improvement
programme, initiating enforcement action on progress with the upgrade of the
West Coast main line and his making of an enforcement order concerning
Railtrack's passenger performance targets;

(c) his intention to amend Railtrack's network licence to include three new
conditions concerning (1) the creation of a register of Railtrack's assets and
their condition, (2) more effective means of monitoring and reporting on the
condition of the company's assets, and (3) a binding code of practice on
Railtrack's dealings with its dependent customers.

In his response to the Booz Allen and Hamilton report into Railtrack's track
record, Mr Winsor said : 'At the heart of that report are criticisms of the
company's knowledge of its assets and its management of them. Moreover, by
altering its asset maintenance policy so as to extend the average age of
assets before they are renewed, Railtrack may well be focussing too much on
the short term and storing up serious problems for the future. In these and
many other respects, Railtrack should be leading the industry, taking a
long-term view and investing wisely and well in the care and maintenance of
its assets, as well as enhancing them'.

He has therefore set out a list of actions he expects of Railtrack to improve
asset management information both in terms of condition and capability of the
assets.

He has also made the enforcement order he proposed in August requiring
Railtrack to improve passenger train performance by 12.7 per cent in
1999-2000. This follows action already taken in a number of areas relevant to
this report by:

- requiring and receiving from Railtrack information about its plans to
provide adequate capacity for freight;
- applying and increasing pressure on Railtrack in relation to the rising
trend of broken rails;
- auditing and monitoring Railtrack's compliance with its national track
quality improvement programme; and
- taking enforcement action in relation to the provision of capacity studies
and freight routing strategies on the West Coast main line.

Commenting on Railtrack's under-delivery in the current control period, the
Regulator warned that in his December 1999 document giving provisional
conclusions as part of the periodic review of Railtrack's access charges he
would be announcing what action he intended to take. 'I will also set out with
greater precision what Railtrack is expected to deliver in the next charges
control period,' he said.

Mr Winsor also complained that in certain key respects Railtrack's network
licence was not fit for purpose. It was granted in March 1994 on the
assumption that the company would remain in the public sector, with its
directors appointed by and directly accountable to the Secretary of State.
When Railtrack was privatised it remained substantially the same licence, and
no appreciable change was made. The inherent shortcomings would be remedied.

'It is my intention to strengthen Railtrack's public accountability by
amending its network licence, using the procedures in the Railways Act 1993.
By making the improvements which this document outlines, the company will have
greater clarity, stability and predictability in regulation. It will know far
better what is expected of it, and so will its customers and those who rely on
it. And it will know these things in advance and so be able to plan its
business with confidence. By improving regulation in this way, we enhance its
effectiveness and so facilitate the achievement of a better railway.

'I am therefore today announcing the commencement of my first use of the
licence modification procedure. My objective is to amend Railtrack's network
licence to include three new conditions concerning establishing:
- a reliable and comprehensive asset database which covers all of
Railtrack's network and the condition of its assets;

- an efficient and effective regime for monitoring and reporting on the
state of Railtrack's assets; and

- a binding code of practice concerning Railtrack's dealings with its
dependent customers.

'The steps which I have already taken, together with the criticisms which the
company has faced and the measures which I have today announced, should be
enough for the company now to improve significantly on its care, maintenance
and improvement of the network.

'I want and expect Railtrack to respond positively and constructively to these
initiatives. If I am not satisfied with the company's response and its
performance, I will not shrink from justified and proportionate use of the
powers available to me. Railtrack now has the opportunity to demonstrate
urgently and beyond doubt that it takes its public interest responsibilities
every bit as seriously as the public which it was established to serve'.

Copies of today's document - Railtrack's Stewardship of the Network - are
available from the Library, Office of the Rail Regulator, 1 Waterhouse
Square, 138-142 Holborn, London EC1N 2TQ. Tel: 0207 282 2001; Fax: 0207 282
2045; e-mail : orr@dial.pipex.com/

The Booz Allen and Hamilton report, along with today's document, can be found
on the ORR website at http:// www.rail-reg.gov.uk/


PRESS ENQUIRIES : ORR Press Office: 0207 282 2002/2007
Out of office hours : pager 07659 127303



REGULATOR'S FOREWORD

1. This document is my formal response to the report published in April
1999 by the consultants Booz Allen and Hamilton Limited, appointed by my
predecessor to investigate and report on the sufficiency of Railtrack's
stewardship of the national railway network. It has been informed by the
responses of train operators and others in relation to the Booz Allen report
and also the 1999 Network Management Statement. Railtrack's responses to the
Booz Allen report have also been taken fully into consideration.

2. Railtrack took over the national network five and a half years ago.
Since then the company has received significant amounts of money from
taxpayers, farepaying passengers and freight users.

3. The Booz Allen report is a highly critical assessment of the way in
which Railtrack discharges its obligations as the steward of the national
network. Although Railtrack asserts that it has spent considerable sums on
the network, the report states that it is likely that there has been a decline
in the underlying quality of the network assets as a whole. The implication
of this is that, in some respects, the national railway network may be in a
poorer condition in 1999 than it was when it was in the hands of the
nationalised state corporation, the British Railways Board, before 1994.

4. At the heart of the Booz Allen report are criticisms of the company's
knowledge of its assets and its management of them. I believe that in order
to look after its assets properly, the company must know what they are and it
must know their present condition. Moreover, by altering its asset
maintenance policy so as to extend the average age of assets before they are
renewed, Railtrack may well be focussing too much on the short term and
storing up serious problems for the future. In these and many other respects,
Railtrack should be leading the industry, taking a long-term view and
investing wisely and well in the care and maintenance of its assets, as well
as enhancing them.

5. It must always be remembered that Railtrack's assets and its
stewardship of them are not matters of purely private commercial significance.
Its assets are of national importance, and the railway industry and those who
use it, pay for it and depend on it have a right to expect far better. In
public policy and economic terms, Railtrack is the trustee of the nation's
railway. Much is rightly expected and demanded of trustees. In this respect,
Railtrack's record to date has not lived up to those expectations.

6. Railtrack has also been criticised in relation to its dealings with
its dependent customers. It is a monopoly. Moreover, it is a pervasive and
far-reaching monopoly. In that position, it should adopt and adhere to very
high standards of conduct. Instead, customers face a grudging approach to the
provision of information which they need, protracted and opaque processes for
the negotiation of new access rights, and delays and inefficiencies in the
approval procedures for new rolling stock. Although there have been some
recent improvements in the way Railtrack deals with others following the
national rail summits in 1999, the company's dealings with its customers are
often far from timely, transparent and co-ordinated. Railtrack's attitude in
this respect is unacceptable and must change. It has to do better.

7. Since I took office four months ago, I have taken action in a number
of areas relevant to this report. First, I have required and received from
Railtrack information about its plans to provide adequate capacity for
freight. Second, I have applied and increased pressure on Railtrack in
relation to the rising trend of broken rails. Third, I have commenced
enforcement action against Railtrack in relation to the shortfall in its
passenger performance targets, and have now signed the enforcement order and
served it on Railtrack Fourth, my office is auditing and monitoring
Railtrack's compliance with its national track quality improvement programme.
Fifth, I have taken enforcement action in relation to the provision of
capacity studies and freight routing strategies on the West Coast Main Line.

8. Railtrack has under-delivered on the expectations placed on it at the
time my predecessor set its access charges for the first control period
beginning in April 1995. At that time, the company's access charges were set
on the basis that Railtrack would discharge in full its public interest
responsibilities, which include proper maintenance and timely renewal of the
network. As a result of these new regulatory obligations, those charges were
considerably higher than they would otherwise have been. In my December 1999
provisional conclusions (which form part of the periodic review of Railtrack's
access charges) I shall be announcing what action I intend to take. I will
also set out with greater precision what Railtrack is expected to deliver in
the next charges control period.

9. I intend to go further.

10. I believe that in certain key respects Railtrack's network licence
is not fit for purpose. It was granted in March 1994 on the express
assumption that the company would remain in the public sector, with its
directors appointed by and directly accountable to the Secretary of State.
Railtrack was privatised in 1996 with substantially the same licence, and no
appreciable change was made.

11. In September 1997, the network licence was strengthened by the
amendment of Condition 7, which requires Railtrack to maintain, renew and
develop the network in accordance with best practice, in a timely, efficient
and economic manner so as to meet the reasonable requirements of its funders
and customers. That was welcome, and it is the Condition 7 obligations which
have enabled me to commence enforcement action against Railtrack in August and
November 1999. However, in a number of other important respects, I believe
Railtrack's network licence is not fit for its purpose and, with the exception
of Condition 7, has remained one suitable only for a public sector company.
These shortcomings must be remedied.

12. It is my intention to strengthen Railtrack's public accountability
by amending its network licence, using the procedures in the Railways Act
1993. By making the improvements which this document outlines, the company
will have greater clarity, stability and predictability in regulation. It
will know far better what is expected of it, and so will its customers and
those who rely on it. And it will know these things in advance and so be able
to plan its business with confidence. By improving regulation in this way, we
enhance its effectiveness and so facilitate the achievement of a better
railway.

13. I am therefore today announcing the commencement of my first use of
the licence modification procedure. My objective is to amend Railtrack's
network licence to include three new conditions. The first concerns the
establishment of a reliable and comprehensive asset database which covers all
of Railtrack's network and the condition of its assets. The second will
establish an efficient and effective regime for monitoring and reporting on
the state of Railtrack's assets. The third concerns the establishment of a
binding code of practice concerning Railtrack's dealings with its dependent
customers.

14. The steps which I have already taken, together with the criticisms
which the company has faced and the measures which I have today announced,
should be enough for the company now to improve significantly on its care,
maintenance and improvement of the network. These measures are aimed at
making Railtrack a more reliable, responsible and effective steward of the
national network. In achieving that end, Railtrack will markedly improve its
prospects of success in all it does, and, more importantly, will serve and
promote the public interest. It will also facilitate the better achievement
of public interest and legitimate commercial objectives by passenger and
freight train operators, rolling stock manufacturers, freight facility
developers and others in the railway industry.

15. I want and expect Railtrack to respond positively and constructively
to these initiatives. However, if I am not satisfied with the company's
response and its performance, I will not shrink from justified and
proportionate use of the powers available to me. Railtrack now has the
opportunity to demonstrate urgently and beyond doubt that it takes its public
interest responsibilities every bit as seriously as the public which it was
established to serve.

Railhub Archive ::: 1999-11-25 ORR-001