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Railhub Archive
1998-12-09 ORR-001
Office of the Rail Regulator


Regulator challenges Railtrack to deliver innovative improvements to the network

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Office of the Rail Regulator

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Office of the Rail Regulator

Regulator challenges Railtrack to deliver innovative improvements to the network

9 December 1998
source Office of the Rail Regulator
type Press release

note ORR/98/36

The Rail Regulator, Chris Bolt, today published the third in the series of papers on the periodic review of Railtrack's access charges.

Launching his conclusions on the financial framework, Mr Bolt said : "I have concluded that Railtrack's Regulatory Asset Base at flotation should be
set at £2.54 billion. This was the value of the company at the end of the first day's trading. I have also concluded that the appropriate rate of return,
on the basis of the current range of activities undertaken by Railtrack and the risks it faces, is in the range 5-6% in real terms, after business taxes.
The document also establishes the framework for remunerating enhancement which I consider is key to encouraging new investment.

"Better value for money and improved performance in operating the network will create both a climate for growth in rail traffic and the resources
needed to fund additional investment. That is how the Review contributes to the Government's aspirations for growth in the use of railways as part of
its integrated transport policy.

"Current returns appear to be excessive, given the effective Government guarantee for much of Railtrack's income, and charges should be re-based as
part of the review. Railtrack must also build on the commitments given in July, and continue to improve its performance."

The document - The Periodic Review of Railtrack's Access Charges : The Regulator's conclusions on the financial framework - is in two main parts.
The first outlines progress on the Review generally, and describes in more detail the work to be undertaken during 1999. The second part sets out
conclusions on the financial framework; these are the first major conclusions reached during the Review.

Mr Bolt said: "The next major step in the review is for Railtrack to publish its 1999 Network Management Statement (NMS) in March 1999. This
will be a key input to final conclusions on the future level of access charges. There are real questions here for Railtrack itself. Does it want to be an
agent of Government, delivering an investment programme determined by Government, essentially as a 'contractor', and with low rates of return? Or
does it want to seek out opportunities to grow its business through a commercial relationship with its customers and in partnership with Government,
producing and delivering innovative improvements to the network, sharing in success, but bearing extra risk?

"Developing the NMS in this way is designed to ensure that the Shadow Strategic Rail Authority, which will become active in the Spring, can carry
out its Assessment of the benefits to passengers and freight users of additional improvements in performance or capability, and advise Ministers on
the investment programme that should underpin Railtrack's future business plan and level of charges. Final decisions on the review will be published
in draft towards the end of 1999," he said.

Notes to Editors
1. The Rail Regulator has published two previous documents on the periodic review of access charges in December 1997 and July 1998. He is
required to publish final conclusion by July 2000 for implementation in April 2001.
2. The Network Management Statement, published every year as a requirement of Railtrack's Network Licence, sets out Railtrack's plans for the
maintenance, renewal and development of the network.
3. The Regulatory Asset Base (RAB) is the value of the assets used in establishing prices, and on which it is appropriate for investors and lenders in
Railtrack to receive a return.

PRESS ENQUIRIES: ORR Press Office : 0171 282 2002/2007/2059 (out of office hours pager no: 0941 148521)

Railhub Archive ::: 1998-12-09 ORR-001


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