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2000-10-23 ORR-001
Office of the Rail Regulator

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£15 billion to deliver a modern, safe railway with greater public accountability - Rail Regulator


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Office of the Rail Regulator

£15 billion to deliver a modern, safe railway with greater public accountability - Rail Regulator
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related documents


Consultation on proposed modifications to Railtrack's Network Licence (ORR, 2000)

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date
23 October 2000
source Office of the Rail Regulator
type Press release

note ORR/00/34


Nearly £15 billion will be spent by Railtrack over the next five years to ensure that Britain has a railway fit for the demands of increasing passenger numbers and freight users. In return for this considerable sum, Tom Winsor, the Rail Regulator, will be requiring new accountabilities and introducing new incentives to ensure that Railtrack makes proper and timely use of the money.

"The periodic review of Railtrack’s access charges : Final conclusions" was published by Mr Winsor today. It establishes both the revenue Railtrack is allowed to earn from franchised passenger train operators over the next five years, starting from April 2001, and the value of the core regulatory asset base (RAB) at 31 March 2006. It also rewrites the financial framework for investment in the railways.

Key points from the periodic review include :
Projections of expenditure increased to £14.9 billion, compared to £14.3 billion in July’s draft conclusions.
Additional work combined with improved management - the review provides for substantial additional work. The Regulator has concluded that Railtrack should be able to manage this additional work more efficiently. However, he has accepted Railtrack’s argument that the assumed efficiency savings should be set at the lower end of the Regulator’s range of 3-5%. The target has therefore been set at 3.1% a year over the next five years.
Incentive-based regulation of outputs - the review sets out what Railtrack is expected to deliver for this money, establishes the arrangements for monitoring and incentivising delivery of these outputs, and provides a mechanism for funding additional investment.
Appropriate returns on investment - the value of the core regulatory asset base (RAB) at 31 March 2006 is set at £7.9 billion, an increase of £1.2 billion since his draft conclusions in July 2000. Following the recent Competition Commission report, the assumed cost of capital has also been increased to 8% compared to a range of 7.0-7.5% identified in the Regulator’s December 1999 document.
A stronger, clearer and simpler performance regime - this assumes that Railtrack achieves its own target improvement of 5% in Railtrack-caused delay plus catch-up of last year’s shortfall in the current year (2000-01). The figure for the next five years has been set at 2.5% per annum. This provides Railtrack with a further year to catch up the shortfall from 1999-2000.
Mr Winsor commented:

"This review equips Railtrack to invest strongly, competently and efficiently in the railway industry. The shortcomings of the past regime are swept away, replaced by a sound framework for investment and the finance to carry out a rail renaissance.

"The new financial framework introduced as a result of this review aligns the regulatory control period of five years with the Government’s ten-year plan for transport.

"This review delivers a financial framework for Railtrack - and through them the railway industry - which establishes a better, clearer and fairer balance of responsibility and obligation in the industry. It creates a virtuous circle of effective incentive-based regulation, strong and empowered management, clear contracts and sound accountability.

"The funds to expand and improve the railway come from taxpayers via the Strategic Rail Authority and Passenger Transport Executives, from local authorities and from passengers and freight customers. As well as the public sector, substantial funds will come from private sector commercial enterprises, and may include the use of innovative financing techniques by third parties, for example, along the lines of the SRA’s proposed special purpose vehicles.

"Along with this considerable injection of money comes much greater accountability. The measures to improve accountability include a new licence condition which allows reporters, answerable to the Regulator, to monitor Railtrack’s performance and ensure the money is spent wisely and well on the right things at the right times. Additionally, Railtrack will be required to produce an asset register showing the condition, capability and capacity of all its assets. It is remarkable that no centrally-held comprehensive and accurate register exists.

"I have been and will continue to regulate Railtrack in the public interest. By its own admission, the company must do better. There can be no excuses now."

Notes to editors

1. The projected level of expenditure is much higher than the level which was assumed when the current controls were set before privatisation (equivalent to around £10 billion).

2. Given this expenditure, the Regulator’s conclusions involve an initial increase in Railtrack’s revenues of 35% next year, followed by further real increases of 5% a year for the next four years. This increase is met mainly through grants rather than track access charges.

3. Total grants relating to the next control period will be £4.7 billion, compared to £3.8 billion assumed in the draft conclusions. These grants are treated in the same way as access charges and are therefore deducted from Railtrack’s projected expenditure in the same way as other single till items.

A copy of The periodic review of Railtrack’s access charges: Final conclusions - Volume I is available from the ORR Librarian, Sue MacSwan, 1 Waterhouse Square, 138-142 Holborn, London EC1N 2TQ. Telephone: 020 7282 2001. Fax: 020 7282 2045, E-mail: orr@dial.pipex.com. The document will also be available from the ORR website on the Periodic Review page. Volume II, which contains the technical legal documentation, will be available shortly.

PRESS ENQUIRIES :
ORR Press Office : 020 7282 2002 / 2130

Out of hours : pager 07659 127303


Railhub Archive ::: 2000-10-23 ORR-001





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