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Railhub Archive
2003-12-23 ORR-001
Office of the Rail Regulator


Rail Regulator begins implementation of Network Rail funding decision

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Network Rail
access charges review

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Office of the Rail Regulator

Rail Regulator begins implementation of Network Rail funding decision

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23 December 2003
source Office of the Rail Regulator
type Press release

note ORR/24/03

Following his announcement on 12 December 2003 of the final conclusions of his review of the access charges and other income which Network Rail is to receive for the five years 2004-09, the Rail Regulator, Tom Winsor, today signed and served on Network Rail and the relevant train operators the legal document which begins the process of implementation of his decision.

The new financial framework and higher levels of income which the Regulator has set take effect on 1 April 2004.

Mr Winsor said: "This review establishes a sound financial framework for Network Rail - and therefore the rest of the railway industry - for the competent and efficient operation, maintenance and renewal of the national railway network for the next five years.

"Coming as it does after three years of considerable difficulty for the railway industry since the Hatfield derailment in October 2000, and after 15 months of the most intense analysis and assessment of the true costs of the
provision of infrastructure services, Network Rail is now equipped with a very clear specification of how much money it is entitled to receive, what it must do for that money and when the necessary outputs are to be delivered.
It now has the stability and certainty to get on with the job of delivery of a better railway, better punctuality and reliability and greater capacity for passengers and freight customers.

"I have today signed the formal legal instrument which starts the process of implementing my decision with effect from 1 April 2004. The company has until 4 February 2004 in which to accept my decision or
require me to refer the matter to the Competition Commission - effectively an appeal. I fully expect that the company will acknowledge the challenging but entirely achievable requirements which I am placing on it, and accept that it is now time to get on with the major task of delivering.

"This decision underscores the value to the railway industry - and all those who use and depend on the railway - of independent economic regulation, taking decisions which have profound and far-reaching implications for the industry and the wider national economy according to conspicuous and transparent
public interest criteria.

"The Government has of course accepted that it is the role of the Regulator to do this, and that private investment in the industry requires that it be done this way. It is the jurisdiction conferred by and with the authority of Parliament. I have appreciated the Government's scrupulous adherence and respect for the
independence and jurisdiction of my office in carrying out this review, and its constructive engagement in the many difficult issues which have had to be tackled.

"The issues about what is to happen in relation to the West Coast route modernisation - what is to be delivered, to what standard and how soon - have now been settled by my decision. That decision, which requires some rephasing of the project, increases the prospect of successful delivery on time of the outputs which really matter to freight and passenger operators, regional economies and others, at a fair and affordable price. I am aware that the SRA has consistently resisted rephasing of the outputs of the project. However, my
decision has been made and is final.

"The review notice which I have signed today provides for access charges payable by franchised passenger train operators to Network Rail together with the remaining grants which the SRA covenanted to pay in April 2001 and income from other sources) to increase to £5.125 billion a year in the year beginning 1 April 2004, reducing to £4.843 billion in 2008/09.

"However, because of the need of the company and the Government to explore alternative ways in which this regulatory settlement can be financed - including through borrowing and a possible different mix of access charges and grants - the document I have signed today allows until the end of February 2004 for the
company and the Government to make alternative proposals in this respect. If acceptable proposals are not made to me in good time, access charges will remain at these higher levels, and the indemnities in the franchise agreements between the SRA and the passenger train operators will be engaged. On the other hand, if I am satisfied with the financing proposals made to me, I may reduce access charges by the amounts provided through borrowing and higher grants, thus relieving pressure on the public finances. I hope such proposals will be made."

These alternatives are about how - not whether - this regulatory settlement will be financed. Network Rail is now assured of receiving the revenues I have set for the new control period 1 April 2004 - 31 March 2009."

[The Rail Regulator's final conclusions in the 2003 access charges review are at

Notes for editors

1. The Rail Regulator's 2003 access charges review:

o establishes the total income - from access charges,
grants and other sources (such as freight traffic and
property) - which Network Rail needs for the next five
years, beginning on 1 April 2004 - £24.9 billion

o sets the access charges which the company is allowed
to charge franchised passenger train operators for use
of the network - £18.892 billion.

o sets the outputs which the company is required to
deliver in return for its regulated income - in terms of
its performance obligations and the appropriate targets
for the capacity, condition and capability of the
network, including on the West Coast route

o states when the required outputs have to be delivered.

2. The essentials of the overall income of Network Rail
as a result of the 2003 access charges review are shown
in the following table:

paid by
(£ million)
by SRA
deed of
( £

2004/05 3,135 1,279 5,125
2005/06 3,745 652 5,114
2006/07 3,676 552 4,929
2007/08 4,199 0 4,898
2008/09 4,137 0 4,843
Totals 18,892 2,483 24,929

3. The Regulator's jurisdiction to carry out an access
charges review comes from the terms of the contracts
between Network Rail and its franchised passenger
train operator customers. The procedure for the
implementation of the review comes from Schedule 4A
to the Railways Act 1993.

4. In arriving at his decision in an access charges
review, the Regulator is required to discharge the
statutory public interest duties laid down in the
Railways Act 1993.

5. The Regulato's decision in an access charges review
determines the size, quality and efficient cost of the
national rail network. The implications of the decision
are likely to last for a considerable number of years.

6. If access charges are increased in an access charges
review, franchised passenger train operators have to
pay higher amounts to Network Rail for the use of the
network. Under their franchise contracts with the
Strategic Rail Authority, the SRA indemnifies the train
operators against the increase in charges. Those
indemnities are not limited in amount. They last for the
life of the contract. The effect of this indemnity regime
is that the Government bears the entire cost of the

7. The indemnities in the franchise contracts are not
required in railway legislation. They are voluntary acts
by a sovereign government, through its agent the SRA.
The Regulator does not establish the indemnities, nor
does he approve them. They are private law obligations
freely entered into by the SRA as part of its franchising
programme. The SRA is able to stop signing new
indemnities whenever it chooses. All existing and new
franchise contracts contain these indemnities.

8. The Regulator's jurisdiction protects the network
operator - and, through Network Rail, all companies
and others who use or depend on the railway - against
short-term political interference in the economics of
the railway industry. Independent economic regulation
is acknowledged by the Government as an essential
continuing requirement for the railway.

9. The Secretary of State's statement to Parliament in relation to the 2003 access charges review is at: [http://www.parliament.the-stationery-office.co.uk/]

Press enquiries
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Railhub Archive ::: 2003-12-23 ORR-001


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