When transport secretary Chris Grayling announced Network Rail would have around £48bn to spend during CP6, amid the press release’s fanfare about a record investment, there was a clear message that the money had to be spent well.
Yesterday’s announcement of the Statement of Funds Available (SoFA), included a direct government grant of up to £34.7bn and the rest made up from Network Rail’s expected income from areas such as track charges.
The announcement was originally due in July but was pushed back until this week due to Network Rail’s poor financial performance, as transport secretary Chris Grayling said he needed more assurances on costs for CP6.
The outline funding plan for CP6 came just two days after the rail regulator said Network Rail had become less efficient and was facing increasing financial pressures – it is £44.8bn in debt and by the end of CP5 will have a backlog of renewals work worth £3.9bn.
The failures of CP5 have been extensively recorded and probed, particularly its flagship electrification programme which went more than a billion pounds over budget. Of course CP5 still has around 18 months to go and it has not all been bad: the Ordsall Chord rail link in Manchester and the August extension of platforms at London Waterloo station are two recent examples of successful projects, demonstrating innovation and collaboration.
So how can we see more of these recent successes in the next financial control period?
First of all there is a major change in the way funding is allocated. For CP5 the £38bn allocation was for both the day-to-day running of the railway – operations, maintenance and renewals (OMR) as well as enhancement projects, such as electrification or station upgrades.
In CP6 major enhancements will have to be bid for on a case-by-case basis, although the SoFA does include provision for funding for the early stages of developing new rail schemes. Likewise, enhancements that have been deferred from CP5 have been provided for in the SoFA.
In an interview with New Civil Engineer out this week, Network Rail chief executive Mark Carne said: “Going forward it will be much more of a rolling programme of enhancements, with projects confirmed when we have done the [development] work.”
“We need to make a very clear distinction between the way we manage enhancements and the way we manage OMR. OMR needs funding certainty from a regulated five-year cycle to get efficiencies from the supply chain. That is absolutely key.
“Enhancements are separate, distinct investments that can be, and are, better managed outside of that.”
As the failures of CP5 have been documented, so work has been going on to understand how to do better in the future. This work has resulted in two reports that have been key to shaping the future of Network Rail.
Former High Speed 1 chief executive Nicola Shaw’s report last year into the future of Network Rail recommended it move towards a devolved route-based structure. This has been taken on board and for CP6 funding and regulation will be at route level.
Under the devolved structure, Network Rail’s problem solving and track management will be done at a route level, in consultation with the different stakeholders, including the train operating companies and passengers – although it will have a division which works as the overarching System Operator to co-ordinate at a national level. It is a huge change from the head-office based machine under which Network Rail’s renewals backlog spiralled.
The body’s watchdog, the Office of Rail and Road, believes the move will help Network Rail get closer to customers and also build a rivalry between routes which will drive competition and therefore improvements.
The second key report that has influenced the set up for CP6 covered funding. It was a review by former ICE president Professor Peter Hansford into barriers to innovation in the rail network. The review aimed to uncover the barriers to innovation and project delivery that deter potential suppliers from getting involved in Network Rail infrastructure projects.
Grayling yesterday said that he will announce further details on a new process for taking forward enhancements later in the year. However following on from the Hansford review, for CP6 there are three main ways enhancements will be funded. The first is totally through government funding, although Network Rail’s Infrastructure Projects team will have to compete with external providers for the right to deliver these, aiming to boost innovation and productivity.
The second will be third party funded projects where there is no expectation of a return from Network Rail, for example a housing developer looking for a rail link into a new scheme. There the return on investment would be in the form of increases in the value of the houses.
But there could also be third party funding, where firms put up cash in exchange for a return on their investment.
One such scheme being mooted at the moment is the Heathrow Southern Rail link, where Aecom has become a shareholder in the team looking to design, deliver and operate the line.
Another area seeing this kind of investment could be digital rail, where recently a firm called Resonate installed its traffic management system on the Great Western route. The system was installed for free in exchange for a share in reduced compensation payments to TOCs resulting from reduced delays.
In general, the government and Network Rail is looking to reduce the risk in big enhancement projects by being more rigorous in the early stages. Projects will only get the go-ahead when a sufficient business case has been agreed and the project is developed enough to go to delivery.
Announcing the SoFA, Grayling said: “I believe that a renewed focus on core railway activities will help return train performance to the levels that passengers expect and deserve. Overall, this significant funding demonstrates government’s continued commitment to investing in the railway for the benefit of passengers, communities, the supply chain and the wider economy.”