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Efficiency down at Network Rail, says regulator

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Network Rail has become less efficient at the same time as it faces increasing financial pressure, rail watchdog the Office of Rail and Road (ORR) has found.

It comes just as the government prepares to make an announcement this week on the Statement of Funds Available (SoFA), the amount of cash Network Rail will be granted for Control Period 6 (CP6).

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 ORR’s annual report for 2016/7 into Network Rail’s efficiency and finances reveals that the backlog of work increased across the first three years of CP5 (2014-19). It forecasts that by the end of CP5, £3.9bn of renewals work will be pushed back into CP6, risking the sustainability of the rail network and raising costs.

Network Rail’s efficiency has dropped by 4.4% across its core business activities such as operating, maintaining and renewing the network, also for the first three years of CP5. In the ORR’s 2013 periodic review (PR13), forecasting for CP5, it had projected a 13.7% improvement, meaning that costs have risen since 2013 despite an expectation that they would fall.

Meanwhile the rail body’s debt has increased by £4.6bn to reach £44.8bn in 2016-17, with the ORR describing its £0.3bn financial headroom as “low”. According to the ORR an uncertain financial atmosphere, including possible fluctuations in interest rates and inflation, means that Network Rail needs to develop its contingency plans further. It also said the amount of cash Network Rail will raise from asset sales is “likely” to be lower than anticiapted. In June Network Rail revealed it had completed £33.31M of asset sales to the end of May against a target of £1.8bn, with less than two years in which to raise funds that will go toward plugging its enhancements funding gap caused by cost overruns.

“Network Rail needs to show that it has not spent less by non-delivery of outputs, deferring work or working in an unsafe or unsustainable way. If it spends more, it is underperforming unless it has brought forward work,” stated the ORR in the report.

According to the ORR, Network Rail’s slow response to efficiency problems and poor preparation at the start of CP5 have contributed to the financial woes.

Across the three years covered in the report to 2016-17, Network Rail had overspent £279M on the Thameslink Programme, £121M on Crossrail and £99M on the Edinburgh to Glasgow Improvement Programme.

New Civil Engineer has asked Network Rail for a response.

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