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High?

Are expectations too; Railtrack and the privatised water utilities have both had difficulty getting their multi billion pound post privatisation infrastructure programmes off the ground. Matthew Jones looks at whether Railtrack could have learned from the

Over the last 12 months expectations of a rail infrastructure boom have been dashed as Railtrack has started to rethink its investment strategy. Contractors and consultants have been disappointed by the slow pace at which Railtrack has carried out its multi billion investment programme.

Should they have been surprised? A quick look at the water sector, privatised 10 years ago, shows some interesting parallels.

Both sectors had suffered prolonged periods of under investment due to tight budgeting and financial capping under public ownership. The infrastructure had begun to creak and service levels left a lot to be desired.

Railtrack and the water utilities have also suffered from inexperience. Having spent little more than was necessary before privatisation, they were expected to deliver vast spending programmes as soon as they were free of Government ownership.

What the Government was hoping to achieve by selling the industries off was a sudden shift in investment leading to a higher quality service. Instead, it got a lumberingly slow turn-around.

Ten years after privatisation, the water industry seems finally to be getting things right. The first European Commission water directives are being met, productivity has increased and, although customers' bills have gone up, levels of service are getting better.

The water companies have a seven year lead on Railtrack, so it is not surprising that they have got their act together. What is puzzling is that Railtrack has not learnt from them.

The relatively few people who have worked in both sectors believe that there are plenty of lessons. They say that Railtrack's failure to live up to investment expectations is partly due to an outdated management structure - a problem also faced by the water companies immediately after they were privatised.

One senior Railtrack supplier who has also worked in the water sector claims a radical overhaul of the company's culture is needed to speed things up.

'What the water industry did was to flatten its management structures, bring in modern working terms and conditions and spend more money on retraining people,' he says.

'Railtrack will have to dramatically reduce its internal numbers, home in on a few contractors using open book and partnering contracts, and focus on what it wants to do.'

This, he claims, has worked in the water sector although it took a long time to achieve. The industry is now more decisive, with fewer cost overruns on capital works and operational cost savings of 30% to 40%.

But some observers believe it could be much harder to turn Railtrack around. It is more than twice as big as the largest water company with a turnover of £2.4bn compared to Thames Water's £976M and, with about 10,800 employees, has almost double the staff.

Bigger figures mean more complexities and more inertia. Also, the rail unions are more resistant to change than the water sector unions were.

Railtrack has learnt some lessons from the water sector, notably in the area of investment prioritisation. Before Christmas it called in Severn Trent Water to explain how it sets its capital and maintenance programmes.

According to Severn Trent asset management director John Banyard, setting an investment programme which balances performance and value is a problem facing all utilities.

'None of us in the water industry has got it totally right, but we are getting much better,' he says. 'There is a continual debate over whether investment should be prioritised on the basis of the condition of a piece of infrastructure, or on its performance.'

Traditionally, Railtrack replaced infrastructure according to its age and condition. But increasingly it is moving to performance-based investment programmes.

'If one set of points performs better than those installed we will replace them - even if the existing points are only a few years old,' says a Railtrack spokesman.

Of course, Railtrack's internal management processes are only one side of the equation. The water and rail industries' investment programmes are driven by pressure from the regulators. According to ex-senior Treasury official and utilities expert Graham Houston, it is not only Railtrack which can learn from the water companies - the Rail Regulator could also pick up a lot by looking at his water sector counterpart.

Houston, who works as a senior consultant for National Economic Research Associates, fears that the Rail Regulator is too eager for change. He believes the rail operator's infrastructure programme should be allowed to settle down before its pricing structure is tinkered with. Failure to do so could lead to uncertainty about the amount Railtrack is allowed to charge for track access and the amount it can spend on infrastructure upgrades.

Clearly, there are lessons to be learned between the two industries, both in terms of their internal structure and operations, and their regulation. But because of the differences in scale, even drawing on the water sector's experience is unlikely to lead to a rapid transformation in the way Railtrack spends its money.

Utilities expert Professor Colin Robinson of the Institute of Economic Affairs sums up: 'I do think people are expecting results in the rail industry too quickly. Improvement will undoubtedly happen but it is going to take 5-10 years before there is a noticeable difference.'

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