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Network Rail needs an extra £2.5bn to complete CP5

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Network Rail is to sell £1.8bn of assets, borrow £700M and delay certain projects beyond 2019 as it seeks to get through its troubled current investment programme.

The plans were revealed in a report published last week by the rail infrastructure organisation’s new chairman Sir Peter Hendy.

Hendy was appointed in June as transport secretary Patrick McLoughlin suspended major electrification schemes and called for a fresh look at Network Rail’s spending plans in control period five (CP5).

“Working closely with the Department for Transport (DfT), we have ensured that no infrastructure project has been cancelled and the bulk of the investment programme will be delivered by March 2019,” said Hendy.

“Some projects will cost more and take longer than originally expected but we will see the job through to deliver better journeys for passengers. My review has clearly found that the original plan was unrealistic and undeliverable.

“This new Railway Upgrade Plan is a more robust and deliverable plan but it is not without its own risks and challenges, which Network Rail will work tirelessly to address.” 

The 44-page report looked at how the enhancement projects for CP5 could be delivered when estimated costs had risen from £11.8bn in 2012 to the latest figure of £15.3bn.

The report cites two main reasons for the increased cost estimates.

“Firstly, there was inadequate planning and scope definition of a number of projects in their early phases,” it says.

“Secondly, there was poor cost estimating, particularly on electrification projects. Network Rail has not carried out any electrification of significance for 20 years, so there was limited information to support cost estimates. It is clear that some of Network Rail’s early cost estimates, particularly for electrification schemes, were inadequate.”

The biggest increase in estimated costs is indeed seen on electrification schemes, which have risen by £2.3bn to the latest figure of £5.5bn. According to the report, around 80% of the overall increase in cost relates to five programmes.

The report found that the core business of Network Rail could be managed within the financial limits already set for CP5, with some reduction in renewals activity.

In order to fund the increase in enhancement costs, Network Rail is to sell non-core assets - including property - to raise £1.8bn.

The DfT has also increased Network Rail’s borrowing limit by £700M, meaning it has a total of £2.5bn more cash to spend in CP5.

It means most of Network Rail’s CP5 projects will go ahead. However, there will be some projects that will be delayed to CP6, which runs until 2024. These include the Great Western Line electrification west of Cardiff.

A CP5 enhancement delivery plan for each project will be published in early December, giving more specific timings.

Hendy’s report gave an overview of what will be delivered in different parts of the country. An eight-week consultation by the DfT on the report’s findings will start in early December.

Aecom chief executive for civil infrastructure Richard Robinson said: “Bringing the UK’s much-needed rail upgrades to fruition at a time of departmental cuts and increased pressure on skills is no mean feat. “Attention must now be focused on delivery - but it’s more complex than shovels hitting the ground. All aspects of the delivery process must be explored to ensure speedy, high-quality outcomes, from governance andprocurement through to design and build.

“I hope Sir Peter’s review is the catalyst for a more integrated approach across the full spectrum of infrastructure projects. The public and private sectors must collaborate and innovate as never before.”

The cross-party public accounts committee said in November that the CP5 investment programme was “unrealistic” from the outset. The MPs added that the programme had seen “staggering” cost increases; and thatscrutiny from the regulator had been “unconvincing”.

The Office of Rail and Road (ORR), which regulates the railways, announced an investigation this summer after Network Rail failed to hit 30 of 84 enhancement milestones in 2014-15.

 

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