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Network Rail faced with possibility of further £6.1bn efficiency drive

Network Rail could be faced with finding £6.1bn more in savings over the next five year control period than it has planned, if the government accepts the recommendations of the rail regulator.

The Office of Rail Regulation (ORR) has worked out that it may be possible for Network Rail to fulfil its commitments with just £21.9bn over the next control period that runs from 2014 to 2019. Network Rail believes it will need £28bn over that period, and has already factored in making the minimum £1.8bn a year savings demanded by the McNulty rail review.

The ORR’s advice to ministers is a key step as it begins the process of setting its final price determination in October 2013. It is seen as triggering the formal review stage and will assist transport secretary Justine Greening in developing her high level output specification (HLOS) and statement of funds available (SoFA) for the CP5 control period that will be published by the end of July.

Its funding envelope of £21.9bn to £29.1bn either represents a 22% cut on Network Rail’s plan or an increase of 1%. The wide variation in price reflects the uncertainty over a number of factors related to how Network Rail is likely to be funded, and particularly the likely cost of borrowing over the next five years.

It said the low end of its range largely reflects its view that it considers Network Rail can achieve more efficiencies in running its business than it has projected; can do more to make cash from sources other than track and station access charges; and could take a less cautious accounting approach.

The ORR has worked out that Network Rail’s capital spending requirement could be as much as £15.1bn, £100M more than Network Rail’s own estimate, or as low as £13.7bn.

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