Network Rail came under fire this week for failing to deliver efficiencies demanded by the rail regulator.
Office of Rail Regulation (ORR) chief executive Bill Emery said Network Rail must “redouble its efforts” if it is to meet its target of 21% efficiency savings over its current five-year spending cycle.
Emery was speaking after the release of the regulator’s Network Rail Monitor - the first full-year assessment of the organisation’s performance during the current five-year investment period to 2014 (CP4).
Efficiency savings questioned
In it, he disputes Network Rail’s claim that it is on track to make the efficiencies needed.
Network Rail’s annual results, also published this week, pointed to efficiency savings of 7% for maintenance and an overall reduction in running costs of £265M.
But Emery said operating costs and maintenance combined were higher than expected.
“We had assumed efficiency improvements of 3% whereas actual efficiency deteriorated by 2.5%,” says the ORR’s report.
The regulator confirmed that Network Rail had made efficiency savings in maintenance by spending £40M less than the regulator had determined it should.
In total £1.07bn was spent during the year compared to expected investment of £1.11bn.
Network Rail also spent £649M less on renewals work compared to the determination figure of £3.04bn, but this was due to deferral of work rather than efficiencies, said the regulator.
In terms of operating expenditure Network Rail spent 16% more than expected by the regulator, spending £1.43bn compared to a determination of £1.2bn.
“Over the last 12 months, and taking all of the evidence into account, our independent view is that we judge Network Rail’s performance has been mixed,” said Emery.
“We are not yet convinced of the efficiency gains the company is claiming”
“There are areas of concern, most notably Network Rail’s asset management policies for structures such as bridges and viaducts, and we are not yet convinced of the efficiency gains the company is claiming.
Emery also criticised Network Rail’s safety performance. “Although passenger safety has generally been good, we cannot forget that during the past year three railway workers lost their lives, reminding us all that there is simply no room for complacency in health and safety,” he added.
“The first year of [five-year spending cycle] CP4 is now complete, and Network Rail must redouble its efforts to meet the tough but achievable challenges, particularly over efficiencies, we have set it over the next four years.”
Among the ORR’s concerns is Network Rail’s methodology for calculating efficiency.
It uses spending in 2008/2009 as a benchmark figure and describes the difference between that year’s spend and subsequent spending as a “cost efficiency measure” (CEM).
ORR says this is too simplistic. “We do not consider that the CEM actually measures efficiency but simply measures how Network Rail’s expenditure in 2009/2010 compares to its own adjusted baseline expenditure figure. We … have a number of concerns about the CEM.”
Government spending watchdog the National Audit Office (NAO) this week also echoed the regulator’s concerns.
Its report Increasing Passenger Rail Capacity also raised questions about whether Network Rail was delivering value for money on its capacity improvements programme.
The NAO fears the ORR’s ability to assess the rail infrastructure operator and owner was limited by the lack of information available for its costings.
Network Rail has incentives to become more efficient, for example, it can keep 25% of underspends to use in the future, said the NAO.
Rail projects: case for new programmes questioned
In its report “Increasing Passenger Rail Capacity”, spending watchdog the National Audit Office (NAO) said rising costs, coupled with lower than expected increases in passenger capacity provided by enhancement schemes, had raised questions about the validity of some rail projects.
Network Rail will spend over £9bn on capacity enhancements by 2014.
This includes £7bn on infrastructure schemes, including £3.1bn on the Thameslink project, £400M on upgrades to Reading station, £200M on platform enhancements at King’s Cross station, £700M on capacity increases and signalling at Stafford and a further £1.3bn on power and platform upgrades.
But the NAO said that together these upgrades would deliver less capacity than originally planned, casting doubt on the justification for the projects.
In London, for example, the upgrades were originally expected to provide increased passenger capacity for 117,000 arrivals during the morning peak between 7am and 10am, but the report says planned work will only enable 99,000 arrivals.
These findings come as the transport secretary Philip Hammond works on detailed proposals for the autumn Public Spending Review which will introduce potentially massive cuts in public spending.
As part of the emergency spending cuts already introduced, Network Rail has been told to reduce spending by £100M to help the Department for Transport meet its £683M spending cut for the current financial year.
The ORR has already met with Hammond and his department to discuss potential savings.Areas under review include: longer franchises for train operating companies; making Network Rail more accountable to the train operating companies; high speed rail; Crossrail and pricing levels.