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SRA looks to short term rail financing

PRIVATE INVESTMENT in future rail projects will be limited to short-term financing of the design and construction phases, the Strategic Rail Authority (SRA) confirmed this week.

Privately financed special purpose vehicle (SPV) companies will construct and commission projects and then sell them on to operator Network Rail.

Unlike most private infrastructure schemes, the new generation of rail projects will offer short term investment opportunities but at higher rates of return, said Partnerships UK chief executive James Stewart.

'This is much, much shorter term. Equity is only in for two, three or four years. You are only taking risk at the design and build phase. So you can expect a higher rate of return, ' he said at a industry rail summit on Tuesday.

Network Rail, as operator of the assets, will be guaranteed input into scheme development via an 'Enhancement Facilitation Agreement' (EFA) with the SRA.

The EFA is a contractual document setting out how to prioritise, develop and procure SPVs.

It will lay out the responsibilities of Network Rail and SRA responsibilities and allows for high level dialogue via a Joint Project Board.

But concerns remain that Network Rail is being exposed to whole life risk by taking ownership of an untested scheme.

As a result the SRA is considering the incorporation of a requirement to build in a two year maintenance free period into SPV contracts. This would result in SPV contractors having to carry out repairs and maintenance work at their own expense, should work be needed in the two years after construction is completed.

The SRA also said it planned to to take a much more prominent role in the development of enhancement projects to avoid the problems that have dogged the West Coast Main Line upgrade.

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