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Warning issued as Network Rail misses five year efficiency target

The rail regulator has warned Network Rail that faces a challenge to hit future efficiency targets after coming up eight percentage points short over the 2009-2014 control period.

The Office of Rail Regulation’s report into Network Rail’s performance over the last five years highlights that the rail operator implemented a number of initiatives to reduce its costs of operating, maintaining and renewing the national rail infrastructure by 15.5% in Control Period 4 (CP4).

But the 15.5% efficiency savings reported were 8.0 percentage points lower than the 23.5% efficiency savings that Network Rail agreed to deliver.

The regulator said Network Rail “now needs to work harder” to deliver the further 19.4% efficiency savings on operations, maintenance and renewals that the company has been funded to deliver by 2019 on top of making up some of the deficit from the last control period.

The regulator accepted that the lower efficiency in CP4 was partly due to additional costs incurred as Network Rail undertook more work towards the end of the control period to improve train punctuality and reliability. Network Rail was fined and missed out on around £500M of payments from train operators over the five year period due to missed performance targets.

As a result it spent £36.2bn operating, maintaining and renewing the network, and on financing costs, which was £1.2bn more than assumed in regulator’s determination of Network Rail’s funding for CP4.

Network Rail also spent £10.2bn on enhancements to the network, which was £1.4bn mroe than assumed in its funding settlement. This higher enhancements expenditure was mostly due to additional projects that were not included in the CP4 funding settlement but that were later requested by governments.

The track operator’s debt has increased by £11.4bn in the past five years, partly due to borrowing money to improve stations such as Birmingham New Street.

Around 60% of Network Rail’s income comes from the Department for Transport, 27.8% from track access charges paid by train operators, and 10.6% from property and shops.

Passenger journeys reached 1.5bn in 2013/14, up from about 1.2bn in 2008/09, and are expected to rise by another 14% by 2019.

Network Rail chief executive Mark Carne said his organisation was “disappointed” to have missed its regulatory target, but that “many of the foundations to continue our drive for greater efficiency in the years ahead are now in place, as we strive to reduce costs further.”

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