HLOS Lite for CP6
First, some good news. Thanks to the reclassification of Network Rail as a government body, theres going to be a lot less for me to bore you with in the current Periodic Review for the next Control Period (CP6) starting on 1 April 2019. Now that Network Rail is part of the Department for Transport, rather than a quasi-independent company limited by guarantee, Government can by-pass much of the Regulatory process and tell Network Rail what its going to do and how much money its going to get to do it.
What will remain, because it is a legal requirement under the 2005 Railways Act, is the Governments (Westminster and the Scottish Ministers) publication of their High Level Output Specifications and Statements of Funds Available (HLOS and SoFA). Meanwhile Network Rail has produced what is termed Initial Industry Advice (IIA) to inform the HLOS. DfT is keeping this private.
At a recent Network Rail industry trade press briefing I asked Chief Executive Mark Carne why DfT had decided not to publish the IIA. Mark replied that it was important not to raise expectations based on industry aspirations at a time of considerable financial challenge. The IIA needs to be considered more carefully and strategically, he explained.
Mark continued, now, we have to develop schemes properly and only announce them when they are mature. Otherwise, all we do is raise expectations which we then dash in the publics eyes which then bring us into disrepute as being less than competent.
As a result, DfTs HLOS and SoFA for CP6, which has to be published by July 20, will focus on Operations, Maintenance and Renewals (OMR). Those existing enhancement programmes being carried over into CP6 following Sir Peter Hendys review, should have first call on any spare funding. New enhancement schemes will be introduced only as and when they have been developed fully, provided they represent value for money and then only if funding is available.
Even restricting the HLOS to OMR will involve some hard choices. Informed Sources are reporting that minimum renewals budgets for CP6 are approximating to the likely maximum budget available.
Thats the relatively not-so-bad news. Now for the real damage.
On 27 April Network Rail published the minutes for its September 2016 Board meeting. And these revealed that the Treasury is requiring that the proceeds from the current asset disposal programme should go towards reducing the national deficit.
Lets put some numbers on this. In 2015 Sir Peter Hendys review of Network Rails enhancement programme for the current Control Period identified cost overruns of around £2.5 billion. To cover the bulk of the shortfall, Network Rail said it would sell assets worth £1.8 billion. the Treasury increased Network Rails government borrowing by £700 million to make up the difference. Asset sales have raised £24.2 million so far.
With masterly understatement the Board minutes noted that the Treasurys appropriation of the asset sales receipts implied a realistic prospect of a significant shortfall in funding, since the sales receipts would no longer be available to fund rail enhancement schemes.
I dont expect to see subsequent Board minutes published anytime soon, but it cant have been a coincidence that six weeks after that September Board meeting DfT announced the deferral of four sections of the Great Western Electrification Programme. More schemes are being deferred or cancelled, including enhancements on the East Coast Main Line.
Industry
All this, of course, impacts on the supply industry. When I asked Mark Carne about the effect on contractors of the lack of an enhancements programme in the CP6 HLOS, he replied that in the past we gave them (contractors) false certainty. The sense that there was this endless pipeline of work, was a bit of an illusion because it wasnt mature and the time frames were wrong. In future Network Rail intends to have a more transparent funnel of projects we are looking at, but which are not commitments.
Of course, contractors have bought equipment and opened up colleges to train staff to handle the Governments much vaunted largest investment in our railways since Victorian times. What about them, I asked Mark Carne? The reply was brutal in its honesty. We dont plan all of our projects in a way that manages the capacity of the industry.
While Network Rail would want to ensure continuity of employment wherever possible, Mark added, I would far rather do that on the basis of firm clear commitments that I can stand behind and that I am confident we will deliver than a series of illusions which dont have substance behind them.
He believes that ultimately the market will value this approach because contractors will have confidence that that a project is going to happen and is something we can commit to. The phrase once bitten, twice shy springs to mind.
