This is the latest in our series on PR18, the periodic review of Network Rail. We are now at a key milestone in the review: the publication of Network Rail's Strategic Business Plan for the next five-year Control Period (CP6, 2019-24), setting out how Network Rail expects to spend the £47bn allocated to it, to meet the objectives set out in the High Level Output Specifications. See What Should Britain's Railway Achieve in the Next 5 Years? for the background to this.
Devolution to routes
There are actually 22 separate, detailed plans plus a high level summary and a comprehensive executive summary which make up the regulated documents in the Strategic Business Plan. Each geographic route, plus the new Freight and National Passenger Operators 'route' and the System Operator function (see Regulating Network Rail's System Operator function) has its own plan. According to Mark Carne, the outgoing Chief Executive of Network Rail, in his Foreword, Network Rail "is now a federation of devolved businesses operating within a national framework" and the plans have been developed "from the bottom up".
Network Rail has also published summaries of each of the routes' plans. The ORR have asked for high level comments on the plan as a whole by 6 March 2018: a short period to digest all this information, but they do not expect comments on issues of detail.
Safe, reliable, efficient and growing
Mark Carne describes the plan as "ambitious but realistic". It is primarily focused on improving day to day operations, maintenance and renewals, rather than new enhancements. It focuses on four key responsibilities: to run a safe, reliable, efficient and growing railway.
Interestingly, Network Rail is broadening its approach to safety to include environmental performance. It aims to reduce non-traction energy consumption in its operations by 18% and carbon emissions by 25% in CP6.
The plan should reduce train delays by 15%, even though the number of train services will increase over CP6. Punctuality will start to be measured to the minute rather than using the current Public Performance Measure, which counts a train as 'on time' if it arrives at its final destination within 5 or 10 minutes of schedule. Using this new punctuality measure will give more information on the interactions that cause delay, which may result in the need to change franchises and regulatory incentives. Under the current franchise replacement programme, nearly 50% of all franchises will be relet by the end of CP6, an opportunity to use the new 'on time' performance measure. Network Rail is working more closely with the DfT on franchise specifications, to ensure that they are consistent with Network Rail's plans.
Significant improvements in business planning at route level will drive more efficient delivery in CP6 and there will be efficiency savings through smarter working, more efficient use of the railway and better technology. However, there is a 25% increase in the costs of operations, maintenance, support and renewals compared to CP5. The most significant increase is in infrastructure maintenance and renewals carried out by the routes. There is a £2.6bn Group Portfolio Fund which Network Rail have held back to provide for risks that could materialise during CP6 (e.g. if a route overspends). If the routes stick to their planned expenditure, the Group Portfolio Fund will be gradually released to the most successful routes, for them to invest in improving the railway.
Almost half of the funding for the operations, maintenance, support and renewals costs comes from government grants, with track access charges and other income such as from property making up the rest. There is also a grant for enhancements, although this is to be formally agreed with the DfT.
Passenger travel is forecast to increase by 15% over CP6 and there needs to be significant investment in new projects, requiring additional funding from government or third parties of around £1.6bn, which we discuss further below. CP6 also sees digital signalling being brought in, with almost two-thirds of the existing signalling system needing to be replaced in the next 15 years.
In CP6, enhancements will be considered on a case by case basis rather than in one five year budget, and each will have a business case. The System Operator will provide economic analysis for Government and potential investors and advise funders on the best ways to deliver economic benefits from the railways, although public and private funders will still have the final decision on which options are selected for development.
For the moment, Network Rail will concentrate on delivering the enhancement schemes that were deferred from CP5, and there will be few new enhancements in the early years of CP6. Some funding for the development of new enhancements is included in the SoFA, but their delivery will depend on the availability of funding from Government and third parties. The DfT and Transport Scotland will each set out a plan for rail investments containing the potential pipeline for development and delivery of enhancements in due course.
There are other enhancements that are funded outside of the SoFA, including major programmes of work in Scotland, for HS2 integration to the existing network, and for development of Northern Powerhouse Rail and Crossrail 2.
Third party investment
The Strategic Business Plan states that Network Rail is "open for business" following the Hansford Review and in CP6 will continue to develop opportunities for third party investment including:
- Up to £50m schemes: Haughley Junction doubling and University Station (Birmingham)
- £50-£100m schemes: Trowse Swingbridge, West Yorkshire Combined Authority new stations, train detection signalling improvement between Paddington to Airport Junction
- Over £100m schemes: Leeds station, Cumbrian coast line upgrade, Victoria station redevelopment, Oxford station master plan.
These schemes are not funded in the Strategic Business Plan and need third party investment. It is not clear whether this is the list of schemes that Network Rail said it would publish following the Hansford Review: we were expecting a pipeline of projects by December 2017. According to the Strategic Business Plan, the DfT, in consultation with Network Rail, is developing Industry Investor Guidance for publication in 2018.
Section 6 of each Route Strategic Plan sets out how Network Rail will be more proactive in aligning its plans to local strategic objectives, such as the LEPs' strategic economic plans.
Key PR18 milestones
These are some key dates to look out for in the periodic review process:
June 2018 – ORR's Draft Determination
October 2018- ORR's Final Determination
December 2018 – Network Rail publishes price lists and consults on draft CP6 Delivery Plan
February 2019 – Network Rail decision on whether to accept or reject ORR's final determination
March 2019 – Network Rail publishes its CP6 Delivery Plan
1 April 2019 – CP6 begins. New access charges take effect.
The CP6 Strategic Business Plan is very different to CP5 and the devolution to routes means that Network Rail is becoming much more closely aligned with local stakeholders' interests, yet retaining an overall view through its System Operator function. This should mean that future improvements to and investment in the rail network are directed to where they will make most economic impact. The lack of concrete Government funding for enhancements will however mean that, for the next few years at least, we are not likely to see any significant new projects get off the ground without private sector funding. We await the DfT's Industry Investor Guidance, due for publication in 2018 (date to be confirmed), with interest.