R A I LT R AC K - The Railways Archive

We firmly believe that risk is best borne by those who are
closest to the market.We are, therefore, keen to take on
more risk – both in project construction and market
demand – in undertaking network development.As long as
we can be fairly rewarded for this, we believe the scope for
it will increase over the next few years,as the subsidy falls
and as more of the network becomes viable.
The key challenge facing the industry is the scale of
investment funding required. We have a strong balance sheet,
but our previous £17bn programme takes our debt to over
£4bn by 2003/04.To accommodate the passenger growth
rate of 30% over the next ten years that we have projected
in this Statement,the network will require an additional
£5bn–£10bn to provide the appropriate capacity. If long-
term growth projections of 70% or more are to be allowed
for, a further £13bn–£24bn investment would be needed.
However, rewards must be proportionate to the risks
involved; we have to be able to attract sufficient capital.We
have concerns about the Rail Regulator’s approach to our
cost of capital and the additional regulatory risk implicit in
the five-yearly review cycle.This is in the context of major
schemes which have a 4–5 year gestation,and the sheer
scale of the investment required. We shall therefore be
putting forward alternative proposals to address these issues.
For commercial upgrades, we shall want to explore
alternative approaches to selling additional train paths and
discuss methods of ring fencing returns with the Regulator.
Where it is not possible to undertake an investment
and network enhancement commercially, we propose a
partnership approach.The Government’s proposals for new
infrastructure funding sources available to the Shadow
Strategic Rail Authority are welcomed,along with the
development of freight facilities grants.Beyond that, we
suggest that additional funding for a partnership approach to
network development can come from only two sources.
• Retaining the benefit of reductions in access charges
arising from the review within the industry – in effect,
recycling the benefits of efficiency savings into
enhancement.
• New sources of local funding through the powers given
to local authorities to introduce road-user charging.
Over time, this is estimated to produce a major new
source of revenue available for reinvesting into public
transport improvements.
1.6
We also believe that more of the present Government
support should be linked explicitly to the delivery of agreed
social outputs such as reduced traffic congestion and
environmental benefit.
Our plans in this Statement are, therefore, based upon
the successful resolution of the above issues,such that we
are then able to finance our ambitious programme to
expand the network,and to deliver both the industry’s and
society’s expectations of the rail network.
1.6 Institutional context
The Strategic Rail Authority
We have welcomed the Gove rn m e n t ’s proposals to establish
a Strategic Rail A u t h o rity (and the setting up of a Shadow
S t rategic Rail A u t h o rity pending legislation,) to concentrate on
s t rategic planning issues – which include establishing the ri g h t
i n c e n t i ve structure and funding arrangements for the industry.
This should complement the planning that is already undert a ke n
through the Account Plan and Route Strategy arra n g e m e n t s
that we have in place.We also welcome the key role that the
S t rategic Rail A u t h o rity will play in franchise extension
n e g o t i a t i o n s .The Government’s decision to take a flexible
approach to franchise extension renegotiation should help to
unlock further investment and growth in the rail system.
We note that many of the key decisions affecting the
future of the railways – in particular, over the criteria for
franchise extension (or renewal) and the level of Railtrack's
access charges in the period from April 2001 – will have to
be taken using existing agencies and their powers before the
Shadow Strategic Rail Authority has statutory authority.
We welcome the objective of devolving more decision-
making and power to regional bodies and local authorities.
The Shadow Strategic Rail Authority will need to be sensitive
in developing its strategic role while more decisions are
being taken in the regions.
Where it is not
possible to undertake
an investment and
network enhancement
commercially, we
propose a partnership
approach
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