Supplementary memorandum by Railtrack
The periodic review provides revenue for the
maintenance and renewal of the network. It does not in itself
provide for additional capacity and we are still examining the
extent to which it will allow Railtrack to finance enhancements
and additional capacity. Equally, the details of which capacity
improvements will be pursued will also be informed by the SRA's
strategic plan which is not now due until January 2001.
Railtrack believes that the regime should provide
a realistic startpoint from which future performance improvements
should then be achieved. It is not sensible for the new regime
to be based on a benchmark which assumes a 7.8 per cent performance
improvement this year which is simply not going to be achieved.
Railtrack would like to discuss these issues
with the Regulator and has suggested undertaking joint work to
examine train performance and the causes of delay in order to
set sustainable future rates of improvement. We have also suggested
that the implementation of the new performance regime be deferred
for one year i.e. until this analysis has been carried out and
the issue has been properly considered by the SRA working group
set up after the Hatfield accident.
£8 BILLION OF
Yes, we are concerned that the periodic review
settlement does not provide the financial framework to raise the
necessary capital for £8 billion enhancement investment.
Our analysis suggests that the key financial ratios will not be
sufficient to allow us to raise that level of funds on the markets.
We are particularly concerned about the most recent deferral of
£500 million of income, agreed by ORR as necessary to spend
on the network, to the end of the control period which significantly
weakens our financing capability. We believe that without some
modifications to the Regulator's final conclusions we would have
to defer a significant proportion of the enhancement programme.
BY £120 MILLION
No. Railtrack has repeatedly demonstrated to
the Regulator that we have carried out significantly more renewals
than were allowed for when access charges were initially set.
We do not understand the basis for this penalty which appears
arbitrary and unjustified and believe that the Regulator has not
established that Railtrack has under delivered.
These issues are being considered as part of
the SRA's post Hatfield working groups. It is too soon to comment
on the outcome of this work. However, we are concerned at the
scale of the agenda we face and need to resolve this at industry
level. We believe that there is a need to ensure that all our
regulators act in a more cohesive way ensuring that the demands
they make on Railtrack do not conflict.
The Board will consider whether to appeal to
the Competition Commission in due course.
No Railtrack income currently comes directly
from Government although Government does subsidise train operators
by about £1 billion a year.
In the next control period, 34 per cent of Railtrack's
income will come from SRA grants, the remainder will come from
track access charges and other single till income.
In the current financial year, a new company-wide
reporting system was implemented as part of a process to provide
increased consistency and enable performance to be benchmarked
throughout the company.
This process is called "Winning is Green"
(WIG) and uses red / amber / green light symbols to indicate the
current status of four key aspects of the business: Service, Safety,
People and Pounds (SSPP). All zones are measured consistently
using a WIG report called a "Business Summary Scorecard"
An example of the summary report is included below as Figure 1
Figure 1 BUSINESS
The overall indicators for Service, Safety,
People and Pounds (SSPP) are derived from the company's actual
performance measured against targets set for 15 Key Performance
Indicators (KPIs). For example, Service is measured against the
annual targets for the following KPIs:
Delay minutes for Passenger and Freight,
Repeat signal failures.
All zones report on a common set of measures
aggregated from the company's existing functional reports. They
are derived from these common measures, which form the Business
Summary Scorecard. These are included in Table 1 below:
Table 1 ZONAL
SUMMARY SCORE CARD
Data from all seven zones on these 15 KPIs,
together with a performance commentary, are brought together in
an Operations Committee report. This describes the company's overall
performance and provides the opportunity for zonal benchmarking
and sharing of best practice.
The company's performance related pay scheme
for all employees is based on the data from Business Summary Scorecard.
This is calculated taking both local zonal and collective company
performance into account. This rewards zones for their individual
performance and encourages them to outperform their targets.
All Zonal objectives are also grouped under
the WIG framework of SSPP and aligned to the Summary scorecard.
This further enables consistency as well as comparisons between
Zones whilst ensuring alignment between corporate and individual
objectives. The WIG framework therefore measures, reports and
rewards all zones in the same way.
Not at all. Even allowing for Government support,
Railtack's shareholders will bear a very significant penalty on
the West Coast Route Modernisation project.
All of the current major investment programmes
receive a significant element of financial support from the Government.
With the exception of the Channel Tunnel Rail Link this support
is provided within the structure of the Regulatory determination.
The final Regulatory determination for control
Period 2 contains a detailed framework for agreeing the cost of
enhancement projects and for remunerating Railtrack for the investment.
This framework incorporates Railtrack's revised process for achieving
a high level of engineering design and project planning before
committing to a construction cost. The framework also incorporates
the Regulator's proposals for setting an efficient target cost
which Railtrack is incentivised to out-perform.
Railtrack sees the delivery of investment programmes
as part of the total process of managing the business within the
Regulatory determination. There is a clear incentive for Railtrack
to out-perform the Regulator's targets by completing our major
programmes within the agreed budgets. Underperformance on such
a huge programme would have significant detrimental impacts on
Over the last three years Railtrack has taken
steps to improve its capability to manage the delivery of major
investment programmes. In 1998 Railtrack appointed a main board
director with specific responsibilities for major projects and
investment. Since then a number of senior project management specialists
have been recruited to Railtrack and appointed from other parts
of the business. Three of the world's leading firms of programme
managersBechtel, Fluor Daniel and Parsons Brinckerhoffhave
been awarded contracts to support Railtrack and integrated management
teams have been established for all of the major programmes.
The results of this investment in people are
already visible. The £185 million re-development of Leeds
station is 58 per cent complete, on time and within budget. Section
I of the Channel Tunnel Rail Link is 52 per cent complete and
is also on time and within budget. Following the complete review
and re-structuring of the West Coast Route Modernisation programme,
more than £900 million has been spent on Phase I and we are
on schedule to deliver improved train services to Manchester in
Railtrack is not only incentivised to deliver
major investment programmes within budget but now also has the
capability to do so.
Part ACurrent Freight Related Activity.
The Government's transport 10-year Plan sets
the target for an 80 per cent growth in freight during the next
10 years. Railtrack assisted the sSRA on their submission for
the 10 year transport plan.
We are currently working with the sSRA on their
strategy. This will be published in January. Railtrack will also
publish details of possible network enhancements for rail freight
in the Network Management Statement.
Current activity, for which details are already
Developing with the sSRA projects
designed to increase the size of loads trains can carry on the
Network, with a focus on increasing the size of container that
can be carried by from ports.
Providing additional capacity from
major ports (Southampton, Felixstowe and North Thameside) to major
inland destinations (West Midlands, the North West and Scotland)
Developing proposals to upgrade capacity
and capability for freight on routes across London
Separately Railtrack is investing
in and promoting a national network of inter-modal freight terminals.
Sites include London International Freight Exchange (LIFE), near
Heathrow and the former Parkside Colliery near Warrington. There
are further plans to develop at key rail / motorway intersections.
In addition we are working with the
sSRA to ensure that network enhancements connected with passenger
re-franchising preserve, and where necessary expand the capacity
needed to accommodate the envisaged growth in freight services.
Freight will benefit equally with
passenger services from the increasing expenditure on maintenance
and renewal activity which improves the quality and reliability
of the network. (Most freight services travel on a shared network)
Part BMechanisms that Ensure Railtrack
fulfils its obligations to freight users
Railtrack has an ongoing obligation to
balance the needs of passenger and freight users. The company
fulfils this obligation through compliance with the following
1. The granting of access rights
In negotiating with operators for access rights,
Railtrack has a regulatory duty to ensure that capacity requested
by them is available and therefore that train paths are not "oversold".
In making decisions about what access rights can be granted, Railtrack
shows no favour to either passenger or freight operatorsrights
are granted on a first come, first serve basis. If the Regulator
considers that rights in an access agreement have been oversold
or that other operators have been treated unfairly, then he can
refuse to approve the agreement when it is submitted to him.
2. The acceptance of "spot bids"
In accepting spot bids made by an operator in
accordance with their access rights, Railtrack has a duty under
the Access Conditions to ensure that the train paths requested
do not interfere with the operations of other operators. Railtrack
shows no favour to either passenger or freight operatorsbids
are accepted on a first come, first serve basis. In the event
of any dispute, there are arbitration procedures laid down in
the Access Conditions as a cross-check to ensure that Railtrack
3. Dealing with capacity issues
There will be occasions where the requesting
of access rights occur in an area of congestion or where there
are capacity issues which will need to be addressed. If the operators
along the route, whether they be freight or passenger, cannot
agree amongst themselves, or through the operation of their access
contracts to flex their services to accommodate the new service,
then an infrastructure solution may need to be put in place. The
funding of that enhancement is via either of a number of sources:
the operator in question, who may
be a passenger or freight operator;
Railtrack (if the incentives are
Currently, cases for capacity enhancement have
been negotiated on the basis of an the operators' ability to paythis
process is the same for passenger and freight operators. If operators
are unable to afford enhancements, then an external funding solution
may be sought (eg via a Freight Facilities Grant). However, the
Regulator has proposed that, from 1 April 2001, enhancements will
be dealt with in accordance with a "Framework for Enhancements"
which will be approved by him. This Framework should also ensure
that the needs of freight and passenger operators are balanced.
4. Operating the Railway
On a day-to-day basis, in addition to the timetable
there are regulating statements which are prepared in accordance
with the Access Conditions. Through these statements, signalling
staff are made aware of the priorities to address when allowing
trains onto the Network. Statements are agreed with both freight
and passenger operators who have an opportunity to influence the
priorities they are given. Any disputes regarding the statements
are resolved in accordance with the Access Conditions.
5. Dealing with perturbation
In the normal course of events, the timetable
will determine the operation of the trains on the Network. However,
there are occasions when the timetable fails due to unplanned
incidents. Each Zone has contingency plans which are implemented
on such occasions. Passenger and freight operators affected by
these plans are consulted during the planning process and have
the opportunity to influence their details. Any dispute regarding
either the preparation or implementation of these plans is dealt
with in accordance with the Access Conditions.
6. Role of the sSRA and ORR
Both the sSRA and ORR ensure that the needs
of freight and passenger operators are balanced by Railtrack.
Railtrack has incentives, both financial and regulatory, to ensure
that all operators are treated in an equitable manner
Role of the sSRAsSRA
has a role in the granting of new passenger franchises, they also
have a role in promoting freight and to that end have published
their growth aspiration for freight. In granting new passenger
franchises, the sSRA therefore has an obligation to ensure that
freight is not disadvantaged.
Role of ORRORR has
a number of section 4 duties which relate to the use of the network
by passenger and freight operators. He has no explicit duty to
ensure that Railtrack balances the needs of all operators, however
he does so implicitly through a number of regulatory functions
1. Determination of the frameworks for both
freight and passenger charges;
2. Approval of freight and passenger track
access agreements; and
3. Section 17 powers to require Railtrack
to enter into agreements with operators.
In summary, Railtrack balances the need of passenger
and freight operators through a number of industry and regulatory
processes, comprising industry guidelines (eg. Access Conditions)
and a cross system of both industry and regulatory checks and
balances (eg. regulatory review).
Railtrack Freight Commercial
6 December 2000