Memorandum submitted by Network Rail
1. Further to the Committee's announcement
of its inquiry into passenger rail franchising, Network Rail would
like to take the opportunity to respond. It is not appropriate
for Network Rail to comment on many of the issues raised about
franchising. However, the Committee has also invited views on
vertical integration and Network Rail is pleased to have the opportunity
to set out our position on this important issue.
2. We now believe that the industry structure
and priorities are largely correct and that this has been borne
out by the significant progress made in the last five years. Punctuality
continues to rise and costs continue to be reduced.
3. Last year 86.4% of trains were on-time,
compared with 83.6% the previous year, and 78.6% when Network
Rail took over the railway infrastructure in October 2002. In
the last six months, our Public Performance Measure (PPM) has
been 90%. Similarly, delay minutes have fallen by 28% to 10.5
million minutes since Network Rail's inception, the risks from
signals passed at danger (SPADS) are at their lowest ever levels,
and the company has already made 20% savings against the ORR's
31% target. These successes have been delivered within the current
industry structure.
4. With regards to the Committee's interest
as to whether franchising is compatible with open access operations,
we believe these are compatible, subject to the availability of
capacity and non-abstraction of revenue. The open access process
should primarily be about using spare capacity without undermining
franchise operations.
5. As an independent network operator, Network
Rail was given responsibility for timetabling, and industry planning
as a result of the rail review. This has enabled overall performance
and reporting to be placed in the hands of a single body. It also
allows us to work with both franchised and open access operators
and to help deliver the government's increased targets for passenger
and freight traffic.
6. The Committee invited views on vertical
integration of track operator and train running. Network Rail
is wholly opposed to this notion. We believe it would undermine
current industry efforts to improve performance across the whole
of the UK and reduce costs. Moreover, it would fragment the railway
just as industry partners are successfully making it work more
successfully together. Under the present structure, we operate
a closely integrated railway in the key area of daily performance
through our Integrated Control Centres. This in itself achieves
one of the key benefits of vertical integration.
7. Vertical integration would reverse the
considerable benefits a single national network is best able to
deliver in terms of developing technical best-practice and asset
knowledge, driving down unit cost, and balance the competing interests
of different operators including franchisees (and bidders), freight,
and open access operators.
8. In terms of technology, our ability to
pool the industry's research and development activity would be
severely curtailed and the opportunity to invest in the sort of
pioneering technology that has made Network Rail a recognised
world leader in remote sensing and rail detection would be lost.
9. In cost terms, the benefits Network Rail
is able to deliver in terms of reduced costs are marked. Network
Rail obtains significant discounts through nationally negotiated
contracts with principal suppliers. The framework arrangements
put into place by Network Rail have and will continue to generate
significant efficiencies for the company, with £74 million
saved in operating expenditure in the last year alone. Vertical
integration would eradicate these economies of scale.
10. In a multi-operator environment, vertical
integration would be hugely complex in practice. The industry
needs a single, central independent controller of the rail infrastructure
in order to operate a viable multi-operator network.
11. Vertical integration would also prove
hugely damaging to our freight customers. In the past 10 years,
the rail freight market has grown by almost 50% and now moves
around one third of metal products in Britain and 80% of the stone
used for construction in London. With vertical integration, train
operators would have no incentive to allow freight operators access
to the network and thereby threaten an industry which currently
represents 11.5% of all surface transport.
12. Whilst the physical benefits of a single
infrastructure company are, we believe clear, Network Rail supports
the principle of greater local input in specifying network outputs
and increased transparency of activities and plans on a disaggregated
basis. However, this does not require vertical integration. It
is also possible to achieve the benefits of integration though
more effective collaboration between Network Rail amd train operators
focused jointly on passengers and freight users.
13. In Scotland, some disaggregation has
followed as a direct consequence of the devolution of parliamentary
power to the Scottish Executive as set out in the "Future
of Rail" White Paper in 2005. The ORR conducted a consultation
process to determine the best method of achieving disaggregation
and noted that although there would likely be an increase in costs,
disaggregation was consistent with the higher parliamentary power.
However, significant protections were made to preserve network
benefits such as a single Network Rail company, retaining one
overall debt issuance function and a single Regulated Asset Base.
14. There remain a number of opportunities
for the closer integration of rolling stock and track. The management
of the wheel-rail interface was separated at the time of privatisation;
and this relationship now exists in a way which applies separate
financial considerations to the network operator and the train
operator. The nature, use, upkeep and maintenance of rolling stock
all have a bearing on their impact on the network, and Network
Rail will continue to investigate opportunities to input into
the maintenance of rail vehicles in order to improve the overall
efficiency, performance and affordability of the railway as a
whole.
15. Network Rail's core business is the
operation, maintenance, renewal and enhancement of the network.
Our decisions are aimed at the long-term best interests of a railway
asset base with a history of more than 150 years rather than the
immediacy of returns on a seven year franchise. Network Rail is
therefore best placed to provide asset stewardship for our national
rail infrastructure.
16. We trust that this response provides
an informative contribution to the Committee's inquiry and would
be happy to provide further evidence, either in oral or written
form.
4 July 2006
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