NETWORK Rail has told the Office of Rail Regulation that the ‘very aggressive’ efficiency targets it has placed on the company are currently unrealistic.

The hard-hitting comments are contained in a 400-page document responding to the ORR’s proposals to cut Network Rail’s requested funding budget of £31 billion for the next five years from April 2009.

While Network Rail agrees to the ORR’s planned shaving of some £800 million from its original £31 billion expenditure projection made earlier this year, it says it may need to seek alternative sources of funding for a further £1 billion needed for long-term expansion projects.

But the company is very concerned about how another £1 billion can be shaved off its budget over the five-year period at the speed demanded by the ORR.

The ORR had assumed the company could achieve annual savings of 3.5 per cent and 5 per cent in operating and maintenance costs respectively over the period, but the company has said it cannot make significant savings in insurance, pensions and signaller costs.

So to reduce costs in line with the ORR’s determination would mean cuts in other areas of seven per cent – double the efficiency rates assumed by ORR.

Paul Plummer, Network Rail director of planning and regulation, said: “We have made good progress in discussing some aspects of our plans with the ORR and we believe we have provided strong evidence that further changes are required to enable us to build a bigger and better railway over the next five years.

“There are still issues we need to resolve, but we are hopeful that we can find a satisfactory conclusion which will enable us to deliver the further performance improvements and investment schemes our railway needs to meet continued passenger and freight growth.”

The ORR plans to publish its final conclusions at the end of October and Network Rail has appointed legal and economic advisers to help in considering the decision.

Meanwhile, the ORR has said it does not believe that Network Rail will achieve the 31 per cent unit cost efficiencies built into the current control period’s revenue allowance by the end of 2008–9.

The company underspent on operating and maintenance expenditure by £350 million, but overspent on renewals expenditure, driven particularly by significant overspend on track.

Train punctuality improved across the network, with a reduction of 15 per cent of trains arriving late, and a 10 per cent reduction in delay attributable to Network Rail, despite severe flooding.

Scotland once again had the most reliable infrastructure and continues to improve.
In its fifth annual assessment of Network Rail’s performance, the ORR says that the company is on course to achieve targets set in the access charges review of 2003, with the exception of efficiency.

No passengers were killed in train accidents but, despite good management of level crossing risks, an increase in their misuse was recorded.

ORR chief executive Bill Emery said: “Our assessment highlights that Network Rail still has some way to go on efficiency. It will have to learn from the working practices of its peers if it is to deliver the best value for taxpayers and fare-payers over the next year.

“We note a deterioration in levels of satisfaction among its customers, which shows that the company still has to find ways of improving the service it provides to rail operators.”