Rail Regulator tackles Railtrack's incentive framework
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| 14 April 2000 Rail Regulator tackles Railtracks incentiveframeworkIn a week when it was revealed that Railtrack earned hugebonuses despite rail passengers suffering ever more delays, the Rail Regulatorhas taken another step towards sweeping away the existing financial frameworkreplacing it with stronger and clearer incentives for delivery. Tom Winsor said today "Since I was appointed in July 1999 Ihave made it plain publicly that incentive regulation is and always has beenpreferable to enforcement action and that the incentive regime established in1995 was fundamentally flawed. I want Railtrack to become more imaginative, morecreative and more responsive to its customers needs, giving the railwayindustry its own vision for growth and implementing worthwhile plans for sorelyneeded investment and improvement. That is what the public and the industry wantand expect of the company." He said the present structure had been rightly criticised but henow had the opportunity to put right the shortcomings of the past and that iswhat he intended to do. He said: "Good performance will be rewarded and badperformance will be penalised." In particular, he proposes to strengthenand simplify the contractual incentive for Railtrack to reduce delays. "However, no regulator should discard enforcement action ifcommercial incentives fail for any reason. But I will inject greater clarity andtransparency about the circumstances in which enforcement action may be takenand the basis on which penalties will be established," he said. Mr Winsor said that information about Railtrack, its financialperformance and the nature and condition of its assets was the oxygen ofregulation. Having already announced his intention to modify the companysnetwork licence he said his plans included draft licence modifications relatingto the provision of information and the appointment of independent reporters toverify the information. The plans also include an explanation of how enhancements to thenetwork will fit into a new financial framework. "The new enhancementregime will be important in facilitating the franchise replacement programme, inwhich train operators are to be encouraged and may be required to investconsiderable sums themselves in exchange for much longer contracts," hesaid. On the question of third party enhancements, Mr Winsor stressedthat it was essential that neither the safety nor operational integrity of therailway was prejudiced, and no such risks would be contemplated. "However,the railway industry should not be afraid of new ideas which could bring realand sound improvements earlier than the traditional methods", Mr Winsoradded. The Regulator also announced his intention to publish draftfinal conclusions on the review in July 2000 allowing interested parties time tomake representations on the conclusions before he publishes his final reviewnotice in September 2000. This will allow more time for the Regulator to assessnew information in relation to the West Coast modernisation and the cost ofenhancements included in the Shadow Strategic Rail Authoritys IncrementalOutput Statement. "The periodic review of Railtracks access charges: Provisional conclusions on the incentive framework" is available as an Adobe PDF file on the website or in hard copy from Sue MacSwan, ORR Library, 1 Waterhouse Square, 138-142 Holborn, London EC1N 2TQ. (Tel: 020 7282 2001; fax: 020 7282 2045; e-mail : rail.library@orr.gsi.gov.uk). Also published is a report to the Office of the Rail Regulator "An economic analysis of the freight market" prepared by NERA also as a PDF file. Notes to Editors
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