More money, more accountability - new railway financial regime begins today

2 April 2001
ORR/10/01

Today marks the beginning of the new five-year framework for Railtrack's charges for the operation, maintenance and renewal of the rail network. For the first time there is an incentive-based regime which sets out what Railtrack is required to deliver for the money it receives from train operators and taxpayers, the arrangements for monitoring and incentivising delivery, and the mechanism for funding additional investment. The Regulator's conclusions on the periodic review, which were published in October 2000 and accepted by Railtrack in January 2001, provide for a substantial increase in funding.

Agreement was announced today between the Government, the SRA and Railtrack in relation to the accelerated payment of Government grants from after 2006 into the second control period (April 2001 - March 2006). This is not new money for Railtrack and the Regulator has emphasised that the immediate consequences of the Hatfield accident are for Railtrack's shareholders to bear. This week he will be writing to Railtrack and the SRA indicating how he intends to reduce the 2006 regulatory asset base to ensure that Railtrack is no better and no worse off overall as a result of this change in the timing of its grants. The letter will be published.

The Rail Regulator is responsible for monitoring and enforcing Railtrack's stewardship of the network and its relations with its customers. In the last 18 months, he has radically reformed the accountability of Railtrack to the public interest, to put right the weaknesses of the initial regime. His reform programme is nearing completion, and includes a financial framework which is more soundly based, a stronger network licence and strengthened and simplified contracts with Railtrack's customers, the passenger and freight train operators.

The new network licence conditions are in relation to:

1. asset register - requirement for Railtrack to set up and maintain a reliable and comprehensive register of the condition, capacity and capability of its assets - licence condition comes into force April 2001;
2. network quality assessment - independent reporters assessing and investigating extent and nature of Railtrack's work, including the sufficiency of its maintenance and renewal of the network - new licence condition comes into force in April 2001 and process of appointing reporters is already under way;
3. dealings with dependent persons - binding obligation to deal with third parties fairly, in a timely, efficient and competent manner - new licence condition near to acceptance or Regulator will use compulsory licence amendment procedure;
4. annual return on performance and condition of network - report on the performance and condition of Railtrack's network over the previous year, to be verified by reporters - new licence condition comes into force in April 2001;
5. land disposal - to prevent Railtrack disposing of assets if to do so would be contrary to the public interest (e.g. land beside the railway needed for freight terminals, station car park extensions, etc.) - new licence condition near to acceptance and expected to come into force May 2001;
6. ring-fencing Railtrack's core business - to preserve, protect and defend its core assets for railway purposes, and ensure that they cannot be pledged for the purpose of non-core activities - accepted in principle subject to detailed discussions with Railtrack;
7. regulatory accounts - information on how the company is performing against the financial, economic and operational assumptions on which access charges have been based - new licence condition comes into force in April 2001.
8. Other measures for the strengthening of Railtrack's accountability include:
9. 1. more specification in Railtrack's contracts with train operators in relation to what Railtrack must deliver in return for access charges, with better remedies if things go wrong;
   2. new powers in relation to abuse of monopoly power, under the Competition Act 1998;
   3. new powers under the Transport Act 2000 in relation to the right of the Regulator to order Railtrack to carry out upgrades on terms which the Regulator, not Railtrack, determines, and a strengthened enforcement regime.

The Rail Regulator, Tom Winsor, today said:

"The cornerstone of the periodic review was more money for more accountability.

"My reforms of Railtrack's network licence and its contracts with train operators involve much greater scrutiny of Railtrack's plans and activities, and impose on Railtrack stronger responsibilities, to ensure the company's commercial activities are carried out in a way which promotes the public interest.

"The accountability of Railtrack to the public interest has been enhanced to a very considerable extent. The next phase is to use the new powers to ensure Railtrack performs, and spends wisely and well, on the right things at the right times."

Press Enquiries

ORR Press Office: 020 7282 2002/2007

Out of hours: pager 07659 127303