Office of the Rail Regulator examines Railtrack's property management

24 June 1999
ORR/99/23

The Office of the Rail Regulator (ORR) today published for consultation an independent report by DTZ Pieda Consulting on how efficiently Railtrack has managed its property holdings. The report focuses on the operation of the Property Allowance Scheme (PAS). Under this profit-sharing mechanism, Railtrack must pass on a proportion of the extra revenue to train operators, if it earns more than anticipated from its property portfolio.

The key conclusions drawn by DTZ on Railtrack's current performance in relation to its property portfolio are that:

• whilst Railtrack has failed generally to meet its own projections of property income to 1998, this is generally a reflection of market conditions and internal management, not a function of the regulatory regime;

• there has been a step change in internal management and organisation in the past year which has focused strategy and is likely to lead to increased activity in the remaining two years of this review period;

• there was no evidence in the property development case studies examined by DTZP that Railtrack had compromised future rail potential; nevertheless, consultation procedures with train operators, funders, local authorities and passengers representatives could be tightened up;

• there is no evidence to suggest that the management and organisational structure or policy has been adversely influenced by the regulatory regime for property receipts.

ORR is now considering whether any changes are needed to the Property Allowance Scheme for the next price control period. Before deciding on the implications of the report for the Periodic Review, ORR wants to hear the views of train operators,funders of the railway, Railtrack and others on DTZP's conclusions, the options proposed, and whether the advantages and disadvantages of each option have been fairly assessed.

The main report is available on the ORR website: http://www.rail-reg.gov.uk/

The appendices to the report are available from the ORR Library,telephone 0171 282 2001

Notes for Editors

1. The Periodic Review of Railtrack's access charges, which takeseffect in 2001 but with decisions made in 2000, will set Railtrack's charges to passengertrain operators for use of its network from 2001 to 2006. An important element of theReview is to determine how Railtrack has treated its property income within the pricecontrol regime.

2. DTZ Pieda Consulting were commissioned by the Rail Regulator toassess the effectiveness of the current regulatory framework, including the PropertyAllowance Scheme, and develop options for regulation of property related returns for thenext review period.

3. The income Railtrack expected to received from its property portfolio during the first six year charging period is taken into account in setting trackaccess charges paid by train operators. This amounted to a £1 billion reduction in track access charges. If Railtrack is able to make more than £1 billion from its property during this period, under the Property Allowance Scheme, it has to share any additional profit with the train operators (Railtrack 75%: TOCs 25%).

PRESS ENQUIRIES: ORR Press Office - 0171 282 2002/2007
Out of office hours - Pager 0941 148521