Sir John Bourn, head of the National Audit Office, today published a report on Network Rail which sets out a number of challenges which need to be addressed to improve the management of the rail network. Although Network Rail is making progress, its governance is complex and the support of all parties involved in the UK rail industry is needed. The challenges identified are:
(i) Whether the existing framework for incentivising value for money could usefully be complemented by longer term financial objectives.
(ii) How the totality of the rail industry can best work together to push overall rail costs down. These are coming under control, although expenditure is forecast to remain 30 per cent higher than before the 2000 Hatfield derailment by the end of the current regulatory settlement in 2008/09. Network Rail alone cannot bring down costs in the industry.
(iii) Whether Network Rail’s accountability to the SRA is adequate, in particular:
- how the SRA can manage effectively Network Rail’s equity risk, with the Regulator, given the few direct levers it has;
- how effectively the SRA can manage its exposure to credit risk arising out of its support for Network Rail’s long term debt finance; and
- how the SRA can effectively provide the industry with a strategic lead. One of the Regulator’s duties is to facilitate the furtherance by the SRA of its strategies (when this is not in conflict with other duties) and the SRA can contract with Network Rail for new projects. In other circumstances the SRA is wholly reliant on Network Rail’s own commitment to the strategic objectives.