Network Rail moves to fill £2.5bn 'black hole' in finances

 

Network Rail has announced plans for a £1.8bn fire sale of assets and £700m of potential extra borrowing to help get its £38bn operation and improvement programme back on track.

Ministers agreed to increase the limit on Network Rail’s Government borrowing by a further £700m, despite the fact Network Rail saw its debt rise from £33bn to £37.8bn over the last financial year and was reclassified as a public body, bringing its debt onto the public balance sheet.

Railway arch space, disused depots and shop space in bigger stations are thought to be on the list of assets to be sold.

Shadow transport secretary Lilian Greenwood, said the '£2.5bn black hole' in Network Rail's finances was created by 'incompetent planning', adding that ministers had to get 'a grip on these issues much earlier'.

Today a report from Sir Peter Hendy, who was parachuted in to chair Network Rail after the troubled operator ran into trouble with the 2014-19 investment programme, has tried to steady the ship and insisted that no projects would be cancelled.

”Local
Sir Peter Hendy (in more carefree days)

The programme included a £11.5bn for infrastructure upgrade schemes, some of which have run into serious difficulties.

Sir Peter said: ‘For a variety of reasons the cost and timescales on a small number of significant enhancement projects have increased beyond expectation. These have included over optimism on costs and timescales, inadequate planning processes both within and outside Network Rail, and changes in scope during development and delivery.

‘We promised the chancellor of the exchequer and the secretary of state for transport that we would do as much as possible to resolve the additional costs ourselves.’

As a result of the sale of ‘non-core and lower value assets, including the sale of some of Network Rail’s property assets’ and the extra borrowing, all of the planned projects would go ahead but some would be delayed, Sir Peter said,

‘The vast majority of programmes and projects will go ahead for delivery by 2019. The remaining projects will be delivered after 2019 so that Network Rail remains within its funding envelope. No infrastructure schemes have been cancelled.'

Secretary of state, Patrick McLoughlin, said he accepted Sir Peter’s recommendations and those of Dame Colette Bowe who also reported today on lessons learned from the 2014-19 programme failures.

Dame Bowe said Network Rail's problems included:

  • planning processes have been shown to be inadequate in the face of the scale and complexity of the CP5 programme
  • the definition of organisational responsibilities between the Department, Network Rail and the Office of Rail and Road were unclear
  • poor scope definition from the outset and ongoing ‘scope creep’ led to cost increases
  • when it came to delivery, early costing errors, unanticipated interdependencies, lower than expected productivity and the failure to ensure agreed front end scope definition also contributed

Dame Bowe recommended that the Department and Network Rail reset the formal framework of rail enhancement planning, implementation and oversight, and provided a ‘clear and transparent governance process’ with the DfT ‘being significantly more active in prioritising strategic objectives’.

‘Major and especially complex route enhancement schemes should be subject to integrated governance frameworks, such as those already used on Crossrail and Thameslink, which are contractual and reflect the whole-system requirements of such upgrades (including greater involvement of operators),’ she added.

Mr McLoughlin said in response: ‘My department, together with Network Rail and the Office of Rail and Road, are taking urgent steps to develop and implement a number of actions following her recommendations.’

The Department for Transport will begin an eight-week consultation on Sir Peter’s report next month.

 

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