Transcript The McNulty Report Responding to the value for money challenge

Network Rail’s
Strategic Agenda
Calvin Lloyd
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Key strategic issues
Industry
structure
The nature
of our
company
Plans for
the railway
Value for
money
2
Network Rail’s business environment
£26.7bn
PPM
92.6%
LICENCE
BREACH
COMPLETE
WORK ON-TIME
3
Government view of rail?
4
The nature of our
company
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Key features of a CLG
Government
Department
CLG
PLC
Governance
Minister
Members
Shareholders
Purpose
Deliver
government policy
“Do right thing”
Grow shareholder
value
Stability of
decisions
Subject to policy
change
Take long term
view
Short term market
drivers
Profit
(Cost centre)
Profits re-invested
Profits distributed
Remuneration
Basic
MIP
Share options
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Value for money
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Key costs & revenue drivers…
Costs
Income
Infrastructure
Maintenance
6%
TOC Other
24%
Other single till income
3%
Netw ork Rail opex
11%
Support Requirement
33%
Return on RAB
18%
TOC Staff
16%
Passenger Revenue
64%
Rolling stock
Netw ork Rail other
10%
2%
Amortisation
13%
Using CP5 totals (2011/12 prices). The Network Rail costs are based on an illustrative CP5
forecast
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International benchmarks
£ / passenger km
200
180
160
140
120
100
80
60
40
20
0
Comparator railways (F, NL, SE, CH)
177
Network Rail
112
111
A
B
118
92
C
D
• Infrastructure & rolling stock contribute most to higher costs.
• Train operating costs are below comparisons.
• 40% reduction needed to reach benchmark average.
• Additional 10% from efficiency models is due to relatively lower levels
train utilisation.
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Key findings of VFM study
• 30% reduction from 2008-09 industry costs should be possible by
2018/19, with further savings beyond that.
• The industry needs to plan how to meet this challenge and take
responsibility for change.
• There are 10 broad areas identified as causing inefficiencies.
• Recommendations cover 8 areas and effect a wide range of the
industry, from government policy and regulation through to
operators and Network Rail’s activities and relationships.
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Savings to be achieved
• Estimate for savings in year 2018/19 (09/10 prices) over
and above CP4 and initial CP5 targets (£m).
Study area
30% (High case)
Industry objectives, strategy and outputs
110
Leadership, structures, interfaces and incentives
130
Revenue
90
Asset management and supply chain management
580
Programme management
100
Safety Standards and innovation
190
People
260
Less double counts (410):
TOTAL 1,050
• The remaining £600m could be delivered by a 5% improvement in train productivity.
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Recommendations – key themes (1)
•
•
•
•
•
•
•
•
•
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Industry objectives, strategy and outputs.
Franchising reform is supported by the Study.
Leadership, planning and decision making
Structures, interfaces and incentives
Improve incentives on Network Rail and TOCs
Fares & other revenue
Asset management
Whole system programme management
Supply chain management
Safety, Standards and Innovation
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Progress to date
• The Study recognises the efforts of Network Rail and
train operators to address the “co-operation deficit”.
– Network Rail’s commitment to change, to a focus on
customer needs, and to greater levels of safety,
transparency and accountability is noted.
– Train operators’ greater willingness to work with
Network Rail is also noted.
– Early signs are described as “encouraging”.
• The Study also welcomes the plans announced by
Network Rail to improve engagement with suppliers
and contractors.
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Implementing change
• The Study recommends “a large amount of change”
that should be evolutionary rather than revolutionary.
• Focus is on making existing structures work better.
• Legislating change would use valuable time and effort,
and be disruptive and potentially costly.
• Major changes and the identified efficiencies can still
be delivered by adapting existing structures.
• Many of the changes within Network Rail have already
begun.
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Plans for the
railway
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PR13 Key milestones
• Sep 2011:
Initial Industry Plan
• February 2012:
ORR advice to ministers
• July 2012:
HLOSs and SOFAs
• January 2013:
Strategic Business Plan
• June 2013:
Draft Determinations
• Sep 2013:
Response to Draft Determinations
• October 2013:
Final Determinations
• February 2014:
Accept / reject decision
• March 2014:
CP5 Delivery Plan
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The Initial Industry Plan
• Planning Oversight Group asked by ORR to publish an Initial Industry
Plan (IIP) in September 2011.
• In terms of expenditure, the primary focus of the IIP is the level of
overall Government subsidy to rail in CP5
• We have been asked to prepare at least two scenarios:
– The cost of the current railway
– A preferred plan that meets customer and stakeholder needs
• This will inform the development of the High Level Output
Specifications (HLOSs) and Statement of Funds Available (SoFAs) to
be published by DfT and Transport Scotland in July 2012
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“Background” growth – summary
Market
Approx. % of
National
Passenger km
Passenger km
Growth to 20082034
Average Rate Per
Year
London Commuter
21%
+40%
1.3%
Long Distance
35%
+67%
2.0%
Regional Urban
Commuter
7%
+102%
2.8%
London Other
26%
+90%
2.5%
Regional Urban
Other
9%
+116%
3.0%
Rural
3%
+90%
2.5%
Total
100%
75%
2.2%
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Key questions
• Is the scale of ambition right?
• What additional outputs do we want to deliver?
• What assumptions do we make about industry efficiencies in
CP5?
• How will devolution impact on our costs?
• What policy choices should we examine?
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A compelling future for Network Rail
“A leading independent British-based
infrastructure group that is
internationally recognised for providing
rail transportation solutions that deliver
outstanding value to customers”
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