A few weeks ago Nicola Shaw released the scope of her report ‘The future shape and financing of Network Rail’. The document sets out at a high level some early thoughts, consideration and key areas that the review team will look at.
The phrase ‘Never waste a good crisis’ is one I’ve heard a lot of over the last few months as people look back at Andrew Wolstenholme’s 2009 report and wonder if the construction industry really grasped the opportunity he felt we had.
That phrase seems apt now for the rail industry, with so many people looking at it, and so much support for change this is the opportunity for change the industry must not waste.
The report will look at Network Rail through 3 distinct perspectives:
- The customer perspective
- The devolution perspective
- The growth perspective
Concentrating on the structure and financing of Network rail the scoping report without being too critical points to a number of cases of misalignment, fragmentation and a burecratic hierarchy that has hampered Network rails ability to maximise its performance.
A combination of trying to do too much, too fast without clear accountability brought us to where we are today, the opportunity for change.
In the proceeding few weeks as well as the spending review we’ve recently had the issue of the Hendy report and Bowe report. The Bowe report far more critical of Network Rail and the ORR however have much the same undertones as Shaws scoping document.
This blog concentrates predominantly on the Shaw report but much of the direction of travel required to answer the issues raised by all three will be similar. I haven’t fully digested the Bowe report so this blog may get updated or shortly have a part two!
The Hendy report in its approach to generating new finance to fund projects through new borrowing and asset sales are also much in line with the Shaw scoping document.
The Shaw scoping document talks about how the structure will define the financing model with a number of suggestions made as to what these models could look like. Examples of options include:
- Full or partial privatisation, or selling an equity estate
- Debt capital markets issuance
- Monetisation of non-core assets
- Contractual arrangements similar to HS1
- Part funding from local government
- The creation of a joint venture similar to the Thames tideway tunnel.
- Levis where business contribute to the cost
What is clear however, is that there isn’t a simple answer, and there isn’t a single answer. A position that the report clearly agrees with. “With different company structures likely to require different financing and funding solutions at various levels of Network Rail’s capital structure and/or for specific projects, to ensure sustainability and affordability” the report said
The scope of work undertaken by Network Rail is so vast so different and geographically so diverse that a mixture of these financing options is the only viable option for Network Rail. But it’s not only the financial model that needs consideration.
Hendy’s borrowing and asset sales goes some way to plugging a gap but it is only a small gap. The spending review although positive for capital investment in infrastructure the DfT took a big hit generally and will raise concerns over the Department’s capacity to drive forward its substantial pipeline of projects and cover its operational costs.
This only adds fuel to the requirement to rethink how finance is raised long term.
There is a need for a paradigm shift in the culture of the organisation and it’s encouraging to see within the report the mention of social inclusion and a need to consider the social aspect of railways. As the report says the network is an ‘Important force in national social integration’.
Mark Carne highlighted the importance of changing the underlying culture of Network Rail to make it higher performing and strengthen the relationships with customers and suppliers.
A simple change of organisational and management structure won’t be enough. The opportunity and requirement is for much deeper changes, to change the DNA of Network Rail.
The Shaw report once it is complete in the summer will set out recommendations for the long term future and financing of Network rail with a focus on 2019-2029. The reasoning behind this is twofold. To give enough time for the recommendations to be implemented but also with an eye at CP6 due to begin in 2019.
The Shaw report will consider, what Network Rail does, the way it organises itself and to whom it is accountable. It will look at adopting technology and innovation, the feasibility of operator involvement and if Network Rail is an attractive place to work.
It will set out how devolution will play a part in it and how devolution can support a new structure for the network. Although devolution wasn’t successful during the days of railtrack, the political move towards devolution and the lessons that can be learnt from previous efforts point towards an opportunity to make it work on this occasions.
One of the biggest challenges facing the Shaw report in the short term and the implementation then of its recommendations will be the identification and management of the interdependencies that network rail face not just at home but across Europe. How will the Fourth Railway package impact on our ability to improve our network? Will the move towards a standardised network across Europe help or hinder Network Rails efforts?
I also feel that one aspect that although mentioned should be brought to the fore more is the role of the supply chain. As the report states ‘Network Rail outsources many of the activities relating to OMRE (Operation, maintenance, renewals, enhancements)’ and this should be a key consideration in the future of Network Rail.
Assuming this continues the structure and financing models need to ensure that the supply chain is engaged properly, and that the value they bring is optimised. That the goals and expectations of the TOCs, FOCs, DfT, the taxpayer and Network Rail are all well understood and align with the supply chain as well.
The shift in culture and behaviour must be across every layer and all organisations not only within the client side or a losing battle will be faced where implementing the changes will be difficult and old habits will be brought back to the fore.
But let’s not forget the good that is going on in the industry. Thameslink and Crossrail demonstrate how looking at large enhancements outside the periodic review can be a success. The Paisley Canal Line electrification demonstrated how devolution can work through excellent planning and partnering with the supply chain.
We have a network to be proud of, one that can be if well managed, operated and upgraded the heartbeat of growth across the United Kingdom.
This is our opportunity to shape its future and if you have any thoughts on the direction of travel the Shaw report should follow then I urge you to get involved with the consultation period that runs through to Christmas.