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Network Rail’s Strategic AgendaCalvin Lloyd

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Key strategic issues

Industry structure

Plans for the railway

The nature of our

company

Value for money

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Network Rail’s business environment

COMPLETEWORK ON-TIME

£26.7bn

LICENCEBREACH

PPM92.6%

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Government view of rail?

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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

Using CP5 totals (2011/12 prices). The Network Rail costs are based on an illustrative CP5 forecast

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Network Rail A B C D

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International benchmarks

Comparator railways (F, NL, SE, CH) £ / passenger km

• 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).

• The remaining £600m could be delivered by a 5% improvement in train productivity.

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

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Recommendations – key themes (1)

• 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 2008-

2034

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”