Network Rail should be transformed over the next three years into around ten independent infrastructure companies, which in turn would work much more closely with train companies, according to a paper published today.
The paper, published by the Association of Train Operating Companies (ATOC), says that Network Rail’s recent announcement on devolution was welcome but does not yet go far enough to help achieve the £1bn annual savings identified by the interim McNulty report into value for money.
ATOC details three key elements of reform that would bring significant cost savings and allow the industry to continue improving services for passengers. These are:
- The creation of around ten independent infrastructure companies, or ‘infracos’, separately licensed and regulated by the Office of Rail Regulation. These new businesses would be significant FTSE 250 sized businesses and attractive to potential investors. The paper says that they should be rolled out by 2014.
- The retention of a lean central body for essential network-wide functions, governed by the industry as a whole, rather than just Network Rail, and acting more as a service provider to its infraco and train operator clients in the industry.
- The introduction of new franchising and regulatory arrangements that incentivise train companies to work with the new regional infrastructure businesses to form alliances or enter into commercial agreements.
Michael Roberts, Chief Executive of ATOC said:
“Network Rail’s recently-announced setting up of regional business units is a positive first move, but must go further if we are to generate significant savings whilst continuing to improve services for passengers.
“We believe the next stage should involve creating fully independent infrastructure businesses, working more closely with train companies through stronger shared commercial interests, and supported by a lean central body which draws on the best people from across the industry, including Network Rail, to carry out important network-wide functions.
“In our view, this approach would lead to better and quicker decisions on projects which matter most to passengers, greater accountability to regional funders and stakeholders, and a stronger drive to improve cost-efficiency through genuine contestability between infracos in providing infrastructure.”
ATOC also sets out two further options for reform which should also remain firmly on the agenda:
- Vertical integration, bringing passenger train operation and track provision within a single holding company and so driving more fundamental changes in asset management. This could be appropriate for operations in Greater Anglia, South West Trains, Kent, MerseyRail and Scotland
- Allowing some train services to be operated as long term concessions, rather than as franchises. This approach might be best applied to premium-paying intercity train operations (such as the West and East Coast Main Line franchises) and strengthens further the commercial nature of these operations.
Michael Roberts added:
“The process of structural reform has begun but needs to be sustained to improve significantly the value for money offered by the railways to passengers and taxpayers.
“We want to see all our proposed independent infrastructure businesses in place by 2014 and we believe that vertical integration could be piloted as part of the Greater Anglia franchise competition in 2013. The forthcoming competitions for the prestigious East Coast and West Coast franchises provide further opportunities to embrace elements of a new structure for success on Britain’s railway.”
