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Date 00.00.00 Create your footer by changing copy in the Header and Footer section 1
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%
4
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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177
92118111112
020406080
100120140160180200
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”